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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, 2004 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 28, 2005, 2,221,721 shares of Common Stock were outstanding.
As of June 30, 2004 (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 $
51,700,000.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to stockholders for the
fiscal year ended December 31, 2004 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 19, 2005 are incorporated into Part
III; Item 10, Item 11, Item 12, Item 13 and Item 14.
CNB BANCORP, INC.
TABLE OF CONTENTS
Filing Sections
Page No.
Part I
Business 1
Competition 1
Employees 1
Supervision and Regulation 1
Deposit Insurance Premiums 2
Monetary Policy 3
General 3
Statistical Disclosure Required By Bank Holding Companies
Exhibit I. A, B - Distribution of Assets,
Liabilities and Stockholders' Equity; 4
Interest Rates and Interest Differential
Exhibit I. C - Rate Volume Analysis and Interest
Rate Sensitivity Analysis 5
Exhibit II. A, B - Securities Portfolio 7
Exhibit III. A, B, C - Loan Portfolio 8
Exhibit IV - Summary of Loan Loss Experience 10
Exhibit V. A, B, C, D - Deposits 11
Exhibit VI. - Return on Equity and Assets 11
Properties 12
Legal Proceedings 12
Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
Part II
Market for Registrant's Common Equity and Related
Stockholders Matters 12
Selected Financial Data 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Forward-Looking Statements 13
Liquidity 13
Capital 13
Contractual Obligations 13
Recent Accounting Pronouncements 13
Critical Accounting Policies 13
Quantitative and Qualitative Disclosures About Market Risk 14
Financial Statements and Supplementary Data 14
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
Controls and Procedures 14
Other Information 14
Part III
Directors and Executive Officers of the Registrant 14
Audit Committee Financial Expert 15
Code of Ethics 15
Insider Compliance 15
Executive Compensation 15
Security Ownership of Certain Beneficial Owners
and Management 15
Certain Relationships and Related Transactions 15
Part IV
Principal Accountant Fees and Services 15
Exhibits and Financial Statement Schedules 15
List of Exhibits 15
Signatures 16
Exhibits
Subsidiaries
Consent of Independent Registered Public Accounting Firm
Certifications
PART I
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, one branch located in the
county of Saratoga, one branch located in the county of Hamilton and one
branch located in the county of Montgomery.
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 30, 2004, the subsidiary Bank acquired two branches from HSBC BANK
USA. These branches are located in Amsterdam, New York and Speculator, New
York. The acquisition was accounted for in accordance with FASB Statement No.
141, "Business Combinations". The purchase agreement called for a premium of
$2.4 million which will be amortized for tax purposes using the straight-line
method over fifteen years. At the time of the acquisition, the fair value of
assets acquired was $39.3 million and the fair value of liabilities assumed
was $41.7 million. The core deposit intangible portion of the purchase
premium was $0.6 million which will be amortized over eight years to expense
using the straight-line method. The remaining $1.8 million portion of the
purchase premium was considered to be goodwill which will be evaluated
annually to determine if any impairment loss is required to be recognized.
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 105 persons on a full time basis. There are
also 3 part time employees. The Insurance Agency employs approximately 6
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.
-1-
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.
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.
The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate
governance and reporting measures for companies that have securities
registered under the Exchange Act, including publicly-held bank holding
companies such as the Company. Specifically, the Sarbanes-Oxley Act of 2002
and the various regulations promulgated thereunder, established, among other
things: (i) new requirements for audit committees, including independence,
expertise, and responsibilities; (ii) additional responsibilities regarding
financial statements for the Chief Executive Officer and Chief Financial
Officer of the reporting company; (iii) the forfeiture of bonuses or other
incentive-based compensation and profits from the sale of the reporting
company's securities by the Chief Executive Officer and the Chief Financial
Officer in the twelve-month period following the initial publication of any
financial statements that later require restatement; (iv) the creation of an
independent accounting oversight board; (v) new standards for auditors and
regulation of audits, including independence provisions that restrict
non-audit services that accountants may provide to their audit clients; (vi)
increased disclosure and reporting obligations for the reporting company and
their directors and executive officers, including accelerated reporting of
stock transactions and a prohibition on trading during pension blackout
periods; (vii) a prohibition on personal loans to directors and officers,
except loans made by insured financial institutions on non-preferential terms
and in compliance with other bank regulatory requirements; and (viii) a range
of new and increased civil and criminal penalties for fraud and other
violations of the securities laws.
