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, 2003 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 pursuant 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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [x]
As of March 25, 2004, 2,212,291 shares of Common Stock were outstanding.
As of June 30, 2003 (the last business day of the registrant's most recently
completed second fiscal quarter) the aggregate market value of the Common
Stock held by non-affiliates of the registrant was approximately $53,400,000.
-------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to stockholders for the
fiscal year ended December 31, 2003 are incorporated into Part II; Item
5, Item 6, Item 7, Item 7a and Item 8.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
stockholders to be held on April 20, 2004 are incorporated into Part
III; Item 11, Item 12 and Item 13.
PART 1
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 7, 2000, CNB Bancorp, Inc. received approval from the Federal
Reserve Bank of New York to change from a bank holding company to a financial
holding company. See Supervision and Regulation section below.
On July 1, 2000, the Company acquired Hathaway Agency, Inc. (Hathaway or
the Insurance Agency), a local insurance agency. 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 was allocated to the respective assets acquired and
liabilities assumed based on their estimated fair values. The acquisition of
Hathaway resulted in approximately $300,000 in excess of cost over net assets
acquired ("goodwill"). Covenant not to compete payments are being expensed as
paid over the five year period of the covenant.
On June 1, 1999, the Company acquired Adirondack Financial Services
Bancorp, Inc. (Adirondack) and its wholly owned subsidiary, Gloversville
Federal Savings and Loan Association. The acquisition was accounted for using
purchase accounting in accordance with APB Opinion No. 16. The acquisition of
Adirondack resulted in approximately $4.8 million in excess of cost over net
assets acquired ("goodwill"). 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.
Competition for insurance services is experienced from other locally
based agencies and national insurance companies with representatives in our
service area.
The Insurance Agency has a good mix of commercial and individual
accounts and has had a relatively stable base of customers for many years in
the Fulton County area.
Employees
The Bank employs approximately 94 persons on a full time basis. There
are also 3 part time employees. The Insurance Agency employs approximately 7
persons on a full time basis. There are also 3 part time employees. The Bank
and the Insurance Agency provide a variety of employment benefits for their
employees and considers their relationship with their 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 Office of the Comptroller
of the Currency(OCC), the Federal Reserve Board and the FDIC.
The primary supervisory authority of the Bank is the OCC which regularly
examines the Bank and has authority to prevent a national bank from engaging
in unsafe or unsound practice in conducting its business.
The primary supervisory authority of the Insurance Agency is the New
York State Insurance Department.
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 only after approval by the OCC. The OCC 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 OCC, 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 OCC 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 financial holding company is
subject to certain restrictions imposed by the Federal Reserve Act on any
extensions of credit to the financial holding company or its subsidiaries, on
investments in the stock or other securities of the financial 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 financial holding company or to vote
25% or more of any class of voting securities of the financial holding
company.
-1-
From time to time, various types of federal and state legislation have 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.
Under the Federal Deposit Insurance Act, the OCC 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 OCC 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.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act ("FDIC Act") was signed into law. The FDIC Act makes a number of
far-reaching changes in the regulatory 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 requires 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 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 which 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. On
June 7, 2000, CNB Bancorp, Inc. received approval from the Federal Reserve
Bank of New York to change from a bank holding company to a financial holding
company.
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. From 1997 through 2003, BIF-assessable deposits were
subject to an assessment schedule providing for an 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 from 1997 through 2003. BIF assessment rates are subject to
semi-annual adjustment by the FDIC Board of Directors. The FDIC Board of
Directors has retained the 1997 through 2003 BIF assessment schedule through
June 30, 2004.
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 2003, BIF insured banks paid a rate of 0.01605% for purposes of
funding FICO bond obligations, resulting in an assessment of $49,310 for the
subsidiary Bank. The assessment rate for BIF member institutions has been set
at 0.01540% on an annualized basis for the first half of 2004.
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.
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.
