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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, 1997 Commission File Number 0-17501
CNB BANCORP, INC.
NEW YORK 14-1709485
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10-24 NORTH MAIN STREET, P.O. BOX 873, GLOVERSVILLE, NEW YORK 12078
(Address of principal executive offices)
Registrant's telephone number, including area code: (518) 773-7911
Securities registered pursurant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Indicate the number of shares outstanding of each of the issurer's classes
of common stock:
Class of Common Stock Number of Shares Outstanding as of March 1, 1998
$2.50 Par Value 1,600,000
The aggregate market value of the Registrant's common stock (based upon the
average bid and asked prices on March 1, 1998) held by non-affiliates was
approximately $55,600,000.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to stockholders for the fiscal
year ended December 31, 1997.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
stockholders.
ITEM 1. Business
On January 3, 1989, the corporate structure of City National
Bank and Trust Company (the Bank) was revised by the
establishment of a one-bank holding company, CNB Bancorp, Inc.
(the Company). Stockholders of the Bank retained their
outstanding shares which automatically became shares of the
Company. The Company, in turn, acquired all of the outstanding
shares of the Bank.
Prior to the merger, the Bank was independently owned and
operated and organized in 1887. The Bank is headquartered in
Gloversville, New York, with four branches located in the
county of Fulton.
The Bank is engaged in a general banking business with a range
of banking and fiduciary services including checking,
negotiable orders of withdrawal, savings, certificates of
deposit and club deposit accounts; 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.
There have been no significant developments or trends that have
occurred during the last fiscal year.
Competition
Competition for banking business is experienced from regional
based commercial bank holding companies, as well as from
savings banks, savings and loan associations, and credit
unions. The competition is reflected in both lending efforts
and deposit solicitations.
The Bank has a relatively stable deposit base and no material
amount of deposits is obtained from a single depositor or group
of depositors. The Bank has not experienced any significant
seasonal fluctuations in the amount of its deposits.
Employees
The Bank employs approximately 65 persons on a full time basis.
There are also 11 part time employees. The Bank provides a
variety of employment benefits and considers its relationship
with its employees to be good.
Supervision and Regulation
The operations of the Bank are subject to federal and state
statutes applicable to banks chartered under the banking laws
of the United States, to members of the Federal Reserve System,
and to banks whose deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC"). Bank operations are also
subject to regulations of the Comptroller of the Currency, the
Federal Reserve Board, the FDIC, and the New York State Banking
Department.
The primary supervisory authority of the Bank is the
Comptroller of the Currency, who regularly examines the Bank.
The Comptroller of the Currency has the authority under the
Financial Institutions Supervisory Act to prevent a national
bank from engaging in unsafe or unsound practice in conducting
its business.
Federal and state banking laws and regulations govern, among
other things, the scope of a bank's business, the investments a
bank may make, the reserves against deposits a bank must
maintain, the loans a bank makes and collateral it takes, the
activities of a bank with respect to mergers and
consolidations, and the establishment of branches. Branches may
be established within the permitted area only after approval by
the Comptroller of the Currency. The Comptroller of the
Currency is required to grant approval only if it finds that
there is a need for the banking services or facilities
contemplated by the proposed branch and may disapprove the
application if the bank does not have the capital and surplus
deemed necessary by the Comptroller of the Currency, or if the
application relates to the establishment of a branch in a
county contiguous to the county in which the applicant's
principal place of business is located and another banking
institution that has its principal place of business in the
county in which the proposed branch would be located has in
good faith notified the Comptroller of the Currency of its
intention to establish a branch in the same municipal location
in which the proposed branch would be located.
A subsidiary bank (which the Bank is) of a bank holding company
is subject to certain restrictions imposed by the Federal
Reserve Act on any extentions of credit to the bank holding
company or its subsidiaries, on investments in the stock or
other securities of the bank holding company or its
subsidiaries and on taking such securities as collateral for
loans. The Federal Reserve Act and Federal Reserve Board
regulations also place certain limitations and reporting
requirements on extensions of credit by a bank to principal
shareholders of its parent holding company, among others, and
to related interest of such principal shareholders. In
addition, such legislation and regulations may affect the terms
upon which any person becoming a principal shareholder of a
holding company may obtain credit from banks with which the
subsidiary bank maintains a correspondent relationship.
Federal law also prohibits acquisitions of control of a bank
holding company without prior notice to certain federal bank
regulators. Control is defined for this purpose as the power,
directly or indirectly, to direct the management or policies of
the bank or bank holding company or to vote 25% or more of any
class of voting securities of the bank holding company.
From time to time, various types of federal and state
legislation has been proposed that could result in additional
regulation of, and restrictions on, the business of the Bank.
It cannot be predicted whether any such legislation will be
adopted or how such legislation would affect the business of
the Bank. As a consequence of the extensive regulation of
commercial banking activities in the United States, the Bank's
business is particularly susceptible to being affected by
federal legislation and regulations that may increase the costs
of doing business.
The Depository Institutions Deregulation and Monetary Control
Act of 1980 became effective in March, 1980. The principal
effects of this law are to: phase in the deregulation of the
interest rates paid on personal deposits by gradually
eliminating regulatory ceilings on interest rates and dividends
paid on deposit accounts, as well as eliminating the interest
rate differential allowed thrifts and savings institutions;
enable all banks to offer personal interest bearing checking
type accounts; phase in mandatory and uniform reserve
requirements; and override certain usury limits on loan
interest rates established by state laws. On October 1, 1983,
the Depository Institutions' Deregulation Committee, acting
under the provisions of the Act, removed all remaining interest
rate ceilings and other regulations on time deposits, except
for early withdrawal penalties.
Under the Federal Deposit Insurance Act, the Comptroller of the
Currency possesses the power to prohibit institutions regulated
by it (such as the Bank) from engaging in any activity that
would be an unsafe and unsound banking practice or would
otherwise be in violation of law. Moreover, the Financial
Institutions and Interest Rate Control Act of 1978 ("FIRA")
generally expands the circumstances under which officers or
directors of a bank may be removed by the institution's federal
supervisory agency, restricts lending by a bank to its
executive officers, directors, principal shareholders, or
related interest thereof, restricts management personnel of a
bank from serving as directors or in other management positions
with certain depository institutions whose assets exceed a
specified amount or which have an office within a specified
geographic area, and restricts management personnel from
borrowing from another institution that has a correspondent
relationship with their bank. Additionally, FIRA requires that
no person may acquire control of a bank unless the appropriate
federal supervisory agency has been given 60 days prior written
notice and within that time has not disapproved the acquisition
or extended the period for disapproval.
