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 March 31, 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 April 27, 1998
$2.50 par value 1,600,000
<PAGE>
<TABLE>
CNB BANCORP, INC. AND SUBSIDIARY
INDEX
<CAPTION>
<S> <C> <C>
Page No.
PART I FINANCIAL INFORMATION
Item 1 Consolidated interim financial statements (unaudited):
Consolidated statements of income for the three months ending March 31, 1998 and 1997 1
Consolidated statements of financial condition as of March 31, 1998 and December 31, 1997 2
Consolidated statements of cash flows for the three months ending March 31, 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 - none
Item 5 Other information - none
Item 6 (a) Exhibits - not applicable
(b) Reports on Form 8-K - none
</TABLE>
<PAGE>
<TABLE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
3 MONTHS ENDED
MARCH 31,
1998 1997
---------- ----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $2,660,864 $2,441,554
Interest on federal funds sold 83,750 47,014
Interest on balances due from depository institutions 4,958 425
Interest on securities available for sale 826,129 876,892
Interest on investment securities 492,441 495,335
Dividends on FRB and FHLB stock 15,582 13,197
---------- ----------
Total interest and dividend income 4,083,724 3,874,417
INTEREST EXPENSE
Interest on deposits:
Certificates and time deposits of $100,000 or more 477,418 402,011
Regular savings, N.O.W. and money market accounts 462,049 506,526
Other time deposits 808,533 743,640
Interest on securities sold under agreements to repurchase 81,624 947
Interest on other borrowed money 66 714
---------- ----------
Total interest expense 1,829,690 1,653,838
NET INTEREST INCOME 2,254,034 2,220,579
Provision for loan losses 60,000 60,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,194,034 2,160,579
OTHER INCOME
Income from fiduciary activities 36,299 28,611
Service charges on deposit accounts 73,777 89,269
Other income 108,968 83,498
---------- ----------
Total other income 219,044 201,378
OTHER EXPENSES
Salaries and employee benefits 657,771 640,783
Occupancy expense, net 82,213 84,993
Furniture and equipment expense 81,557 81,852
External data processing expense 139,307 99,848
Other expenses 336,669 347,182
---------- ----------
Total other expenses 1,297,517 1,254,658
---------- ----------
INCOME BEFORE INCOME TAXES 1,115,561 1,107,299
Applicable income taxes 329,922 332,131
---------- ----------
NET INCOME $ 785,639 $ 775,168
========== ==========
Basic earnings and dividends per common share(1,600,000 shares):
Basic earnings $ 0.49 $ 0.48
Dividends 0.21 0.20
See accompanying notes to consolidated interim financial statements
</TABLE>
<PAGE>
<TABLE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<CAPTION>
3/31/98 12/31/97
<S> <C> <C>
ASSETS
------------- -------------
Cash and cash equivalents:
Non-interest bearing $ 6,056,527 $ 6,584,697
Interest bearing 35,545 21,610
Federal funds sold 10,000,000 2,800,000
------------- -------------
Total cash and cash equivalents 16,092,072 9,406,307
Securities available for sale, at fair value 55,042,055 54,358,068
Investment securities (approximate fair value at 3/31/98-
$28,285,347; at 12/31/97 - $33,790,044) 27,562,108 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 131,735,949 128,551,564
Unearned income (9,508,262) (9,413,555)
Allowance for loan losses (1,528,352) (1,491,736)
------------- -------------
Net loans 120,699,335 117,646,273
Premises and equipment 2,530,013 2,507,529
Accrued interest receivable 1,558,337 1,412,434
Other assets 3,287,303 3,062,215
------------- -------------
Total assets $ 227,678,223 $ 222,324,505
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (non interest bearing) $ 17,973,513 $ 21,391,440
Regular savings, N.O.W. and money market accounts 71,168,505 81,980,001
Certificates and time deposits of $100,000 or more 38,985,552 25,502,435
Other time deposits 60,431,703 58,780,640
------------- -------------
Total deposits 188,559,273 187,654,516
Securities sold under agreements to repurchase 8,057,589 4,322,267
Other liabilities 954,628 668,986
------------- -------------
Total liabilities 197,571,490 192,645,769
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 21,736,126 21,286,487
Accumulated comprehensive income (net of tax effect) 370,607 392,249
------------- -------------
Total stockholders' equity 30,106,733 29,678,736
------------- -------------
Total liabilities and stockholders' equity $ 227,678,223 $ 222,324,505
============= =============
See accompanying notes to consolidated interim financial statements
</TABLE>
<PAGE>
<TABLE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
3 MONTHS ENDED
MARCH 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 785,639 $ 775,168
Adjustments to reconcile net income to cash and cash
equivalents provided by operating activities:
Increase in interest receivable (145,903) (210,883)
(Increase) decrease in other assets (181,644) 160,948
Increase in other liabilities 285,642 99,625
Deferred income tax (benefit) expense (29,052) 153
Depreciation 69,194 80,680
Amortization of premiums/discounts on securities, net 38,730 41,608