-2-
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. A.B. Securities Portfolio
III. A.B.C. Loan Portfolio
IV. Summary of Loan Loss Experience
V. A.B.C.D. Deposits
VI. Return on Equity and Assets
-3-
I. A.B. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential
2003 2002 2001
--------------------------- --------------------------- ---------------------------
Interest Interest Interest
(in thousands) Average Earned/ Average Earned/ Average Earned/
Balance PaidRate Balance Paid Rate Balance Paid Rate
-------- ------- ---- -------- ------- ---- -------- ------- ----
ASSETS
Interest Earning Assets:
Securities:
U.S Treasury &
Government Agencies $118,767 $4,773 4.02 % $92,650 $4,799 5.18 % $85,714 $5,483 6.40 %
State & Political
Subdivisions 31,737 2,381 7.50 31,190 2,391 7.67 28,603 2,251 7.87
Other 14,076 631 4.48 15,163 753 4.97 15,590 1,021 6.55
-------- ------- -------- ------- -------- -------
Total Securities 164,580 7,785 4.73 139,003 7,943 5.71 129,907 8,755 6.74
Interest Bearing
Balances With
Other Financial
Institutions 14,409 138 0.96 10,468 148 1.41 3,022 74 2.45
Federal Funds Sold 13,577 148 1.09 12,628 210 1.66 7,265 252 3.47
Loans:
Loans,Less
Unearned Income176,494 12,550 7.11 191,646 14,646 7.64 193,121 15,785 8.17
-------- ------- -------- ------- -------- -------
Total Interest-Earning
Assets 369,060 $20,621 5.59 % 353,745 $22,947 6.49 % 333,315 $24,866 7.46 %
======= ======= =======
Cash and Due From Banks 10,051 9,543 7,932
Allowance for Loan Losses (2,849) (2,827) (2,589)
Other Assets21,915 17,708 15,989
-------- -------- --------
Total Assets $398,177 $378,169 $354,647
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing Liabilities:
Deposits:
Savings:
Regular Savings $74,631 $801 1.07 % $67,736 $1,154 1.70 % $51,748 $1,193 2.31 %
NOW 34,578 119 0.34 31,316 164 0.52 29,632 290 0.98
Money Market Accounts 46,268 497 1.07 42,116 784 1.86 32,036 1,002 3.13
Certificates of Deposit
$100,000 or More 31,403 817 2.60 32,484 925 2.85 50,479 2,292 4.54
Other Time Interest-Bearing 91,683 2,669 2.91 89,232 3,375 3.78 86,149 4,619 5.36
-------- ------- -------- ------- -------- -------
Total Int.-Bearing Deposits 278,563 4,903 1.76 262,884 6,402 2.44 250,044 9,396 3.76
Other Short-Term Borrowings
& Repurchase Agreements 12,105 594 4.91 12,459 606 4.86 11,065 588 5.31
Notes Payable - FHLB 38,584 1,219 3.16 36,467 1,292 3.54 30,291 1,424 4.70
-------- ------- -------- ------- -------- -------
Total Interest-Bearing
Liabilities 329,252 $6,716 2.04 % 311,810 $8,300 2.66 % 291,400 $11,408 3.91 %
======= ======= =======
Demand Deposits 29,175 28,565 26,756
Other Liabilities 1,937 1,690 1,959
-------- -------- --------
Total Liabilities 360,364 342,065 320,115
Stockholders' Equity 37,813 36,104 34,532
-------- -------- --------
Total Liabilities and
Stockholders' Equity $398,177 $378,169 $354,647
======== ======== ========
Includes available for sale securities, investment securities, Federal
Home Loan Bank stock and Federal Reserve Bank stock at amortized cost.
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 7.50% for
2003, 8.00% for 2002 and 8.50% for 2001 (less Federal tax effect) 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)
2003 2002 2001
------- ------- -------
Average yield on interest-
earning assets* 5.59 % 6.49 % 7.46 %
Average effective rate paid
on interest-bearing liabilities 2.04 % 2.66 % 3.91 %
Spread between interest-earning
assets and interest-bearing
liabilities* 3.55 % 3.83 % 3.55 %
Net interest income* (in thousands) $13,905 $14,647 $13,458
Net interest margin* 3.77 % 4.14 % 4.04 %
*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):
2003 Compared to 2002 2002 Compared to 2001
Increase (decrease) due to:Increase (decrease) due to:
Volume Rate Total Volume Rate Total
-------- ------- -------- ------ -------- --------
Interest Earned on:
Loans ($1,158) ($938) ($2,096) ($121) ($1,018) ($1,139)
Taxable Securities 1,299 (1,447) (148) 416 (1,368) (952)
Non-Taxable Securities42 (52) (10) 204 (64) 140
Federal Funds Sold 16 (78) (62) 186 (228) (42)
Interest-Bearing Balances
with Banks 56 (66) (10) 182 (108) 74
-------- ------- -------- ------ -------- --------
Total 255 (2,581) (2,326) 867 (2,786) (1,919)
-------- ------- -------- ------ -------- --------
Interest Paid on:
Deposits 382 (1,881) (1,499) 482 (3,476) (2,994)
Short-Term Borrowings & Repos (17) 5 (12) 74 (56) 18
Notes Payable - FHLB 75 (148) (73) 290 (422) (132)
-------- ------- -------- ------ -------- --------
Total 440 (2,024) (1,584) 846 (3,954) (3,108)
-------- ------- -------- ------ -------- --------
Net Interest Differential($185) ($557) ($742) $21 $1,168 $1,189
======== ======= ======== ====== ======== ========
Notes to Rate Volume Analysis
The changes 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 marginal income tax
rates.