Under the Community Reinvestment Act of 1977, the Comptroller
of the Currency is required to assess the record of all
financial institutions regulated by it to determine if these
institutions are meeting the credit needs of the community
(including low and moderate neighborhoods) which they serve and
to take this record into account in its evaluation of any
applications made by any such institutions for, among other
things, approval of a branch or other deposit facility, office
relocation, a merger, or an acquisition of bank shares.
The Garn-St. Germain Depository Institutions Act of 1982 (the
"1982 Act") removes certain restrictions on a bank's lending
powers and liberalizes the depository capabilities. The 1982
Act also amends FIRA (see above) by eliminating the statutory
limits on lending by a bank to its executive officers,
directors, principal shareholders, or related interest thereof
and by relaxing certain reporting requirements. However, the
1982 Act strengthened FIRA provisions with regard to managment
interlocks and correspondent bank relationships involving
management personnel.
On December 19, 1991, President Bush signed the Federal Deposit
Insurance Corporation Improvement Act ('FDIC Act") into law.
The FDIC Act makes a number of far-reaching changes in the
legal environment for insured banks. The FDIC Act provides for
an increase in the borrowing authority of the Bank Insurance
Fund ("BIF") to $30 billion from $5 billion, to be used to
cover losses in failed banks. The banking industry will repay
BIF debt through deposit insurance assessments. Statutory caps
on deposit insurance assessments were removed under the FDIC
Act, therefore the FDIC may levy deposit insurance assessments
at any level in its sole discretion. Under the FDIC Act,
accepting brokered deposits is limited to institutions that
have capital in excess of regulatory minimums. The FDIC Act
will require banks and thrifts to devote greater time and
resources to compliance and internal controls. The FDIC Act
details provisions and requires prompt regulatory action by
regulators in dealing with undercapitalized and poorly
performing institutions. The FDIC Act also contains expanded
disclosure of consumer provisions, extends the date for the
required use of licensed or certified appraisers to December
31, 1992 and sets limits on state bank powers.
Deposit Insurance Premiums
The FDIC's deposit insurance premiums are assessed through a
risk-based system under which all insured depository
institutions are placed into one of nine categories and
assessed insurance premiums based upon their level of capital
and supervisory evaluation. Under the system, institutions
classified as well capitalized and considered healthy pay the
lowest premium. The subsidiary Bank is in this category and
currently pays negligible deposit insurance premiums. If the
subsidiary Bank's capital ratios substantially deteriorate or
if the subsidiary Bank is found to be otherwise unhealthy, the
deposit insurance premiums payable by the subsidiary Bank could
increase.
In September 1996, The Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (the "1996 Act") became law. The 1996 Act
imposed a one time assessment on all SAIF institutions and then
equalized the insurance premiums for BIF and SAIF institutions.
At the same time, the 1996 Act required BIF institutions to
contribute to the costs of the "FICO" bonds sold in the late
1980s to finance the savings and loan bailout. BIF institutions
will pay 20% of the FICO bond assessment paid by SAIF
institutions. It has been estimated that SAIF institutions will
pay a FICO bond assessment of .065% of insured deposits, while
BIF institutions, such as the subsidiary Bank, will pay
approximately .013% of insured deposits. The FICO bond
assessment will equalize no later than January 1, 2000. As a
result of the 1996 Act, the competitive advantage which the
subsidiary Bank may have enjoyed against SAIF institutions has
been reduced, but not yet eliminated. This assessment is not
expected to have a material effect on the consolidated
financial statements of the Company.
The 1996 Act contemplates a merger of the SAIF and BIF funds,
with the elimination of the federal savings bank charter by
January 1, 1999. The exact manner in which the elimination will
be accomplished has not been established, but commentators have
suggested that all federal thrift institutions will be required
to convert either to a national bank, which the subsidiary Bank
is, state commercial bank or state savings bank charter.
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.
On August 9, 1989, the Financial Institutions Reform, Recovery
& Enforcement Act of 1989 (FIRREA) was signed into law. FIRREA
was enacted to deal with the problems involving the savings and
loan industry. The basic provision of FIRREA established a new
regulatory structure for all financial institutions. However,
the principal changes were with respect to the savings
associations previously insured by the Federal Savings and Loan
Insurance Corporation. FIRREA created a new deposit insurance
system which consists of two funds; the Bank Insurance Fund
(BIF) and the Savings Associations Insurance Fund (SAIF). The
Company's subsidiary bank is insured under BIF. FIRREA also
increased the insurance premiums and limited certain activities
of savings associations. The majority of the provisions of
FIRREA have little effect on the Company or its subsidiary.
STATISTICAL DISCLOSURE REQUIRED BY BANK HOLDING COMPANIES
The following are exhibits included herewith:
Exhibit No. Exhibit
I. A.B. Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differential
I. C. Rate Volume Analysis and Interest Rate Sensitivity Analysis
II. Securities Portfolio
III. Loan Portfolio
IV. Summary of Loan Loss Experience
V. Deposits
VI. Return on Equity and Assets
I. A.B. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential
1997 1996 1995
Interest Interest Interest
Average Earned/ Average Earned/ Average Earned/
(thousands) Balance Paid Rate Balance Paid Rate Balance Paid Rate
ASSETS
Interest Earning Assets:
Securities :
U.S Treasury & Government
Agencies $ 63,741 $ 4,094 6.42% $ 63,217 $ 3,992 6.31% $ 54,787 $ 3,379 6.17%
State & Political
Subdivisions 21,555 2,013 9.34 22,374 2,102 9.39 21,547 2,074 9.63
Other 877 55 6.27 755 47 6.23 448 31 6.92
Total Securities 86,173 6,162 7.15 86,346 6,141 7.11 76,782 5,484 7.14
Interest Bearing Balances With
Other Financial Institutions 59 3 5.08 60 3 5.19 0 0 0.00
Federal Funds Sold 6,170 343 5.56 7,453 391 5.25 5,537 320 5.78
Loans:
Loans,Less
Unearned Incom 112,785 9,990 8.86 105,814 9,541 9.02 102,749 9,504 9.25
Total Interest-
Earning Assets 205,187 $16,498 8.04% 199,673 $16,076 8.05% 185,068 $15,308 8.27%
Cash and Due From Banks 6,175 6,184 5,846
Reserve for Loan Losses (1,558) (1,545) (1,447)
Other Assets 5,757 5,478 4,578
Total Assets $215,561 $209,790 $194,045
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing Liabilities:
Deposits:
Savings:
Regular Savings $ 40,834 $ 1,136 2.78% $ 39,739 $ 1,189 2.99% $ 40,220 $ 1,209 3.01%
NOW 21,457 322 1.50 19,504 336 1.72 19,194 336 1.75
Money Market Accounts 14,630 469 3.21 15,873 547 3.45 13,749 511 3.72
Certificates of Deposit
$100,000 or More 33,311 1,887 5.66 35,530 1,961 5.52 26,543 1,610 6.07
Other Time Interest-Bearing 57,324 3,096 5.40 53,743 2,881 5.36 52,486 2,786 5.31
Total Int.-Bearing Deposits 167,556 6,910 4.12 164,389 6,914 4.21 152,192 6,452 4.24
Other Short-Term Borrowings
& Repurchase Agreements 592 32 5.41 278 10 3.77 527 22 4.17
Total Interest-Bearing
Liabilities 168,148 $ 6,942 4.13% 164,667 $ 6,924 4.21% 152,719 6,474 4.24%
Demand Deposits 17,900 17,539 16,040
Other Liabilities 808 704 678
Total Liabilities 186,856 182,910 169,437
Stockholders' Equity 28,705 26,880 24,608
Total Liabilities and
Stockholders' Equity $215,561 $209,790 $194,045
Includes available for sale and investment securities, both at amortized
cost, and FHLB and FRB stock.
