UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1998 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 Identification Number)
incorporation or organization)
10-24 North Main Street, P.O. Box 873, Gloversville, New York, 12078
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 773-7911
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 in each Issuer's classes of common
stock, as of the latest practicable date:
Number of Shares Outstanding
Class of Common Stock as of October 27, 1998
$2.50 par value 1,600,000
<PAGE>
CNB BANCORP, INC. AND SUBSIDIARY
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1 Consolidated interim financial statements (unaudited):
Consolidated statements of income for the three months ending
September 30, 1998 and 1997 and the nine months ending
September 30, 1998 and 1997 1
Consolidated statements of financial condition as of September
30, 1998 and December 31, 1997 2
Consolidated statements of cash flows for the nine months ending
September 30, 1998 and 1997 3
Notes to consolidated financial statements 4
Item 2 Management's discussion and analysis
Item 3 Quantitative and qualitative disclosures about market risk
PART II OTHER INFORMATION
Item 1 Legal proceedings - none
Item 2 Changes in securities - none
Item 3 Defaults upon senior securities - none
Item 4 Submission of matters to a vote of security holders
Item 5 Other information - none
Item 6 (a) Exhibits - not applicable
(b) Reports on Form 8-K - none
<PAGE>
<TABLE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 2,642,888 $ 2,496,175 $ 8,011,102 $ 7,444,396
Interest on federal funds sold 205,642 116,987 460,022 236,595
Interest on balances due from depository institutions 3,521 333 11,156 960
Interest on securities available for sale 1,035,660 803,486 2,745,987 2,554,961
Interest on investment securities 358,055 499,549 1,256,857 1,493,607
Dividends on FRB and FHLB stock 15,621 14,562 47,191 41,399
----------- ----------- ----------- -----------
Total interest and dividend income 4,261,387 3,931,092 12,532,315 11,771,918
INTEREST EXPENSE
Interest on deposits:
Certificates and time deposits of $100,000 or more 579,917 469,114 1,638,992 1,400,254
Regular savings, N.O.W. and money market accounts 452,600 476,845 1,354,811 1,455,537
Other time deposits 862,677 786,750 2,503,617 2,295,585
Interest on securities sold under
agreements to repurchase 165,156 687 378,055 3,320
Interest on other borrowed money 0 0 226 1,246
----------- ----------- ----------- -----------
Total interest expense 2,060,350 1,733,396 5,875,701 5,155,942
NET INTEREST INCOME 2,201,037 2,197,696 6,656,614 6,615,976
Provision for loan losses 60,000 45,000 180,000 150,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,141,037 2,152,696 6,476,614 6,465,976
OTHER INCOME
Income from fiduciary activities 37,218 32,455 111,136 92,601
Service charges on deposit accounts 85,493 83,085 242,360 256,830
Other income 175,776 101,785 400,545 251,108
----------- ----------- ----------- -----------
Total other income 298,487 217,325 754,041 600,539
OTHER EXPENSES
Salaries and employee benefits 673,807 634,540 1,975,498 1,900,039
Occupancy expense, net 73,124 75,022 231,815 237,300
Furniture and equipment expense 71,579 78,900 230,024 239,350
External data processing expense 209,401 124,988 509,751 351,356
Other expenses 290,838 298,281 937,474 984,147
----------- ----------- ----------- -----------
Total other expenses 1,318,749 1,211,731 3,884,562 3,712,192
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,120,775 1,158,290 3,346,093 3,354,323
Applicable income taxes 331,873 355,421 987,112 1,013,052
----------- ----------- ----------- -----------
NET INCOME $ 788,902 $ 802,869 $ 2,358,981 $ 2,341,271
=========== =========== =========== ===========
Basic earnings and dividends per common share
(1,600,000 shares):
Basic earnings $ 0.49 $ 0.50 $ 1.47 $ 1.46
Dividends 0.21 0.20 0.63 0.60
See accompanying notes to consolidated interim financial statements
</TABLE>
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<PAGE>
<TABLE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<CAPTION>
9/30/98 12/31/97
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Non-interest bearing $ 6,815,735 $ 6,584,697
Interest bearing 52,958 21,610
Federal funds sold 10,000,000 2,800,000
------------- -------------
Total cash and cash equivalents 16,868,693 9,406,307
Securities available for sale, at fair value 76,134,494 54,358,068
Investment securities (approximate fair value at 9/30/98-
$22,557,311; at 12/31/97 - $33,790,044) 21,736,671 33,047,379
Investments required by law, stock in Federal Home Loan
Bank of New York and Federal Reserve Bank of New York,
at cost 907,000 884,300
Loans 129,821,075 128,551,564
Unearned income (10,209,357) (9,413,555)
Allowance for loan losses (1,565,655) (1,491,736)
------------- -------------