-5-
1. C. Interest Rate Sensitivity Analysis
Maturity/Repricing Period at December 31, 2003
--------------------------------------------------------------------
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$17,664 $23,948 $55,090 $76,692 $173,394
Loans, net of unearned discount 40,765 30,586 78,596 21,283 171,230
Cash & Cash Equivalents 19,118 - - - 19,118
--------- ---------- ---------- ---------- ---------
Total rate sensitive assets $77,547 $54,534 $133,686 $97,975 $363,742
========= ========== ========== ========== =========
Rate sensitive liabilities(RSL):
Savings, NOW & MMDA accounts $45,256 $742 $92,711 $22,027 $160,736
Time deposits 38,127 53,421 25,577 - 117,125
Borrowings 29,445 3,066 11,349 4,000 47,860
--------- ---------- ---------- ---------- ---------
Total rate sensitive liabilities $112,828 $57,229 $129,637 $26,027 $325,721
========= ========== ========== ========== =========
Includes securities available for sale and investment securities at
amortized cost and FHLB and FRB stock at cost.
GAP (RSA - RSL) ($35,281) ($2,695) $4,049 $71,948
CUMULATIVE GAP (RSA - RSL) (35,281) (37,976) (33,927) 38,021
RSA divided by RSL 68.7 % 95.3 % 103.1 % 376.4 %
RSA divided by RSL - Cumulative 68.7 77.7 88.7 111.7
GAP divided by equity (92.7) (7.1) 10.6 189.1
GAP divided by equity - Cumulative (92.7) (99.8) (89.2) 100.0
RSA divided by total assets 19.6 13.8 33.8 24.8
RSA divided by total assets - Cumulative 19.6 33.4 67.2 92.0
RSL divided by total assets 28.5 14.5 32.8 6.6
RSL divided by total assets - Cumulative 28.5 43.0 75.8 82.3
GAP divided by total assets (8.9) (0.7) 1.0 18.2
GAP divided by total assets - Cumulative (8.9) (9.6) (8.6) 9.6
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 (9.6)% of
assets at December 31, 2003. 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 the Company'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 sales of securities
available for sale.
The Company has identified a portion of its 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 income based on an
immediate and sustained shift in interest rates of +/- 200 bp. At December
31, 2003 the net annualized interest income exposure, based on a -200bp
rate change was a decrease of approximately $873,000.
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 available for sale portfolio in investments 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.
-6-
II. Securities Portfolio
A. The carrying amounts of the Company's securities as of December 31
are summarized below:
(in thousands)
2003 2002 2001
-------- -------- --------
Securities Available for Sale:
Debt Securities:
U.S. Treasury and other U.S. Government Agencies $129,120 $108,895 $86,855
State and Political Subdivisions 24,989 25,689 23,035
Corporate securities 7,687 8,276 9,184
-------- -------- --------
Total Debt Securities Available for Sale 161,796 142,860 119,074
Equity Securities:
Corporate securities 1,455 1,359 1,175
-------- -------- --------
Total Equity Securities Available for Sale 1,455 1,359 1,175
-------- -------- --------
Total Securities Available for Sale $163,251 $144,219 $120,249
======== ======== ========
Investment Securities:
Obligations of U.S. Government Agencies $ - $15 $42
State and Political Subdivisions 7,711 7,554 7,913
Corporate securities 2,000 2,000 2,000
-------- -------- --------
Total $9,711 $9,569 $9,955
======== ======== ========
Investments Required By Law:
Federal Reserve Bank stock $692 $692 $692
Federal Home Loan Bank stock 2,297 2,469 2,161
-------- -------- --------
Total $2,989 $3,161 $2,853
======== ======== ========
B. Maturity Distribution of the Company's securities as of December 31, 2003:
(in thousands)
Maturing
----------------------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
-------------------- --------------------- --------------------- ---------------------
Amount YieldAmount Yield Amount Yield Amount Yield
------ --------- ------- --------- ------- --------- ------- ---------
Debt Securities
Available for Sale
U.S. Treasury and other
U.S. Gov't Agencies $84 6.51 % $16,996 3.64 % $35,846 4.20 % $76,194 4.97 %
State and Political Subdivisions 26 3.94 1,992 7.60 14,936 7.58 8,035 7.16
Corporate securities - - 1,624 7.18 - - 6,063 2.54
------ ------- ------- -------
Total$110 5.91 % $20,612 4.26 % $50,782 5.15 % $90,292 5.00 %
====== ======= ======= =======
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 marginal(other
than U.S. Government and U.S. Government Agencies) 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, 2003.
