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, 1996 Commission File Number 0-17501
CNB BANCORP, INC.
(Exact name of registrant as specified in its charter)
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, $5.00 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 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, 1997
- --------------------- ------------------------------------------------
$5.00 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, 1997) held by non-affiliates was
approximately $42,600,000.
-------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to shareholders for the fiscal
year ended December 31, 1996.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
shareholders.
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 branches of
both New York and regional based 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 68 persons on a full time basis.
There are also 9 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 assess-
ment 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.
<TABLE>
STATISTICAL DISCLOSURE REQUIRED BY BANK HOLDING COMPANIES
The following are exhibits included herewith:
<CAPTION>
Exhibit No. Exhibit
<S> <C>
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
</TABLE>
<TABLE>
I. A.B. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential
<CAPTION>
1996 1995 1994
Interest Interest Interest
Average Earned/ Average Earned/ Average Earned/
(thousands) Balance Paid<F2> Rate Balance Paid<F2> Rate Balance Paid<F2> Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Securities<F1>:
U.S Treasury & Government
Agencies $ 63,217 $ 3,992 6.31% $ 54,787 $ 3,379 6.17% $ 51,696 $ 2,776 5.37%
State & Political
Subdivisions 22,374 2,102 9.39 21,547 2,074 9.63 22,336 2,138 9.57
Other 755 47 6.23 448 31 6.92 765 27 3.53
Total Securities 86,346 6,141 7.11 76,782 5,484 7.14 74,797 4,941 6.61
Interest Bearing Balances With
Other Financial Institutions 60 3 5.19 0 0 0.00 14 1 5.00
Federal Funds Sold 7,453 391 5.25 5,537 320 5.78 4,561 197 4.32
Loans:
Loans,Less
Unearned Income<F3> 105,814 9,541 9.02 102,749 9,504 9.25 92,672 8,092 8.73
Total Interest-Earning
Assets 199,673 16,076 8.05% 185,068 15,308 8.27% 172,044 13,231 7.69%
Cash and Due From Banks 6,184 -- 5,846 -- 6,045 --
Reserve for Loan Losses (1,545) -- (1,447) -- (1,173) --
Other Assets<F4> 5,478 -- 4,578 -- 4,309 --
Total Assets $209,790 $16,076 $194,045 $15,308 $181,225 $13,231
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest bearing Liabilities:
Deposits:
Savings:
Regular Savings $ 39,739 $ 1,189 2.99% $ 40,220 $ 1,209 3.01% $ 42,153 $ 1,211 2.87%
NOW 19,504 336 1.72 19,194 336 1.75 19,398 365 1.88
Money Market Accounts 15,873 547 3.45 13,749 511 3.72 13,682 402 2.94
Certificates of Deposit
$100,000 or More 35,530 1,961 5.52 26,543 1,610 6.07 18,320 780 4.26
Other Time Interest-Bearing 53,743 2,881 5.36 52,486 2,786 5.31 47,285 1,971 4.17
Total Int.-Bearing Deposits 164,389 6,914 4.21 152,192 6,452 4.24 140,838 4,729 3.36
Other Short-Term Borrowings
& Repurchase Agreements 278 10 3.77 527 22 4.17 427 16 3.75
Total Short-Term Borrowings
& Repurchase Agreements 278 10 3.77 527 22 4.17 427 16 3.75
Total Interest-Bearing
Liabilities 164,667 6,924 4.21% 152,719 6,474 4.24% 141,265 4,745 3.36%
Demand Deposits 17,539 -- 16,040 -- 16,548 --
Other Liabilities 704 -- 678 -- 598 --
Total Liabilities 182,910 6,924 169,437 6,474 158,411 4,745
Stockholders' Equity 26,880 -- 24,608 -- 22,814 --
Total Liabilities and
Stockholders' Equity $209,790 $ 6,924 $194,045 $ 6,474 $181,225 $ 4,745
<FN>
<F1> Includes available for sale and investment securities, both at amortized cost, and FHLB and FRB stock.
<F2> 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 9.225%
for 1996, 9.675% for 1995 and 10.125% for 1994.
<F3> Interest earned on loans in 1996, 1995 and 1994 includes loan fees of $63, $53 and $63 thousand respectively. 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.
<F4> Other assets include all assets except those specifically identified above.
</TABLE>
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)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Average yield on interest-
earning assets<F1> 8.05% 8.27% 7.69%
Average effective rate paid
on interest-bearing liabilities 4.21% 4.24% 3.36%
Spread between interest-earning
assets and interest-bearing
liabilities<F1> 3.84% 4.03% 4.33%
Net interest income<F1> (thousands) $9,152 $8,834 $8,486
Net interest margin<F1> 4.58% 4.77% 4.93%
<FN>
<F1> On a fully taxable equivalent basis.
</TABLE>
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)
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
Increase (decrease) due to:<F1> Increase (decrease) due to:<F1>
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Earned on:<F2>
Loans $219 $(182) $ 37 $ 912 $ 500 $1,412
Taxable Securities<F3> 554 75 629 158 449 607
Non-Taxable Securities<F3> 80 (52) 28 (78) 14 (64)
Federal Funds Sold 96 (25) 71 48 75 123
Interest-Bearing Balances
with Banks 3 0 3 (1) 0 (1)
Total 952 (184) 768 1,039 1,038 2,077
Interest Paid on:
Deposits 513 (51) 462 405 1,318 1,723
Short-Term Borrowings & Repos (10) (2) (12) 4 2 6
Long-Term Debt -- -- -- -- -- --
Total 503 (53) 450 409 1,320 1,729
Net Interest Differential<F2> $449 $(131) $318 $ 630 $ (282) $ 348
Notes to Rate Volume Analysis
<FN>
<F1> 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.
<F2> 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.
<F3> Includes securities available for sale, investment securities, FHLB and FRB stock.
</TABLE>
<TABLE>
1. C. Interest Rate Sensitivity Analysis
<CAPTION>
Maturity/Repricing Period at December 31, 1996
After One
0 - 3 4 - 12 But Within After
(in thousands) Months Months Five Years Five Years Total
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Securities<F1> $17,326 $22,250 $32,365 $15,476 $ 87,417
Loans, net of unearned discount 38,168 15,615 33,179 20,023 106,985
Cash & Cash Equivalents 8,038 0 0 0 8,038
Total rate sensitive assets $63,532 $37,865 $65,544 $35,499 $202,440
Rate sensitive liabilities:
Savings and NOW accounts $ 9,930 $ 7,122 $ 6,783 $45,367 $ 69,202
Money market accounts 14,461 0 0 0 14,461
Certificates of deposit 27,500 37,287 18,369 0 83,156
All other rate sensitive
liabilities 20 437 0 0 457
Total rate sensitive liabilities $51,911 $44,846 $25,152 $45,367 $167,276
<FN>
<F1> Includes securities available for sale and investment securities, at amortized cost, and FHLB and FRB stock.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GAP (RSA--RSL) $11,621 $(6,981) $40,392 $(9,868)
CUMULATIVE GAP (RSA--RSL) 11,621 4,640 45,032 35,164
RSA divided by RSL 122.4% 84.4% 260.6% 78.2%
RSA divided by RSL--Cumulative 122.4 104.8 136.9 121.0
GAP divided by equity 41.9 (25.2) 145.6 (35.6)
GAP divided by equity--Cumulative 41.9 16.7 162.3 126.7
RSA divided by total assets 29.6 17.6 30.5 16.5
RSA divided by total assets--Cumulative 29.6 47.2 77.7 94.3
RSL divided by total assets 24.2 20.9 11.7 21.1
RSL divided by total assets--Cumulative 24.2 45.1 56.8 77.9
GAP divided by total assets 5.4 (3.3) 18.8 (4.6)
GAP divided by total assets--Cumulative 5.4 2.2 21.0 16.4
</TABLE>
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 2.2% of
assets at December 31, 1996. 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 interest 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 +/- 200bp
change in interest rates. At December 31, 1996 the net interest
margin exposure, expressed in dollars, for the one year cumulative
gap based on a 200bp change was approximately $231,000.
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)
<TABLE>
<CAPTION>
Securities Available for Sale 1996 1995 1994
<S> <C> <C> <C>
U.S. Treasury and other U.S. Government Agencies $45,641 $40,296 $36,332
State and Political Subdivisions 10,479 10,168 10,199
Privately-issued collateralized mortgage obligations 0 286 173
Total $56,120 $50,750 $46,704
</TABLE>
<TABLE>
<CAPTION>
Investment Securities 1996 1995 1994
<S> <C> <C> <C>
Obligations of U.S. Government Agencies $18,811 $15,198 $15,209
State and Political Subdivisions 12,120 11,565 11,834
Total $30,931 $26,763 $27,043
</TABLE>
<TABLE>
<CAPTION>
Investments Required By Law 1996 1995 1994
<S> <C> <C> <C>
Federal Reserve Bank stock $240 $150 $150
Federal Home Loan Bank stock 595 0 0
Total $835 $150 $150
</TABLE>
B. Maturity Distribution of the Company's securities as of
December 31, 1996:
(in thousands)
<TABLE>
<CAPTION>
Maturing
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Securities Available for Sale<F1> Amount Yield<F2> Amount Yield<F2> Amount Yield<F2> Amount Yield<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury and other
U.S. Gov't Agencies $15,105 5.87% $19,103 6.33% $5,054 7.05% $6,379 6.93%
State and Political Subdivisions 1,136 9.48 6,426 10.20 2,471 8.63 446 9.42
Total<F3> $16,241 6.12% $25,529 7.26% $7,525 7.55% $6,825 7.08%
<FN>
<F1> Maturities are based on the earlier of the maturity date or the call date.
<F2> 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.
<F3> There are no securities of individual issuers that represent greater than 10% of stockholders' equity at December
31, 1996.
</TABLE>
<TABLE>
<CAPTION>
Maturing
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Investment Securities<F1> Amount Yield<F2> Amount Yield<F2> Amount Yield<F2> Amount Yield<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Agencies $13,285 6.52% $ 5,526 6.96% $ 0 0.00% $ 0 0.00%
State and Political Subdivisions 1,298 7.28 5,675 9.72 4,663 9.05 484 8.30
Total<F3> $14,583 6.59% $11,201 8.36% $4,663 9.05% $484 8.30%
<FN>
<F1> Maturities are based on the earlier of the maturity date or the call date.
<F2> 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.
<F3> There are no securities of individual issuers that represent greater than 10% of stockholders' equity at December
31, 1996.
</TABLE>
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, 1996 was 6.52%.
III. Loan Portfolio
A. Types of Loans
<TABLE>
<CAPTION>
1996 1995 1994
December 31 (thousands) Balance %<F1> Balance %<F1> Balance %<F1>
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans<F2> $ 44,583 38.8% $ 43,010 38.6% $ 41,046 38.6%
Commercial and Commercial
Real Estate 32,685 28.4 34,815 31.2 34,202 32.2
Consumer Loans 37,780 32.8 33,632 30.2 30,997 29.2
Total 115,048 100.0% 111,457 100.0% 106,245 100.0%
Less: Reserve for loan losses 1,620 1,505 1,339
Unearned Income 8,063 6,983 5,570
Total $105,365 $102,969 $ 99,336
<FN>
<F1> % represents the percentage of loans in the category to total loans (gross of reserves and unearned).
<F2> Real Estate Loans consists of only regular residential mortgage loans. At December 31, 1996, 1995 and 1994 the Bank
did not have any construction loans in the loan portfolio.
</TABLE>
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, 1996,
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:
<TABLE>
<CAPTION>
After One
One Year But Within After
(thousands) or Less<F1> Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial and Commercial
Real Estate $21,892 $10,239 $554 $32,685
<FN>
<F1> Includes demand loans having no stated schedule of repayments and no stated maturity and overdrafts.
</TABLE>
The following table reflects the total of commercial, financial,
and agricultural loans at December 31, 1996 that will be maturing
after one year which have predetermined fixed interest rates or
floating interest rates.
(thousands)
<TABLE>
<CAPTION>
<S> <C>
Predetermined interest rates $4,723
Floating interest rates 6,070
</TABLE>
C. Risk Elements
1. Nonaccrual, Past Due, and Restructured Loans
Risk elements consist of nonaccrual, past due, and restructured
loans.
<TABLE>
<CAPTION>
(thousands) 1996 1995 1994
<S> <C> <C> <C>
Loans on a non-accrual basis $ 680 $ 681 $ 0
Loans past due 90 days or more 557 353 188
Restructured loans 0 0 0
Total non-performing loans $1,237 $1,034 $188
Total non-performing loans as a percent
of total loans--net of unearned income 1.2% 1.0% 0.2%
</TABLE>
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 a 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.
2. Potential Problem Loans
In addition to the total non-performing loans set forth above,
loans in the amount of $1.7 million at December 31, 1996 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 1997.
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 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, 1996,
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 $5.4 million, which
represented 4.7% of the gross loans outstanding at
December 31, 1996.