Net loans 118,046,063 117,646,273
Premises and equipment 2,643,113 2,507,529
Accrued interest receivable 1,593,889 1,412,434
Other assets 3,436,423 3,062,215
------------- -------------
Total assets $ 241,366,346 $ 222,324,505
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (non interest bearing) $ 20,072,914 $ 21,391,440
Regular savings, N.O.W. and money market accounts 70,394,744 81,980,001
Certificates and time deposits of $100,000 or more 42,676,686 25,502,435
Other time deposits 63,154,931 58,780,640
------------- -------------
Total deposits 196,299,275 187,654,516
Securities sold under agreements to repurchase 12,453,776 4,322,267
Other liabilities 1,221,730 668,986
------------- -------------
Total liabilities 209,974,781 192,645,769
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value, 5,000,000 shares authorized,
1,600,000 shares issued and outstanding in 1998 and 1997 4,000,000 4,000,000
Surplus 4,000,000 4,000,000
Undivided profits 22,637,468 21,286,487
Accumulated comprehensive income (net of tax effect) 754,097 392,249
------------- -------------
Total stockholders' equity 31,391,565 29,678,736
------------- -------------
Total liabilities and stockholders' equity $ 241,366,346 $ 222,324,505
============= =============
See accompanying notes to consolidated interim financial statements
</TABLE>
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<PAGE>
<TABLE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
9 MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,358,981 $ 2,341,271
Adjustments to reconcile net income to cash and cash
equivalents provided by operating activities:
Increase in interest receivable (181,455) (169,165)
(Increase) decrease in other assets (337,575) 36,441
Increase in other liabilities 311,548 66,127
Deferred income tax expense 566 77,229
Depreciation 206,652 227,367
Amortization of premiums/discounts on securities, net 160,461 95,806
Provision for loan losses 180,000 150,000
------------ ------------
Total adjustments 340,197 483,805
------------ ------------
Net cash provided by operating activities 2,699,178 2,825,076
------------ ------------
Cash flows from investing activities:
Purchase of investment securities (1,142,052) (5,700,811)
Purchase of securities available for sale (41,674,096) (7,487,111)
Purchase of FRB and FHLB stock (22,700) (49,500)
Proceeds from matured investment securities 12,425,589 4,390,834
Proceeds from matured securities available for sale 20,366,858 13,655,138
Net increase in loans (616,423) (6,674,168)
Capital expenditures, net (342,236) (55,295)
------------ ------------
Net cash used by investing activities (11,005,060) (1,920,913)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 8,644,759 (4,059,768)
Increase (decrease) in securities sold under agreement to repurchase 8,131,509 (593)
Payment of dividends (1,008,000) (960,000)
------------ ------------
Net cash provided (used) by financing activities 15,768,268 (5,020,361)
------------ ------------
Net increase (decrease) in cash and cash equivalents 7,462,386 (4,116,198)
Cash and cash equivalents beginning of period 9,406,307 16,361,973
------------ ------------
Cash and cash equivalents end of period $ 16,868,693 $ 12,245,775
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 5,664,031 $ 5,263,987
Income taxes 984,152 878,576
Supplemental schedule of noncash investing activities:
Net reduction in loans resulting from the transfer to real estate owned 36,633 144,440
Change in net unrealized gain/(loss) on securities available for sale (net of
deferred tax changes of $240,630 at 9/30/98 and $87,497 at 9/30/97) 361,848 133,318
See accompanying notes to consolidated interim financial statements
</TABLE>
-3-
<PAGE>
CNB BANCORP, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL STATEMENT PRESENTATION
The accounting and reporting policies of CNB Bancorp, Inc. (the 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. Amounts in
the prior period's consolidated financial statements are reclassified,
whenever necessary, to conform to the presentation in the current period's
consolidated financial statements.
In the opinion of CNB Bancorp, Inc., the accompanying unaudited
consolidated financial statements contain all adjustments necessary to
present fairly the consolidated financial position as of September 30,
1998 and December 31, 1997 and the results of operations for the three and
nine months ended September 30, 1998 and 1997 and the changes in cash
flows for the nine months ended September 30, 1998 and 1997. All
accounting adjustments made for these periods were of a normal recurring
nature. The accompanying interim consolidated financial statements should
be read in conjunction with CNB Bancorp, Inc.'s consolidated year-end
financial statements including notes thereto, which are included in CNB
Bancorp, Inc.'s 1997 Annual Report and Form 10-K.
2. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting
Comprehensive Income." This Statement establishes standards for reporting
and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items
that are currently accounted for as direct entries to equity, such as the
mark to market adjustment on securities available for sale, foreign
currency items and minimum pension liability adjustments. At the Company,
comprehensive income represents net income plus other comprehensive
income, which consists of the net change in unrealized gains or losses on
securities available for sale for the period. Accumulated other
comprehensive income represents the net unrealized gains or losses on
securities available for sale as of the balance sheet dates. Comprehensive
income for the three month periods ended September 30, 1998 and 1997 was
$1,148,198 and $904,559, respectively. Comprehensive income for the nine
month periods ended September 30, 1998 and 1997 was $2,720,829 and
$2,474,589, respectively.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 is effective for consolidated financial
statements for fiscal periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is
to be restated. SFAS No. 131 requires that a public business enterprise
report financial and descriptive information about its reportable
operating segments. The Company does not believe the adoption of this
Statement will have a material effect on its consolidated financial
statements as of and for the year ending December 31, 1998.
The FASB issued Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Post Retirement Benefits"
in February 1998. This Statement revises employers' disclosures about
pension and other post retirement benefit plans. It does not change the
measurement or recognition of these plans. The Statement is effective for
the Company in 1998 and will not impact the Company's consolidated
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management is currently evaluating
the impact of this Statement on the Company's consolidated financial
statements.
-4-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
CNB BANCORP, INC.
October 27, 1998 By /s/ William N. Smith
------------------ --------------------------------
Date William N. Smith
Chairman of the Board, President
and Chief Executive Officer
October 27, 1998 By /s/ George A. Morgan
------------------ --------------------------------
Date George A. Morgan
Vice President and Secretary
(Principal Financial Officer)
<PAGE>
CNB BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL:
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.
Except for historical information contained herein, the matters contained
in this review are "forward-looking statements" that involve risk and
uncertainties, including statements concerning future events or performance
and assumptions and other statements which are other than statements of
historical facts. The Company wishes to caution readers that the following
important factors, among others, could in the future affect the Company's
actual results and could cause the Company's actual results for subsequent
periods to differ materially from those expressed in any forward-looking
statement made by or on behalf of the Company herein:
* the effect of changes in laws and regulations, including federal and
state banking laws and regulations, with which the Company and its
banking subsidiary must comply, the cost of such compliance and the
potentially material adverse effects if the Company or its banking
subsidiary were not in substantial compliance either currently or in
the future as applicable;
* the effect of changes in accounting policies and practices, as may be
adopted by the regulatory agencies as well as by the Financial
Accounting Standards Board, or changes in the Company's organization,
compensation and benefit plans;
* the effect on the Company's competitive position within its market area
of increasing consolidation within the banking industry and increasing
competition from larger "super regional" and other banking
organizations as well as non-bank providers of various financial
services;
* the effect of certain customers and vendors of critical systems or
services failing to adequately address issues relating to becoming year
2000 compliant;
* the effect of unforeseen changes in interest rates;
* the effects of changes in the business cycle and downturns in the local,
regional or national economies.
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including those described above, could
cause the Company's actual results or circumstances for future periods to
differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
FINANCIAL REVIEW:
Liquidity:
There have been no trends or demands that have affected the Company's or
the subsidiary Bank's liquidity position in any material way during the first
nine months of 1998. Funds from repayment of loans, maturing investment
securities and securities available for sale are available to satisfy any
normal needs that may arise.
Capital Resources:
Stockholder's equity to total assets decreased slightly during the first
nine months of 1998 from 13.3% at December 31, 1997 to 13.0% at September 30,
1998. The subsidiary Bank has experienced loan growth of approximately $0.6
million during the first nine months of 1998. This growth in loans was funded
primarily by an increase in deposits during this period. The remaining
increase in deposits during this period was used to improve the Company's
liquidity position as of September 30, 1998. The increase in
-1-
<PAGE>
Capital Resources:(continued)
securities sold under agreements to repurchase is offset by an increase in
securities available for sale.
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. The table below shows the
Companys' current ratios, December 31, 1997 ratios and the current regulatory
guideline ratios as established by the Federal Reserve Board.