Portions of income earned on U.S. Government obligations and obligations
of states and political subdivisions are exempt from federal and/or state
taxation. Appropriate adjustments have been made to reflect the equivalent
amount of taxable income that would have been necessary to generate an
equal amount of after tax income. The taxable equivalent adjustment is
based on a marginal Federal income tax rate of 34% for all periods
presented, and a marginal state income tax rate of 9.00% for 1997, 9.225%
for 1996 and 9.675% for 1995.
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.
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)
1997 1996 1995
Average yield on interest-
earning assets 8.04% 8.05% 8.27%
Average effective rate paid
on interest-bearing liabilities 4.13% 4.21% 4.24%
Spread between interest-earning
assets and interest-bearing
liabilities 3.91% 3.84% 4.03%
Net interest income (thousands) $ 0 $ 0 $ 0
Net interest margin 4.66% 4.58% 4.77%
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 (thousands)
1997 Compared to 1996 1996 Compared to 1995
Increase (decrease) due to: Increase (decrease) due to:
Volume Rate Total Volume Rate Total
Interest Earned on:
Loans $614 ($165) $449 $219 ($182) $ 37
Taxable Securities 36 74 110 554 75 629
Non-Taxable Securities (78) (11) (89) 80 (52) 28
Federal Funds Sold (73) 25 (48) 96 (25) 71
Interest-Bearing Balances
with Banks 0 0 0 3 0 3
Total 499 (77) 422 952 (184) 768
Interest Paid on:
Deposits 266 (270) (4) 513 (51) 462
Short-Term Borrowings & Repos 16 6 22 (10) (2) (12)
Total 282 (264) 18 503 (53) 450
Net Interest Differential $217 $187 $404 $449 ($131) $318
Notes to Rate Volume Analysis
The change in interest due to both rate and volume have been allocated to
changes due to volume and changes due to rate in proportion to the
relationship of the absolute dollar amounts of the changes in each.
A "tax equivalent adjustment" has been included in the calculations to
reflect this income as if it had been fully taxable. The "tax equivalent
adjustment" is based upon the federal and state income tax rates.
Includes securities available for sale, investment securities, FHLB and FRB
stock.
1. C. Interest Rate Sensitivity Analysis
Maturity/Repricing Period at December 31, 1996
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:
Securities $18,999 $23,854 $29,801 $14,983 $ 87,637
Loans, net of unearned discount 40,483 18,260 36,673 23,722 119,138
Cash & Cash Equivalents 2,822 0 0 0 2,822
Total rate sensitive assets $62,304 $42,114 $66,474 $38,705 $209,597
Rate sensitive liabilities:
Savings, NOW & MMDA accounts $23,305 $5,948 $5,665 $47,062 $81,980
Time deposits 21,813 43,710 18,760 0 84,283
All other rate sensitive liabilities 2,142 0 0 2,200 4,342
Total rate sensitive liabilities $47,260 $49,658 $24,425 $49,262 $170,605
Includes securities available for sale and investment securities, at
amortized cost, and FHLB and FRB stock.
GAP (RSA - RSL) $15,044 ($ 7,544) $42,049 ($10,557)
CUMULATIVE GAP (RSA - RSL) 15,044 7,500 49,549 38,992
RSA divided by RSL 131.8% 84.8% 272.2% 78.6%
RSA divided by RSL - Cumulative 131.8 107.7 140.8 122.9
GAP divided by equity 50.7 (25.4) 141.7 (35.6)
GAP divided by equity - Cumulative 50.7 25.3 166.9 131.4
RSA divided by total assets 28.0 18.9 29.9 17.4
RSA divided by total assets - Cumulative 28.0 47.0 76.9 94.3
RSL divided by total assets 21.3 22.3 11.0 22.2
RSL divided by total assets - Cumulative 21.3 43.6 54.6 76.7
GAP divided by total assets 6.8 (3.4) 18.9 (4.7)
GAP divided by total assets - Cumulative 6.8 3.4 22.3 17.5
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 3.4% of assets at December 31,
1997. Interest sensitivity, however, is only one measure of the extent to
which changes in interest rates might affect net interest income; the mix
within the interest earning asset and interest bearing liability portfolios
is continually changing as well. To date, the Company has not used financial
futures or interest rate swaps in the management of interest rate risk. The
Asset Liability Management Committee, using policies and procedures set by
the board of directors and senior management, is responsible for managing CNB
Bancorp, Inc.'s rate sensitivity position.
In evaluating the Company's exposure to interest rate risk, certain factors
inherent in the method of analysis presented in the table above must be
considered. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different
degrees to changes in market rates. Further, certain assets, such as
adjustable rate mortgages, have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. The Company
considers the anticipated effects of these various factors in implementing
its interest rate risk management objectives. It should also be noted that
the interest rate sensitivity level shown in the table above could be changed
by external factors such as loan prepayments or by factors controllable by
CNB Bancorp, Inc. such as asset sales.
The Company has identified a portion of it's savings deposits as being rate
sensitive based on prior years historical experience, due mainly to the shift
in dollar volume from certificates of deposit to savings accounts over and
above the historical level of core deposits. In addition, the Asset/Liability
Management Committee reviews, on a quarterly basis, the potential impact to
the Company's net interest margin based on a shift of +/- 200 bp change in
interest rates. At December 31, 1997 the net interest margin exposure,
expressed in dollars, for the one year cumulative gap based on a +200bp
change was an increase of approximately $168,000.