Maturing
----------------------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
-------------------- --------------------- --------------------- ---------------------
Amount YieldAmount Yield Amount Yield Amount Yield
------ --------- ------- --------- ------- --------- ------- ---------
Investment Securities
State and Political Subdivisions $2,574 5.25 % $2,613 7.42 % $1,968 8.05 % $556 7.59 %
Corporate securities - - - - - - 2,000 6.71
------ ------- ------- -------
Total$2,574 5.25 % $2,613 7.42 % $1,968 8.05 % $2,556 6.90 %
====== ======= ======= =======
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 marginal(other
than U.S. Government and U.S. Government Agencies) 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, 2003.
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 weighted
average dividend on these stocks as of December 31, 2003 was 2.50%.
-7-
III. Loan Portfolio
A. Types of Loans
2003 2002 2001 2000 1999
----------------- ----------------- ------------------ ----------------- -----------------
December 31
(in thousands) Balance %Balance % Balance % Balance % Balance %
-------- ------- -------- ------- -------- -------- -------- ------- -------- -------
Residential Real
Estate Loans$71,114 38.4 % $80,616 40.1 % $85,977 40.6 % $88,517 44.0 % $90,780 49.4 %
Commercial and
Commercial
Real Estate 49,466 26.7 51,313 25.5 48,979 23.1 44,790 22.3 37,868 20.6
Consumer Loans 64,567 34.9 69,088 34.4 76,727 36.3 67,756 33.7 55,137 30.0
-------- -------- -------- -------- --------
Total 185,147 100.0 % 201,017 100.0 % 211,683 100.0 % 201,063 100.0 % 183,785 100.0 %
Less: Allowance
for loan losses 2,418 3,083 2,506 2,750 2,697
Unearned Income 13,917 14,753 16,734 14,473 11,372
-------- -------- -------- -------- --------
Total $168,812 $183,181 $192,443 $183,840 $169,716
======== ======== ======== ======== ========
At December 31, 1999 through December 31, 2003, the subsidiary Bank did
not have any construction loans in the loan portfolio.
% represents the percentage of loans in the category to total loans.
B. Maturities and Sensitivity of Loans to Changes in Interest Rates
Shown below are the amounts of loans outstanding (excluding certain mortgages
and consumer loans) as of December 31, 2003, 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(a)(b) Five Years Five Years Total
------------- ---------- ---------- -------
Commercial
and Commercial
Real Estate $31,417 $14,016 $4,033 $49,466
(a) Includes demand loans having no stated schedule of repayments and no
stated maturity and overdrafts.
(b) Includes floating rate loans of $23,011 that reprice at least quarterly.
C. Risk Elements
1. Nonaccrual, Past Due, and Restructured 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.
(in thousands) 2003 2002 2001 2000 1999
------ ------ ---- ----- ------
Loans on a non-accrual basis $1,374 $1,620 $374 $936 $1,507
Loans past due 90 days or more and still accruing 273 67 159 210 108
Restructured loans - - - - -
------ ------ ---- ----- ------
Total non-performing loans $1,647 $1,687 $533 1,146 $1,615
====== ====== ==== ===== ======
Total non-performing loans as a percent
of total loans - net of unearned income 1.0% 0.9% 0.3% 0.6% 0.9%
====== ====== ==== ===== ======
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 was not
significant for the years 1999 through 2003.
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 or until such
time as the borrower demonstrates the ability to make scheduled payments
of interest and principal. 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 $1.4 million at December 31, 2003 were classified as
substandard and are considered 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 2004.
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 substantial concentrations of loans within this
geographic area. The subsidiary Bank strives to maintain a diverse loan
portfolio and accomplishes this through prudent underwriting standards and
by offering a wide variety of business and consumer loans. At December 31,
2003, the only concentration of loans that existed within the Bank's
portfolio, other than the geographic concentration referred to above, were
loans to the leather and leather related industries. Loans to this
customer segment were $2.6 million, which represented 1.4% of the gross
loans outstanding at December 31, 2003. Loans totaling approximately $1.6
million to this customer segment are currently on the subsidiary Bank's
internal watch list. Commitments to this segment were $0.6 million, which
represented 2.4% of the total commitments outstanding at December 31,
2003.