Regulatory
09/30/98 12/31/97 Guidelines
Tier 1 risk based capital to net
risk weighted assets 24.0% 24.0% 4.0%
Total risk based capital to net
risk weighted assets 25.3 25.3 8.0
Leverage ratio (Tier 1/adjusted total assets) 12.7 13.4 3.0
No significant events have occurred during the first nine months of 1998
to materially impact the Companys' capital.
Results of Operations:
Most Recent Quarter and Same Quarter in Preceding Year:
Total interest and dividend income for the third quarter of 1998
increased $330,295 or 8.4% from the corresponding period of 1997, while total
interest expense increased $326,954 or 18.9% from the corresponding period of
1997. Net interest income increased $3,341 or 0.2% from the prior year period
reflecting the average increase in interest earning assets over interest
bearing liabilities of $0.8 million as compared to the corresponding period
of 1997. This was partially offset by a decline in the net interest margin
from 4.65% in 1997 to 4.17% in 1998. The provision for loan losses was up
$15,000 or 33.3% from the prior year period. Net charge-offs decreased
$140,136 to $41,828 from the prior year period, a decrease of 77.0%. The
allowance for loan losses as a percent of loans outstanding was 1.31% at
September 30, 1998 as compared to 1.25% at December 31, 1997. Non-interest
income increased $81,162 or 37.3% from the corresponding period of 1997. This
increase was primarily due to increases in fiduciary income, cash surrender
values of life insurance and increases in consumer loan life insurance
dividends. Non-interest expense increased $107,018 or 8.8% from the
corresponding period of 1997 due primarily to higher salaries and employee
benefits and higher external data processing expenses. The higher staff
expenses were due primarily to normal salary adjustments and overtime related
to the conversion of computer equipment to prepare for the year 2000.
Increases in external data processing expenses were primarily due to
conversion costs related to the year 2000 and the outsourcing of our proof
and transit department. Net income decreased $13,967 or 1.7% as compared to
the same period of 1997. This decrease was due to the increase in other
expenses more than offsetting the increase in other income and the increase
in the net interest income.
Most Recent Year to Date and Corresponding Year to Date Period:
Total interest and dividend income for the first nine months of 1998
increased $760,397 or 6.5% from the corresponding period of 1997, while total
interest expense increased $719,759 or 14.0% from the corresponding period of
1997. Net interest income increased $40,638 or 0.6% from the prior year
period reflecting the average increase in interest earning assets over
interest bearing liabilities of $1.2 million as compared to the corresponding
period of 1997. This was partially offset by a decline in the net interest
margin from 4.68% in 1997 to 4.36% in 1998. The provision for loan losses was
up $30,000 or 20.0% from the prior year period. Net charge-offs decreased
$168,518 to $106,080 from the prior year period, a decrease of 61.4%. The
allowance for loan losses as a percent of loans outstanding was 1.31% at
September 30, 1998 as compared to 1.25% at December 31, 1997. Non-interest
income increased $153,502 or 25.6% from the corresponding period of 1997.
This increase was primarily due to increases in fiduciary income, cash
surrender values of life insurance and increases in consumer loan life
insurance dividends partially offset by a reduction in service charges on
deposit accounts. Non-interest expense increased $172,370 or 4.6% from the
corresponding period of 1997 due primarily to higher salaries and employee
benefits and higher external data processing expenses. The higher staff
expenses were due primarily to normal salary adjustments and overtime related
to the conversion of computer equipment to prepare for the year 2000.
Increases in external data processing expenses were primarily due to
conversion costs related to the year 2000 and the outsourcing of our proof
and transit department. Net income increased $17,710 or 0.8% as compared to
the same period of 1997. This increase was due to the increase in net
interest income and other income more than offsetting the increase in other
expenses.
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<PAGE>
STATUS OF YEAR 2000 PROJECT:
City National Bank and Trust Company, subsidiary Bank of CNB Bancorp,
Inc., continues its progression toward Year 2000 compliance. The following is
an assessment of the project as of the date of this publication.
City National Bank and Trust Company is completely reliant upon service
providers and software purchased from vendors for its information technology
("IT") systems. ALLTEL Information Services, Inc. is the provider of the
Bank's data processing system, HORIZON. The AS/400 on which the system
resides is located in Albany, NY on the ALLTEL site. All other computer
programs run by the Bank are software packages purchased from vendors and are
run on PCs at the Bank.
The non-IT systems include pieces of equipment purchased by the Bank.
Examples of these systems include the following: heating systems, fax
machines, mail machines and loan calculators.
The Bank is in the validation and implementation phase of the Year 2000
project with its data processing provider ALLTEL Information Services, Inc.