The Company has a Real Estate Investment Trust (REIT), CNB REIT CORP.
Currently, the Company derives a New York State tax benefit, as a portion of
the dividends from the REIT is exempt from income tax expense. There is
proposed legislation for the 2005 New York State Budget no longer allowing
the exclusion of REIT dividend income effective for tax years beginning on
January 1, 2005. If the legislation noted above is approved, the Company
expects that impact on diluted earnings per share will be approximately $0.06
for 2005. We calculate our current and deferred tax provision based on
estimates and assumptions that could differ from the actual results reflected
in income tax returns filed during the subsequent year. Adjustments based on
filed returns are recorded when identified, which is generally in the third
quarter of the subsequent year for U.S. federal and New York State
provisions.
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
-2-
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 2004, 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 2004. 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 2004 BIF assessment schedule through
June 30, 2005.
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 2004, BIF insured banks paid a rate of 0.01505% for purposes of
funding FICO bond obligations, resulting in an assessment of $47,030 for the
subsidiary Bank. The assessment rate for BIF member institutions has been set
at 0.01440% on an annualized basis for the first half of 2005.
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.
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
2004 2003 2002
-------------------------- ---------------------------- -----------------------------
Interest Interest Interest
(in thousands) Average Earned/ Average Earned/ Average Earned/
Balance Paid(b) Rate Balance Paid(b) Rate Balance Paid(b) Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
ASSETS
Interest Earning Assets:
Securities(a):
U.S Treasury & Government
Agencies $140,058 $ 5,690 4.06% $118,767 $ 4,773 4.02% $ 92,650 $ 4,799 5.18%
State & Political
Subdivisions 32,268 2,355 7.30 31,737 2,380 7.50 31,190 2,391 7.67
Other 12,421 530 4.27 14,076 631 4.48 15,163 753 4.97
-------- ------- -------- ------- -------- -------
Total Securities 184,747 8,575 4.64 164,580 7,784 4.73 139,003 7,943 5.71
Interest Bearing Balances With
Other Financial Institutions 5,638 68 1.21 14,409 138 0.96 10,468 148 1.41
Federal Funds Sold 10,319 132 1.28 13,577 148 1.09 12,628 210 1.66
Loans:
Loans,Less
Unearned Income (c) 178,118 11,681 6.56 176,494 12,550 7.11 191,646 14,646 7.64
-------- ------- -------- ------- -------- -------
Total Interest-Earning Assets 378,822 $20,456 5.40% 369,060 $20,620 5.59% 353,745 $22,947 6.49%
======= ======= =======
Cash and Due From Banks 10,780 10,051 9,543
Allowance for Loan Losses (2,451) (2,849) (2,827)
Other Assets (d) 22,648 21,915 17,708
-------- -------- --------
Total Assets $409,799 $398,177 $378,169
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing Liabilities:
Deposits:
Savings:
Regular Savings $ 77,142 $ 625 0.81% $ 74,631 $ 801 1.07% $67,736 $ 1,154 1.70%
NOW 38,189 77 0.20 34,578 119 0.34 31,316 164 0.52
Money Market Accounts 59,772 570 0.95 46,268 497 1.07 42,116 784 1.86
Certificates of Deposit
$100,000 or More 26,289 591 2.25 31,403 817 2.60 32,484 925 2.85
Other Time Interest-Bearing 86,180 1,937 2.25 91,683 2,669 2.91 89,232 3,375 3.78
-------- ------ -------- ------- -------- -------
Total Int.-Bearing Deposits 287,572 3,800 1.32 278,563 4,903 1.76 262,884 6,402 2.44
Other Short-Term Borrowings
& Repurchase Agreements 12,212 589 4.82 12,105 594 4.91 12,459 606 4.86
Notes Payable - FHLB 32,090 1,087 3.39 38,584 1,219 3.16 36,467 1,292 3.54
-------- ------ -------- ------- -------- -------
Total Interest-Bearing
Liabilities 331,874 $5,476 1.65% 329,252 $ 6,716 2.04% 311,810 $8,300 2.66%
====== ======= =======
Demand Deposits 36,873 29,175 28,565
Other Liabilities 1,730 1,937 1,690
-------- -------- --------
Total Liabilities 370,477 360,364 342,065
Stockholders' Equity 39,322 37,813 36,104
-------- -------- --------
Total Liabilities and
Stockholders' Equity $409,799 $398,177 $378,169
======== ======== ========
(a) Includes available for sale securities, investment securities, Federal
Home Loan Bank stock and Federal Reserve Bank stock at amortized cost.