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.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Amount of loans outstanding at end
of year (less unearned income) $106,985 $104,474 $100,675
Average loans outstanding during the year
(less average unearned income) $105,814 $102,749 $92,672
Balance of allowance at beginning
of year $ 1,505 $ 1,339 $ 1,131
Loans charged off:
Commercial and Commercial Real Estate 0 (5) 0
Real Estate (24) (7) (12)
Consumer (103) (87) (141)
Total loans charged off (127) (99) (153)
Recoveries of loans previously charged
off: Commercial and Commercial Real Estate 0 0 38
Real Estate 0 0 0
Consumer 22 35 13
Total Recoveries 22 35 51
Net loans charged off (105) (64) (102)
Additions to allowance charged to
operating expense 220 230 310
Balance of allowance at end of year $ 1,620 $ 1,505 $ 1,339
Net charge-offs as percent of average
loans outstanding during year
(less average unearned income) 0.10% 0.06% 0.11%
Net charge-offs as percent of allowance
beginning of year. 6.98% 4.78% 9.02%
Allowance as percent of loans outstanding
at end of year
(less unearned income) 1.51% 1.44% 1.33%
</TABLE>
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 1996, the subsidiary Bank made a provision to its reserve
for loan losses in the amount of $220,000. The
subsidiary Bank's allowance for loan losses at December 31, 1996
totaled $1,620,078 or 1.51% of total loans, net of
unearned income. Certain other commercial, financial, and
agricultural loans known to have problems are not expected
to increase the subsidiary Bank's losses during 1997. At year-end
1996, there were $679,914 of loans in a non-accrual
status. At December 31, 1996, $272,000 of the allowance for loan
losses was allocated to the nonaccrual loans
outstanding. Losses during 1997 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:
<TABLE>
<CAPTION>
1996 1995 1994
Average Average Average
(thousands) Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits $ 17,539 $ 16,040 $ 16,548
Regular Savings, NOW, and
Money Market 75,116 2.76% 73,163 2.81% 75,233 2.63%
Certificates of Deposit and
Other Time Deposits 89,273 5.42 79,029 5.56 65,605 4.19
Total $181,928 $168,232 $157,386
</TABLE>
B. There were no foreign deposits in domestic offices at the end
of any year in the three year period ended December 31, 1996.
C. The following table indicates the maturities of time
certificates of deposit in amounts of $100,000 or more at December
31, 1996.
<TABLE>
<CAPTION>
(thousands)
<S> <C>
Maturing in:
Three months or less $19,877
Over three months through six months 2,427
Over six months through twelve months 3,143
Over twelve months 2,858
</TABLE>
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 year ended December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Percentage of net income to:
Average total assets 1.45% 1.55% 1.56%
Average total stockholders' equity 11.34 12.21 12.40
Percentage of cash dividends paid
to net income 38.88 36.23 35.12
Percentage of average stockholders' equity
to average total assets 12.81 12.68 12.59
</TABLE>
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, there are no proceedings pending
to which the Company is a part to or which its property is subject
which, if determined adversely to the Company,
would be 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 1996
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 1996
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 6 of the registrant's 1996 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 1996 sold $7.5 million of federal
funds.
Capital
- -------
At December 31, 1996, stockholders' equity was $27.7 million,
which represents an increase of $1.8 million, or 6.8%
over 1995. This follows an increase of $3.1 million, or 13.3% over
1994. The increase from 1995 to 1996 was due to the
retention of earnings. The increase from 1994 to 1995 was due to
the retention of earnings and an increase of $1.1
million in the reserve for net unrealized gains/(losses) on
available for sale securities, net of the tax effect.
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 current risk-based capital ratio, as established by the
Federal Reserve Board, is 8.00% as of December 31, 1996.
The Company's risk-based capital ratio was 26.2% and 25.6% at
December 31, 1996 and 1995 respectively. Dividends
per share declared in 1996 were $.74 as compared to $.68 in 1995
and $.62 in 1994 after adjusting for the 2 for 1
stock dividend declared in Janaury 1997.
Recently Issued Accounting Standards
- ------------------------------------
On October 3, 1994, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures." This Statement applies
to all creditors and amends FASB Statement No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 118
and SFAS No. 114, which are effective for financial statements as
of January 1, 1995, prescribes recognition criteria
for loan impairment and measurement methods for impaired loans and
loans whose terms are modified in troubled-debt
restructurings subsequent to the adoption of these Statements. A
loan is considered impaired when it is probable that
the borrower will be unable to repay the loan according to the
original contractual terms of the loan agreement.
These standards are applicable principally to commercial and
commercial real estate loans, however, certain provisions
related to restructured loans are applicable to all loan types.
Statement No. 114 and No. 118 were adopted effective
January 1, 1995. The adoption of these statements was not material
to the Company's consolidated financial statements.
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS No. 125),
which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments
of liabilities based on consistent application of a financial-
components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after
December 31, 1996. Certain aspects of SFAS No. 125 were amended by
Statement of Financial Accounting Standards No.
127 "Deferral of the effective date of certain provisions of FASB
Statement No. 125." Management believes the adoption
of SFAS No. 125, as amended, will not have a material impact on
the Company's consolidated financial statements.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The information set forth on pages 10 through 27 of the
registrant's 1996 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 1996 and 1995.
<TABLE>
<CAPTION>
1996 Quarters ended 1995 Quarters ended
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $3,749 $3,818 $3,868 $3,870 $3,531 $3,706 $3,638 $3,676
Net Interest Income 2,065 2,091 2,090 2,135 2,086 2,055 1,958 1,979
Provision for Loan
Losses 30 30 80 80 75 75 65 15
Income Before Income
Taxes 1,098 1,177 1,151 890 1,086 1,085 1,081 1,030
Net Income 771 823 810 641 763 762 757 721
Per Share: Net Income<F1> 0.48 0.51 0.51 0.40 0.48 0.48 0.47 0.45
<FN>
<F1> Per share figures have been adjusted to reflect the 2 for 1 stock split effected through the 100% stock dividend
declared in January 1997.
</TABLE>
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.
<TABLE>
<CAPTION>
Principal Occupation Director of
Name, Age for Past Five Years Class the Corp. Since
<S> <C> <C> <C>
Theodore E. Hoye, Jr., 71 Attorney-at-Law, Hoye & Hoye 3 1988
John C. Miller, 66 President, John C. Miller, Inc.
Automobile Dealer 2 1988
Frank E. Perrella, 69 President, JBF Industries, Inc.,
Tannery 2 1988
Robert L. Maider, 65 Attorney-at-Law, Maider & Smith 2 1988
William N. Smith, 56 Chairman of the Board, President
and Chief Executive Officer
of the Company and the Bank 1 1988
Leon Finkle, 72 Chairman of the Board,
Finkle Distributors, Inc.
Candy and Tobacco Distribution 1 1988
George A. Morgan, 54 Vice President & Secretary
of the Company and Executive Vice President,
Cashier & Trust Officer of the Bank 3 1991
Clark Easterly, Sr., 70 Chairman of the Board
The Johnstown Knitting Mill Company
Manufacturer of Knitwear 1 1992
Brian K. Hanaburgh, 47 Owner
D/B/A McDonald's Restaurants
Fast Food Restaurants 1 1994
Clark D. Subik, 42 President, Superb Leather, Inc.
Leather Merchandiser 3 1995
Deborah H. Rose, 46 Vice President, Hathaway Agency, Inc.
General Insurance 3 1996
Management is not aware of any family relationships between the above name directors.
</TABLE>
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 1996. Its members are Messrs.
Smith, Chairman, Hoye, 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 six times during 1996.
All members, except for Messrs. Hoye and 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 members.
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 48 times during 1996 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 13 meetings
during 1996. All members, except for Messrs. Finkle
and 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 members.
The subsidiary Bank has a compensation committee that met two
times during 1996. 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 six times in 1996. 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, 1996, 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:
<TABLE>
<CAPTION>
Office and Position Bank Employee Shares of Hldg. Co.
Name, Age with the Bank Held Since Since Common Stock Owned<F1>
<S> <C> <C> <C> <C>
Robert W. Bisset, 60 Vice President 1972 1968 --
Ronald J. Bradt, 53 Vice President 1992 1966 380
George E. Doherty, 40 Vice President 1988 1983 180
Michael J. Frank, 50 Vice President and
Comptroller 1994 1990 1,800
Donald R. Houghton, 59 Vice President 1989 1955 120
David W. McGrattan, 56 Senior Vice President 1993 1988 200
George A. Morgan, 54 Executive Vice President,
Cashier and Trust Officer 1988 1967 816
William N. Smith, 56 Chairman of the Board,
President and Chief
Executive Officer 1984 1974 2,000
<FN>
<F1> 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.
</TABLE>
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 II. 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; $450
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 1996 amounted to $107,250.
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 1996.
<TABLE>
Summary Compensation Table
<CAPTION>
Name and All Other
Principal Position Year Salary Bonus Compensation<F1>
<S> <C> <C> <C> <C>
William N. Smith, Chief
Executive Officer, 1996 $159,000 $6,360 $14,918
Chairman of the Board 1995 $150,000 $6,000 $14,590
and President of both 1994 $143,000 $5,720 $13,546
the Company and the
subsidiary Bank<F2>
George A. Morgan, Vice 1996 $106,000 $4,240 $13,054
President and Secretary 1995 $100,000 $4,000 $12,053
of the Company and Executive 1994 $ 89,000 $3,560 $ 9,984
Vice President, Cashier
and Trust Officer of the Bank<F2>
<FN>
<F1> Includes contributions to Mr. Smith's profit sharing plan account of $9,068, $8,740 and $9,346 and Board of
Directors fees of $5,850, $5,850, and $4,200 for the years 1996, 1995 and 1994, respectively and contributions
to Mr. Morgan's profit sharing plan account of $7,204, $6,203 and $5,784 and Board of Directors fees of $5,850,
$5,850 and $4,200 for the same periods.
<F2> The aggregate amount of personal benefits, on an individual basis, for these officers did not exceed $10,000
in 1996.
</TABLE>
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. Benefits are based on the number
of years of service and salary at retirement. 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 1996, the aggregate amount expensed for
retirement contributions to the Plan equaled approximately 4.37%
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 agree 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 satisfy 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, 1996,
William N. Smith had 21 years of credited service with
the subsidiary Bank and George A. Morgan had 28 years.
<TABLE>
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
<CAPTION>
Years of Service
Highest 5-Year Average
Base Compensation 20 30 40
<S> <C> <C> <C>
$ 25,000 $ 6,300 $ 9,450 $ 12,588
50,000 14,798 22,196 29,021
75,000 23,548 35,321 45,896
100,000 32,298 48,446 62,771
125,000 41,048 61,571 79,646
150,000 49,798 74,696 96,521
175,000 58,548 87,821 113,396
200,000 67,298 100,946 130,271
</TABLE>
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 life
insurance policy previously referred to has been purchased by the
subsidiary Bank for the purpose of satisfying its
obligations under this Agreement.
Item 12: Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Principal Beneficial Owners Common Stock*
- -----------------------------------------
As of December 31, 1996, the Trust Department of the Bank held, in
various fiduciary capacities, 10,120 shares of the
Company's common stock as co-trustee and 9,640 shares of the
Company's common stock as sole trustee. Management does
not exercise voting power over these shares. These holdings
represent 1.24% of the total shares outstanding.
The following table sets forth, as of December 31, 1996, 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.
<TABLE>
<CAPTION>
Name of Individual or Shares of Company Common Percent of
Identity of Group Stock Owned<F1> Class
<S> <C> <C>
Leon Finkle 2,400<F2> 0.15
Theodore E. Hoye, Jr. 4,200<F3> 0.26
Robert L. Maider 17,544 1.10
John C. Miller 46,000 2.88
George A. Morgan 816 0.05
Frank E. Perrella 34,800<F4> 2.18
William N. Smith 2,000 0.13
Clark Easterly, Sr. 3,232<F5> 0.20
Brian K. Hanaburgh 600<F6> 0.04
Clark D. Subik 700 0.04
Deborah H. Rose 2,220<F7> 0.14
All Directors and Principal Officers
of the Company as a Group (12 persons) 116,312 7.27
<FN>
<F1> 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.
<F2> Includes 800 shares owned individually by his spouse.
<F3> Includes 1,000 shares owned individually by his spouse.
<F4> Includes 34,000 shares owned individually by his spouse.
<F5> Includes 1,000 shares owned individually by his spouse.
<F6> Includes 200 shares owned individually by his spouse.
<F7> Includes 420 shares owned as custodian.
</TABLE>
*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 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 1996,
loans to directors and executive officers, together with their
business interests, reached maximum aggregate totals of
$2,638,203, 9.51% of the December 31, 1996 equity capital
accounts. At year-end, 1996, loans to directors and
executive officers, together with their business interests, were
$1,868,941, 6.74% of the December 31, 1996 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 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, 1996,
are incorporated herein by reference:
Financial Statements (Consolidated)
Independent Auditors' Report
Statements of Condition--Decmeber 31, 1996 and 1995
Statements of Income--Years ended December 31, 1996, 1995 and 1994
Statements of Changes in Stockholders' Equity--
Years ended December 31, 1996, 1995, and 1994
Statements of Cash flows--
Years ended December 31, 1996, 1995, and 1994
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:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
<S> <C>
3. Articles of Incorporation and Bylaws(incorporated by reference)
10. Material contracts:
Contract with data processing servicer(incorporated by reference)
Supplemental Executive Retirement Plan(included herewith)
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 16, 1996 proxy materials(incorporated by reference)
</TABLE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Reg. S--K
Exhibit Number Description
<S> <C>
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 16, 1996 proxy materials
</TABLE>
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 10, 1997
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/ William N. Smith By /s/ Brian K. Hanaburgh
---------------------------- ----------------------------
By /s/ George A. Morgan By /s/ Clark D. Subik
---------------------------- ----------------------------
By /s/ Frank E. Perrella By /s/ John C. Miller
---------------------------- ----------------------------
By /s/ Deborah H. Rose By
---------------------------- ----------------------------
By /s/ Clark Easterly, Sr. By
---------------------------- ----------------------------
By /s/ Robert L. Maider
----------------------------
Exhibit 10
AGREEMENT FOR SUPPLEMENTAL
RETIREMENT BENEFITS FOR WILLIAM SMITH
This Agreement made and entered into as of this 30th day of December
1996, by and between City National Bank and Trust Company of Gloversville,
a New York corporation (the "Corporation"), and William Smith, an
individual currently residing in the State of New York, (the "Executive").