-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, 2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
(in thousands)
Amount of loans outstanding at end
of year (less unearned income) $171,230 $186,264 $194,949 $186,590 $172,413
Average loans outstanding during the year
(less average unearned income) $176,494 $191,646 $193,121 $181,186 $152,974
Balance of allowance at beginning of year $3,083 $2,506 $2,750 $2,697 $1,580
Loans charged off:
Commercial and Commercial Real Estate (1,523) (55) (435) (40) (30)
Residential Real Estate - - - - (105)
Consumer (599) (668) (561) (199) (146)
--------- --------- --------- --------- ---------
Total loans charged off (2,122) (723) (996) (239) (281)
--------- --------- --------- --------- ---------
Recoveries of loans previously charged off:
Commercial and Commercial Real Estate 4 12 12 12 1
Residential Real Estate 7 22 33 26 28
Consumer 156 101 182 35 22
--------- --------- --------- --------- ---------
Total Recoveries 167 135 227 73 51
--------- --------- --------- --------- ---------
Net loans charged off (1,955) (588) (769) (166) (230)
Acquisition-related allowance - - - - 1,167
Provision for loan losses 1,290 1,165 525 219 180
--------- --------- --------- --------- ---------
Balance of allowance at end of year $2,418 $3,083 $2,506 $2,750 $2,697
========= ========= ========= ========= =========
Net charge-offs as percent of average
loans outstanding during year
(less average unearned income) 1.11 % 0.31 % 0.40 % 0.09 % 0.15 %
Net charge-offs as percent of allowance at
beginning of year. 63.41 % 23.46 % 27.96 % 6.15 % 14.56 %
Allowance as percent of loans outstanding
at end of year (less unearned income) 1.41 % 1.66 % 1.29 % 1.47 % 1.56 %
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 2003, the Company recorded a provision for loan losses of $1,290,000.
The subsidiary Bank's allowance for loan losses at December 31, 2003 totaled
$2,418,000 or 1.41% of total loans, net of unearned income. Net charge-offs
for 2003 totaled $1,955,000. At year-end 2003, there were $1,374,000 of loans
in a non-accrual status. At December 31, 2003, $371,000 of the allowance for
loan losses was allocated to the non-accrual loans outstanding. 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.
-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:
2003 2002 2001
------------------ ------------------ -----------------
Average Average Average
(in thousands) Balance Rate Balance Rate Balance Rate
-------- ----- -------- ----- -------- -----
Demand Deposits $29,175 $28,565 $26,756
Regular Savings, NOW, and
Money Market 155,477 0.91 % 141,168 1.49 % 113,416 2.19 %
Certificates of Deposit and
Other Time Deposits 123,086 2.83 % 121,716 3.53 % 136,628 5.06 %
-------- -------- --------
Total $307,738 $291,449 $276,800
======== ======== ========
B. There were no foreign deposits in domestic offices at December 31, 2003,
2002 and 2001.
C. The following table indicates the maturities of time certificates of
deposit in amounts of $100,000 or more at December 31, 2003.
(in thousands)
Maturing in:
Three months or less $9,825
Over three months through six months 6,272
Over six months through twelve months 6,046
Over twelve months 6,072
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:
2003 2002 2001
------- ------- -------
Percentage of net income to:
Average total assets 0.92 % 1.22 % 1.14 %
Average total stockholders' equity 9.66 12.83 11.68
Percentage of cash dividends paid
to net income 46.13 34.09 37.70
Percentage of average
stockholders' equity
to average total assets 9.50 9.55 9.74
-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. All properties are
currently used for branch offices and are considered to be adequate in
meeting current and projected customer and subsidiary Bank needs. The
Insurance Agency leases property at 7 Church Street, Gloversville, New York,
which property is adequate for its use.
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 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 Matters to a Vote of Security Holders
None
Executive Officers of the Registrant
The following table sets forth selected information about the executive
officers of the Company.
Name, Age Office and Position with the Company or the Subsidiary Bank Officer Since
- --------- ----------------------------------------------------------- -------------
Ronald J. Bradt, 60 Senior Vice President, Bank 1974
George E. Doherty, 47 Senior Vice President, Bank 1983
Michael J. Frank, 57 Vice President and Comptroller, Bank 1990
Treasurer, Company
George A. Morgan, 61 Executive Vice President, Cashier and Trust Officer, Bank 1974
Vice President & Secretary, Company
Michael J. Pepe, 45 Senior Vice President, Bank 1999
William N. Smith, 63 Chairman of the Board, President and Chief Executive Officer, 1974
Bank & Company
Each of the executive officers of the Company have been principally
employed as an officer of the Company or the subsidiary Bank for the past
five years with the exception of Mr. Pepe, who was employed by Gloversville
Federal Savings and Loan Association, subsidiary of Adirondack Financial
Services Bancorp, Inc. which was acquired on June 1, 1999 by CNB Bancorp,
Inc.
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 40 of the registrant's 2003 Annual Report is
incorporated herein by reference. Over-the-counter quotations reflect
inter-dealer prices and may not necessarily represent actual transactions.
The Company increased its dividend in 2003 for the thirty-seventh consecutive
year and anticipates paying comparable dividends in the future. Information
regarding restrictions on dividend payments can be found on page 21 of the
registrant's 2003 Annual Report under "Notes to Consolidated Financial
Statements - Dividend Restrictions".
