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, 1999 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 25, 1999
$2.50 par value 2,401,390
<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, 1999 and 1998 and the nine months
ending June 30, 1999 and 1998 1
Consolidated statements of financial condition as of
September 30, 1999 and December 31, 1998 2
Consolidated statements of cash flows for the nine months
ending September 30, 1999 and 1998 3
Notes to consolidated financial statements 4 - 5
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 - July 15, 1999 - Report of Unscheduled
Material Events, August 3, 1999 - Report of Unscheduled
Material Events, Form 8-K/A - August 16, 1999 - Amended
Report of Unscheduled Material Events
<PAGE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $3,652 $2,643 $ 9,214 $ 8,011
Interest on federal funds sold 98 206 356 460
Interest on balances due from depository institutions 4 3 65 11
Interest on securities available for sale 1,469 1,036 4,167 2,746
Interest on investment securities 203 358 660 1,257
Dividends on FRB and FHLB stock 29 15 62 47
Total interest and dividend income 5,455 4,261 14,524 12,532
INTEREST EXPENSE
Interest on deposits:
Certificates and time deposits of $100,000 or more 581 580 1,627 1,639
Regular savings, N.O.W. and money market accounts 655 453 1,571 1,355
Other time deposits 1,067 862 2,743 2,503
Interest on securities sold under agreements to repurchase 148 165 479 378
Interest on other borrowed money 105 0 249 0
Total interest expense 2,556 2,060 6,669 5,875
NET INTEREST INCOME 2,899 2,201 7,855 6,657
Provision for loan losses 60 60 180 180
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,839 2,141 7,675 6,477
OTHER INCOME
Income from fiduciary activities 45 37 122 111
Service charges on deposit accounts 110 85 299 242
Net gain on sale of securities 0 0 70 0
Other income 284 177 584 401
Total other income 439 299 1,075 754
OTHER EXPENSES
Salaries and employee benefits 931 674 2,337 1,976
Occupancy expense, net 104 73 279 232
Furniture and equipment expense 196 72 411 230
External data processing expense 221 210 654 510
Other expenses 621 290 1,572 937
Total other expenses 2,073 1,319 5,253 3,885
INCOME BEFORE INCOME TAXES 1,205 1,121 3,497 3,346
Applicable income taxes 376 332 1,035 987
NET INCOME $ 829 $ 789 $ 2,462 $ 2,359
Earnings per share
Basic $ 0.35 $ 0.33 $ 1.03 $ 0.98
Diluted 0.34 0.33 1.02 0.98
</TABLE>
Per share figures and shares outstanding have been adjusted to reflect the 3
for 2 stock split effected through the 50% stock dividend declared in July
1999.
See accompanying notes to consolidated interim financial statements
<PAGE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
9/30/99 12/31/98
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Non-interest bearing $ 12,426 $ 6,422
Interest bearing 367 42
Federal funds sold 9,900 13,900
Total cash and cash equivalents 22,693 20,364
Securities available for sale, at fair value 94,629 89,157
Investment securities (approximate fair value at September
30, 1999 - $14,081; at December 31, 1998 - $18,125) 13,786 17,397
Investments required by law, stock in Federal Home Loan
Bank of New York and Federal Reserve Bank of New York,
at cost 1,986 975
Loans 184,778 132,027
Unearned income (10,920) (10,190)
Allowance for loan losses (2,790) (1,580)
Net loans 171,068 120,257
Premises and equipment 3,575 2,575
Accrued interest receivable 1,958 1,460
Other assets 10,377 3,383
Total assets $320,072 $255,568
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (non interest bearing) $ 27,350 $ 23,268
Regular savings, N.O.W. and money market accounts 106,213 90,934
Certificates and time deposits of $100,000 or more 53,181 30,439
Other time deposits 82,659 61,745
Total deposits 269,403 206,386
Securities sold under agreements to repurchase 10,191 12,844
Notes payable - Federal Home Loan Bank 8,254 4,000
Other liabilities 719 827
Total liabilities 288,567 224,057
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value, 5,000,000 shares authorized,
2,400,000 shares issued at September 30, 1999 and
1,600,000 shares issued at December 31, 1998 6,000 4,000
Surplus 4,393 4,000
Undivided profits 22,571 23,165
Accumulated other comprehensive income/(loss) (1,459) 346
Total stockholders' equity 31,505 31,511
Total liabilities and stockholders' equity $320,072 $255,568
</TABLE>
Share amounts have been adjusted to reflect the 3 for 2 stock split effected
through the 50% stock dividend declared in July 1999.