(b) 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
2004, 7.50% for 2003 and 8.00% for 2002 (less Federal tax effect) for
all periods presented.
(c) 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.
(d) 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)
2004 2003 2002
---- ---- ----
Average yield on interest-
earning assets* 5.40% 5.59% 6.49%
Average effective rate paid
on interest-bearing liabilities 1.65% 2.04% 2.66%
Spread between interest-earning
assets and interest-bearing
liabilities* 3.75% 3.55% 3.83%
Net interest income* (in thousands) $14,980 $13,904 $14,647
Net interest margin* 3.95% 3.77% 4.14%
*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):
2004 Compared to 2003 2003 Compared to 2002
Increase (decrease) Increase (decrease)
due to:(a) due to:(a)
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest Earned on:
Loans $ 115 $ (984) $ (869) $(1,158) $ (938) $(2,096)
Taxable Securities 781 35 816 1,299 (1,447) (148)
Non-Taxable Securities(b) 40 (65) (25) 42 (53) (11)
Federal Funds Sold (36) 20 (16) 16 (78) (62)
Interest-Bearing Balances
with Banks (84) 14 (70) 56 (66) (10)
------ ------- ------- ------- ------- -------
Total 816 (980) (164) 255 (2,582) (2,327)
------ ------- ------- ------- ------- -------
Interest Paid on:
Deposits 159 (1,262) (1,103) 382 (1,881) (1,499)
Short-Term Borrowings & Repos 5 (10) (5) (17) 5 (12)
Notes Payable - FHLB (205) 73 (132) 75 (148) (73)
------ ------- ------- ------- ------- -------
Total (41) (1,199) (1,240) 440 (2,024) (1,584)
------ ------- ------- ------- ------- -------
Net Interest Differential(b) $ 857 $ 219 $ 1,076 $ (185) $ (558) $ (743)
====== ======= ======= ======= ======= =======
Notes to Rate Volume Analysis
(a) 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.
(b) 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, 2004
-------------------------------------------------------------
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* $ 13,780 $29,454 $107,734 $47,653 $198,621
Loans, net of unearned discount 42,238 33,681 88,915 23,701 188,535
Cash & Cash Equivalents 2,769 - - - 2,769
-------- ------- -------- ------- --------
Total rate sensitive assets $ 58,787 $63,135 $196,649 $71,354 $389,925
======== ======= ======== ======= ========
Savings, NOW & MMDA accounts $ 58,967 $12,538 $ 32,695 $77,522 $181,722
Time deposits 26,531 47,907 33,552 - 107,990
Borrowings 27,214 4,060 2,269 15,000 48,543
-------- ------- -------- ------- --------
Total rate sensitive liabilities $112,712 $64,505 $ 68,516 $92,522 $338,255
======== ======= ======== ======= ========
*Includes securities available for sale and investment securities at amortized
cost and FHLB and FRB stock at cost.