Another function of asset/liability management is to assure adequate
liquidity by maintaining an appropriate balance between interest sensitive
assets and interest sensitive liabilities. Liquidity management involves the
ability to meet the cash flow requirements of the Company's loan and deposit
customers. Interest sensitivity is related to liquidity because each is
affected by maturing assets and liabilities. Interest sensitivity analysis,
however, also considers that certain assets and liabilities may be subject to
rate adjustments prior to maturity. It is the Company's policy to manage its
affairs so that liquidity needs are fully satisfied through normal bank
operations. To maintain short-term liquidity, the Company strives to be a net
seller of Federal Funds, to keep a significant amount of the investments
available for sale portfolio in unpledged assets that are less than 18 months
to maturity, and to maintain lines of credit with correspondent banks.
Long-term liquidity involves the laddering of the investment portfolio to
provide stable cash flow, and the matching of fixed rate mortgage loans with
identified core deposits.
II. Securities Portfolio
A. The carrying amounts of the Company's securities for the years ended
December 31 are summarized below:
(in thousands)
Securities Available for Sale: 1997 1996 1995
U.S. Treasury and other U.S. Government Agencies $44,548 $45,641 $40,296
State and Political Subdivisions 9,810 10,479 10,168
Privately-issued collateralized mortgage obligations 0 0 286
Total $54,358 $56,120 $50,750
Investment Securities: 1997 1996 1995
Obligations of U.S. Government Agencies $20,732 $18,811 $15,198
State and Political Subdivisions 12,315 12,120 11,565
Total $33,047 $30,931 $26,763
Investments Required By Law: 1997 1996 1995
Federal Reserve Bank stock $ 240 $ 240 $ 150
Federal Home Loan Bank stock 644 595 0
Total $ 884 $ 835 $ 150
B. Maturity Distribution of the Company's securities as of December 31, 1997:
(in thousands)
Maturing
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Securities Available for Sale Amount Yield Amount Yield Amount Yield Amount Yield
US Treasury and other
U.S. Gov't Agencies $15,423 6.09% $15,365 6.44% $7,653 7.09% $ 6,107 5.93%
State and Political Subdivisions 1,877 10.08 5,039 10.07 2,672 8.67 222 7.86
Total $17,300 6.52% $20,404 7.30% $10,325 7.48% $ 6,329 6.10%
Maturing
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Investment Securities Amount Yield Amount Yield Amount Yield Amount Yield
U.S. Government Agencies $14,200 6.59% $ 6,085 6.78% $ 447 6.42% $ 0 0.00%
State and Political Subdivisions 1,998 7.91 6,396 9.62 3,517 8.77 404 7.92
Total $16,198 6.75% $12,481 8.24% $3,964 8.51% $404 7.92%
Maturities are based on the earlier of the maturity date or the call date.
A "tax equivalent adjustment" has been included in the calculation of the
yields to reflect this income as if it had been fully taxable. The "tax
equivalent adjustment" is based on federal and state income tax rates. The
yield on securities available for sale is calculated based upon the
amortized cost of the securities.
There are no securities of individual issuers that represent greater than
10% of stockholders' equity at December 31, 1997.
Investments Required By Law
Federal Reserve Bank Stock and Federal Home Loan Bank Stock are nonmarketable
equity securities carried at cost with no stated maturity date. The fully tax
effected yield on these stocks as of December 31, 1997 was 6.53%.
III. Loan Portfolio
A. Types of Loans 1997 1996 1995
December 31 (thousands) Balance % Balance % Balance %
Real Estate Loans $ 46,750 36.4% $ 44,583 38.8% $ 43,010 38.6%
Commercial and Commercial
Real Estate 37,265 29.0 32,685 28.4 34,815 31.2
Consumer Loans 44,537 34.6 37,780 32.8 33,632 30.2
Total 128,552 100.0% 115,048 100.0% 111,457 100.0%
Less: Reserve for loan losses 1,492 1,620 1,505
Unearned Income 9,414 8,063 6,983
Total $117,646 $105,365 $102,969
% represents the percentage of loans in the category to total loans (gross of reserves and unearned).
Real Estate Loans consists of only regular residential mortgage loans. At December 31, 1997, 1996 and
1995 the subsidiary Bank did not have any construction loans in the loan portfolio.
B. Maturities and Sensitivity to changes in Interest Rates
Shown below are the amounts of loans outstanding (excluding certain mortgages
and consumer loans) as of December 31, 1997, which, based on remaining scheduled
repayments 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
(thousands) or Less Five Years Five Years Total
Commercial and Commercial
Real Estate $25,009 $10,918 $1,338 $37,265
Includes demand loans having no stated schedule of repayments and no
stated maturity and overdrafts.
The following table reflects the total of commercial, financial, and
agricultural loans at December 31, 1997 that will be maturing after one year
which have predetermined fixed interest rates or floating interest rates.
(thousands)
Predetermined interest rates $5,611
Floating interest rates 6,645
C. Risk Elements
1. Nonaccrual, Past Due, and Restructured Loans
Risk elements consist of nonaccrual, past due, and restructured loans.
(thousands) 1997 1996 1995
Loans on a non-accrual basis $283 $ 680 $ 681
Loans past due 90 days or more 88 557 353
Restructured loans 0 0 0
Total non-performing loans $371 $1,237 $1,034
Total non-performing loans as a percent
of total loans - net of unearned income 0.3% 1.2% 1.0%
For loans on a non-accrual basis, loans past due 90 days or more and
restructured loans the difference between the interest collected and
recognized as income and the amounts which would have been accrued is not
significant.
Non-Performing Loans
Non-Performing loans are composed of (1) loans on a non-accrual basis, (2)
loans which are contractually past due 90 days or more as to interest or
principal payments but have not been classified non-accrual, and (3) loans
whose terms have been restructured to provide a reduction of interest or
principal because of a deterioration in the financial position of the
borrower.
The Company's policy with regard to non-accrual loans varies by the type of
loan involved. Generally, commercial, financial, and agricultural loans are
placed on a non-accrual status when they are 90 days past due unless they are
well secured and in the process of collection. In some instances, consumer
loans are classified non-accrual when payments are past due 90 days; but as a
matter of general policy, these loans are charged off after they become 120
days past due unless they are well secured and in the process of collection.