See accompanying notes to consolidated interim financial statements
<PAGE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
9 MONTHS ENDED
SEPTEMBER 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,462 $ 2,359
Adjustments to reconcile net income to cash and cash
equivalents provided by operating activities:
(Increase) decrease in interest receivable (63) (181)
(Increase) decrease in other assets 635 (258)
Increase (decrease) in other liabilities (363) 311
Deferred income tax (benefit) expense 51 1
Depreciation and amortization expense 518 207
Net increase in cash surrender value of bank-owned life insurance (76) (80)
Amortization of premiums/discounts on securities, net 163 160
Net gain on sale of securities (70) 0
Provision for loan losses 180 180
Total adjustments 975 340
Net cash provided (used) by operating activities 3,437 2,699
Cash flows from investing activities:
Purchase of investment securities (1,583) (1,142)
Purchase of securities available for sale (19,456) (41,674)
Purchase of FRB and FHLB stock (550) (23)
Proceeds from matured investment securities 5,176 12,426
Proceeds from matured securities available for sale 19,168 20,367
Proceeds from sale of securities available for sale 3,880 0
Net (increase) decrease in loans (1,524) (617)
Purchases of premises and equipment, net (182) (342)
Cash and cash equivalents acquired in acquisition, net of cash paid (10,828) 0
Net cash provided (used) by investing activities (5,899) (11,005)
Cash flows from financing activities:
Net increase (decrease) in deposits 6,579 8,645
Increase (decrease) in securities sold under agreement to repurchase (2,653) 8,131
Increase in notes payable - FHLB 1,921 0
Payment of dividends (1,056) (1,008)
Net cash provided (used) by financing activities 4,791 15,768
Net increase (decrease) in cash and cash equivalents 2,329 7,462
Cash and cash equivalents beginning of period 20,364 9,407
Cash and cash equivalents end of period $ 22,693 $ 16,869
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 6,544 $ 5,664
Income taxes 785 984
Supplemental schedule of noncash investing activities:
Net reduction in loans resulting from the transfer to real estate owned 285 37
Fair value of non-cash assets acquired in acquisition $ 65,464 $ 0
Fair value of liabilities assumed in acquisition 59,026 0
Fair value of stock options issued in acquisition 393 0
</TABLE>
See accompanying notes to consolidated interim financial statements
<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
periods' 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, 1999 and December 31,
1998 and the results of operations for the three and nine months ended
September 30, 1999 and 1998 and the changes in cash flows for the nine months
ended September 30, 1999 and 1998. 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 1998 Annual Report and
Form 10-K.
2. EARNINGS PER COMMON SHARE (In Thousands, Except Per Share Amounts)
The following table presents a reconciliation of the numerator and
denominator used in the calculation of basic and diluted earnings per common
share (EPS) for the three month and nine month periods ended September 30,
1999 and 1998. Per share figures and shares outstanding have been adjusted to
reflect the 3 for 2 stock split effected through the 50% stock dividend
declared in July 1999.