Provision for loan losses 60,000 60,000
------------ ------------
Total adjustments 96,967 232,131
------------ ------------
Net cash provided by operating activities 882,606 1,007,299
------------ ------------
Cash flows from investing activities:
Purchase of investment securities 0 (1,040,214)
Purchase of securities available for sale (6,703,915) (4,013,037)
Purchase of FRB and FHLB stock (22,700) (49,500)
Proceeds from matured investment securities 5,480,713 1,005,477
Proceeds from matured securities available for sale 5,949,722 3,977,852
Net increase in loans (3,113,062) (5,224,539)
Capital expenditures, net (91,678) (28,131)
------------ ------------
Net cash provided (used) by investing activities 1,499,080 (5,372,092)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 904,757 1,380,096
Increase in securities sold under agreement to repurchase 3,735,322 70,114
Payment of dividends (336,000) (320,000)
------------ ------------
Net cash provided by financing activities 4,304,079 1,130,210
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,685,765 (3,234,583)
Cash and cash equivalents beginning of period 9,406,307 16,361,973
------------ ------------
Cash and cash equivalents end of period $ 16,092,072 $ 13,127,390
============ ============
Supplemental disclosures of cash flow information: Cash paid during the
period:
Interest $ 1,686,650 $ 1,781,943
Income taxes 145,000 73,125
Supplemental schedule of noncash investing activities:
Net reduction in loans resulting from the transfer to real estate owned 0 124,200
Change in net unrealized gain/(loss) on securities available for sale (net of
deferred tax changes of $14,393 at 3/31/98 and $144,026 at 3/31/97) (21,642) (214,837)
See accompanying notes to consolidated interim financial statements
</TABLE>
<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 March 31, 1998
and December 31, 1997, and the results of operations and the changes in
cash flows for the three months ended March 31, 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, "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 March 31, 1998 and 1997 was $763,997 and $560,331,
respectively.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 is effective for
consolidated financial statements for fiscal periods beginning after
December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS No. 131 requires
that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Company does not
believe the adoption of this statement will have a material effect on its
consolidated financial statements as of and for the year ending December
31, 1998.
The Financial Accounting Standards Board 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.
<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.
April 27, 1998 By /s/ William N. Smith
- --------------------------- --------------------------------
Date William N. Smith
Chairman of the Board, President
and Chief Executive Officer
April 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
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
three 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
three months of 1998 from 13.3% at December 31, 1997 to 13.2% at March 31,
1998. The subsidiary Bank has experienced loan growth of approximately $3.1
million during the first three months of 1997. This growth in loans was
funded primarily by a reduction in the investment securities.
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.
<TABLE>
<CAPTION>
Regulatory
03/31/98 12/31/97 Guidelines
<S> <C> <C> <C>
Tier 1 risk based capital to net risk weighted assets 23.5% 24.0% 4.0%
Total risk based capital to net risk weighted assets 24.7 25.3 8.0
Leverage ratio (Tier 1/adjusted total assets) 13.2 13.4 3.0
</TABLE>
No significant events have occurred during the first three 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 first quarter of 1998
increased $209,307 or 5.4% from the corresponding period of 1997, while total
interest expense increased $175,852 or 10.6% from the corresponding period of
1997. Net interest income increased $33,455 or 1.5% from the prior year
period reflecting the average increase in interest earning assets over
interest bearing liabilities of $1.4 million as compared to the corresponding
period of 1997. The provision for loan losses was unchanged at $60,000 as
compared to the prior year period. Net charge-offs decreased $46,401 to
$23,383 from the prior year period, a decrease of 66.5%. The allowance for
loan losses as a percent of loans outstanding was unchanged at March 31, 1998
at 1.25% as compared to December 31, 1997. Non-interest income increased
$17,666 or 8.8% from the corresponding period of 1997. This increase was
primarily due to increases in fiduciary income and cash surrender values of
life insurance partially offset by a reduction in service charges on deposit
accounts. Non-interest expense increased $42,859 or 3.4% 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. Increases in
external data processing expenses were primarily due to conversion costs
related to the year 2000. Net income increased $10,471 or 1.4% 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.