Mortgage loans are generally not placed on a non-accrual basis unless it is
determined that the value or marketability of real estate securing the loans
has deteriorated to the point that a potential loss of principal or interest
exists. Once a loan is on non-accrual basis, interest is recorded only as
received. Interest previously accrued on non-accrual loans which has not been
paid is reversed and charged against income during the period in which the
loan is placed on non-accrual status. Interest on restructured loans is only
recognized in current income at the renegotiated rate and then only to the
extent that such interest is deemed collectible.
C. Risk Elements
2. Potential Problem Loans
In addition to the total non-performing loans set forth above, loans in the
amount of $3.6 million at December 31, 1997 were classified as potential
problem loans. These are loans for which management has information which
indicates that the borrower may not be able to comply with the present
payment terms. Although there is some doubt about the ability of these
borrowers to comply with payment terms, minimal losses, if any, are
anticipated in 1998.
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 County of Fulton and, therefore, there are
certain concentrations of loans within this geographic area. The subsidiary
Bank strives to maintain a diverse loan portfolio and accomplishes this
through rigid underwriting standards and by offering a wide variety of
business and consumer loans. At December 31, 1997, the only concentration of
loans that existed within the Bank's portfolio were loans to the leather and
leather related industries. Loans to this segment were $5.5 million, which
represented 4.3% of the gross loans outstanding at December 31, 1997.
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, 1997 1996 1995
(in thousands)
Amount of loans outstanding at end
of year (less unearned income) $119,138 $106,985 $104,474
Average loans outstanding during the year
(less average unearned income) $112,785 $105,814 $102,749
Balance of allowance at beginning of year $ 1,620 $ 1,505 $ 1,339
Loans charged off:
Commercial and Commercial Real Estate (230) 0 (5)
Real Estate (41) (24) (7)
Consumer (133) (103) (87)
Total loans charged off (404) (127) (99)
Recoveries of loans previously charged off:
Commercial and Commercial Real Estate 1 0 0
Real Estate 0 0 0
Consumer 20 22 35
Total Recoveries 21 22 35
Net loans charged off (383) (105) (64)
Additions to allowance charged to operating expense 255 220 230
Balance of allowance at end of year $ 1,492 $ 1,620 $ 1,505
Net charge-offs as percent of average
loans outstanding during year
(less average unearned income) 0.34% 0.10% 0.06%
Net charge-offs as percent of allowance
beginning of year. 23.64% 6.98% 4.78%
Allowance as percent of loans outstanding
at end of year
(less unearned income) 1.25% 1.51% 1.44%
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 1997, the subsidiary Bank made a provision to its reserve for loan
losses in the amount of $255,000. The subsidiary Bank's allowance for loan
losses at December 31, 1997 totaled $1,491,736 or 1.25% of total loans, net
of unearned income. Net charge offs for 1997 totaled $383,342 of which $189,941
was due to one commercial relationship. Certain other commercial, financial,
and agricultural loans known to have problems are not expected to increase the
subsidiary Bank's losses during 1998. At year-end 1997, there were $282,605 of
loans in a non-accrual status. At December 31, 1997, $56,000 of the allowance
for loan losses was allocated to the nonaccrual loans outstanding. Losses
during 1998 in the real estate and consumer categories are expected to
approximate the average of the past three years. Although management of the
Company believes that the allowance is adequate to absorb anticipated losses,
there can be no assurance that the Company will not sustain losses in any given
period which could be substantial to the size of the allowance.
V. Deposits
A. The following table presents the average amount of deposits and rates paid by
major category for the year ended December 31:
1997 1996 1995
Average Average Average
(thousands) Balance Rate Balance Rate Balance Rate
Demand Deposits $ 17,900 $ 17,539 $ 16,040
Regular Savings, NOW, and
Money Market 76,921 2.51% 75,116 2.76% 73,163 2.81%
Certificates of Deposit and
Other Time Deposits 90,635 5.50% 89,273 5.42% 79,029 5.56%
Total $185,456 $181,928 $168,232
B. There were no foreign deposits in domestic offices at the end of any year in
the three year period ended December 31, 1997.
C. The following table indicates the maturities of time certificates of
deposit in amounts of $100,000 or more at December 31, 1997. (thousands)
Maturing in:
Three months or less $11,520
Over three months through six months 5,990
Over six months through twelve months 4,037
Over twelve months 3,955
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:
1997 1996 1995
Percentage of net income to:
Average total assets 1.44% 1.45% 1.55%
Average total stockholders' equity 10.81 11.34 12.21
Percentage of cash dividends paid
to net income 41.28 38.88 36.23
Percentage of average stockholders' equity
to average total assets 13.32 12.81 12.68
ITEM 2. Properties
The Bank's main office building is owned by the Company. In
addition, the Company owns property located at 185 Fifth
Avenue, Gloversville, New York, 231 Bridge Street, Northville,
New York, 142 North Comrie Avenue, Johnstown, New York and
4178 State Highway 30, Amsterdam, New York.
ITEM 3 Legal Proceedings
The nature of the Company's business generates a certain amount
of litigation involving matters arising in the ordinary course
of business. However, in the opinion of management of the
Company, after consultation with counsel, there are no
proceedings pending to which the Company is a party to or which
its property is subject which are material in relation to the
Company's net worth or consolidated financial condition, nor
are there any proceedings pending other than ordinary routine
litigation incident to the business of the Company. In
addition, no material proceedings are pending or are known to
be threatened or contemplated against the Company by
governmental authorities or others.
ITEM 4. Submission of Matter to a Vote of Security Holders
None
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders
Matters The information set forth under the heading "Market and
Dividend Information" on page 28 of the registrant's 1997
Annual Report is incorporated herein by reference.
ITEM 6. Selected Financial Data
The information set forth under the heading "Five Year Summary
of Operations" on page 9 of the registrant's 1997 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 page 5 of the registrant's 1997 Annual Report is incorporated
herein by reference.
Liquidity
Liquidity represents a banking enterprise's capacity to meet
its daily obligations, such as loan demand and the maturity or
withdrawal of deposits and other financial obligations. In
addition to maintaining liquid assets, factors such as capital
position, profitability, asset quality, and availability of
funding affect a bank's abilitiy 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.
The Company, on average, during 1997 sold $6.2 million of
federal funds.
Capital
At December 31, 1997, stockholders' equity was $29.7 million,
which represents an increase of $2.0 million, or 7.2% over
1996. This follows an increase of $1.8 million, or 6.8% over
1995. The increases from 1996 to 1997 and 1995 to 1996 were due
to the retention of earnings.
The adequacy of the Company's capital is reviewed by management
on an ongoing basis in relation to the size, composition and
quality of the Company's resources and in conjunction with
regulatory guidelines.
The currently required risk-based capital ratio, as established
by the Federal Reserve Board, is 8.00% as of December 31, 1997.