ITEM 6. Selected Financial Data
The information set forth under the heading "Five Year Financial
Summary" on page 14 of the registrant's 2003 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
6 through 13 of the registrant's 2003 Annual Report is incorporated herein by
reference.
Forward-Looking Statements
Certain statements in this report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995, such as statements relating to the financial condition and
prospects, lending risks, plans for future business development and marketing
activities, capital spending and financing sources, capital structure, the
effects of regulation and competition, and the prospective business of both
the Company and its wholly-owned subsidiary, City National Bank and Trust
Company (the "Bank"). Where used in this report, the words "anticipate,"
"believe," " estimate," "expect," "intend," and similar words and
expressions, as they relate to the Company or the Bank or their respective
management, identify forward-looking statements. Such forward-looking
statements reflect the current views of the Company and are based on
information currently available to the management of the Company and the Bank
and upon current expectations, estimates, and projections about the Company
and its industry, management's belief with respect thereto, and certain
assumptions made by management. These forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties, and
other factors that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements. Potential risks and
uncertainties include, but are not limited to: (i) significant increases in
competitive pressure in the banking and financial services industries; (ii)
in the interest rate environment which could reduce anticipated or actual
margins; (iii) changes in political conditions or the legislative or
regulatory environment; (iv) general economic conditions, either nationally
or regionally (especially in Fulton and Saratoga Counties, New York),
becoming less favorable than expected resulting in, among other things, a
deterioration in credit quality of assets; (v) changes occurring in business
conditions and inflation; (vi) changes in technology; (vii) changes in
monetary and tax policies; (viii) changes in the securities markets; and (ix)
other risks and uncertainties detailed from time to time in the filings of
the Company with the Commission.
-12-
The Company does not undertake, and specifically disclaims any
obligation, to publicly revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
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 11 of Company's 2003
Annual Report for additional discussion on liquidity.
The Company, on average, during 2003 had $13.6 million of its assets
invested in federal funds sold.
Capital
At December 31, 2003, stockholders' equity was $38.0 million, which
represents an increase of $1.2 million, or 3.1% over 2002. This follows an
increase of $2.2 million, or 6.5% over 2001. The increase from 2002 to 2003
was due mainly to a combination of net income after dividends and a reduction
in accumulated other comprehensive income less net treasury stock
transactions. The increase from 2001 to 2002 was due mainly to a combination
of net income after dividends and an increase in accumulated other
comprehensive income less net treasury stock transactions.
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, 2002. The Company's
risk-based capital ratio was 17.5% and 16.2% at December 31, 2003 and 2002,
respectively. Dividends per share declared in 2003 were $0.76 as compared to
$0.70 in 2002 and $0.66 in 2001.
See "Financial Review" section pages 10 and 11 of the Company's 2003
Annual Report for additional discussion on capital.
Contractual Obligations
As of December 31, 2003 the Company is contractually obligated to make
the following payments:
Less than 1 - 3 3 - 5 More than
Contractual Obligations Total 1 year years years 5 years
------- --------- ------- ------ ---------
Notes Payable - Federal Home Loan Bank $35,736 $5,084 $15,105 $1,547 $14,000
Securities sold under agreement to repurchase 12,124 1,924 4,000 2,200 4,000
------- --------- ------- ------ ---------
Total $47,860 $7,008 $19,105 $3,747 $18,000
======= ========= ======= ====== =========
Recent Accounting Pronouncements
The information set forth under the heading "Recent Accounting
Pronouncements" on page 22 of the registrant's 2003 Annual Report is
incorporated herein by reference.
Critical Accounting Policies
Pursuant to SEC guidance, management of public companies are encouraged
to evaluate and disclose those accounting policies that are judged to be
critical policies, or those most important to the portrayal of the Company's
financial condition and results, and that require management's most difficult
subjective or complex judgments. Management of the Company considers the
accounting policy relating to the allowance for loan losses to be a critical
accounting policy given the inherent subjectivity and uncertainty in
estimating the levels of the allowance required to cover credit losses in the
portfolio and the material effect that such judgments can have on the
consolidated financial statements. Included in Note 1 to the consolidated
financial statements contained in the Company's 2003 Annual Report is a
description of this critical policy and the other significant accounting
policies that are utilized by the Company in the preparation of the
consolidated financial statements.
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
The information set forth under the heading "Financial Review - Market
Risk" pages 12 and 13 of the registrant's 2003 Annual Report is incorporated
herein by reference. Also, the information reported on page 6 of this report
is incorporated by reference.
ITEM 8. Financial Statements and Supplementary Data
The information set forth on pages 15 through 39 of the registrant's
2003 Annual Report is incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
ITEM 9a. Controls and Procedures
The Company, under the supervision, and with the participation, of its
management, including the Company's Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
the Company's disclosure controls and procedures as of December 31, 2003,
pursuant to the requirements of Exchange Act Rule 13a-15. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective as of
December 31, 2003, in timely alerting them to material information relating
to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic SEC filings.