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
For the Three Months Ended September 30, 1999:
Basic EPS: Income Available to Common Shareholders $ 829 2,400 $0.35
Dilutive Effect of Stock Options 0 36
Diluted EPS: Income Available to Common Shareholders
and Assumed Conversions $ 829 2,436 $0.34
For the Three Months Ended September 30, 1998:
Basic EPS: Income Available to Common Shareholders $ 789 2,400 $0.33
Dilutive Effect of Stock Options 0 0
Diluted EPS: Income Available to Common Shareholders
and Assumed Conversions $ 789 2,400 $0.33
For the Nine Months Ended September 30, 1999:
Basic EPS: Income Available to Common Shareholders $2,462 2,400 $1.03
Dilutive Effect of Stock Options 0 22
Diluted EPS: Income Available to Common Shareholders
and Assumed Conversions $2,462 2,422 $1.02
For the Nine Months Ended September 30, 1998:
Basic EPS: Income Available to Common Shareholders $2,359 2,400 $0.98
Dilutive Effect of Stock Options 0 0
Diluted EPS: Income Available to Common Shareholders
and Assumed Conversions $2,359 2,400 $0.98
</TABLE>
3. COMPREHENSIVE INCOME
The Company recorded total comprehensive income of $481,000 for the three
months ended September 30, 1999 as compared to total comprehensive income of
$1,148,000 for the three months ended September 30, 1998. For the nine month
periods ended September 30, 1999 and 1998 the Company recorded total
comprehensive income of $657,000 and $2,721,000, respectively. At the
Company, comprehensive income represents net income plus other comprehensive
income, which consists of the net change in unrealized gains and losses on
securities available for sale for the period. The following summarizes the
components of other comprehensive income for the nine month periods ending
September 30 (in thousands):
<PAGE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) arising during the period,
net of taxes of $1,190 in 1999 and ($241) in 1998 ($1,763) $362
Reclassification adjustment for net realized gains included in income,
net of taxes of ($28) in 1999 and $0 in 1998 42 0
Other comprehensive income (loss), net of taxes of $1,162 in 1999 and
($241) in 1998 ($1,805) $362
</TABLE>
4. ACQUISITION
On June 1, 1999, the Company acquired Adirondack Financial Services Bancorp,
Inc. (Adirondack) and its wholly owned subsidiary, Gloversville Federal
Savings and Loan Association. At the date of the merger, Adirondack had
approximately $68.5 million in assets, $56.4 million in deposits and $9.5
million in shareholders' equity. Pursuant to the merger agreement, Adirondack
was merged into CNB Bancorp, Inc. and Gloversville Federal Savings and Loan
Association was merged into City National Bank and Trust Company. The
combined bank now operates as one institution under the name of City National
Bank and Trust Company.
Upon consummation of the merger, each share of Adirondack received $21.92 in
cash which totaled approximately $14.6 million. In addition, under the merger
agreement, the Company agreed to assume 41,302 unvested options to purchase
shares of Adirondack and exchange same at a rate of .575 options to purchase
stock in CNB Bancorp, Inc constituting 23,749 shares.
The acquisition was accounted for using purchase accounting in accordance
with APB Opinion No. 16, "Business Combinations" (APB No. 16). Under purchase
accounting, the purchase price is allocated to the respective assets acquired
and liabilities assumed based on their estimated fair values. The acquisition
of Adirondack resulted in approximately $4.8 million in excess of cost over
net assets acquired ("goodwill"). Goodwill is being amortized to expense over
a period of fifteen years using the straight-line method. The results of
operations of Adirondack have been included in the Company's consolidated
statements of income for periods subsequent to the date of acquisition.
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (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. During the second quarter of 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" which deferred the
effective date of SFAS No. 133 by one year from fiscal quarters of fiscal
years beginning after June 15, 1999 to fiscal quarters of fiscal years
beginning after June 15, 2000. Management is currently evaluating the impact
of this Statement on the Company's consolidated financial statements.
<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 25, 1999 By /s/ William N. Smith
Date William N. Smith
Chairman of the Board, President
and Chief Executive Officer
October 25, 1999 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 five
branches located in the county of Fulton and one branch located in the county
of Saratoga. 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:
Acquisition:
On June 1, 1999, the Company acquired Adirondack Financial Services
Bancorp, Inc. (Adirondack) and its wholly owned subsidiary, Gloversville
Federal Savings and Loan Association. At the date of the merger, Adirondack
had approximately $68.5 million in assets, $56.4 million in deposits and $9.5
million in shareholders' equity. Pursuant to the merger agreement, Adirondack
was merged into CNB Bancorp, Inc. and Gloversville Federal Savings and Loan
Association was merged into City National Bank and Trust Company. The
combined bank now operates as one institution under the name of City National
Bank and Trust Company.