GAP (RSA - RSL) $(53,925) $ (1,370) $128,133 $(21,168)
CUMULATIVE GAP (RSA - RSL) (53,925) (55,295) 72,838 51,670
RSA divided by RSL 52.2% 97.9% 287.0% 77.1%
RSA divided by RSL - Cumulative 52.2 68.8 129.6 115.3
GAP divided by equity (134.7) (3.4) 320.2 (52.9)
GAP divided by equity - Cumulative (134.7) (138.2) 182.0 129.1
RSA divided by total assets 13.9 15.0 46.6 16.9
RSA divided by total assets - Cumulative 13.9 28.9 75.5 92.4
RSL divided by total assets 26.7 15.3 16.2 21.9
RSL divided by total assets - Cumulative 26.7 42.0 58.2 80.2
GAP divided by total assets (12.8) (0.3) 30.4 (5.0)
GAP divided by total assets - Cumulative (12.8) (13.1) 17.3 12.2
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 (13.1)% of assets at December 31,
2004. 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 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, 2004 the
net annualized interest income exposure, based on a +200bp rate change was a
decrease of approximately $1,044,000 as compared to a decrease of
approximately $599,000 at December 31, 2003. At December 31, 2004 the net
annualized interest income exposure, based on a -200bp rate change was a
decrease of approximately $787,000 as compared to a decrease of approximately
$873,000 at December 31, 2003.
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)
2004 2003 2002
Securities Available for Sale: -------- -------- --------
Debt Securities:
U.S. Treasury Securities $ 2,057 $ 2,152 $ 2,108
U.S. Government Agencies 150,110 126,968 106,787
State and Political Subdivisions 29,164 24,989 25,689
Corporate securities 6,437 7,687 8,276
-------- -------- --------
Total Debt Securities Available for Sale 187,768 161,796 142,860
Equity Securities:
Corporate securities 1,408 1,455 1,359
-------- -------- --------
Total Equity Securities Available for Sale 1,408 1,455 1,359
-------- -------- --------
Total Securities Available for Sale $189,176 $163,251 $144,219
======== ======== ========
Investment Securities:
Obligations of U.S. Government Agencies $ -- $ -- $ 15
State and Political Subdivisions 6,587 7,711 7,554
Corporate securities 1,000 2,000 2,000
-------- -------- --------
Total $7,587 $ 9,711 $ 9,569
======== ======== ========
Investments Required By Law:
Federal Reserve Bank stock $ 692 $ 692 $ 692
Federal Home Loan Bank stock 2,292 2,297 2,469
-------- -------- --------
Total $ 2,984 $ 2,989 $ 3,161
======== ======== ========
B. Maturity Distribution of the Company's securities as of December 31, 2004:
(in thousands)
Maturing
---------------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
----------------- ------------------- -------------------- ---------------------
Debt Securities Available for Sale Amount Yield(a) Amount Yield(a) Amount Yield(a) Amount Yield(a)
------ -------- ------ -------- ------ -------- -------- --------
U.S. Treasury Securities $1,026 4.32% $ 1,031 2.27% $ -- --% $ -- --%
U.S. Gov't Agencies 7,469 2.26 72,486 3.44 20,383 4.50 49,772 4.84
State and Political Subdivisions 131 6.67 3,306 7.32 16,145 7.47 9,582 6.81
Corporate securities -- -- 514 5.72 -- -- 5,923 3.75
------ ------- -------- -------
Total(b) $8,626 2.56% $77,337 3.58% $36,528 5.76% $65,277 5.03%
====== ======= ======== =======
Maturing
------------------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
-------------------- ------------------- --------------------- ------------------
Investment Securities Amount Yield(a) Amount Yield(a) Amount Yield(a) Amount Yield(a)
------ -------- ------- -------- ------- -------- ------ -------
State and Political Subdivisions $1,927 5.27% $3,177 7.36% $1,019 7.86% $ 464 7.57%
Corporate securities -- -- -- -- -- -- 1,000 4.73
------ ------ ------ ------
Total(b) $1,927 5.27% $3,177 7.36% $1,019 7.86% $1,464 5.63%
====== ====== ====== ======
(a) 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.