The Company's risk- based capital ratio was 25.3% and 26.2% at
December 31, 1997 and 1996 respectively. Dividends per share
declared in 1997 were $.80 as compared to $.74 in 1996 and $.68
in 1995 after adjusting for the 2 for 1 stock dividend declared
in January 1997.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 is effective for years beginning after December 15, 1997
and requires reclassification of consolidated financial
statements for earlier periods provided for comparative
purposes. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components.
Comprehensive income is defined as all changes in equity during
a period except those resulting from investments by owners and
distributions to owners. The Company will provide the
disclosures required by SFAS No. 130.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No.
131 is effective for consolidated financial statements for
fiscal periods beginning after December 15, 1997. In the
initial year of application, comparative information for
earlier years is to be restated. SFAS No. 131 requires that a
public business enterprise report financial and descriptive
information about its reportable operating segments. The
Company does not believe the adoption will have a significant
effect on its financial reporting.
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
The information set forth under the heading "Financial Review -
Market Risk" pages 6 and 7 of the registrant's 1997 Annual
Report is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The information set forth on pages 10 through 27 of the
registrant's 1997 Annual Report is incorporated by references.
Additional supplementary data not found in registrant's annual
report.
UNAUDITED INTERIM FINANCIAL INFORMATION (In Thousands, except
per share data). The following is a summary of unaudited
quarterly financial information for each quarter of 1997 and 1996.
1997 Quarters ended 1996 Quarters ended
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
Interest Income $3,874 $3,967 $3,931 $3,991 $3,749 $3,818 $3,868 $3,870
Net Interest Income 2,221 2,197 2,198 2,206 2,065 2,091 2,090 2,135
Provision for Loan Losses 60 45 45 105 30 30 80 80
Income Before Income Taxes 1,107 1,089 1,158 1,098 1,098 1,177 1,151 890
Net Income 775 763 803 760 771 823 810 641
Per Share: Net Income, 0.48 0.48 0.50 0.48 0.48 0.51 0.51 0.40
Per share figures have been adjusted to reflect the 2 for 1 stock split effected through the 100% stock dividend
declared in January 1997.
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Election of Directors
The by-laws of the Company provide that the Board of Directors
shall consist of not less than five nor more than 25 members,
and that the total number of directors may be fixed by action
of the Board of Directors or the shareholders. The by-laws
further provide that the directors shall be divided into three
(3) classes as nearly equal in number as possible, known as
Class 1, consisting of not more than eight (8) directors; Class
2, consisiting of not more than eight (8) directors; and Class
3, consisting of not more than nine (9) directors. Such classes
became effective after the first annual meeting of shareholders
in 1989. Each class holds office for a term of three years, but
only one class comes up for election each year. Each director
shall serve until his successor shall have been elected and
shall qualify, even though his term of office as herein
provided has otherwise expired, except in the event of his
earlier resignation, removal, or disqualification.
The eleven persons listed below are currently directors of the
Corporation. Except as noted below, all of the nominees have
held the same or another executive position with the same
employer during the past five years.
Principal Occupation Director of
Name, Age for Past Five Years Class the Corp. Since
Theodore E. Hoye, Jr., 72 Attorney-at-Law, Hoye & Hoye 3 1988
John C. Miller, 67 President, John C. Miller, Inc.
Automobile Dealer 2 1988
Frank E. Perrella, 70 President, Sira Corp.
Consultant 2 1988
Robert L. Maider, 66 Attorney-at-Law, Maider & Smith 2 1988
William N. Smith, 57 Chairman of the Board, President
and Chief Executive Officer 1 1988
of the Company and the Bank
Leon Finkle, 73 Chairman of the Board,
Finkle Distributors, Inc.
Candy and Tobacco Distribution 1 1988
George A. Morgan, 55 Vice President & Secretary
of the Company and Executive Vice President,
Cashier & Trust Officer of the Bank 3 1991
Clark Easterly, Sr., 71 Chairman of the Board
The Johnstown Knitting Mill Company
Manufacturer of Knitwear 1 1992
Brian K. Hanaburgh, 48 Owner
D/B/A McDonald's Restaurants
Fast Food Restaurants 1 1994
Clark D. Subik, 43 President, Superb Leather, Inc.
Leather Merchandiser 3 1995
Deborah H. Rose, 47 Vice President, Hathaway Agency, Inc.
General Insurance 3 1996
Management is not aware of any family relationships
between the above name directors.
The Board of Directors of the Company does not have a standing
nominating committee or compensation committee. These functions
are performed by the Company's Executive Committee which met
four times during 1997. Its members are Messrs. Smith,
Chairman, Miller, Morgan and Perrella, and in addition, up to
two other members of the Board may serve as rotating members on
a monthly basis. The Executive Committee reviews and
recommends, to the full Board of Directors, nominees for
election or re-election as directors. The Executive Committee
will consider the names of individuals recommended by
shareholders for nomination to be directors of the Company.
Persons wishing to recommend individuals for consideration
should send such recommendations to the Secretary of the
Company.
The Board of Directors of the Company met five times during
1997. All members, except for Mr. Subik, attended at least 75%
of the aggregate number of meetings of the Board of Directors
and committees of the Board of which they are menbers.
The subsidiary Bank does not have a standing nomininating
committee. This function is performed by the Executive and
Discount Committee. The Executive and Discount Committee, in
addition to matters pertaining to loans and discounts,
exercises, when the Board is not in session, all other powers
of the Board which may be delegated. The Committee met 47 times
during 1997 and these functions were discussed at various times
during these meetings. Its permanent members are Messrs. Hoye,
Perrella, Morgan and Smith, in addition up to two other members
of the subsidiary Bank Board may serve as rotating members on a
monthly basis.
The Board of Directors of the subsidiary Bank had 14 meetings
during 1997. All members, except for Mr. Finkle attended at
least 75% of the aggregate number of meetings of the Board of
Directors and committees of the Board of which they are
members.
The subsidiary Bank has a compensation committee that met twice
during 1997. Its members are Messrs. Hoye, Chairman; Easterly
and Miller. The committee reviews the salaries and other forms
of compensation of the key executive officers of the subsidiary
Bank, reviews salary policies and general salary administration
throughout the subsidiary Bank and recommends to the Board of
Directors profit sharing contributions to be made to the
employee profit sharing plan.
The Company and the subsidiary Bank have standing audit
committees. Their members are Company and subsidiary Bank
directors; Perrella, Chairman; Easterly,Miller, Rose and Subik.