Upon consummation of the merger, each share of Adirondack received
$21.92 in cash which totaled approximately $14.6 million. In addition, under
the merger agreement, the Company agreed to assume 41,302 unvested options to
purchase shares of Adirondack and exchange same at a rate of .575 options to
purchase stock in CNB Bancorp, Inc constituting 23,749 shares.
The acquisition was accounted for using purchase accounting in
accordance with APB Opinion No. 16, "Business Combinations" (APB No. 16).
Under purchase accounting, the purchase price is allocated to the respective
assets acquired and liabilities assumed based on their estimated fair values.
The acquisition of Adirondack resulted in approximately $4.8 million in
excess of cost over net assets acquired ("goodwill"). Goodwill is being
amortized to expense over a period of fifteen years using the straight-line
method. The results of operations of Adirondack have been included in the
Company's consolidated statements of income for periods subsequent to the
date of acquisition.
<PAGE>
Financial Condition:
Comparison of Financial Condition at September 30, 1999 and December 31,
1998. Total assets at September 30, 1999 were $320.0 million, an increase of
$64.4 million, or 25.2%, over the December 31, 1998 amount of $255.6 million.
The primary reason for the increase in total assets was the previously
discussed acquisition of Adirondack which had total assets of $68.5 million
at the date of the acquisition.
Federal funds sold decreased to $9.9 million at September 30, 1999 from
$13.9 million at December 31, 1998 due primarily to the cash purchase of
Adirondack. Securities available for sale increased by $5.4 million, from
$89.2 million at December 31, 1998, to $94.6 million at September 30, 1999,
due primarily to the $12.1 million in securities (at fair value) acquired
from Adirondack. Federal Home Loan Bank of New York (FHLB) and Federal
Reserve Bank of New York (FRB) stock increased $1.0 million, or 100.0%, due
to a combination of purchases of additional stock of $0.5 million and the
$0.5 million in FHLB stock acquired from Adirondack.
Loans receivable, net of unearned income, increased $52.1 million, or
42.8%, from $121.8 million at December 31, 1998, to $173.9 million at
September 30, 1999, due primarily to the $51.0 million in net loans (at fair
value) acquired from Adirondack. The majority of the loans acquired from
Adirondack were one-to-four family residential mortgage loans ($35.8
million), but also included multi-family and commercial real estate ($6.5
million), commercial business ($3.6 million), construction ($0.3 million),
home equity ($2.7 million) and other consumer loans ($2.1 million).
The acquisition of Adirondack resulted in approximately $4.8 million in
goodwill,which represents the excess of the purchase price over the fair
value of the net assets acquired. Goodwill is being amortized over fifteen
years using the straight-line method.
Deposits at September 30, 1999 were $269.4 million an increase of $63.0
million, or 30.5%, over the balance of $206.4 million at December 31, 1998.
The main reason for the increase was the deposits assumed in the acquisition
of Adirondack, which totaled $56.4 million (at fair value) at the acquisition
date.
Shareholders' equity remained unchanged at $31.5 million from December
31, 1998 to September 30, 1999. This was primarily due to the reduction in
accumulated other comprehensive income of $1.8 million, from an unrealized
gain of $0.3 million at December 31, 1998 to an unrealized loss of $1.5
million at September 30, 1999, being offset by year to date net income of
$2.5 million less cash dividends paid of $1.1 million. In addition,
shareholders' equity was increased $0.4 million related to stock options
granted to certain Adirondack employees and directors in exchange for their
stock options in Adirondack.
On July 26, 1999, the Board of Directors declared a 3 for 2 split of its
common stock effected in the form of a 50% stock dividend. The stock split
was recorded as of June 30, 1999 by a transfer of $2.0 million from surplus
to common stock, representing the $2.50 par value for each additional share
issued. The number of shares issued at June 30, 1999, after giving effect to
the split, was 2.4 million (1.6 million shares immediately prior to the
split). The September 30, 1999 share data and all per share data has been
restated to reflect the split.