(b) The only securities of individual issuers that represent greater than
10% of stockholders' equity at December 31, 2004 are U.S. Agency
Securities as shown in the table below:
Amortized Estimated
Cost Fair Value
------- ----------
Federal Farm Credit Bureau $ 9,504 $ 9,477
Federal Home Loan Bank 35,724 35,646
Federal Home Loan Mortgage Corporation 55,550 55,111
Federal National Mortgage Association 38,342 38,278
Government National
Mortgage Association 10,958 11,060
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, 2004 was 3.73%.
-7-
III. Loan Portfolio
A. Types of Loans(1)
2004 2003 2002 2001 2000
--------------- ---------------- ----------------- ---------------- ----------------
December 31 (in thousands) Balance %(2) Balance %(2) Balance %(2) Balance %(2) Balance %(2)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Residential Real Estate Loans(2) $ 77,700 39.4% $ 71,114 38.4% $ 80,616 40.1% $ 85,977 40.6% $ 88,517 44.0%
Commercial and Commercial
Real Estate 56,850 28.8 49,466 26.7 51,313 25.5 48,979 23.1 44,790 22.3
Consumer Loans 62,763 31.8 64,567 34.9 69,088 34.4 76,727 36.3 67,756 33.7
-------- -------- -------- -------- --------
Total 197,313 100.0% 185,147 100.0% 201,017 100.0% 211,683 100.0% 201,063 100.0%
Less: Allowance for loan losses 2,331 2,418 3,083 2,506 2,750
Unearned Income 8,778 13,917 14,753 16,734 14,473
-------- -------- -------- -------- --------
Total $186,204 $168,812 $183,181 $192,443 $183,840
======== ======== ======== ======== ========
(1) At December 31, 2000 through December 31, 2004, the subsidiary Bank did
not have any construction loans in the loan portfolio.
(2) % 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, 2004, 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) Five Years Five Years Total
---------- ---------- ---------- -------
Commercial and Commercial Real Estate
Fixed Rate $11,123 $19,073 $4,110 $34,306
Variable Rate 18,252 4,257 35 22,544
------- ------- ------ -------
Total $29,375 $23,330 $4,145 $56,850
======= ======= ====== =======
(a) Includes demand loans having no stated schedule of repayments and no
stated maturity and overdrafts.
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) 2004 2003 2002 2001 2000
---- ------ ------ ----- ------
Loans on a non-accrual basis $561 $1,374 $1,620 $374 $ 936
Loans past due 90 days or more and still accruing 159 273 67 159 210
Restructured loans -- -- -- -- --
---- ------ ------ ----- ------
Total non-performing loans $720 $1,647 $1,687 $533 $1,146
==== ====== ====== ===== ======
Total non-performing loans as a percent
of total loans - net of unearned income 0.4% 1.0% 0.9% 0.3% 0.6%
==== ====== ====== ===== ======
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 2000 through 2004.
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 $1.6 million at December 31, 2004 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 2005.
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, Saratoga, Hamilton and
Montgomery 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, 2004, 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 $1.2 million, which represented 0.6% of the gross loans
outstanding at December 31, 2004. Loans totaling approximately $0.8 million
to this customer segment are currently on the subsidiary Bank's internal
watch list. Commitments to this segment were $1.4 million, which represented
3.9% of the total commitments outstanding at December 31, 2004.