WITNESSETH THAT:
WHEREAS, the Executive is employed by the Corporation as President
and Chief Executive Officer: and
WHEREAS, the Corporation recognizes the value of the services performed
by the Executive and wishes to encourage his continued employment; and
WHEREAS, the Corporation desires to provide the Executive with supplemental
deferred compensation to supplement the benefits under the Corporation's
qualified plans which will be limited because of the compensation
limitation under Section 401(a)(17) of the Code; and
WHEREAS, the parties hereto wish to provide the terms and conditions
upon which the Corporation shall pay such deferred compensation to
the Executive upon his retirement or other termination of employment
with the Corporation; and
WHEREAS, the parties hereto intend that this Agreement be considered
an unfunded arrangement, maintained primarily to provide deferred
compensation benefits for the Executive, member of a select group of
management or highly compensated employees of the Corporation, for
purposes of the Employee Retirement Income Security Act of 1974, as amended;
NOW, THEREFORE, in consideration of the above, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
Except as otherwise specified herein, the following terms shall have
the following meanings unless a different meaning is plainly required
by the context.
1.1 "Actuarial Equivalent" means equality in value of the aggregate
amounts expected to be received under different forms of payment,
based on the GAM 83 Mortality Table with 7% interest. The applicable
PBGC interest rates for the month preceding the date of the distribution
shall be used to make an Actuarial Equivalent determination.
1.2 "Beneficiary" means any person or persons designated by the Executive
to receive amounts payable hereunder, after the death of the Executive.
In the event that the Executive fails to designate a Beneficiary or
if no such designated Beneficiary is living upon the death of the
Executive or if for any reason such designation shall be legally
ineffective, then the amount shall be paid to the estate of the
Executive.
1.3 "Cause" means the Executive's having committed an act of fraud,
embezzlement, or theft constituting a felony, or an act intentionally
against the Corporation which causes the Corporation material injury,
or a final determination by a court that the Executive has committed
a material breach of his duties and responsibilities in connection
with rendering services to the Corporation.
1.4 "Change in Control" means any of the following events for CNB
Bancorp, Inc. or the Corporation: (a) any individual, corporation
(other than the Corporation), partnership, trust, association, pool,
syndicate, or any other entity or any group of persons acting in concert
becomes the beneficial owner, as that concept is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, of securities of the Corporation possessing
twenty percent (25%) or more of the voting power for the election
of directors of the Corporation; (b) any consolidation, merger or
other business combination involving the Corporation or the securities
of the Corporation in which holders of voting securities of the
Corporation immediately prior to such event own, as a group, immediately
after such event, voting securities of the Corporation (or, if the
Corporation does not survive such transaction, voting securities of the
corporation surviving such transaction) having less than fifty percent
(50%) of the total voting power in an election of directors of the
Corporation (or such other surviving corporation); (c) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the directors of the Corporation cease for any reason to
constitute at least a majority thereof unless the election, or the
nomination for election by the Corporation's shareholders, of each
new director of the Corporation was approved by a vote of at least
two-thirds of the directors of the Corporation then still in office
who were directors of the Corporation at the beginning of any such
period; (d) removal by the stockholders of all or any or the incumbent
directors of the Corporation other than a removal for Cause; or (e)
any sale, lease, exchange or other transfer of all, or substantially
all, of the assets of the Corporation to a party which is not controlled
by or under common control with the Corporation.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Committee" means the committee appointed by the Board of Directors
of the Corporation to interpret and administer this Agreement.
1.7 "Compensation" means the Executive's W-2 earnings during the twelve
month period ending on each Valuation Date.
1.8 "Normal Retirement Date" means the first day of the month following
the month in which the Executive attains age 64.
1.9 "Projected Compensation" means the Executive's estimated annual
Compensation for a future Determination Year and is equal to Compensation,
including bonuses, for the year ending on the Valuation Date increased
by the assumed future cost of living increases for such year.
1.10 "Supplemental Pension Plan Account" means the bookkeeping account
maintained by the Corporation which reflects the Executive's benefit
under the Agreement as calculated under Article II herein.
1.11 "Supplemental Profit Sharing Account" means the bookkeeping account
maintained by the Corporation which reflects the Executive's benefit
under this Agreement as calculated under Article III herein.
1.12 "Supplemental Pension Benefit" means the benefit calculated in
accordance with Article II of this Agreement.
1.13 "Supplemental Profit Sharing Benefit" means the benefit calculated
in accordance with Article III of this Agreement.
1.14 "Total Pension Benefit" means, the total pension benefit payable
under the Corporation's qualified Pension Plan as follows:
(a) 1.75% of the Executive's Final Average Compensation times Years of
Service as of the Determination Date, up to a maximum of 35 years,
less
(b) 0.49% of the Executive's Covered Compensation multiplied by Years
of Service up to a maximum of 35 years, plus
(c) 1.25% of the Executive's Final Average Compensation multiplied
by Years of Service between 35 and 40 Years, less
(d) the amount of the Executive's Accrued Benefit under the Corporation's
qualified Pension Plan, less
(e) the amount of Supplemental Pension Benefit previously distributed
to the Executive.
1.15 "Total and Permanent Disability" means a physical or mental condition
of the Executive resulting from bodily injury, disease, or mental
disorder that renders him incapable of continuing in his usual or
customary employment with the Corporation. The Executive shall be
considered totally and permanently disabled if he is eligible for
benefits under the Social Security Act and under any long term disability
income plan sponsored by the Corporation.
1.16 "Valuation Date" means December 31 of each year.
1.17 "Years of Service" means the Executive's creditable service,
as calculated under the Corporation's qualified Pension Plan, but
in no case less than forty (40) years.
ARTICLE II
PENSION BENEFITS
2.1 Supplemental Benefit. Upon the attainment of his Normal Retirement
Date, the Executive shall be entitled to a Supplemental Pension Benefit
in an amount equal to the difference between the Executive's Total
Pension Benefit payable under the Corporation's qualified Pension
Plan and the Executive's Total Pension Benefit payable under the
Corporation's qualified Pension Plan calculated without regard to
the compensation limitation under Section 401(a)(17) of the Code and
considering the Years of Service defined in Paragraph 1.17. The
Supplemental Pension Benefit shall be payable at such time and in such
manner as provided herein.
2.2 Supplemental Pension Benefit. The Executive's Supplemental Pension
Benefit, at any Valuation Date, is equal to the lump sum Actuarial
Equivalent of the amount determined under Section 2.1 above.
2.3 Death and Disability Benefits. Upon the Executive's death or upon
becoming disabled prior to his Normal Retirement Date, the Executive
or his Beneficiary shall be fully vested in the amount of his Supplemental
Pension Benefit.
2.4 Post-Retirement Benefits. If the Executive remains in the employment
of the Corporation beyond his Normal Retirement Date, his Supplemental
Pension Account Benefit shall be actuarially increased as of each
Valuation Date subsequent to his Normal Retirement Date.
ARTICLE III
PROFIT SHARING BENEFITS
3.1 Supplemental Profit Sharing Benefit. For the 1996 plan year and
for each subsequent year, the Corporation shall credit the Executive's
Supplemental Profit Sharing Account with a Supplemental Profit Sharing
Plan Benefit in the amount equal to the difference between the
Executive's actual contribution under the Corporation's qualified Profit
Sharing Plan and the contribution the Executive would have received
calculated without regard to the compensation limitation under Section
401(a)(17) of the Code. Upon the attainment of his Normal Retirement
Date, the Executive shall be entitled to the Supplemental Profit Sharing
Benefit payable at such time and in such manner as provided herein.
3.2 Supplemental Profit Sharing Account. The Executive's Supplemental
Profit Sharing Account as of any Valuation Date will consist of all
Supplemental Profit Sharing contributions made by the Corporation
on his behalf including the income, if any, earned on the Supplemental
Profit Sharing contributions.
The amount of such Supplemental Profit Sharing contributions credited
to the Executive's account will be determined annually by the Committee.
3.3 Death and Disability Benefits. Upon the Executive's death or upon
his Total and Permanent Disability, the Executive or his Beneficiary
shall be vested in his Supplemental Profit Sharing Benefit Account
under the same terms and conditions as under the Corporation's qualified
Profit Sharing Plan.
3.4 Post-Retirement Profit Sharing Benefit. If the Executive remains
in the employment of the Corporation beyond his Normal Retirement
Date, his Supplemental Profit Sharing Account Balance shall be credited
with additional contributions in accordance with Section 3.1.
ARTICLE IV
PAYMENT OF BENEFITS
4.1 Except as otherwise provided in Sections 4.2 and 7.1, if the Executive's
employment with the Corporation is voluntarily terminated by the
Executive or is terminated by the Corporation for Cause as described in
Paragraph 1.3, the Executive shall forfeit all benefits under this
Agreement.
4.2 If the Executive's employment with the Corporation is terminated
(a) after the attainment of his Normal Retirement Date, (b) by Total
and Permanent Disability, or (c) by death, the Executive or his
Beneficiary shall be entitled to his Supplemental Pension Benefit and
Supplemental Profit Sharing Benefit determined at the next Valuation
Date.
4.3 The Supplemental Pension and Profit Sharing Benefits shall be
payable to the Executive or his Beneficiary in the same manner, and
at the same time as benefit payments to such Participant or his
Beneficiary are made under the applicable terms of the Corporation's
qualified Pension Plan and the Corporation's qualified Profit Sharing
Plan.
ARTICLE V
ADMINISTRATION
5.1 The Agreement shall be administered by the Committee thereof appointed
by the Board. The Committee shall have the authority to administer
and interpret the Agreement including the establishment of a claims
procedure.
ARTICLE VI
MISCELLANEOUS
6.1 This Agreement shall not be construed as giving the Executive
any right to be retained in the employ of the Corporation.
6.2 Nothing contained in this Agreement and no action taken pursuant
to the provisions of this Agreement shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the
Corporation and the Executive, his Beneficiary or any other person.
To the extent that the Executive, his Beneficiary or any person acquires
the right to receive payment from the Corporation under this Agreement,
such right shall be no greater than the right of any unsecured general
creditor of the Corporation.
6.3 No benefit payable at any time under this Agreement shall be subject
in any manner to alienation, sale, transfer, assignment, pledge,
attachment or encumbrance of any kind.
6.4 This Agreement shall be binding upon and inure to the benefit
of the Corporation, its successors and assigns and the Executive and
his heirs, executor, administrator and legal representatives.
6.5 All rights hereunder shall be governed by and construed according
to the laws of the State of New York, except to the extent such laws
are preempted by the laws of the United States of America. In the
event any provision of this Agreement is held invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provision of this Agreement.
6.6 No modification of this Agreement shall be binding upon the parties
hereto, or either of them, unless such modification is in writing
and signed by the Corporation and the Executive.
ARTICLE VII
CHANGE IN CONTROL
7.1 If the Executive's employment with the Corporation and all of
its subsidiaries is terminated within four (4) years after a Change
in Control, the Executive will be entitled to a single lump sum payment
equal to the Actuarial Equivalent of his Supplemental Pension Benefit
and a single lump sum payment equal to his Supplemental Profit Sharing
Benefit payable as of the next Valuation Date.
ARTICLE VIII
CONVENANTS NOT TO COMPETE
8.1 The Executive shall forfeit all rights to benefits under this
Agreement if he serves as an officer, director or employee of, or
acts as a consultant for, any corporation or other entity whose business
is competitive with the Corporation and is situated in any of the
following counties of New York: Fulton, Franklin, Herkimer, Hamilton,
Montgomery, Saratoga, Schenectady, or Schoharie. The forfeiture provided
in this Article VIII will be deemed inapplicable to any relationship
that:
(a) exists and was disclosed to the Committee prior to the effective
date of this Agreement; or
(b) is determined by a majority of the Committee not to be contrary
to the interests of the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this 30th day of December 1996.
CITY NATIONAL BANK AND TRUST COMPANY
OF GLOVERSVILLE
By: /s/ Theodore E. Hoye, Jr.
Chairman of the Compensation Committee
By: /s/ William N. Smith
William N. Smith, "Executive"
Exhibit 13
CNB Bancorp, Inc.
1996 Annual Report
City National Bank
and Trust Company
DIRECTORS
CNB BANCORP, INC.
City National Bank and Trust Company
Theodore E. Hoye, Jr.
Partner, Hoye & Hoye Attorneys
John C. Miller
President, John C. Miller, Inc.
Automobile Dealer
Frank E. Perrella
President, JBF Industries, Inc.
Tannery
Robert L. Maider
Partner, Maider & Smith Attorneys
William N. Smith
Chairman of the Board, President and Chief Executive
Officer of the Company and the subsidiary Bank
Leon Finkle
Chairman of the Board, Finkle Distributors, Inc.
Candy and Tobacco Distribution
George A. Morgan
Vice-President and Secretary of the Company and
Executive Vice President, Cashier and Trust Officer
of the subsidiary Bank
Clark Easterly, Sr.
Chairman of the Board, The Johnstown Knitting Mill Company
Manufacturer of Knitwear
Brian K. Hanaburgh
Owner, D/B/A McDonald's Restaurants
Fast Food Restaurants
Clark D. Subik
President, Superb Leathers, Inc.
Leather Merchandiser
Deborah H. Rose
Vice-President, Hathaway Agency, Inc.