There was no change in the Company's internal control over financial
reporting that occurred during the Company's fiscal quarter ended December
31, 2003 that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
-13-
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, consisting 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 ten persons listed below are currently directors of the Company.
Except as noted below, all of the directors have held the same or another
executive position with the same employer during the past five years.
Principal Occupation Director of the
Name, Age for Past Five Years Class Company Since
- --------- -------------------- ----- ---------------
John C. Miller, 73 President, John C. Miller, Inc. 2 1988
Automobile Dealer
Robert L. Maider, 72 Attorney-at-Law, Maider & Smith 2 1988
William N. Smith, 63 Chairman of the Board, President 1 1988
and Chief Executive Officer
of the Company and the Bank
George A. Morgan, 61 Vice President & Secretary 3 1991
of the Company and Executive Vice President,
Cashier & Trust Officer of the Bank
Brian K. Hanaburgh, 54 Owner 1 1994
D/B/A McDonald's Restaurants
Fast Food Restaurants
Clark D. Subik, 49 President, Superb Leather, Inc. 3 1995
Leather Merchandiser
Deborah H. Rose, 53 Retired Vice President, Hathaway Agency, Inc. 3 1996
General Insurance
Theodore E. Hoye, III, 55 President, First Credit Corporation 3 1998
Financing and Insuring of Manufactured Housing
Timothy E. Delaney, 41 President, Delaney Construction Corporation 2 1999
Heavy/Highway Construction
Richard D. Ruby, 55 President, Ruby & Quiri, Inc. 1 1999
Home Furnishings Retailer
Management is not aware of any family relationships between the above
named directors.
Executive Officers
Information required by this item is included in Item I of this 10-K.
Audit Committee Financial Expert
The Board of Directors has determined that the Company does not have an
audit committee financial expert serving on its audit committee. However, the
Board of Directors has determined that each audit committee member has
sufficient knowledge in financial and auditing matters to serve on the
committee. The Board of Directors has concluded that no current Director
qualifies as a financial expert, and, at this time, the Board does not
believe it is necessary to actively search for an outside person to serve on
the Board who would qualify as a financial expert.
Code of Ethics
The Company has adopted a code of ethics that applies to its principal
executive, financial and accounting officers. A copy of the code of ethics is
posted on the Company's web site at http://www.citynatlbank.com. In the event
we make any amendment to, or grant any waiver of, a provision of the code of
ethics that applies to the principal executive, financial or accounting
officer, or any person performing similar functions, that requires disclosure
under applicable SEC rules, we intend to disclose such amendment or waiver,
the nature of and reasons for it, along with the name of the person to whom
it was granted and the date, on our internet website.
Insider Compliance
Information required by this item is hereby incorporated by reference
herein from the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 10 of the Registrant's Proxy Statement for its 2004
Annual Meeting of Shareholders.
-14-
ITEM 11. Executive Compensation
The information required by this item is hereby incorporated herein by
reference from the captions entitled "Executive Officers' Compensation",
"Employment Arrangements", "Compensation of Directors" and "Compensation
Pursuant to Plans", at pages 10 through 15 of the Registrant's Proxy
Statement for its 2004 Annual Meeting of Shareholders; provided however that
the captions entitled "Compensation Committee Report on Executive
Compensation" and "Performance Graph" shall not be deemed to be incorporated
herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is hereby incorporated by reference
herein from the caption "Proposal 1 - Election of Directors" at pages 3
through 6 of the Registrant's Proxy Statement for its 2004 Annual Meeting of
Shareholders.
Equity Compensation Plan Information
------------------------------------
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
----------------------- -------------------- ------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 259,533 27.05 142,650
Equity compensation plans not
approved by security holders18,337 15.22 -
Total 277,870 26.27 142,650
Represents common shares covered by options assumed by registrant in
connection with its acquisition, through merger, of Adirondack Financial
Services Bancorp, Inc. on the terms set forth in the Adirondack
Financial Services stock option plan and at an exchange ratio of .575 of
a registrant common share for each Adirondack Financial Services' common
share.
ITEM 13. Certain Relationships and Related Transactions
Information required by this item is hereby incorporated by reference
herein from the caption "Related Party Transactions" on page 18 of the
Registrant's Proxy Statement for its 2004 Annual Meeting of Shareholders.
PART IV.
ITEM 14. Principal Accountant Fees and Services
Information required by this item is hereby incorporated by reference
herein from the caption "Principal Accounting Firm Fees" on pages 9 and 10 of
the Registrant's Proxy Statement for its 2004 Annual Meeting of Shareholders.