-9-
IV. Summary of Loan Loss Experience
A. 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, 2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
(in thousands)
Amount of loans outstanding at end
of year (less unearned income) $188,535 $171,230 $186,264 $194,949 $186,590
Average loans outstanding during the year
(less average unearned income) $178,118 $176,494 $191,646 $193,121 $181,186
Balance of allowance at beginning of year $ 2,418 $3,083 $ 2,506 $ 2,750 $ 2,697
Loans charged off:
Commercial and Commercial Real Estate (393) (1,523) (55) (435) (40)
Residential Real Estate -- -- -- -- --
Consumer (510) (599) (668) (561) (199)
--------- --------- --------- --------- ---------
Total loans charged off (903) (2,122) (723) (996) (239)
--------- --------- --------- --------- ---------
Recoveries of loans previously charged off:
Commercial and Commercial Real Estate 167 4 12 12 12
Residential Real Estate 11 7 22 33 26
Consumer 138 156 101 182 35
--------- --------- --------- --------- ---------
Total Recoveries 316 167 135 227 73
--------- --------- --------- --------- ---------
Net loans charged off (587) (1,955) (588) (769) (166)
Provision for loan losses 500 1,290 1,165 525 219
--------- --------- --------- --------- ---------
Balance of allowance at end of year $ 2,331 $ 2,418 $3,083 $ 2,506 $ 2,750
========= ========= ========= ========= =========
Net charge-offs as percent of average
loans outstanding during year
(less average unearned income) 0.33% 1.11% 0.31% 0.40% 0.09%
Allowance as percent of loans outstanding
at end of year (less unearned income) 1.24% 1.41% 1.66% 1.29% 1.47%
B. Allocation of the allowance for loan losses
December 31, 2004 December 31, 2003 December 31, 2002 December 31, 2001 December 31, 2000
-------------------- -------------------- -------------------- --------------------- -------------------
Category Category Category Category Category
Percent Percent Percent Percent Percent
Allowance of Loans Allowance of Loans Allowance of Loans Allowance of Loans Allowance of Loans
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Residential Real
Estate Loans $ 250 39.4% $ 100 38.4% $ 100 40.1% $ 150 40.6% $ 400 44.0%
Commercial and
Commercial
Real Estate 1,037 28.8 1,463 26.7 2,069 25.5 1,611 23.1 1,574 22.3
Consumer Loans 750 31.8 675 34.9 725 34.4 600 36.3 575 33.7
Unallocated 294 -- 180 -- 189 -- 145 -- 201 --
------ ------ ------ ------ ------
Balance of allowance
at end of year $2,331 100.0% $2,418 100.0% $3,083 100.0% $2,506 100.0% $2,750 100.0%
====== ====== ====== ====== ======
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 2004, the Company recorded a provision for loan losses of $500,000.
The subsidiary Bank's allowance for loan losses at December 31, 2004 totaled
$2,331,000 or 1.24% of total loans, net of unearned income. Net charge-offs
for 2004 totaled $587,000. At year-end 2004, there were $561,000 of loans in
a non-accrual status. At December 31, 2004, $112,000 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:
2004 2003 2002
----------------- -------------------- -------------------
Average Average Average
(in thousands) Balance Rate Balance Rate Balance Rate
-------- ------ --------- ------- -------- ------
Demand Deposits $ 36,873 $ 29,175 $ 28,565
Regular Savings, NOW, and
Money Market 175,103 0.73% 155,477 0.91% 141,168 1.49%
Certificates of Deposit and
Other Time Deposits 112,469 2.25% 123,086 2.83% 121,716 3.53%
-------- --------- ---------
Total $324,445 $307,738 $291,449
======== ========= =========
B. There were no foreign deposits in domestic offices at December 31, 2004,
2003 and 2002.
C. The following table indicates the maturities of time certificates of
deposit in amounts of $100,000 or more at December 31, 2004.