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 1999. Funds from repayment of loans, maturing investment
securities and securities available for sale are available to satisfy any
normal needs that may arise.
The Company closed on the purchase of Adirondack Financial Services
Bancorp, Inc. during the second quarter of 1999. The purchase price of $14.6
million came from Federal Funds Sold, maturing available for sale and
investment securities and the sale of $4.0 million of securities available
for sale.
Capital Resources:
Stockholder's equity to total assets decreased during the first nine
months of 1999 from 12.3% at December 31, 1998 to 9.8% at September 30, 1999.
This decrease was primarily due to the resulting goodwill of approximately
$4.8 million related to the purchase of Adirondack Financial Services
Bancorp, Inc. on June 1, 1999 as well as the increase in assets related to
that acquisition and normal asset growth.
<PAGE>
The table below shows the Companys' current ratios, December 31, 1998
ratios and the current regulatory guideline ratios for classification as well
capitalized as established by the Federal Reserve Board.
<TABLE>
<CAPTION>
Regulatory
9/30/99 12/31/98 Guidelines
<S> <C> <C> <C>
Tier 1 risk based capital to net risk weighted assets 17.0% 23.4% 4.0%
Total risk based capital to net risk weighted assets 18.2 24.6 8.0
Leverage ratio (Tier 1/adjusted total assets) 9.1 12.5 3.0
</TABLE>
These strong ratios are well in excess of regulatory minimums.
Results of Operations:
Most Recent Quarter and Same Quarter in Preceding Year:
Total interest and dividend income for the third quarter of 1999
increased $1,194,000 or 28.0% from the corresponding period of 1998, while
total interest expense increased $496,000 or 24.1% from the corresponding
period of 1998. Net interest income increased $698,000 or 31.7% from the
prior year period reflecting the volume increases in interest earning assets
and interest bearing liabilities as a result of the acquisition of Adirondack
on June 1, 1999. This acquisition helped to improve the net interest margin
slightly from 4.17% in 1998 to 4.19% in 1999.
The increase in interest on securities available for sale of $433,000 is
due to the increase of $28.6 million in average outstanding volume of
available for sale securities compared to the third quarter of 1998. Maturing
held to maturity securities are primarily being reinvested in available for
sale securities and new growth in securities is being invested primarily in
available for sale securities. The Adirondack acquisition also contributed
$12.1 million in available for sale securities as of June 1, 1999.
The provision for loan losses of $60,000 was unchanged from the prior
year period. Net charge-offs increased $12,000 to $54,000 from the prior year
period, an increase of 28.6%. Non-performing loans decreased from $529,000 at
December 31, 1998 to $440,000 at at September 30, 1999, a decrease of
$89,000. The provision was maintained at its current level due primarily to
the overall evaluation of the allowance for loan losses as of September 30,
1999. The allowance for loan losses as a percent of loans outstanding was
1.60% at September 30, 1999 as compared to 1.30% at December 31, 1998. The
increase in the allowance for loan losses to outstanding loans was primarily
due to the acquisition of Adirondack, which generally had higher credit risk
loans.
Non-interest income increased $140,000 or 46.8% from the corresponding
period of 1998. This increase was primarily due to the increase in our
dividend on credit insurance plans, deposit account service charges and
increases in service fees collected on merchant credit card sales.
Non-interest expense increased $754,000 or 57.2% from the corresponding
period of 1998 due primarily to higher salaries and employee benefits, higher
furniture and equipment expense, higher external data processing expenses and
higher legal and professional fees. The higher salaries and employee benefits
were primarily attributed to the adding of two new offices as of June 1, 1999
with the acquistion of Gloversville Federal Savings and Loan Association. The
higher furniture and equipment expense was also a result of acquiring
Gloversville Federal consisting of additional depreciation expense. The
higher data processing expenses related to preparation and testing of all
data hardware and software in preparation for the Year 2000, the outsourcing
of our proof and transit department and costs associated with the conversion
of Gloversville Federal accounts to our Horizon system. The higher other
expenses are primarily due to increased legal and professional fees which
were primarily related to the startup costs of CNB REIT Corp., a subsidiary
of City National Bank and Trust Company. Additional expenses were also
incurred with goodwill amortization and merchant credit card processing
expenses.