These Committees met seven times in 1997. The Committees each
year verify certain assets of the subsidiary Bank. KPMG Peat
Marwick LLP, certified public accountants, are engaged to
perform an audit of the full consolidated financial statements
of the Company, in accordance with generally accepted auditing
standards. The committees meet with representatives of KPMG
Peat Marwick LLP to discuss the results of their audit, and
these results are then reported to the full Board of Directors.
The Chairman of the Committees, from time to time during the
year, held informal meetings with the Company and subsidiary
Bank's internal auditor.
Principal Officers
The Following table sets forth, as of December 31, 1997,
selected information about the principal officers of the
subsidiary Bank, each of whom is elected by the Board of
Directors and each of whom holds offices at the discretion of
the Board of Directors:
Bank
Office and Position Employee Shares of Hldg. Co.
Name, Age with the Bank Held Since Since Common Stock Owned
Robert W. Bisset, 61 Vice President 1972 1968 -
Ronald J. Bradt, 54 Vice President 1992 1966 420
George E. Doherty, 41 Vice President 1988 1983 180
Michael J. Frank, 51 Vice President and
Comptroller 1994 1990 2,000
Donald R. Houghton, 60 Vice President 1989 1955 150
David W. McGrattan, 57 Senior Vice President 1993 1988 200
George A. Morgan, 55 Executive Vice President,
Cashier and Trust Officer 1988 1967 816
William N. Smith, 57 Chairman of the Board,
President and Chief
Executive Officer 1984 1974 2,000
The number of shares owned has been adjusted to reflect the 2 for 1 stock
split effected through the 100% stock dividend declared in January 1997.
Each of the principal officers of the subsidiary Bank, as
listed above, have been principally employed as an officer or
employee of the subsidiary Bank for more than the past five
years.
ITEM 11 Executive Compensation
Remuneration of Directors and Officers
At present, directors of the Company are not compensated in any
way for their services. The Board of Directors of the
subsidiary Bank are the same individuals who are directors of
the Company. Directors of the subsidiary Bank are compensated
for all services as directors as follows:
For attending regular and special meetings of the Board;
$550 for each meeting. For service as regular members of the
Executive and Discount Committee, except salaried officers;
$11,700 per annum, payable quarterly. For service as special
members of the Executive and Discount Committee; $900 for the
month of service. For service as members of the Trust
Investment Committee, except salaried officers, $2,700 per
annum, payable quarterly. For service as members of the
Examining Committee; $225 for each meeting attended. In
addition to the foregoing, the Chairman of the Examining
Committee received an annual fee of $600, payable quarterly.
For service as members of the Compensation Committee, except
for salaried officers; $225 for each meeting attended. Total
directors' fees during 1997 amounted to $125,525. At present,
officers of the Company are not compensated in any way for
their services. The following summary compensation table shows
the annual compensation for the last three years for the
subsidiary Bank's chief executive officer and executive vice
president, the only officers whose total salary and bonus
exceeded $100,000 in 1997.
Summary Compensation Table
All Other
Name and Principal Position Year Salary Bonus Compensation
William N. Smith, Chief
Executive Officer, 1997 $169,000 $6,760 $16,567
Chairman of the Board 1996 159,000 6,360 14,918
and President of both 1995 150,000 6,000 14,590
the Company and the
subsidiary Bank
George A. Morgan, Vice 1997 $113,000 $4,520 $14,764
President and Secretary 1996 106,000 4,240 13,054
of the Company and Executive 1995 100,000 4,000 12,053
Vice President, Cashier
and Trust Officer of the Bank
Includes contributions to Mr. Smith's profit sharing plan
account of $9,167, $9,068 and $8,740 and Board of
Directors fees of $7,400, $5,850 and $5,850 for the years
1997, 1996 and 1995, respectively and contributions to
Mr. Morgan's profit sharing account of $7,364, $7,204 and
$6,203 and Board of Directors fees of $7,400, $5,850 and
$5,850 for the same periods.
The aggregate amount of personal benefits, on an individual
basis, for these officers did not exceed $10,000 in 1997.
Employee Benefit Plans
The subsidiary Bank has a non-contributory defined benefit
Retirement Plan by participation in the New York State Bankers
Retirement System. This Plan covers all employees of the Bank
age 21 years, and less than 65 years, with more than one year
of service who complete 1,000 or more hours of service during
the year. An employee becomes fully vested in the Plan after
five years of service. The amount of contributions, payment, or
accrual in respect to a specified person, is not and cannot
readily be separately or individually calculated by the
actuaries of the Plan. During 1997, the aggregate amount
expensed for retirement contributions to the Plan equaled
approximately 3.75% of the total covered remuneration paid to
participants in the Plan. In addition, the subsidiary Bank has
entered into an agreement with William N. Smith whereby the
subsidiary Bank has agreed to pay Mr. Smith a supplemental
retirement benefit equivalent to the excess of the benefit he
would receive under the Plan if the compensation limitations
provided by Section 401(a) (17) of the Internal Revenue Code
did not exist over his Plan benefit. The agreement also
provides that, for purposes of computing the supplemental
benefit payable to Mr. Smith, he will receive credit for an
additional ten years of service beyond his actual service with
the subsidiary Bank and the Company. Mr. Smith's supplemental
retirement benefit under this Agreement is only payable on his
termination of employment on or after his normal retirement
date, his earlier death or disability or if his employment
terminates within four years of a change in control of the
Company or the subsidiary Bank. The subsidiary Bank has
purchased a life insurance policy on Mr. Smith's life so that
it will have funds available to satisify its obligations under
this Agreement. This life insurance is held in a so-called
"Rabbi" trust but is available to the creditors of the
subsidiary Bank. Amounts expensed for retirement contributions
are not included in the above cash compensation table. Under
the Plan, as supplemented by the Agreement, each participant
who retires at age 65 is entitled to receive an annual
retirement income for life equal to 1.75% of the average of the
highest consecutive five years of compensation during his or
her career (average compensation) times creditable service up
to 35 years, plus 1.25% of the average compensation times
creditable service in excess of 35 years (up to five such
years), less .49% of the final three year average compensation
(limited to covered compensation, which is defined as the
average of the individual's last 35 years of taxable social
security wage base) times creditable service up to 35 years.