(in thousands)
Maturing in:
Three months or less $8,456
Over three months through six months 3,698
Over six months through twelve months 6,799
Over twelve months 5,704
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:
2004 2003 2002
----- ----- -----
Percentage of net income to:
Average total assets 1.10% 0.92% 1.22%
Average total stockholders' equity 11.47 9.66 12.83
Percentage of cash dividends paid
to net income 39.28 46.13 34.09
Percentage of average stockholders' equity
to average total assets 9.60 9.50 9.55
-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. The Company also leases
property at 1 Market Street, Amsterdam, New York and Routes 8 & 30,
Speculator, 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, 61 Senior Vice President, Bank 1974
George E. Doherty, 48 Senior Vice President, Bank 1983
Michael J. Frank, 58 Vice President and Comptroller, Bank 1990
Treasurer, Company
George A. Morgan, 62 Executive Vice President, Cashier and Trust Officer, Bank 1974
Vice President & Secretary, Company
Michael J. Pepe, 46 Senior Vice President, Bank 1999
William N. Smith, 64 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.
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 2004 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 2004 for the thirty-eighth consecutive year and anticipates
paying comparable dividends in the future. Information regarding restrictions
on dividend payments can be found on page 22 of the registrant's 2004 Annual
Report under "Notes to Consolidated Financial Statements - Dividend
Restrictions".
Unregistered sales of equity securities and use of proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number Maximum
of Shares Number of
Purchased as Shares that
Part of Publicly May Yet Be
Total Number Average Announced Purchased
of Shares Price Paid Plans or Under the Plans
Purchased per Share Programs or Programs
------------ ------------ ---------------- ---------------
Oct. 1, 2004 to Oct. 31, 2004 -- $ -- -- 83,808
Nov. 1, 2004 to Nov. 30, 2004 100 27.15 100 83,708
Dec. 1, 2004 to Dec. 31, 2004 261 26.83 261 83,447
------------ ------------ ----------
TOTAL 361 $26.92 361
============ ============ ==========
The current common stock buyback program was approved by the Company's Board
of Directors effective June 1, 2003 for a period of two years, to expire on
June 1, 2005. The total number of shares authorized to be purchased under the
plan is 110,820.
-12-
ITEM 6. Selected Financial Data
The information set forth under the heading "Five Year Financial Summary" on
page 15 of the registrant's 2004 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 14 of the registrant's 2004 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, Saratoga, Hamilton and Montgomery 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. 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 pages 11 and 12 of the
Company's 2004 Annual Report for additional discussion on liquidity.
The Company, on average, during 2004 had $10.3 million of its assets invested
in federal funds sold.
Capital
At December 31, 2004, stockholders' equity was $40.0 million, which
represents an increase of $2.0 million, or 5.2% over 2003. This follows an
increase of $1.2 million, or 3.1% over 2002. The increase from 2003 to 2004
was due mainly to a combination of net income after dividends and a reduction
in accumulated other comprehensive income plus net treasury stock
transactions. 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 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, 2004. The Company's risk-
based capital ratio was 16.3% and 17.5% at December 31, 2004 and 2003,
respectively. Dividends per share declared in 2004 were $0.80 as compared to
$0.76 in 2003 and $0.70 in 2002.
See "Financial Review" section page 11 of the Company's 2004 Annual Report
for additional discussion on capital.
Contractual Obligations
As of December 31, 2004 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 $35,652 $19,083 $2,546 $23 $14,000
Securities sold under agreement to repurchase 12,891 6,691 2,200 -- 4,000
------- ------- ------ --- -------
Total $48,543 $25,774 $4,746 $23 $18,000
======= ======= ====== === =======
See Note 10 "Time Deposits" on page 27 and Note 17 "Commitments and
Contingent Liabilities" on pages 33 and 34 of the Company's 2004 Annual
Report for additional discussion on contractual obligations.
Recent Accounting Pronouncements
The information set forth under the heading "Recent Accounting
Pronouncements" on page 23 of the registrant's 2004 Annual Report is
incorporated herein by reference.
Critical Accounting Policies
The information set forth under the heading "Financial Review - Critical
Accounting Policies" pages 6 through 7 of the registrant's 2004 Annual Report
is incorporated herein by reference.