Net income increased $40,000 or 5.1% as compared to the same period of
1998. This increase was due to the increase in net interest income and other
income more than offsetting the increase in other expenses.
<PAGE>
Most Recent Year to Date and Corresponding Prior Year to Date Period:
Total interest and dividend income for the first nine months of 1999
increased $1,992,000 or 15.9% from the corresponding period of 1998, while
total interest expense increased $794,000 or 13.5% from the corresponding
period of 1998. Net interest income increased $1,198,000 or 18.0% from the
prior year period reflecting the average increase in interest earning assets
over interest bearing liabilities of $1.1 million as compared to the
corresponding period of 1998. This was partially offset by a decline in the
net interest margin from 4.36% in 1998 to 4.21% in 1999. The increases in
year to date average interest earning assets and interest bearing liabilities
were also due to the Adirondack acquisition on June 1, 1999.
The increase in interest on securities available for sale of $1,421,000
is due to the increase of $31.6 million in average outstanding volume of
available for sale securities compared to the first nine months of 1998.
Maturing held to maturity securities are primarily being reinvested in
available for sale securities and new growth in securities is being invested
primarily in available for sale securities. The Adirondack acquisition also
contributed $12.1 million in available for sale securities as of June 1,
1999.
The provision for loan losses of $180,000 was unchanged from the prior
year period. Net charge-offs increased $31,000 to $137,000 from the prior
year period, an increase of 29.2%. The provision was maintained at its
current level due to the overall evaluation of the allowance for loan losses
as of September 30, 1999.
Non-interest income increased $321,000 or 42.6% from the corresponding
period of 1998. This increase was primarily due to sales of available for
sale securities, deposit account service charges, increases in service fees
collected on merchant credit card sales and the increase in our dividend on
credit insurance plans related to installment and mortgage lending.
Non-interest expense increased $1,368,000 or 35.2% from the
corresponding period of 1998 due primarily to higher salaries and employee
benefits, higher furniture and equipment expense, higher external data
processing expenses and higher legal and professional fees. The higher
salaries and employee benefits were primarily attributed to the adding of two
new offices as of June 1, 1999 with the acquistion of Gloversville Federal
Savings and Loan Association. The higher furniture and equipment expense was
also a result of acquiring Gloversville Federal consisting of additional
depreciation expense. The higher data processing expenses related to
preparation and testing of all data hardware and software in preparation for
the Year 2000, the outsourcing of our proof and transit department and costs
associated with the conversion of Gloversville Federal accounts to our
Horizon system. The higher legal and professional fees were primarily related
to the startup costs of CNB REIT Corp., a subsidiary of City National Bank
and Trust Company. Additional expenses were also incurred with goodwill
amortization, the collection of merchant sales tickets and other real estate
expenses.
Net income increased $103,000 or 4.4% as compared to the same period of
1998. This increase was due to the increase in net interest income and other
income more than offsetting the increase in other expenses.
STATUS OF YEAR 2000 PROJECT:
Entering the Year 2000 presents a complicated problem to industries
worldwide, including the banking industry. The Year 2000 problem originates
in the method used to code dates in computer software and hardware. Most
computer systems and programs had used six digit date fields (YYMMDD)
allowing only two digits for the year. As we enter the Year 2000, if not
fixed, the two digit field would have read 00. Most computer systems would
have interpreted 00 as the year 1900, not as 2000.
A Year 2000 Committee, led by senior management and composed of officers
representing all areas of operation, has been formed to evaluate and solve
the Year 2000 problem for the subsidiary Bank. With the help of federal
regulators, the Committee has focused on identifying risks posed by the Year
2000 and taking the appropriate action to ensure continuity of operation.