<PAGE>
Status of year 2000 project:
A committee, led by senior management, has been formed to evaluate and
solve the year 2000 computer date problem for CNB Bancorp, Inc. and our
subsidiary Bank, City National Bank and Trust Company. The committee has
contacted all of the Company's vendors to request information on the status of
their year 2000 compliance project. Responses have been received from the vast
majority of vendors. The vendors have been placed in one of two categories:
compliant or non-compliant. Those vendors who are not compliant are being
tracked by the project coordinator and are being contacted at least quarterly
to request an update on the project status. Those vendors who have not
responded to the Company's inquiries are being contacted more frequently in an
effort to obtain a response.
The committee is now in the process of formulating a testing plan which
will involve contacting all vendors again. The committee will request
information about the vendors' internal testing methods and results and will
request instructions for performing independent tests. The Company
anticipates completion of the testing plan and all vendors to be contacted
regarding testing no later than June 30, 1998. A goal of December 31, 1998
has been set by the Company to complete independent tests and proxy tests for
vendors other than its data processor and those vendors who need to test with
the data processor. The type of testing performed will depend on the
service/product provided by the vendor.
The Company is working closely with ALLTEL Information Services, Inc.,
its data processing provider, regarding year 2000 compliance. On January 26,
1998 the subsidiary Bank entered into a new contract with ALLTEL to provide
for data processing on its HORIZON Banking System. There is a provision in
the contract that mandates the system be year 2000 compliant and the
compliant version installed on or before December 31, 1998. The subsidiary
Bank will be performing future testing with HORIZON during the first quarter
of 1999. The subsidiary Bank's vendors will also be able to perform testing
with HORIZON during this testing period.
The committee will continue its efforts toward year 2000 compliance with
a goal of June 30, 1999 for completion of all testing and implementation of
compliant systems. The Company believes the costs of the year 2000 compliance
will not have a material impact on its consolidated financial condition or
results of operations.
<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 March 31, 1998, assuming an
increase or decrease of 200 basis points in interest rates.
<TABLE>
<CAPTION>
Change in Estimated Net Change in
Interest Rate Interest Margin Net Interest
(basis points) ($000 omitted) Margin
<S> <C> <C>
+200 9,203 2.1%
+100 9,278 2.9
0 9,016 0.0
-100 8,692 (3.6)
-200 8,407 (6.8)
</TABLE>
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 March 31,
1998 the Company had a positive 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 March 31, 1998 the subsidiary Bank was in an assets sensitive
position which means that more assets are scheduled to mature or reprice
within the next year than liabilities. The cumulative interest rate
sensitivity gap as of March 31, 1998 was 1.55% of total assets.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CAPTION>
CNB BANCORP, INC.
FINANCIAL DATA SCHEDULE
(UNAUDITED)
March 31, 1998
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,056,527
<INT-BEARING-DEPOSITS> 35,545
<FED-FUNDS-SOLD> 10,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,042,055
<INVESTMENTS-CARRYING> 27,562,108
<INVESTMENTS-MARKET> 28,285,347
<LOANS> 122,227,687
<ALLOWANCE> 1,528,352
<TOTAL-ASSETS> 227,678,223
<DEPOSITS> 188,559,273
<SHORT-TERM> 8,057,589
<LIABILITIES-OTHER> 954,628
<LONG-TERM> 0
0
0
<COMMON> 4,000,000
<OTHER-SE> 26,106,733
<TOTAL-LIABILITIES-AND-EQUITY> 227,678,223
<INTEREST-LOAN> 2,660,864 2,660,864
<INTEREST-INVEST> 1,334,152 1,334,152
<INTEREST-OTHER> 88,708 88,708
<INTEREST-TOTAL> 4,083,724 4,083,724
<INTEREST-DEPOSIT> 1,748,000 1,748,000
<INTEREST-EXPENSE> 1,829,690 1,829,690
<INTEREST-INCOME-NET> 2,254,034 2,254,034
<LOAN-LOSSES> 60,000 60,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,297,517 1,297,517
<INCOME-PRETAX> 1,115,561 1,115,561
<INCOME-PRE-EXTRAORDINARY> 785,639 785,639
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 785,639 785,639
<EPS-PRIMARY> 0.49 0.49
<EPS-DILUTED> 0.49 0.49
<YIELD-ACTUAL> 4.27
<LOANS-NON> 274,159
<LOANS-PAST> 110,825
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,525,926
<ALLOWANCE-OPEN> 1,491,736
<CHARGE-OFFS> 26,752
<RECOVERIES> 3,368
<ALLOWANCE-CLOSE> 1,528,352
<ALLOWANCE-DOMESTIC> 1,426,692
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 101,660
</TABLE>