General Insurance
HONORARY DIRECTORS
Lydon F. Maider
Richard B. Parkhurst
Edward F. Vonderahe
Henry C. Tauber
Lloyd Politsch
Henry Buanno
Alfred J. Washburn
Richard E. Hathaway
Paul E. Smith
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET INCOME $ 3,045,158 $ 3,002,684 $ 2,824,933
Per Share<F1> 1.90 1.88 1.77
CASH DIVIDENDS DECLARED $ 1,184,000 $ 1,088,000 $ 992,000
Per Share<F1> .74 .68 .62
STOCKHOLDERS' EQUITY AT
YEAR END $ 27,746,821 $ 25,979,378 $ 22,924,941
Per Share<F1> 17.34 16.24 14.33
RETURN ON AVERAGE
STOCKHOLDERS' EQUITY 11.3% 12.2% 12.4%
RETURN ON AVERAGE
ASSETS 1.45% 1.55% 1.56%
TOTAL ASSETS AT YEAR-END $214,761,753 $201,516,183 $188,093,212
<F1>Per share amounts have been adjusted to reflect the 2 for 1 stock split
effected through the 100% stock dividend declared in January 1997.
</TABLE>
TO OUR STOCKHOLDERS'
I am please to report that 1996 proved to be another very successful year for
our Company.
Net income and earnings per share in 1996 were $3,045,158 and $1.90,
respectively compared to $3,002,684 and $1.88 the prior year, after adjusting
for the 2-for-1 stock split declared in January 1997.
Total assets increased $13,245,570 or 6.6% resulting in total assets at year-
end of $214,761,753. Total loans, net of unearned income increased only
$2,511,055 or 2.4%. With the lack of significant loan demand, excess funds
were invested in the securities portfolio. At year end total securities in
both the available for sale and investment securities categories were
$87,051,075, an increase of $9,537,472 or 12.3% from 1995.
Deposits increased by $12,074,274 or 6.9% to a new high of $186,422,481, with
the largest increase, $9,804,978, coming in regular savings, N.O.W. and money
market accounts. In monitoring our deposit growth, we compare ourselves to our
competitors. All Federally insured banks, savings and loan associations and
credit unions file a report on deposits by branch as of June 30 of each year.
The latest available information is for June 30, 1996 and is compiled by
county. The deposit totals for Fulton County show that as of June 30, 1996 we
had a 29.4% market share, with our nearest competitor having a market share of
16.4%. This means that although we compete with many financial institutions
that overall are much larger than we are, in Fulton County, we continue to be
the largest financial institution; a distinction we have held since 1986. In
fact, we have increased our market share every year since 1988 when we had a
market share of 18.9%.
As you know, the Board of Directors at their January 27, 1997 meeting declared
a 2-for-1 stock split to shareholders of record February 10, 1997. The split
was effectuated by means of a 100% stock dividend. The additional shares were
dated February 18, 1997 and mailed to shareholders at that time. At year-end,
after giving effect to the stock split, the bid price per share of stock was
$24.875, an increase of 10.6% from the prior year.
In January, 1996 the Board of Directors increased the dividend for the
thirtieth consecutive year. After adjusting for the stock split, the dividend
per share for the year was $.74, an increase of 8.8% over 1995. Total
dividends paid for the year amounted to $1,184,000.
Stockholders' equity increased to $27,746,821, an increase of $1,767,443 or
6.8%. This strong internal generation of capital resulted in a year-end
stockholders' equity to total assets ratio of 12.9%. That ratio compares very
favorable to our regulatory bank holding company peer group's average of 9.3%
and places us in the 90th percentile for capital strength within our group.
Six years ago, the American Bankers Association and several of its member
banks sued the credit union industry's regulator because it was allowing
credit unions to expand their membership beyond the limits of the law. During
this year, federal courts held that previous regulatory rulings, allowing
income tax exempt credit unions to greatly expand their "common bond"
memberships were illegal. This decision means a federal credit union can no
longer sign up new customers unless they are part of the original group of
people that credit union was chartered to serve. While some credit unions have
stuck to their original purpose, others have greatly expanded their scope in
recent years, aided to great extent by the tax exemption. The credit union
industry has launched a major public relations effort to portray banks as
"greedy" for objecting to this uneven playing field. Banks don't have a
quarrel with the thousands of credit unions that act like credit unions. The
objection is to those that act like banks but aren't taxed and regulated like
banks. I urge you to let your legislators, both state and federal, know how
you feel about this tax loophole.
During the year we made significant investments in real estate, equipment and
personnel to help position our organization to compete well into the twenty-
first century.
In June, we opened our new consumer loan department at 10 N. Main Street,
adjacent to the main bank building at 12-24 North Main Street, Gloversville.
This new office has its own entrance from the street, as well as being open to
the main banking lobby. This move allowed us to expand our mortgage department
into the former consumer loan area, creating more privacy for mortgage loan
customers. At the same time we moved the auditing and compliance departments
from their tight quarters on the balcony to upstairs in the new building. In
conjunction with the opening of this newly renovated facility, we expanded the
hours for all our loan departments downtown. The new hours are 9:00 a.m.-4:30
p.m. Monday through Thursday and 9:00 a.m.-6:00 p.m. Friday.
October saw the opening of our fourth branch office near the four corners in
Perth. This is a full service facility, as are all our other offices, with
night depository, safe deposit boxes, a drive-up window and an automated
teller machine. We had a very successful grand opening and are seeing steady
growth. We are the first bank to have an office in the town of Perth, and are
located next to Stewarts at the site of the old Perth Diner. We are approved
as the town of Perth's official bank, and they were our first depositor. In
order to provide convenience to existing as well as new customers, we have
expanded hours in Perth with the drive-up open Monday through Thursday 8:00
a.m.-6:00 p.m., Friday 8:00 a.m.-7:00 p.m and Saturday 9:00 a.m.-1:00 p.m.
The bank made two major technological advances during the year. Our new
automated customer Voice Response System went into operation in March. This
allows our customers to have access to information on their accounts 24 hours
a day, seven days a week. By calling 725-CITY (725-2489), Perth 842-4800,
customers can obtain a myriad of information on checking or savings accounts,
certificates of deposit, mortgage, installment or home equity loans. Transfers
can be made between checking accounts and statement savings accounts and the
bank's latest offerings and rates are also available. We are currently
averaging over 400 calls a week to the Voice Response System.
Also, a state-of-the-art electronic teller system was installed throughout the
organization which allows our tellers to be more efficient and better serve
our customers.
In 1997, a platform automation system will be completed for customer service
personnel and loan originators. In addition, we plan to expand our product
menu with a new debit card that incorporates the features of an ATM card and
the universal acceptance of MasterCard or Visa. The card is used in place of a
personal check or cash at merchant locations and the amount of the purchase is
deducted directly from the customer's checking account.
Several personnel changes were made during the year. Tiena DiMattia was named
the manager of the new Perth office, Elizabeth Hranitz was named manager of
the Johnstown office, Constance Robinson was named manager of the Fifth Avenue
office, and Julie Bean became a loan officer in the mortgage department.
Donald F. Stanyon, Jr. was hired during the year as a financial services
officer to help customers make investment decisions on products other than
traditional bank deposits. In October, we entered into an agreement with Essex
Corporation to provide our customers with the ability to purchase mutual funds
and annuities at our banking offices. Don will administer the program and
provide the expertise to help our customers choose an appropriate investment.
He is licensed to sell stocks and bonds, as well as mutual funds and
annuities. Essex, which is a leading provider of "non-deposit" investments to
the banking community, marketed over $3.1 billion in annuities in 1996.
In January, Deborah H. Rose, Vice President of Hathaway Agency, was appointed
to the Board of Directors. Mrs. Rose brings a diversity of experience and
viewpoint that will serve to compliment our existing Board.
We also want to recognize and congratulate Shirley Quinn on her retirement
from the Bank effective April 26, 1996. Shirley was a dedicated employee with
nearly 25 years of service.
Finally, I would like to thank our directors and staff for their contributions
to the continuing success of our company.
/s/
William N. Smith
Chairman and President
<TABLE>
Year End Total Assets
Five Years (1992-1996)
<CAPTION>
(Thousands)
<S> <C>
1992 $164,324
1993 $170,275
1994 $188,093
1995 $201,516
1996 $214,762
</TABLE>
<TABLE>
Net Income
Five Years (1992-1996)
<CAPTION>
(Thousands)
<S> <C>
1992 $2,353
1993 $2,576
1994 $2,825
1995 $3,003
1996 $3,045
</TABLE>
<TABLE>
Bid Price Per Common Share Year End<F1>
Five Years (1992-1996)
<CAPTION>
<S> <C>
1992 $14.00
1993 $16.44
1994 $20.38
1995 $22.50
1996 $24.88
<F1>per share figures have been adjusted to reflect stock splits.
</TABLE>
<TABLE>
Dividend Paid Per Common Share<F1>
Five Years (1992-1996)
<CAPTION>
<S> <C>
1992 $.54
1993 $.58
1994 $.62
1995 $.68
1996 $.74
<F1>per share figures have been adjusted to reflect stock splits.
</TABLE>
FINANCIAL REVIEW
The financial review is a presentation of management's discussion and analysis
of the consolidated financial condition and results of operations of CNB
Bancorp, Inc. and its subsidiary City National Bank & Trust Company. The
financial review is presented to provide a better understanding of the
financial data contained in this report and should be read in conjunction with
the consolidated financial statements and other schedules that follow.
Results of Operations: The comparative consolidated statements of income
summarizes income and expense for the last three years. The Company, again,
achieved record earnings for 1996 of $3,045,158 as compared to $3,002,684 for
1995, an increase of 1.4% over the previous year. Net income for 1995
increased by 6.3% over that of 1994. The return on average assets for the
three years ended December 31, 1996, 1995, and 1994 was 1.45%, 1.55% and
1.56%, respectively. The return on average equity for the same periods was
11.3%, 12.2% and 12.4%. The record earnings posted for 1996 were especially
gratifying in view of the funding, by the subsidiary Bank, of three major
projects during the year. These included, the opening of a new branch office
in the town of Perth, the purchase and renovation of a building next door to
our main office, and the purchase of a new teller and platform automation
system.
Net interest income, the most significant component of earnings, is the amount
by which the interest generated from earning assets exceeds the expense
associated with funding those assets. Changes in net interest income from year
to year result from changes in the level and mix of the average balances
(volume) of earning assets and interest-bearing liabilities and from the yield
earned and the cost paid (rate). In the following discussion, interest income
is presented on a fully taxable equivalent basis applying the statutory
Federal income tax rate. Net interest income increased $317,158 or 3.6%, as
compared to an increase of $348,362 or 4.1% for the previous year. The
increase in 1996 was a result of higher volumes of interest bearing
liabilities being invested in the investment portfolio due to slow loan demand
which resulted in increased earning assets, but at a lower net interest
margin. Interest and fees on loans for 1996 increased by only $36,824 or 0.4%
from the previous year, as compared to an increase of $1,412,494 or 17.5%, for
1995 over 1994. The nominal increase for 1996 was due primarily to lower
volumes of commercial loans than the previous year. Interest on securities
increased $634,658 or 11.6%, as compared to an increase of $542,706 or 11.0%
for 1995 over 1994. The increase in 1996 was due to new deposit growth being
invested in the investment portfolio and maturing securities being reinvested
at slightly higher rates. The increase in 1995 was due to higher interest
rates available on the reinvestment of maturing securities. Interest on
federal funds sold increased by $71,384 or 22.3%, as compared to an increase
of $122,981 or 62.4% for 1995 over 1994. The increase in 1996 was due to the
higher volume of funds maintained to offset the increase in short-term
interest bearing liabilities.
Total interest expense increased $450,846 in 1996 or 7.0% over that of 1995 as
compared to an increase of $1,729,100 or 36.4% for 1995 over 1994. The
increase in 1996 was due to a higher volume of deposits in general and a
movement from lower paying deposits into higher paying certificates of
deposit. Average certificates of deposit in 1996, 1995 and 1994 were
$88,440,184, $78,241,592 and $64,306,161, respectively.
Total other income for 1996 decreased by $30,937 or 4.1% due to the non
recurring sale of our credit card receivables in 1995 at a gain of $67,000.
Total other income for 1995 decreased by $10,869 or 1.4% due mainly to lower
fiduciary income and no security gains in 1995. Total other expense increased
$247,564 or 5.7% over the preceding year as compared to an increase of
$114,939 or 2.7% for 1995 over 1994. The 1996 increase was due mainly to
higher salary and benefit costs, and start up costs of a new branch office,
partially offset by lower F.D.I.C. insurance costs.
For comparison purposes, the table below shows interest income converted to
fully taxable basis to recognize the income tax savings between taxable and
tax-exempt assets.
<TABLE>
<CAPTION>
% Change % Change
1996 1995 1994 1996/1995 1995/1994
<S> <C> <C> <C> <C> <C>
Total interest income $15,304,960 $14,551,487 $12,459,477 5.2% 16.8%
Total interest expense 6,924,405 6,473,559 4,744,459 7.0 36.4
Net interest income 8,380,555 8,077,928 7,715,018 3.7 4.7
Tax equivalent adjustment 771,101 756,570 771,118 1.9 (1.9)
Net interest income taxable
equivalent basis $ 9,151,656 $ 8,834,498 $ 8,486,136 3.6% 4.1%
</TABLE>
Net interest rate spread, the difference between average earning asset yield
and the cost of average interest bearing funds, decreased from 1995 to 1996 by
19 basis points or 4.7% over the previous year, as compared to a decrease of
30 basis points or 6.9% from 1994 to 1995. Net interest margin, the amount of
net income expressed as a percentage of earning assets, decreased for the year
by 19 basis points or 4.0%, whereas the change from 1994 to 1995 decreased by
16 basis points or 3.2%. The declines in the net interest rate spread and the
net interest margin for 1996 were attributed to most of the new deposit growth
being invested in the bond portfolio at a lower than average spread due to
slow loan demand.