The following are examples of estimated annual benefits to
individual employees for the years of service indicated,
exclusive of social security benefits. (The Plan and the
Agreement contain provisions for optional benefits of
equivalent actuarial value which may be elected by the
employee). As of December 31, 1997, William N. Smith had 22
years of credited service with the subsidiary Bank and George
A. Morgan had 30 years.
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
Years of Service
Highest 5-Year Average
Base Compensation 20 30 40
$ 25,000 $ 6,300 $ 9,450 $ 12,588
50,000 14,628 21,942 28,724
75,000 23,378 35,067 45,599
100,000 32,128 48,192 62,474
125,000 40,878 61,317 79,349
150,000 49,628 74,442 96,224
175,000 58,378 87,567 113,099
200,000 67,128 100,692 129,974
The subsidiary Bank has a deferred profit sharing plan. At
present, the profit sharing plan provides for annual
contributions, if any, by the subsidiary Bank, at the
discretion of the Board of Directors. Employees are eligible to
participate in the profit sharing plan after completing one
year of service with the subsidiary Bank and having reached age
21 years. Contributions on behalf of participating employees
are allocated to participants' shares in proportion to their
annual compensation. Amounts expensed for deferred profit
sharing plan contributions are included in the above summary
compensation table. Participants are fully vested over a six
year period. Contributions are invested and administered by the
subsidiary Bank as sole trustee and administrator. In addition,
the Agreement between William N. Smith and the subsidiary Bank
provides that Mr. Smith will receive credit in an account
maintained on the books of the subsidiary Bank for an amount
equal to the difference between the amount actually credited to
Mr. Smith's account under the profit sharing plan and the
contribution he would have received without regard to the
compensation limitations of Section 401 (a)(17) of the Internal
Revenue Code. The balance in Mr. Smith's supplemental profit
sharing account is payable on his termination of employment on
or after his normal retirement date, his earlier death or
disability or if his employment terminates within four years of
a change in control of the Company or the subsidiary Bank. The
subsidiary Bank is contributing money to the "Rabbi" trust
previously referred to so that it will have funds available to
satisfy its obligation under the Agreement to pay Mr.
Smith supplemental profit sharing benefits.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Principal Beneficial Owners Common Stock*
As of December 31, 1997, the Trust Department of the Bank held,
in various fiduciary capacities, 10,120 shares of the Company's
common stock as co-trustee and 10,000 shares of the Company's
common stock as sole trustee. Management does not exercise
voting power over these shares. These holdings represent 1.26%
of the total shares outstanding.
The following table sets forth, as of December 31, 1997, the
amount and percentage of the common stock of the Company
beneficially owned by each director and by all directors and
principal officers as a group.
Name of Individual or Shares of Company Common Percent of
Identity of Group Stock Owned Class
Leon Finkle 2,400 0.15
Theodore E. Hoye, Jr. 4,200 0.26
Robert L. Maider 17,544 1.10
John C. Miller 48,000 3.00
George A. Morgan 816 0.05
Frank E. Perrella 34,800 2.18
William N. Smith 2,000 0.13
Clark Easterly, Sr. 3,632 0.23
Brian K. Hanaburgh 800 0.05
Clark D. Subik 1,000 0.06
Deborah H. Rose 3,420 0.21
All Directors and Principal Officers
of the Company as a Group (12 persons) 120,612 7.54
The securities "benefically owned" by an individual are
determined in accordance with the definition of "beneficial
ownership" as set forth in the regulations of the Securities
and Exchange Commission. Accordingly, they may include
securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well
as other securities as to which the individual has or shares
voting or investment power. Beneficial ownership may be disclaimed
as to certain of the securities.
Includes 800 shares owned individually by his spouse.
Includes 1,000 shares owned individually by his spouse.
Includes 34,000 shares owned individually by his spouse.
Includes 1,400 shares owned individually by his spouse.
Includes 300 shares owned individually by his spouse.
Includes 1,220 shares owned as custodian.
*The number of shares owned has been adjusted to reflect the 2
for 1 stock split effected through the 100% stock dividend declared
in January 1997.
ITEM 13. Certain Relationships and Related Transactions
The subsidiary Bank has had, and expects to have in the future,
banking transactions in the ordinary course of business with
many of its directors, executive officers and the businesses in
which they are associated. During the calendar year 1997, loans
to directors and executive officers, together with their
business interests, reached maximum aggregate totals of
$3,312,973, 11.16% of the December 31, 1997 equity capital
accounts. At year-end, 1997, loans to directors and executive
officers, together with their business interests, were
$2,193,639, 7.39% of the December 31, 1997 equity capital
accounts. All extensions of credit to such persons have been
made in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons, and in the opinion of the management of the subsidiary
Bank, do not involve more than a normal risk of collectibility
or present other unfavorable features.
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following consolidated financial statements of the
registrant and its subsidiary and the independent auditors'
report thereon included in the registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1997, are
incorporated herein by reference:
Financial Statements (Consolidated)
Independent Auditors' Report
Statements of Condition - Decmeber 31, 1997 and 1996 Statements
of Income - Years ended December 31, 1997, 1996 and 1995
Statements of Changes in Stockholders' Equity - Years ended
December 31, 1997, 1996, and 1995 Statements of Cash flows -
Years ended December 31, 1997, 1996, and 1995 Notes to
Consolidated Financial Statements
(All financial statement schedules for the registrant and its
subsidiary have been omitted as the required information is
included in the consolidated financial statements or the
related notes thereto.)
The following are the exhibits:
Exhibit No. Exhibit
3. Articles of Incorporation and Bylaws(incorporated by reference)
10. Material contracts:
Contract with data processing servicer(incorporated by reference)
Supplemental Executive Retirement Plan(incorporated by reference)
13. Annual Report to Security Holders(included herewith)
22. Subsidiaries of the Registrant(incorporated by reference)
23. Published report regarding matters submitted to a vote of
security holders
April 15, 1997 proxy materials(incorporated by reference)
EXHIBIT INDEX
Reg. S - K
Exhibit Number Description
3. Articles of Incorporation and Bylaws
10. Material contracts:
Contract with data processing servicer
Supplemental Executive Retirement Plan
13. Annual Report to Security Holders
22. Subsidiaries of the Registrant
23. Published report regarding matters submitted
to vote of security holders
April 15, 1997 proxy materials
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CNB Bancorp, Inc.
By: /s/ William N. Smith
William N. Smith,
Chairman of the Board, President and
Chief Executive Officer
By: /s/ George A. Morgan
George A. Morgan,
Vice President and Secretary
(principal financial officer)
Dated: March 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
CNB Bancorp, Inc.
By /s/ John C. Miller By /s/ Clark Easterly, Sr.
By /s/ Frank E. Perrella By /s/ Brian K. Hanaburgh
By /s/ Robert L. Maider By /s/ Clark D. Subik
By /s/ William N. Smith By /s/ Deborah H. Rose
By /s/ Leon Finkle By /s/ Theodore E. Hoye III
By /s/ George A. Morgan