ITEM 15. 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, 2003, are incorporated herein by reference:
Independent Auditors' Report
Financial Statements (Consolidated)
Statements of Condition - December 31, 2003 and 2002
Statements of Income - Years ended December 31, 2003, 2002 and 2001
Statements of Changes in Stockholders' Equity - Years ended December 31,
2003, 2002, and 2001
Statements of Cash Flows - Years ended December 31, 2003, 2002, and 2001
Notes to Consolidated Financial Statements
(All financial statement schedules for the registrant and its
subsidiaries have been omitted as the required information is included in the
consolidated financial statements or the related notes thereto.)
The Company filed an 8-K with the Securities and Exchange Commission on
October 28, 2003 in connection with its press release announcing earnings for
the quarter ended September 30, 2003.
The following are the exhibits:
Exhibit No. Exhibit Location
- ----------- ------- --------
3.1 Restated Certificate of Incorporation of CNB Bancorp, Inc. (1)
(incorporated by reference)
3.2 Bylaws of CNB Bancorp, Inc. (incorporated by reference) (2)
4. Instruments Defining the Rights of Security Holders (See Exhibits 3.1 and 3.2)
Material contracts:
10.1 Agreement for Supplemental Retirement Benefits for William N. Smith (3)
(incorporated by reference)
10.2 Stock Option Plan (incorporated by reference) (4)
-15-
Exhibit No. Exhibit Location
- ----------- ------- --------
10.3 Change of Control Agreement with William N. Smith (5)
(incorporated by reference)
10.4 Change of Control Agreement with George A. Morgan (6)
(incorporated by reference)
10.5 Long-Term Incentive Compensation Plan (7)
(incorporated by reference)
13. Annual Report to Security Holders
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
Location
(1) Incorporated by reference to Exhibit 3 to the report on Form 8-K filed
by the Company with the SEC on August 10, 2001.
(2) Incorporated by reference to Exhibit 3 to the annual report on Form 10-K
filed by the Company with the SEC on March 31, 1996.
(3) Incorporated by reference to Exhibit 10.1 to the annual report on Form
10-K filed by the Company with the SEC on March 29, 2002.
(4) Incorporated by reference to Exhibit A to the Company's Proxy Statement
on Schedule 14-A filed by the Company with the SEC on September 7, 1998.
(5) Incorporated by reference to Exhibit 10.3 to the annual report on Form
10-K filed by the Company with the SEC on March 31, 2002.
(6) Incorporated by reference to Exhibit 10.4 to the annual report on Form
10-K filed by the Company with the SEC on March 31, 2002.
(7) Incorporated by reference to Appendix B to the Company's Proxy Statement
on Schedule 14-A filed by the Company with the SEC on March 14, 2002.
-16-
SIGNATURES
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
(chief executive officer)
By: /s/ George A. Morgan
--------------------------------------------------
George A. Morgan, Vice President and Secretary
(principal financial and accounting officer)
Dated: March 25, 2004
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.
Signature Title Date
- --------- ----- ----
By /s/ John C. Miller Director March 25, 2004
- ---------------------------
John C. Miller
By /s/ Robert L. Maider Director March 25, 2004
- ---------------------------
Robert L. Maider
By /s/ William N. Smith Chairman of the Board, March 25, 2004
- --------------------------- President and Chief Executive
William N. Smith Officer (chief executive officer)
By /s/ George A. Morgan Vice President and Secretary March 25, 2004
- --------------------------- (principal financial and accounting
George A. Morgan officer) and Director
By /s/ Brian K. Hanaburgh Director March 25, 2004
- ---------------------------
Brian K. Hanaburgh
By /s/ Clark D. Subik Director March 25, 2004
- ---------------------------
Clark D. Subik
By /s/ Deborah H. Rose Director March 25, 2004
- ---------------------------
Deborah H. Rose
By /s/ Theodore E. Hoye III Director March 25, 2004
- ---------------------------
Theodore E. Hoye III
By /s/ Timothy E. Delaney Director March 25, 2004
- ---------------------------
Timothy E. Delaney
By /s/ Richard D. Ruby Director March 25, 2004
- ---------------------------
Richard D. Ruby
-17-
EXHIBIT INDEX
Reg. S - K
Exhibit Number Description
- -------------- -----------
3.1 Restated Certificate of Incorporation of CNB Bancorp, Inc.
3.2 Bylaws of CNB Bancorp, Inc.
4. Instruments Defining the Rights of Security Holders (See Exhibits 3.1 and 3.2)
Material contracts:
10.1 Agreement for Supplemental Retirement Benefits for William N. Smith
10.2 Stock Option Plan
10.3 Change of Control Agreement with William N. Smith
10.4 Change of Control Agreement with George A. Morgan
10.5 Long-Term Incentive Compensation Plan
13. Annual Report to Security Holders
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. section 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
-18-