Interest rate spread and net interest margin:
(Tax equivalent basis)
<TABLE>
<CAPTION>
1996 1995 1994
Yearly Yearly Yearly
Average Rate Average Rate Average Rate
<S> <C> <C> <C> <C> <C> <C>
Earning Assets $199,674,619 8.05% $185,067,200 8.27% $172,044,994 7.69%
Interest bearing
liabilities 164,667,366 4.21 $152,718,579 4.24 $141,265,173 3.36
Net interest
rate spread 3.84% 4.03% 4.33%
Rate on earning
assets 8.05% 8.27% 7.69%
Interest expense to
earning assets 3.47 3.50 2.76
Net interest margin 4.58% 4.77% 4.93%
</TABLE>
Liquidity and Interest Rate Sensitivity Management: The primary functions of
asset/liability management are to assure adequate liquidity and maintain an
appropriate balance between interest-sensitive assets and interest-sensitive
liabilities. Liquidity management involves the ability to meet the cash flow
requirements of customers' needs to access deposit balances and to provide for
the credit demands of borrowing customers. Interest rate sensitivity
management seeks to avoid fluctuating net interest margins and to enhance
consistent growth of net interest income through periods of changing interest
rates.
While the primary source of liquidity consists of maturing securities, other
sources of funds are federal fund sold, repayment of loans, sale of securities
available for sale, and growth of deposit accounts. Throughout 1997,
approximately $16 million of securities are scheduled to mature and
approximately $15 million become callable. While there are no known trends or
demands that are likely to affect the Bank's liquidity position in any
material way during the coming year, the above funds are available to satisfy
any needs that may arise.
Interest rate sensitivity involves the management of interest rate risk which
arises from mismatches between repricing or maturity characteristics of assets
and liabilities. More assets repricing than liabilities over a given time
frame is considered asset sensitive and more liabilities repricing than assets
is considered liability sensitive. In a rising rate environment an asset
sensitive position will generally enhance earnings, whereas a liability
sensitive position will negatively impact earnings. The asset/liability
committee of the subsidiary Bank meets regularly to determine strategies and
to monitor its repricing opportunities to assure a proper mix of assets and
liabilities to limit adverse exposure of net interest income due to changes in
interest rates. As of December 31, 1996 the subsidiary Bank was in an asset
sensitive position which means that more assets are scheduled to mature or
reprice within the next year than liabilities. The under one year cumulative
gap to total assets was 2.2% as of December 31, 1996.
Capital Resources: On January 1, 1994 the Company adopted Financial Accounting
Standards Board Statement No. 115 (SFAS No. 115) "Accounting for Certain
Investments in Debt and Equity Securities." The provisions of SFAS No. 115
required the subsidiary Bank to establish a capital reserve for unrealized
gains or losses on available for sale securities, net of the deferred tax
effect. Stockholders' equity ended 1996 at $27,746,821 up $1,767,443 or 6.8%.
At December 31, 1996 the ratio of stockholders' equity to total assets was
12.9% the same as the previous year.
As of December 31, 1990 banks were required to report new risk-based capital
ratios that require bank holding companies to meet a ratio of qualifying total
capital to risk-weighted assets. Risk-based assets are the value of assets
carried on the books of the Company, as well as certain off-balance sheet
items, multiplied by an appropriate factor as stipulated in the regulation.
Tier 1 capital consists of common stock and qualifying stockholders' equity.
Total capital consists of Tier 1 capital plus a portion of the allowance for
loan losses. Currently the minimum risk-based ratios, as established by the
Federal Reserve Board, for Tier 1 and total capital are 4% and 8%,
respectively. At December 31, 1996 the Company had Tier 1 and total capital
risk-based ratios of 25.0 and 26.2%, respectively. The Company also maintained
a leverage ratio of 12.9% as of December 31, 1996. The leverage ratio is
defined as Tier 1 capital in relation to fourth quarter average assets. These
strong ratios are well in excess of regulatory minimums, and well above the
average for peer banks and the industry as a whole.
<TABLE>
<CAPTION>
CNB Bancorp, Inc. 1996 Minimum
Risk Based Ratios December 31, 1996 Regulatory Guidelines
<S> <C> <C>
Tier 1 25.0% 4.0%
Total Capital 26.2% 8.0%
Leverage Ratio 12.9% 3.0%
</TABLE>
Provision for loan losses: The level of the adequacy of the allowance for loan
losses is determined by management's evaluation of the quality of the loan
portfolio on a quarterly basis. This is an integral part of the loan function
which includes the identification of past due loans, non performing loans, the
recognition of the current economic environment and the review of historical
loss experience.
Non performing loans, defined as non accruing loans, loans 90 days or more
past due and still accruing interest and loans restructured in a troubled debt
restructuring, ended 1996 at $1,236,536 or 1.16% of loans net of unearned
income. Non performing loans at December 31, 1995 were $1,033,866 or .99% of
loans net of unearned income. There were no troubled debt restructured loans
as of December 31, 1996 or 1995. There are no other loans in the Company's
portfolio that management is aware of that pose significant adverse risk to
the eventual full collection of principal.
The provision for loan losses for 1996 was $220,000, compared to $230,000 in
1995 and $310,000 in 1994. Net charge-offs were $105,081, $63,753 and $102,439
for the years 1996, 1995 and 1994, respectively. The allowance at year-end
1996 was 1.51% of loans net of unearned income, as compared to 1.44% for year-
end 1995. As of January 1, 1995, the Company adopted the new accounting rules
for impaired loans, Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS No. 114) and
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures" (SFAS No. 118),
which amended SFAS No. 114. In accordance with these new Statements, a loan is
considered impaired when it is probable that the borrower will be unable to
repay the loan according to the original contractual terms of the loan
agreement. These Standards are applicable principally to commercial and
commercial real estate loans, however, certain provisions related to
restructured loans are applicable to all loan types. The Company considers all
commercial non-accrual loans and all loans restructured in a troubled debt
restructuring subsequent to January 1, 1995 to be impaired. All required
disclosures related to these new Statements are included in the notes to the
consolidated financial statements.
Deferred tax asset valuation allowance: Deferred tax assets are recognized
subject to management's judgment that realization is more likely than not. In
considering if it is more likely than not that some or all of the deferred tax
assets will not be realized, the Company considers temporary taxable
differences, historical taxes and future taxable income. The valuation
allowance of $155,928 and $152,983 as of December 31, 1996 and 1995,
respectively, relates to New York State deferred tax assets due to the lack of
carryback and carryforward provisions available in New York State. Based
primarily on the sufficiency of historical taxable income, management believes
it is more likely than not that the remaining net deferred tax asset at
December 31, 1996 and 1995 will be realized.
<TABLE>
FIVE YEAR SUMMARY OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
December 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Consolidated statement of income data
Interest Income:
Loans $ 9,541 $ 9,504 $ 8,092 $ 7,200 $ 6,881
Securities<F1> 5,373 4,727 4,170 4,341 5,193
Federal funds sold 391 320 197 194 105
Total interest income 15,305 14,551 12,459 11,735 12,179
Interest expense:
Deposits 6,914 6,451 4,729 4,616 5,561
Borrowings 10 22 15 4 4
Total interest expense 6,924 6,473 4,744 4,620 5,565
Net interest income 8,381 8,078 7,715 7,115 6,614
Provision for loan losses 220 230 310 325 285
Net interest income after provision
for loan losses 8,161 7,848 7,405 6,790 6,329
Other income 717 748 759 612 611
Other expenses 4,562 4,314 4,199 4,024 3,706
Income before income taxes and cumulative
effects of changes in accounting principles 4,316 4,282 3,965 3,378 3,234
Applicable income taxes 1,271 1,279 1,140 883 881
Income before cumulative effects of changes
in accounting principles 3,045 3,003 2,825 2,495 2,353
Cumulative effects of changes in accounting
principles (net of income tax effect) 0 0 0 81 0
Net income $ 3,045 $ 3,003 $ 2,825 $ 2,576 $ 2,353
Per share data:<F2>
Income before cumulative effects of
changes in accounting principles $ 1.90 $ 1.88 $ 1.77 $ 1.56 $ 1.47
Net income 1.90 1.88 1.77 1.61 1.47
Cash dividends paid .74 .68 .62 .58 .54
Selected year-end
consolidated statement of condition data:
Total assets $214,762 $201,516 $188,093 $170,275 $164,324
Deposits 186,422 174,348 164,516 147,874 143,689
Securities<F1> 87,886 77,664 73,898 77,017 73,770
Net loans 105,365 102,969 99,336 82,793 75,074
Stockholders' equity<F1> 27,747 25,979 22,925 21,857 20,209
<F1>Securities figures include investment securities, securities available for
sale, FRB and FHLB stock. In 1996, 1995 and 1994 securities available for sale
were recorded at fair value with any unrealized gain or loss at December 31
included in stockholder's equity, on a net of tax basis. Prior to 1994,
securities available for sale, if any, were recorded at the lower of amortized
cost or fair value.
<F2>Per share figures and shares outstanding have been adjusted to reflect the
2 for 1 stock splits effected through the 100% stock dividend declared in
January 1997 and December 1993.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CONDITION
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
ASSETS:
Cash and cash equivalents
Non-interest bearing $ 8,323,677 $ 8,090,358
Interest bearing 38,296 0
Federal funds sold 8,000,000 8,300,000
Total cash and cash equivalents 16,361,973 16,390,358
Securities available for sale, at fair value (note 3) 56,120,310 50,750,145
Investment securities (approximate fair value at 12/31/96-
$31,477,028; at 12/31/95-$27,653,665) (note 4) 30,930,765 26,763,458
Investments required by law, stock in Federal Home Loan Bank
of New York and Federal Reserve Bank of New York, at cost 834,800 150,000
Loans (note 5) 115,048,050 111,457,153
Unearned income (8,062,831) (6,982,989)
Allowance for loan losses (note 6) (1,620,078) (1,505,159)
Net loans 105,365,141 102,969,005
Premises and equipment (note 7) 2,747,681 2,109,868
Accrued interest receivable 1,403,082 1,497,789
Other assets 998,001 885,560
Total assets $214,761,753 $201,516,183
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (non-interest bearing) $ 18,616,607 $ 17,119,532
Regular savings, N.O.W. and money market accounts 84,212,947 74,407,969
Certificates and time deposits of $100,000 or more (note 8) 28,305,295 28,520,079
Other time deposits (note 8) 55,287,632 54,300,627
Total deposits 186,422,481 174,348,207
Securities sold under agreements to repurchase (note 9) 593 825,137
Other liabilities 591,858 363,461
Total liabilities 187,014,932 175,536,805
Commitments and contingent liabilities (notes 10 & 12)
STOCKHOLDERS' EQUITY
Common stock, $5 par value, 2,000,000 shares authorized,
800,000 shares issued and outstanding in 1996 and 1995 4,000,000 4,000,000
Surplus 4,000,000 4,000,000
Undivided profits 19,465,820 17,604,662
Net unrealized gain on available for sale securities
(net of tax effect) 281,001 374,716
Total stockholders' equity 27,746,821 25,979,378
Total liabilities and stockholders' equity $214,761,753 $201,516,183
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $9,541,140 $9,504,316 $8,091,822
Interest on federal funds sold 391,332 319,948 196,967
Interest on balances due from depository institutions 3,114 0 719
Interest on securities available for sale 3,333,142 2,985,145 2,564,499
Interest on investment securities 2,005,208 1,733,078 1,596,470
Dividends on FRB & FHLB stock 31,024 9,000 9,000
Total interest and dividend income 15,304,960 14,551,487 12,459,477
INTEREST EXPENSE:
Interest on deposits:
Certificates and time deposits of $100,000 or more 1,961,242 1,609,835 780,407
Regular savings, NOW and money market accounts 2,072,334 2, 056,015 1,986,333
Other time deposits 2,880,335 2,786,027 1,963,141
Interest on securities sold under agreements
to repurchase 10,341 20,060 7,137
Interest on other borrowed money 153 1,622 7,441
Total interest expense 6,924,405 6,473,559 4,744,459
NET INTEREST INCOME: 8,380,555 8,077,928 7,715,018
Provision for loan losses (note 6) 220,000 230,000 310,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,160,555 7,847,928 7,405,018
OTHER INCOME:
Income from fiduciary activities 107,824 120,046 132,175
Service charges on deposit accounts 358,085 327,161 317,722
Net gain on sale of securities available for sale 0 0 58,239
Other income 251,067 300,706 250,646
Total other income 716,976 747,913 758,782
OTHER EXPENSES:
Salaries and employee benefits 2,383,495 2,165,637 2,048,508
Occupancy expense, net 284,050 254,207 239,296
Furniture and equipment expense 310,734 288,100 247,889
External data processing expense 441,082 408,311 374,325
F.D.I.C. insurance expense 2,000 190,079 341,900
Printing, stationery and supplies 156,101 142,243 117,459
Other expense 983,906 865,227 829,488
Total other expenses 4,561,368 4,313,804 4,198,865
INCOME BEFORE INCOME TAXES 4,316,163 4,282,037 3,964,935
Applicable income taxes (note 11) 1,271,005 1,279,353 1,140,002
NET INCOME $3,045,158 $3,002,684 $2,824,933
Earnings per common share (1,600,000 shares)<F1> $ 1.90 $ 1.88 $ 1.77
See accompanying notes to consolidated financial statements
<F1>Per share figures and shares outstanding have been adjusted to reflect the
2 for 1 stock split effected through the 100% stock dividend declared in
January 1997.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
For the three years ended December 31, 1996
Net Unrealized
Gain/(Loss)
on Securities
Available for Total
Common Undivided Sale, Net Stockholders'
Stock Surplus Profits of Tax Effect Equity
<S> <C> <C> <C> <C> <C>
Beginning balance, January 1, 1994 $4,000,000 $4,000,000 $13,857,045 $ 0 $21,857,045
Net income-1994 0 0 2,824,933 0 2,824,933
Net unrealized gain/(loss) on securities
available for sale, net of tax effect 0 0 0 (765,037) (765,037)
Cash dividends paid on common stock 0 0 (992,000) 0 (992,000)
Ending balance, December 31, 1994 4,000,000 4,000,000 15,689,978 (765,037) 22,924,941
Net income--1995 0 0 3,002,684 0 3,002,684
Change in net unrealized loss on
securities available for sale, net
of tax effect 0 0 0 1,139,753 1,139,753
Cash dividends paid on common stock 0 0 (1,088,000) 0 (1,088,000)
Ending balance, December 31, 1995 4,000,000 4,000,000 17,604,662 374,716 25,979,378
Net income--1996 0 0 3,045,158 0 3,045,158
Change in net unrealized gain on
securities available for sale,
net of tax effect 0 0 0 (93,715) (93,715)
Cash dividends paid on common stock 0 0 (1,184,000) 0 (1,184,000)
Ending balance, December 31, 1996 $4,000,000 $4,000,000 $19,465,820 $ 281,001 $27,746,821
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,045,158 $ 3,002,684 $ 2,824,933
Adjustments to reconcile net income to cash and cash
equilavents provided by operating activities:
(Increase) decrease in interest receivable 94,707 (187,140) (218,733)
Decrease in other assets 181,558 4,996 61,340
Increase in other liabilities 228,397 21,522 43,164
Benefit for deferred taxes (63,403) (7,592) (38,202)
Depreciation 277,759 245,660 180,047
Amortization of premiums/discounts on
securities, net 162,689 189,277 441,915
Provision for loan losses 220,000 230,000 310,000
Net gain on sale of securities available for sale 0 0 (58,239)
Total adjustments 1,101,707 496,723 721,292
Net cash provided by operating activities 4,146,865 3,499,407 3,546,225
Cash flows from investing activities:
Purchase of investment securities (13,902,313) (11,009,829) (8,870,075)
Purchase of securities available for sale<F1> (22,269,243) (10,777,661) (15,350,550)
Proceeds from matured investment securities 9,671,853 11,212,252 7,394,350
Proceeds from matured securities available for sale 15,955,203 8,538,284 13,684,969
Proceeds from sale of securities available for sale 0 0 4,586,914
Net increase in loans (2,780,908) (3,980,134) (16,993,009)
Capital expenditures (915,572) (407,696) (118,778)
Net cash used by investing activities (14,240,980) (6,424,784) (15,666,179)
Cash flows from financing activities:
Net increase in deposits 12,074,274 9,832,652 16,642,049
Increase (decrease) in securities sold under
agreement to repurchase (824,544) 514,360 65,133
Payment of dividends (1,184,000) (1,088,000) (992,000)
Net cash provided by financing activities 10,065,730 9,259,012 15,715,182
Net increase (decrease) in cash and cash equivalents (28,385) 6,333,635 3,595,228
Cash and cash equivalents beginning of year 16,390,358 10,056,723 6,461,495
Cash and cash equivalents end of year $16,361,973 $16,390,358 $10,056,723
<F1>Includes purchases of FRB and FHLB stock
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $ 6,762,177 $ 6,440,536 $ 4,726,054
Income taxes 1,390,102 1,302,499 1,139,530
Supplemental schedule of noncash investing activities:
Net reduction in loans resulting from the transfer
to real estate owned $ 164,772 $ 116,711 $ 140,896
Transfer of securities to available for sale from
the held to maturity portfolio, upon the adoption of
SFAS No. 115 0 0 38,771,062
Net unrealized loss on available for sale securities
(net of $524,695 tax effect) 0 0 (765,037)
Change in net unrealized gain/(loss) on securities
available for sale (net of deferred tax reduction of
$65,824 at 12/31/96 and $778,544 at 12/31/95) (93,715) 1,139,753 0
See accompanying notes to consolidated financial statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CNB Bancorp, Inc. (Company) and City
National Bank and Trust Company (subsidiary Bank) conform to generally
accepted accounting principles in a consistent manner and are in accordance
with the general practices within the banking field. The following is a
summary of the significant policies used in the preparation of the
consolidated financial statements.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary after elimination of
all significant intercompany transactions. The investment in the subsidiary
Bank is carried under the equity method of accounting.