(HORIZON). ALLTEL Information Services, Inc. has successfully tested and
installed compliant versions of approximately 80% of the HORIZON
applications. The remaining 20% are currently being tested by ALLTEL and will
be installed before December 31, 1998. The Bank will be performing testing of
the HORIZON system during the week of February 22, 1999 through February 26,
1999. Material third party relationships with HORIZON will also be tested
during this week.
All of the vendors from whom software packages have been purchased have
been contacted by the Bank. Some vendors have completed their renovation,
testing and implementation and have sent the Bank an updated version, testing
instructions and/or proxy testing documentation. Others are in earlier stages
of the project, but have assured the Bank of project completion by December
31, 1998. The Bank has targetted December 31, 1998 for completion of all
testing of vendor software other than HORIZON.
The Bank has contacted the vendors from whom they have purchased all
non-IT equipment to request an assessment of the potential impact of the Year
2000. To date, all responses received have indicated that the Year 2000 will
have no impact on the systems. This response is consistent with the degree of
technological advancement (or lack thereof) in the non-IT equipment the Bank
has chosen to purchase.
The Bank has many relationships with third party vendors with several
relationships being material. The nature of these relationships is that of
support. For instance, these vendors are relied upon for services such as
electricity, telephone systems, item processing, ATM network processing,
currency delivery and check printing. Most of these vendors, with the
exception of the utilities, have assured the Bank of compliance by December
31, 1998. The Bank will require proxy testing documentation in some cases and
independent testing in others. Those vendors who are directly involved with
the data processor (i.e. item processing, ATM processing) will be involved in
integrated testing with HORIZON in February of 1999.
City National Bank and Trust Company, like all other companies, has
incurred costs as a result of preparing for the Year 2000. The portion of the
project which has required the most resources has been the data processing
system. To date, the Bank has spent approximately $200,000 on the conversion
to the HORIZON system. The Bank has spent a negligible amount in the other
areas. The expected additional cost to finish the project is $50,000.
At this point in time, the Bank is approaching a crossroads with many of
its vendors. If compliance is not achieved by the designated date (usually
December 31, 1998), or if independent testing done during thr fourth quarter
of 1998 proves the system to be non-compliant, the Bank will implement the
contingency plan to minimize risk. Any combination of vendors may fail to
achieve compliance by their target date. It is also possible that those
systems which have been certified as compliant may fail on January 1, 2000. A
very large number of scenarios is possible. Currently, The Bank's Year 2000
committee is formulating a description of those scenarios which are most
likely to occur. As it goes forward with its Business Resumption Contingency
Planning, the plans to counter those failure scenarios and continue with
operation of the Bank will be formulated. The formulation of these plans will
be complete by November 30, 1998.
The Year 2000 project will be intensely focused upon during the fourth
quarter of 1998. The Bank's goal is to be significantly closer to compliance,
as well as prepared for failure scenarios, at the end of the quarter.
-3-
<PAGE>
CNB BANCORP, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK:
Market risk is the risk of loss from adverse changes in market prices
and interest rates. The subsidiary Bank's market risk arises primarily from
interest rate risk inherent in its lending and deposit taking activities.
Although the subsidiary Bank manages other risks, as in credit and liquidity
risk, in the normal course of its business, management considers interest
rate risk to be its most significant market risk and could potentially have
the largest material effect on the subsidiary Bank's financial condition and
results of operation. The subsidiary Bank does not currently have a trading
portfolio or use derivatives to manage market and interest rate risk.
The subsidiary Bank's interest rate risk management is the
responsibility of the Asset/Liability Management Committee (ALCO), which
reports to the Board of Directors. The committee, comprised of senior
management, has developed policies to measure, manage and monitor interest
rate risk. Interest rate risk arises from a variety of factors, including
differences in the timing between the contractual maturity or repricing of
the subsidiary Bank's assets and liabilities. For example, the subsidiary
Bank's net interest income is affected by changes in the level of market
interest rates as the repricing characteristics of its loans and other assets
do not necessarily match those of its deposits, other borrowings and capital.
In managing exposure, the subsidiary Bank uses interest rate sensitivity
models that measure both net gap exposure and earnings at risk. The ALCO
monitors the volatility of its net interest income by managing the
relationship of interest rate sensitive assets to interest rate sensitive
liabilities. The committee utilizes a simulation model to analyze net income
sensitivity to movements in interest rates. The simulation model projects net
interest income based on both an immediate rise or fall in interest rates of
200 basis point shock over a twelve month period. The model is based on the
actual maturity and repricing characteristics of interest rate assets and
liabilities. The model incorporates assumptions regarding the impact of
changing interest rates on the prepayment rate of certain assets and
liabilities.