-13-
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
The information set forth under the heading "Financial Review - Market Risk"
pages 12 through 14 of the registrant's 2004 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 16 through 39 of the registrant's 2004
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, 2004,
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, 2004, 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, 2004 that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
ITEM 9b. Other Information
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, 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 eleven 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, 74 President, John C. Miller, Inc. 2 1988
Automobile Dealer
Robert L. Maider, 73 Attorney-at-Law, Maider & Smith 2 1988
William N. Smith, 64 Chairman of the Board, President 1 1988
and Chief Executive Officer
of the Company and the Bank
George A. Morgan, 62 Vice President & Secretary 3 1991
of the Company and Executive Vice President,
Cashier & Trust Officer of the Bank
Brian K. Hanaburgh, 55 Owner 1 1994
D/B/A McDonald's Restaurants
Fast Food Restaurants
Clark D. Subik, 50 President, Superb Leather, Inc. 3 1995
Leather Merchandiser
Deborah H. Rose, 54 Retired, Vice President, Hathaway Agency, Inc. 3 1996
General Insurance
Theodore E. Hoye, III, 56 President, First Credit Corporation 3 1998
Financing and Insuring of Manufactured Housing
Timothy E. Delaney, 42 President, Delaney Construction Corporation 2 1999
Heavy/Highway Construction
Richard D. Ruby, 56 President, Ruby & Quiri, Inc. 1 1999
Home Furnishings Retailer
John J. Daly, 64 Retired, Co-founder Alpin-Haus Ski Shop, Inc. 2 2004
Retailer of Recreational Vehicles, Ski Accessories
and Pools
Management is not aware of any family relationships between the above named
directors.
-14-
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 2005 Annual Meeting of
Shareholders.
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 2005 Annual Meeting of Shareholders; provided however that
the caption entitled "Compensation Committee Report on Executive
Compensation" 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 2005 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 294,878 26.98 98,350
Equity compensation plans not
approved by security holders (1) 15,007 15.22 --
Total 309,885 26.41 98,350
(1) 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 2005 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 2005 Annual Meeting of Shareholders.
ITEM 15. Exhibits and Financial Statement Schedules
The following consolidated financial statements of the registrant and its
subsidiary and the independent registered public accounting firms' report
thereon included in the registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 2004, are incorporated herein by reference:
Report of Independent Registered Public Accounting Firm
Financial Statements (Consolidated) Statements of Condition -
December 31, 2004 and 2003
Statements of Income - Years ended December 31, 2004, 2003 and 2002
Statements of Changes in Stockholders' Equity - Years ended
December 31, 2004, 2003, and 2002
Statements of Cash Flows - Years ended December 31, 2004, 2003, and 2002
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 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)
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. Consent of Independent Registered Public Accounting Firm
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
-15-
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 28, 2005
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 28, 2005
- ---------------------------
John C. Miller
By /s/ Robert L. Maider Director March 28, 2005
- ---------------------------
Robert L. Maider
By /s/ William N. Smith Chairman of the Board, March 28, 2005
- --------------------------- President and Chief Executive
William N. Smith Officer (chief executive officer)
By /s/ George A. Morgan Vice President and Secretary March 28, 2005
- --------------------------- (principal financial and accounting
George A. Morgan officer) and Director
By /s/ Brian K. Hanaburgh Director March 28, 2005
- ---------------------------
Brian K. Hanaburgh
By /s/ Clark D. Subik Director March 28, 2005
- ---------------------------
Clark D. Subik
By /s/ Deborah H. Rose Director March 28, 2005
- ---------------------------
Deborah H. Rose
By /s/ Theodore E. Hoye III Director March 28, 2005
- ---------------------------
Theodore E. Hoye III
By /s/ Timothy E. Delaney Director March 28, 2005
- ---------------------------
Timothy E. Delaney
By /s/ Richard D. Ruby Director March 28, 2005
- ---------------------------
Richard D. Ruby
By /s/ John J. Daly Director March 28, 2005
- ---------------------------
John J. Daly
-16-
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. Consent of Independent Registered Public Accounting Firm
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.
-17-