SECURITIES--On January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS No. 115) "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of securities at the time of purchase. If
management has the positive intent and ability to hold securities to maturity,
they are classified as investment securities and are stated at amortized cost.
If securities are purchased for the purpose of selling them in the near term,
they are classified as trading securities and they are reported at fair value
with unrealized holding gains and losses reflected in current earnings. All
other securities are classified as securities available for sale and are
reported at the fair value, with net unrealized gains or losses reported, net
of income taxes, as a separate component of shareholders' equity.
Nonmarketable equity securities such as Federal Reserve Bank stock, and
Federal Home Loan Bank stock, are carried at cost. These investments are
required for membership.
Gains and losses on the disposition of all securities are based on the
adjusted cost of the specific security sold. The adjusted cost of each debt
security sold is determined by taking the stated cost and adjusting for any
amortization of premiums or accretion of discount to the earlier of call or
maturity date. Mortgage-backed securities are stated at cost adjusted for
amortization of premium and accretion of discount to the estimated final
payment date. At December 31, 1996 and 1995 the subsidiary Bank did not have
any securities classified as trading securities.
LOANS--Loans are shown at their principal amount outstanding, less any
unearned discount and the allowance for loan losses. Interest income on
commercial and real estate loans is accrued on the basis of unpaid principal.
Interest on installment loans is accrued based on methods that approximate the
interest method.
Loan income is recognized on the accrual basis of accounting. When, in the
opinion of management, the collection of interest is in doubt, the loan is
categorized as non-accrual. Generally, loans past due greater than 90 days are
categorized as non-accrual. Thereafter, no interest is taken into income until
received in cash or until such time as the borrower demonstrates the ability
to make scheduled payment of interest and principal.
Impaired loans are identified and measured in accordance with Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." These Statements
were adopted by the Company on January 1, 1995. The adoption of these
Statements did not have a material effect on the Company's consolidated
financial statements.
ALLOWANCE FOR LOAN LOSSES--The allowance is increased by provisions for loan
losses charged to operating expense and decreased by loan charge-offs net of
recoveries. Adequacy of the allowance and determination of the amount to be
charged to operating expense are based on an evaluation of the loan portfolio,
its overall composition, size of the individual loans, concentration by
industry, past due and non-accrual loan statistics, and historical loss
experience.
While management uses all of the above information to recognize losses on
loans and real estate owned, future additions to the allowance or writedowns
of other real estate owned may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for
losses on loans and valuation of other real estate owned. Such agencies may
require the Company to recognize additions to the allowance or writedowns of
other real estate owned based on their judgments of information available to
them at the time of their examination which may not be presently available.
OTHER REAL ESTATE OWNED--Included in other assets is other real estate owned
which are assets received from foreclosures and in-substance foreclosures. In
accordance with SFAS No. 114, a loan is classified as an in-substance
foreclosure when the Company has taken possession of the collateral regardless
of whether formal foreclosure proceedings have taken place. The Company had no
in-substance foreclosed properties at December 31, 1996 and 1995.
Foreclosed assets, including in-substance foreclosures, are recorded on an
individual asset basis at net realizable value which is the lower of fair
value minus estimated costs to sell or "cost" (defined as the fair value at
initial foreclosure). When a property is acquired or identified as in-
substance foreclosure, the excess of the loan balance over fair value is
charged to the allowance for loan losses. Subsequent writedowns to carry the
property at fair value are included in noninterest expense.
BANK PREMISES AND EQUIPMENT--These assets are reported at cost less
accumulated depreciation. Depreciation is charged to operating expense over
the useful lives of the assets using the straight line method. Maintenance and
repairs are charged to operating expense as incurred.
INCOME TAXES--Income taxes are provided on income reported in the consolidated
statements of income regardless of when such taxes are payable. The Company
accounts for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109
requires the asset and liability method of accounting for income taxes. Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company's policy is that deferred tax
assets are reduced by a valuation reserve if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized. In considering if it is more likely than not that
some or all of the deferred tax assets will not be realized, the Company
considers temporary taxable differences, historical taxes and estimates of
future taxable income.
DIVIDEND RESTRICTIONS--Certain restrictions exist regarding the ability of the
subsidiary Bank to transfer funds to the Company in the form of cash
dividends. The approval of the Comptroller of the Currency is required to pay
dividends in excess of the subsidiary Bank's earnings retained in the current
year plus retained net profits, as defined, for the preceding two years.
CASH FLOWS--Cash and cash equivalents as shown in the consolidated statements
of condition and consolidated statements of cash flows consists of cash, due
from banks, and federal funds sold.
FINANCIAL INSTRUMENTS--The Company is a party to certain financial instruments
with off-balance sheet risk, such as commitments to extend credit, standby
letters of credit and commercial letters of credit. The Company's policy is to
record such instruments when funded.
USE OF ESTIMATES--The preparation of the consolidated financial statements, in
conformity with generally accepted accounting principles, requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 125
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS No. 125), which provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on consistent application of a financial-
components approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. Certain
aspects of SFAS No. 125 were amended by Statement of Financial Accounting
Standards No. 127 "Deferral of the effective date of certain provisions of
FASB Statement No. 125." Management believes the adoption of SFAS No. 125, as
amended, will not have a material impact on the Company's consolidated
financial statements.
RECLASSIFICATIONS--Amounts in the prior years' financial statements are
reclassified, whenever necessary, to conform to the presentation in the
current years' financial statements.
Note 2: RESERVE REQUIREMENTS
The subsidiary Bank is required to maintain certain reserves of cash and/or
deposits with the Federal Reserve Bank. The amount of this reserve
requirement, included in cash and cash equivalents, was approximately
$1,155,000 and $851,000 at December 31, 1996 and 1995, respectively.
The subsidiary Bank is also required to maintain certain levels of stock in
the Federal Reserve Bank and the Federal Home Loan Bank of New York.
Note 3: SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities available for sale
as of December 31 is as follows:
<TABLE>
<CAPTION>
1996
($000 Omitted)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $17,987 $ 65 $ 7 $18,045
Obligations of U.S. Government agencies 17,008 111 163 16,956
Collateralized mortgage obligations:
U.S. Government agencies 10,686 39 85 10,640
Obligations of states and political subdivisions 9,970 510 1 10,479
Total securities available for sale $55,651 $725 $256 $56,120
<CAPTION>
1995
($000 Omitted)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $19,027 $151 $ 0 $19,178
Obligations of U.S. Government agencies 12,209 74 255 12,028
Collateralized mortgage obligations:
U.S. Government agencies 9,100 53 63 9,090
Privately issued 285 1 0 286
Obligations of states and political subdivisions 9,500 668 0 10,168
Total securities available for sale $50,121 $947 $318 $50,750
</TABLE>
The amortized cost and estimated fair value of debt securities available for
sale at December 31, 1996, by contractual maturity, are shown in the
accompanying table. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties. Mortgage backed securities are
included in this schedule based on the contractual maturity date.
<TABLE>
<CAPTION>
($000 Omitted)
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $14,305 $14,320
Due after one year through five years 16,658 16,924
Due after five years through ten years 4,691 4,822
Due after ten years 19,997 20,054
Total debt securities available for sale $55,651 $56,120
</TABLE>
During 1996 and1995, there were no sales of debt securities available for
sale. Proceeds from sales of debt securities available for sale during 1994
were $4,522,230. Gross gains in 1994 were $44,908. Gross losses in 1994 were
$38,091.
During 1996 and 1995, there were no sales of equity securities available for
sale. Proceeds from sales of equity securities available for sale during 1994
were $64,684. Gross gains in 1994 were $51,422. There were no losses on sales
during 1994.
The fair value of all securities available for sale pledged to secure public
deposits and for other purposes as required or permitted by law at December
31, 1996 and 1995 were $32,170,830 and $35,435,821, respectively. Actual
deposits secured by these securities at December 31, 1996 and 1995 were
$15,817,857 and $14,847,143, respectively.
Note 4: INVESTMENT SECURITIES
A summary of the amortized cost and estimated fair values of investment
securities as of December 31 is as follows:
<TABLE>
<CAPTION>
1996
($000 Omitted)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of U.S. Government agencies $18,811 $ 55 $125 $18,741
Obligations of states and political subdivisions 12,120 633 17 12,736
Total investment securities $30,931 $688 $142 $31,477
<CAPTION>
1995
($000 Omitted)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of U.S. Government agencies $15,198 $114 $24 $15,288
Obligations of states and political subdivisions 11,565 806 5 12,366
Total investment securities $26,763 $920 $29 $27,654
</TABLE>
Note 4: INVESTMENT SECURITIES (continued)
The amortized cost and estimated fair value of investment securities at
December 31, 1996, by contractual maturity, are shown in the accompanying
table. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
($000 Omitted)
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 1,724 $ 1,732
Due after one year through five years 14,111 14,341
Due after five years through ten years 13,642 13,942
Due after ten years 1,454 1,462
Total investment securities $30,931 $31,477
</TABLE>
There were no proceeds from sales of investment securities in 1996, 1995 or
1994.
The amortized cost of all investment securities pledged to secure public
deposits and for other purposes as required or permitted by law at December
31, 1996 and 1995 were $21,384,610 and $19,943,326, respectively. Actual
deposits secured by these securities at December 31, 1996 and 1995 were
$16,784,384 and $16,251,119, respectively.
Note 5: LOANS
Loans on the accompanying consolidated statement of financial condition are
comprised on the following at December 31,
<TABLE>
<CAPTION>
($000 Omitted)
1996 1995
<S> <C> <C>
Commercial and Commercial Real Estate $ 32,685 $ 34,815
Residential Real Estate 44,583 43,010
Installment 37,780 33,632
Total loans $115,048 $111,457
</TABLE>
Loan accounts are reviewed periodically for recognizable losses which are then
charged off. Non-accrual loans at December 31, 1996 and 1995 were $679,914 and
$681,386, respectively . There were no non-accrual loans at December 31, 1994.