The following table shows the approximate effect on the subsidiary
Bank's annualized net interest margin as of September 30, 1998, assuming an
increase or decrease of 200 basis points in interest rates.
Change in Estimated Net Change in
Interest Rate Interest Margin Net Interest
(basis points) ($000 omitted) Margin
+200 9,046 1.2%
+100 8.940 0.0
0 8,936 0.0
-100 8,671 (3.0)
-200 8,488 (5.0)
Another tool used to measure interest rate sensitivity is the cumulative
gap analysis. The cumulative gap represents the net position of assets and
liabilities subject to repricing in specified time periods. Deposit accounts
without specified maturity dates, are modeled based on historical run-off
characteristics of these products in periods of rising rates. At September
30, 1998 the Company had a negative one year cumulative gap position.
The cumulative gap analysis is merely a snapshot at a particular date
and does not fully reflect that certain assets and liabilities may have
similar repricing periods but may in fact reprice at different times within
that period and at differing rate levels. Management, therefore, uses the
interest rate sensitivity gap only as a general indicator of the potential
effects of interest rate changes on net interest income. Management believes
that the gap analysis is a useful tool only when used in conjunction with its
simulation model and other tools for analyzing and managing interest rate
risk.
As of September 30, 1998 the subsidiary Bank was in a liability
sensitive position which means that more liabilities are scheduled to mature
or reprice within the next year than assets. The cumulative interest rate
sensitivity gap as of September 30, 1998 was 7.55% of total assets.
-1-
<PAGE>
CNB BANCORP, INC.
PART II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting of shareholders held on October 20, 1998 there
were 1,256,807 voting shares present in person or by proxy, which
represented 78.55% of the Company's outstanding shares of 1,600,000. A
vote was taken on the following shareholder proposal:
Proposal "Ratification of the adoption of the CNB Bancorp, Inc. Stock
Option Plan"
Votes For 1,161,878
Votes Against 70,121
Abstain 24,808
Non-Vote 0
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 6,815,735 6,815,735
<INT-BEARING-DEPOSITS> 52,958 52,958
<FED-FUNDS-SOLD> 10,000,000 10,000,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 76,134,494 76,134,494
<INVESTMENTS-CARRYING> 21,736,671 21,736,671
<INVESTMENTS-MARKET> 22,557,311 22,557,311
<LOANS> 119,611,718 119,611,718
<ALLOWANCE> 1,565,655 1,565,655
<TOTAL-ASSETS> 241,366,346 241,366,346
<DEPOSITS> 196,299,275 196,299,275
<SHORT-TERM> 12,453,776 12,453,776
<LIABILITIES-OTHER> 1,221,730 1,221,730
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 4,000,000 4,000,000
<OTHER-SE> 27,391,565 27,391,565
<TOTAL-LIABILITIES-AND-EQUITY> 241,366,346 241,366,346
<INTEREST-LOAN> 2,642,888 8,011,102
<INTEREST-INVEST> 1,409,336 4,050,035
<INTEREST-OTHER> 209,163 471,178
<INTEREST-TOTAL> 4,261,387 12,532,315
<INTEREST-DEPOSIT> 1,895,194 5,497,420
<INTEREST-EXPENSE> 2,060,350 5,875,701
<INTEREST-INCOME-NET> 2,201,037 6,656,614
<LOAN-LOSSES> 60,000 180,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,318,749 3,884,562
<INCOME-PRETAX> 1,120,775 3,346,093
<INCOME-PRE-EXTRAORDINARY> 788,902 2,358,981
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 788,902 2,358,981
<EPS-PRIMARY> 0.49 1.47
<EPS-DILUTED> 0.49 1.47
<YIELD-ACTUAL> N/A 4.03
<LOANS-NON> N/A 298,565
<LOANS-PAST> N/A 275,142
<LOANS-TROUBLED> N/A 0
<LOANS-PROBLEM> N/A 0
<ALLOWANCE-OPEN> N/A 1,491,736
<CHARGE-OFFS> N/A 119,269
<RECOVERIES> N/A 13,188
<ALLOWANCE-CLOSE> N/A 1,565,655
<ALLOWANCE-DOMESTIC> N/A 1,291,143
<ALLOWANCE-FOREIGN> N/A 0
<ALLOWANCE-UNALLOCATED> N/A 274,512
</TABLE>