The difference between the interest collected on these loans and recognized as
income and the amounts which would have been accrued is not significant. There
were loans ninety days past due and still accruing interest of $556,622,
$352,480 and $188,044 as of December 31, 1996, 1995 and 1994, respectively.
In the ordinary course of business, the subsidiary Bank has made loans to
certain directors and executive officers of the Company and the subsidiary
Bank, and other related parties. Such transactions are on substantially the
same terms, including interest rates and collateral on loans, as comparable
transactions made to others. Total loans to these persons and companies on
December 31, 1996 and 1995 amounted to $1,868,941 and $2,384,740,
respectively. During 1996 $5,893,398 of new loans were made and repayments
totaled $6,409,197.
The Company considers commercial and commercial real estate loans to be
impaired when it is probable that the borrower will be unable to repay the
loan according to the original contractual terms of the loan agreement. In
addition, all loans restructured in a troubled debt unstructuring subsequent
to January 1, 1995 are also considered to be impaired. There were no
restructured loans at December 31, 1996, 1995 or 1994. The allowance for loan
losses related to impaired loans is based on discounted cash flows using the
loan's initial effective interest rate or the fair value of the collateral for
certain loans where repayment of the loan is expected to be provided solely by
the underlying collateral (collateral dependent loans).
As of December 31, 1996 and 1995 there were $679,914 and $681,386 of
commercial loans that were placed on nonaccrual status and were classified as
impaired loans, respectively. At December 31, 1996, $272,000 of the allowance
for loan losses was allocated to the impaired loans outstanding based on the
present value method. There was no allowance for loan losses associated with
impaired loans at December 31, 1995 because the related collateral value fully
supported the outstanding loan balances. During 1996 and 1995, the average
balance of impaired loans was $655,648 and $171,184, respectively. Interest
income of $15,974 and $14,763 was recognized on impaired loans during 1996 and
1995, respectively.
Note 6: ALLOWANCES FOR LOAN LOSSES
A summary of the changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $1,505,159 $1,338,912 $1,131,351
Recoveries credited 21,787 35,405 50,392
Provision for loan losses 220,000 230,000 310,000
Less: Charged off loans (126,868) (99,158) (152,831)
Balance at end of year $1,620,078 $1,505,159 $1,338,912
</TABLE>
Note 7: BANK PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
Premises and equipment at December 31, 1996 1995
<S> <C> <C>
Bank Premises (includes land $604,085 in 1996
and $498,435 in 1995) $2,849,096 $2,295,155
Equipment, furniture and fixtures 1,881,602 1,639,612
4,730,698 3,934,767
Less: Accumulated depreciation
and amortization (1,983,016) (1,824,899)
Total bank premises and equipment $2,747,682 $2,109,868
</TABLE>
Depreciation expense amounted to $277,759, $245,660 and $180,047 for the years
1996, 1995 and 1994, respectively.
Note 8: DEPOSITS
The approximate amount of contractual maturities of time deposit accounts for
the years subsequent to December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
<S> <C>
1997 $65,223,971
1998 11,436,074
1999 3,330,677
2000 3,248,117
2001 354,088
$83,592,927
</TABLE>
Note 9: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For the years December 31, 1996 and 1995, the average balance of Securities
Sold Under Agreements to Repurchase was $275,654 and $500,694, respectively.
The highest month end balances for these securities during 1996 and 1995 were
$593,116 and $1,818,182, respectively.
The underlying securities associated with these repurchase agreements are
under the control of the Company.
Note 10: EMPLOYEE BENEFIT PLANS
Pension Plan--The subsidiary Bank is a member of the New York State Bankers
Retirement System and offers a non-contributory defined benefit retirement
plan to substantially all full-time employees. Benefit payments to retired
employees are based upon their length of service and percentages of average
compensation during the final three to five years of employment. Contributions
are intended to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future. Assets of the plan are
primarily invested in equity and debt securities.
The following table sets forth the plan's funded status as of a September 30
measurement date, and the amounts recognized in the accompanying consolidated
financial statements.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,790,513 and $1,650,186
in 1996 and 1995, respectively. ($1,794,785) ($1,654,612)
Projected benefit obligation for service rendered to date ($2,332,781) ($2,204,674)
Plan assets at fair value 2,722,500 2,522,442
Plan assets in excess of the projected benefit obligation 389,719 317,768
Unrecognized prior service cost (26,875) (28,917)
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 26,399 160,995
Unrecognized net asset established October 1, 1986
and being amortized over 17.5 years (5,141) (5,827)
Prepaid pension cost $ 384,102 $ 444,019
Net pension expense included the following (income)/expense components:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned during the period $118,329 $104,480 $109,616
Interest cost on projected benefit obligation 166,707 152,247 141,835
Actual loss (return) on plan assets (336,937) (366,690) 73,369
Net amortization and deferral 123,377 180,826 (257,994)
Net periodic pension cost $ 71,476 $ 70,863 $ 66,826
</TABLE>
The weighted-average discount rate utilized in determining the projected
benefit obligations, as of the above noted September 30 measurement dates, was
7.75%, 7.75%, 8.00%, respectively, in 1996, 1995, and 1994. The rate of
increase in future compensation levels utilized in determining the projected
benefit obligations was 5.0% in 1996, 1995, and 1994. The expected long-term
rate of return on plan assets was 8.5% in 1996, 1995 and 1994.
The subsidiary Bank has also established a Supplemental Executive Retirement
Plan for key management personnel. An expense of approximately $52,000 was
recorded in the consolidated statement of income for the year ended December
31, 1996.
Profit Sharing Plan-In 1988, the subsidiary Bank adopted a non-contributory
deferred profit sharing plan under which contributions are made by the
subsidiary Bank to a separate trust for the benefit of the subsidiary Bank's
participating employees. Annual contributions to the plan are determined by
the board of directors of the subsidiary Bank. Earnings are accrued during the
year and are distributed December 31st of each year. The subsidiary Bank's
contribution to the plan for 1996, 1995, and 1994 was $96,000, $90,000 and
$85,000, respectively.
Other than certain life insurance benefits which are provided to a closed
group of current retirees, the Company does not provide post-retirement
benefits to employees. The costs associated with the life insurance to the
closed group of current retirees is not significant in 1996, 1995 or 1994.
Note 11: INCOME TAXES
The following is a summary of the components of income tax expense for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current tax expense:
Federal $ 999,781 $ 954,431 $ 852,355
State 334,627 332,514 325,849
Total current tax expense 1,334,408 1,286,945 1,178,204
Deferred tax expense (benefit):
Federal (54,609) (16,630) (43,969)
State (8,794) 9,038 5,767
Total deferred tax benefit (63,403) (7,592) (38,202)
Provision for income taxes $1,271,005 $1,279,353 $1,140,002
</TABLE>
The provision for income taxes is less than the amount
computed by applying the U.S. Federal income tax rate of 34% to income
before taxes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rate $1,467,495 34.0% $1,455,893 34.0% $1,348,078 34.0%
Increase (decrease)
resulting from:
Tax-exempt interest income (462,156) (10.7) (456,043) (10.6) (470,068) (11.8)
State tax expense, net of
federal deductions 211,745 4.9 227,193 5.3 219,650 5.5
Interest expense incurred
to carry tax-exempt bonds 50,211 1.2 48,779 1.1 39,532 1.0
Other 3,710 0.1 3,531 0.1 2,810 0.1
Provision for income taxes $1,271,005 29.4% $1,279,353 29.9% $1,140,002 28.8%
</TABLE>
Significant temporary differences that give rise to the deferred tax assets
and liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $700,279 $657,378
Director's deferred compensation 8,077 7,747
Post-retirement benefits 22,265 25,475
Total gross deferred tax assets 730,621 690,600
Less valuation allowance (155,928) (152,983)
Net deferred tax assets 574,693 537,617
Deferred tax liabilities:
Depreciation differences (92,612) (68,037)
Accretion of discount on securities (41,456) (42,165)
Pension plan expense (129,126) (179,319)
Total gross deferred tax liabilities (263,194) (289,521)
Net deferred tax asset end of year 311,499 248,096
Net deferred tax asset beginning of year 248,096 240,504
Deferred tax benefit ($ 63,403) ($ 7,592)
</TABLE>
In addition to the deferred tax assets and liabilities described above, the
Company also has a deferred tax liability of $188,026 and $253,849 relating to
the net unrealized gain on securities available for sale as of December 31,
1996 and 1995, respectively.
Deferred tax assets are recognized subject to management's judgment that
realization is more likely than not. In considering if it is more likely than
not that some or all of the deferred tax assets will not be realized, the
Company considers temporary taxable differences, historical taxes and future
taxable income. The valuation allowance of $155,928 and $152,983 as of
December 31, 1996 and 1995, respectively, relates to New York State deferred
tax assets due to the lack of carryback and carryforward provisions available
in New York State. Based primarily on the sufficiency of historical taxable
income, management believes it is more likely than not that the remaining net
deferred tax asset at December 31, 1996 and 1996 will be realized.
Note 12: COMMITMENTS AND CONTINGENT LIABILITIES
Various commitments and contingent liabilities arise in the normal conduct of
the subsidiary Bank's business that include certain financial instruments with
off-balance sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit and commercial letters of credit. Those instruments involve, to varying
degrees, elements of credit, in excess of the amount recognized on the
consolidated statements of financial condition. The contract amounts of those
instruments reflect the extent of involvement the subsidiary Bank has in
particular classes of financial instruments. The subsidiary Bank's exposure to
credit loss in the event of nonperformance by the other party to the
commitments to extend credit, standby letters of credit and commercial letters
of credit are represented by the contractual notional amount of those
instruments. The subsidiary Bank uses the same credit policies in making
commitments as it does for on-balance sheet instruments.
Contract amounts of financial instruments that represent credit risk as of
December 31, 1996 and 1995 at fixed and variable rates are as follows:
<TABLE>
<CAPTION>
1996
Fixed Variable Total
<S> <C> <C> <C>
Commitments and unused lines of credit:
Home Equity loans $ 0 $ 4,873,192 $ 4,873,192
Commercial loans 940,241 15,597,111 16,537,352
Overdraft loans 1,143,774 0 1,143,774
Mortgage loans 279,558 62,000 341,558
2,363,573 20,532,303 22,895,876
Standby and Commercial letters of credit 0 883,703 883,703
Total commitments and unused lines of credit $2,363,573 $21,416,006 $23,779,579
<CAPTION>
1995
Fixed Variable Total
<S> <C> <C> <C>
Commitments and unused lines of credit:
Home Equity loans $ 0 $ 4,430,838 $ 4,430,838
Commercial loans 28,000 17,151,315 17,179,315
Overdraft loans 1,093,100 0 1,093,100
Mortgage loans 344,101 72,161 416,262
1,465,201 21,654,314 23,119,515
Standby and Commercial letters of credit 0 872,382 872,382
Total commitments and unused lines of credit $1,465,201 $22,526,696 $23,991,897
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being fully drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The subsidiary Bank evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral, if any, required by the subsidiary Bank upon the extension of
credit is based on management's credit evaluation of the customer. Mortgage
and Home Equity loan commitments are secured by a lien on real estate.
Collateral on extensions of credit for commercial loans varies but may include
accounts receivable, inventory, property, plant and equipment, and income
producing property.
The subsidiary Bank's primary business area consists of the County of Fulton
and, therefore, there are certain concentrations of loan commitments within
that geographic area. Accordingly, a substantial portion of its debtors'
ability to honor their contracts is dependent upon the economy of this region.
At December 31, 1996 and 1995, the only area of industry concentration that
existed within the subsidiary Bank's portfolio were commitments to the leather
and leather-related industries. Outstanding commitments to this segment were
$4.6 million as of December 31, 1996 and $5.4 million as of December 31, 1995.
These figures represent 19.3% and 22.5% of the total commitments outstanding
at the end of each respective year. Loans outstanding to this segment were
$5.4 million as of December 31, 1996 and $6.1 million as of December 31, 1995.
These figures represent 4.7% and 5.5% of gross loans outstanding at the end of
each respective year.
Standby and Commercial letters of credit are conditional commitments issued by
the subsidiary Bank to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support borrowing
arrangements. The credit risk involved in issuing standby letters of credit
and commercial letters of credit is essentially the same as that involved in
extending loan facilities to customers.
t December 31, 1996 and 1995 the subsidiary Bank had available lines of credit
with correspondent banks of $9,821,902 and $4,000,000, respectively. Advances
on these lines are secured by the subsidiary Bank's real estate mortgages and
investment securities and available for sale securities. There were no
advances on these lines of credit at December 31, 1996 and 1995.
Note 13: REGULATORY CAPITAL REQUIREMENTS
National banks are required to maintain minimum levels of regulatory capital
in accordance with regulations of the Office of the Comptroller of the
Currency ("OCC"). The Federal Reserve Board ("FRB") imposes similar
requirements for consolidated capital of bank holding companies. The OCC and
FRB regulations require a minimum leverage ratio of Tier 1 capital to total
adjusted assets of 3.0% and minimum ratios of Tier 1 and total capital to
risk-weighted assets of 4.0% and 8.0%, respectively.
Under its prompt corrective action regulations, the OCC is required to take
certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized bank. Such actions could have a direct
material effect on a bank's financial statements. The regulations establish a
framework for the classification of banks into five categories: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Generally, a bank is
considered well capitalized if it has a leverage (Tier 1) capital ratio of at
least 5.0% (based on average total assets); a Tier 1 risk-based capital ratio
of at least 6.0%; and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgements by the regulators
about capital components, risk weightings and other factors.
As of December 31, 1996, the Company and the subsidiary Bank met all capital
adequacy requirements to which they are subject. Further, the most recent OCC
notification categorized the subsidiary Bank as a well-capitalized bank under
the prompt corrective action regulations. There have been no conditions or
events since that notification that management believes have changed the
subsidiary Bank's capital classification.
The following is a summary of the actual capital amounts and ratios as of
December 31, 1996 for the Company (consolidated) and the subsidiary Bank,
compared to the required ratios for minimum capital adequacy and for
classification as well-capitalized:
<TABLE>
<CAPTION>
Actual Required Ratios
Minimum Classification
($000 Omitted) Capital Well
Amount Ratio Adequacy Capitalized
<S> <C> <C> <C> <C>
Consolidated
Leverage (Tier 1) capital $27,466 12.9% 3.0% 5.0%
Risk-based capital:
Tier 1 27,466 25.0 4.0 6.0
Total 28,844 26.2 8.0 10.0
Subsidiary Bank
Leverage (Tier 1) capital $27,463 12.9% 3.0% 5.0%
Risk-based capital:
Tier 1 27,463 25.0 4.0 6.0
Total 28,841 26.2 8.0 10.0
</TABLE>
Note 14: PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
CONDENSED STATEMENTS OF CONDITION (Parent Only)
<CAPTION>
At December 31,
($000 Omitted)
1996 1995
<S> <C> <C>
ASSETS:
Cash $ 3 $ 5
Investment in subsidiary 27,744 25,975
Total assets $27,747 $25,980
STOCKHOLDERS' EQUITY:
Common Stock $4,000 $4,000
Surplus 4,000 4,000
Undivided profits 19,466 17,605
Unrealized gain on available for sale
securities (net of tax effect) 281 375
Total stockholders' equity 27,747 25,980
Total liabilities and stockholders' equity $27,747 $25,980
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF INCOME (Parent Only)
<CAPTION>
Years ended December 31,
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Income:
Dividends from subsidiary $1,184 $1,088 $ 997
Expenses:
Contributions 2 2 4
Income before income taxes and equity in
undistributed net income of subsidiary 1,182 1,086 993
Income tax benefit 0 1 1
Income before equity in undistributed net
income of subsidiary 1,182 1,087 994
Equity in undistributed net income of subsidiary 1,863 1,916 1,831
Net income $3,045 $3,003 $2,825
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS (Parent only)
<CAPTION>
Years ended December 31,
($000 Omitted)
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $3,045 $3,003 $2,825
Equity in undistributed earnings of subsidiary (1,863) (1,916) (1,831)
Increase in other assets 0 0 (1)
Net cash provided by operating activities 1,182 1,087 993
Cash flows from financing activities:
Payment of dividends (1,184) (1,088) (992)
Net cash used by financing activities (1,184) (1,088) (992)
Net increase in cash (2) (1) 1
Cash beginning of year 5 6 5
Cash end of year $ 3 $ 5 $ 6
</TABLE>
Note 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement No. 107,
"Disclosures about Fair Value of Financial Instruments" (SFAS No. 107), which
requires that the Company disclose estimated fair values for its financial
instruments. SFAS No. 107 defines fair value of financial instruments as the
amount at which the instrument could be exchanged in a current transaction
between willing parties other than in a forced or liquidation sale. SFAS No.
107 defines a financial instrument as cash, evidence of ownership interest in
an entity, or a contract that imposes on one entity a contractual obligation
to deliver cash or another financial instrument to a second entity or to
exchange other financial instruments on potentially unfavorable terms with a
second entity and conveys to that second entity a contractual right to receive
cash or another financial instrument from the first entity or to exchange
other financial instruments on potentially favorable terms with the first
entity.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the subsidiary Bank's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the subsidiary Bank's financial instruments, fair value estimates
are based on judgments regarding future expected net cash flows, current
economic conditions, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates.
Fair value estimates are based on existing on-and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the net deferred tax asset
and property, plant, and equipment. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the estimates
of fair value under SFAS No. 107.
In addition, there are significant intangible assets that SFAS No. 107 does
not recognize, such as the value of "core deposits," the subsidiary Bank's
branch network, trust relationships and other items generally referred to as
"goodwill."
Cash and Cash Equivalents
For these short-term instruments, carrying value approximates fair value.
Securities Available for Sale and Investment Securities
The fair value of securities available for sale and investment securities,
except certain state and municipal securities, is estimated on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of certain state and municipal securities is not
readily available through market sources other than dealer quotations, so fair
value estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the instruments
being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, consumer,
and real estate. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and nonperforming categories.
The fair value of performing loans, is calculated by discounting scheduled
cash flows through the contractual estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the term of the loans to maturity,
adjusted for estimated prepayments.
Fair value for nonperforming loans is based on recent external appraisals and
discounting of cash flows. Estimated cash flows are discounted using a rate
commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific
borrower information.
Accrued Interest Receivable
For accrued interest receivable, a short-term instrument, carrying value
approximates fair value.
Deposit Liabilities
Under SFAS No. 107, the fair value of deposits with no stated maturity, such
as non-interest bearing demand deposits, savings, NOW accounts and money
market accounts is estimated to be the amount payable on demand. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities. These fair
value estimates do not include the benefit that results from the low-cost
funding provided by the deposit liabilities compared to the cost of borrowing
funds in the market.
Securities Sold Under Agreements to Repurchase
For these short-term instruments that mature in one day, carrying value
approximates fair value.
Accrued Interest Payable
For accrued interest payable, a short-term instrument, carrying value
approximates fair value.
Commitments to Extend Credit, Standby and Commercial Letters of Credit, and
Financial Guarantees Written
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
The fair value of financial guarantees written and letters of credit is based
on fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
Fees, such as these are not a major part of the subsidiary Bank's business and
in the subsidiary Bank's business territory are not a "normal business
practice." Therefore, based upon the above facts it is stated that book value
equals fair value and the amounts are not significant.
Financial Instruments
The estimated fair values of the Company's financial instruments at December
31 is as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Calculated Carrying Calculated
Amount Fair Value Amount Fair Value
($000 Omitted) ($000 Omitted)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 16,362 $ 16,362 $ 16,390 $ 16,390
Securities available for sale<F1> 56,955 56,955 50,900 50,900
Investment securities 30,931 31,477 26,763 27,654
Loans (net of unearned income) 106,985 106,550 104,474 104,693
Less allowance for loan losses 1,620 0 1,505 0
Net loans 105,365 106,550 102,969 104,693
Accrued interest receivable 1,403 1,403 1,498 1,498
Financial Liabilities:
Deposits
Non-interest bearing demand $ 18,617 $ 18,617 $ 17,120 $ 17,120
Savings, NOW and money market 84,213 84,213 74,408 74,408
Certificates of deposit
and other time 83,592 83,932 82,820 83,449
Total deposits 186,422 186,762 174,348 174,977
Securities sold under agreements
to repurchase 1 1 825 825
Accrued interest payable 368 368 206 206
<F1>Includes investments required for membership in FRB and FHLB.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of CNB Bancorp, Inc.:
We have audited the accompanying consolidated statements of condition of CNB
Bancorp, Inc. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNB
Bancorp, Inc. and subsidiary at December 31, 1996 and 1995, the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, on January 1,
1995, the Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," which prescribe recognition criteria for loan
impairment and measurement methods for certain impaired loans and loans whose
terms are modified in a troubled debt restructuring subsequent to the adoption
of these Statements. As discussed in note 1 to the consolidated financial
statements, on January 1, 1994, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" which changed its method of accounting for investment securities.
/s/ KPMG Peat Marwick LLP
Albany, NY
February 24, 1997
DESCRIPTION OF BUSINESS
CNB Bancorp, Inc., a New York corporation, organized in 1988, is a registered
bank holding company headquartered in Gloversville, New York. Its wholly-owned
subsidiary, City National Bank and Trust Company, was organized in 1887 and is
also headquartered in Gloversville, New York, with four branches located in
the county of Fulton. The subsidiary Bank is a full service commercial Bank
that offers a broad range of demand and time deposits; consumer, mortgage, and
commercial loans; and trust and investment services. The subsidiary Bank is a
member of the Federal Deposit Insurance Corporation and the Federal Reserve
System and is subject to regulation and supervision of the Federal Reserve and
the Comptroller of the Currency.
MARKET AND DIVIDEND INFORMATION CNB BANCORP, INC.
The common capital stock -$5 par value is the only registered security of the
Company and is inactively traded. The range of prices of this security known
to management based on records of the Company and as supplied by Ryan, Beck
and Co. on a quarterly basis and the quarterly cash dividends paid for the
most recent two years are shown below. The figures have been adjusted to
reflect the 2 for 1 stock split effected through the 100% stock dividend
declared in January, 1997.
<TABLE>
<CAPTION>
1996 1995
Bid Asked Bid Asked
High Low High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter 23.88 22.50 25.00 24.50 21.00 20.75 21.75 21.50
Second Quarter 24.00 23.75 25.50 24.75 22.00 22.00 24.38 22.75
Third Quarter 24.38 24.38 26.25 25.13 22.25 22.25 23.00 23.00
Fourth Quarter 24.88 24.75 25.63 25.50 22.50 22.31 24.25 23.25
</TABLE>
Cash dividends paid--per share
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
First Quarter $ .185 $ .17
Second Quarter .185 .17
Third Quarter .185 .17
Fourth Quarter .185 .17
Total cash dividends per share $ .74 $ .68
Number of shareholders of record on December 31 639 650
</TABLE>
A copy of Form 10K (Annual Report) for 1996, filed with the Securities and
Exchange Commission by the Company, is available to shareholders free of
charge by written request to:
George A. Morgan, Vice President and Secretary
CNB Bancorp, Inc., 10-24 N. Main Street, P.O. Box 873, Gloversville, NY 12078
CNB BANCORP, INC.
OFFICERS
WILLIAM N. SMITH, Chairman of the Board and President
GEORGE A. MORGAN, Vice-President and Secretary
MICHAEL J. FRANK, Treasurer
BRIAN R. SEELEY, Auditor
CITY NATIONAL BANK AND TRUST COMPANY
OFFICERS
WILLIAM N. SMITH, Chairman of the Board and President
GEORGE A. MORGAN, Executive Vice-President, Cashier and Trust Officer
DAVID W. McGRATTAN, Senior Vice-President
ROBERT W. BISSET, Vice-President
RONALD J. BRADT, Vice-President
GEORGE E. DOHERTY, Vice-President
MICHAEL J. FRANK, Vice-President and Comptroller
DEBORAH A. BRANDIS, Assistant Vice-President
ROBERT R. FAMIGLIETTI, Assistant Vice-President
LAWRENCE D. PECK, Marketing Officer
JULIE A. BEAN, Loan Officer
KATHRYN E. SMULLEN, Loan Officer
BRIAN R. SEELEY, Auditor
MAIN OFFICE
LYNN M. CIRILLO, Branch Manager
FIFTH AVENUE OFFICE
CONSTANCE A. ROBINSON, Branch Manager
DARRIN R. AMBRIDGE, Branch Officer
JOHNSTOWN OFFICE
ELIZABETH J. HRANITZ, Branch Manager
TAMMY L. WARNER, Branch Officer
NORTHVILLE OFFICE
DONALD R. HOUGHTON, Vice-President and Branch Manager
PERTH OFFICE
TIENA M. DI MATTIA, Branch Manager
City National Bank
and Trust Company
BANKING OFFICES
MAIN OFFICE
10-24 North Main Street
P.O. Box 873
Gloversville, NY 12078
FIFTH AVENUE OFFICE
185 Fifth Avenue
Gloversville, NY 12078
JOHNSTOWN OFFICE
142 North Comrie Avenue
Johnstown, NY 12095
NORTHVILLE OFFICE
231 Bridge Street
Northville, NY 12134
PERTH OFFICE
4178 St Hwy 30
Town of Perth
Amsterdam, NY 12010
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,323,677
<INT-BEARING-DEPOSITS> 38,296
<FED-FUNDS-SOLD> 8,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,120,310
<INVESTMENTS-CARRYING> 30,930,765
<INVESTMENTS-MARKET> 31,477,028
<LOANS> 106,985,219
<ALLOWANCE> 1,620,078
<TOTAL-ASSETS> 214,761,753
<DEPOSITS> 186,422,481
<SHORT-TERM> 593
<LIABILITIES-OTHER> 591,858
<LONG-TERM> 0
0
0
<COMMON> 4,000,000
<OTHER-SE> 23,746,821
<TOTAL-LIABILITIES-AND-EQUITY> 214,761,753
<INTEREST-LOAN> 2,372,590 9,541,140
<INTEREST-INVEST> 1,396,579 5,369,374
<INTEREST-OTHER> 100,601 394,446
<INTEREST-TOTAL> 3,869,770 15,304,960
<INTEREST-DEPOSIT> 1,733,765 6,913,911
<INTEREST-EXPENSE> 1,735,255 6,924,405
<INTEREST-INCOME-NET> 2,134,515 8,380,555
<LOAN-LOSSES> 80,000 220,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,338,756 4,561,368
<INCOME-PRETAX> 890,147 4,316,163
<INCOME-PRE-EXTRAORDINARY> 890,147 4,316,163
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 641,279 3,045,158
<EPS-PRIMARY><F1> 0.40 1.90
<EPS-DILUTED><F1> 0.40 1.90
<YIELD-ACTUAL> 4.20
<LOANS-NON> 679,914
<LOANS-PAST> 556,622
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,700,204
<ALLOWANCE-OPEN> 1,505,159
<CHARGE-OFFS> 126,868
<RECOVERIES> 21,787
<ALLOWANCE-CLOSE> 1,620,078
<ALLOWANCE-DOMESTIC> 1,293,011
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 327,067
<FN>
<F1>Per share figures have been adjusted to reflect the 2 for 1 stock split
effected through the 100% stock dividend declared in January 1997.
</TABLE>