The federal government has designated five phases of the Year 2000
project: awareness, assessment, renovation, validation and implementation.
The subsidiary Bank has completed all five phases. This means that the Year
2000 problem as it pertains to the subsidiary Bank has been defined,
executive level support has been acquired, the magnitude of the project has
been assessed, all mission critical systems have been tested and the
subsidiary Bank is using compliant versions of mission critical systems in
production.
The subsidiary Bank has also evaluated the Year 2000 readiness of its
funds providers and funds takers. They concluded that their primary funds
providers fall into two categories: (1) municipal depositors and (2) the same
entities as their primary commercial borrowers. The municipal deposit base
was evaluated and was assigned a minimal overall risk based on the fact that
favorable responses have been received from inquiries regarding their Year
2000 readiness. The commercial portfolio was evaluated and assigned a minimal
overall risk based on the following criteria: loan balances and types,
collateral, the subsidiary Bank's knowledge of the businesses and the
businesses' self assessment. Correspondent banks are the subidiary Bank's
primary non-commercial funds takers. A low level of risk has been associated
with this group. All organizations will continue to be evaluated to assure
readiness for the Year 2000.
<PAGE>
The Committee has also focused on contingency planning. Although
assurances have been made of all mission critical systems' Year 2000
compliance, the Committee has drafted a business resumption contingency plan
which will ensure the subsidiary Bank's ability to temporarily do business
without the services of any mission critical vendor.
The subsidiary Bank, 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
subsidiary Bank has spent approximately $200,000 on the conversion to
HORIZON, a data processing program distributed by ALLTEL Information
Services, Inc. The subsidiary Bank has spent a negligible amount in other
areas. The expected additional cost to finish this project is $100,000.
The subsidiary Bank's goal was to meet all federally mandated year 2000
milestones and complete all year 2000 related planning before June 30, 1999.
This goal has been reached. Year 2000 will remain an important issue for the
subsidiary Bank throughout 1999. The Company is confident that the subsidiary
Bank will be ready to enter the Year 2000 without significant problems. The
Company does not foresee the Year 2000 having any material negative impact on
its financial condition or the 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 September 30, 1999 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 10,617 0.8%
+100 10,550 0.2
0 10,528 0.0
-100 10,332 (1.9)
-200 10,272 (2.4)
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, 1999 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, 1999 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, 1999 was 5.56% of total assets. The
acquisition of Adirondack did not have any material impact on the cumulative
interest rate sensitivity gap as of September 30, 1999.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
CNB BANCORP
FINANCIAL DATA SCHEDULE
(In thousands, except per share data)
(UNAUDITED)
September 30, 1999
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> N/A 12,426
<INT-BEARING-DEPOSITS> N/A 367
<FED-FUNDS-SOLD> N/A 9,900
<TRADING-ASSETS> N/A 0
<INVESTMENTS-HELD-FOR-SALE> N/A 94,629
<INVESTMENTS-CARRYING> N/A 13,786
<INVESTMENTS-MARKET> N/A 14,081
<LOANS> N/A 173,858
<ALLOWANCE> N/A 2,790
<TOTAL-ASSETS> N/A 320,022
<DEPOSITS> N/A 269,403
<SHORT-TERM> N/A 2,320
<LIABILITIES-OTHER> N/A 653
<LONG-TERM> N/A 16,125
N/A 0
N/A 0
<COMMON> N/A 6,000
<OTHER-SE> N/A 25,521
<TOTAL-LIABILITIES-AND-EQUITY> N/A 320,022
<INTEREST-LOAN> 3,652 9,214
<INTEREST-INVEST> 1,701 4,889
<INTEREST-OTHER> 102 421
<INTEREST-TOTAL> 5,455 14,524
<INTEREST-DEPOSIT> 2,303 5,941
<INTEREST-EXPENSE> 2,556 6,669
<INTEREST-INCOME-NET> 2,899 7,855
<LOAN-LOSSES> 60 180
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 2,073 5,253
<INCOME-PRETAX> 1,205 3,497
<INCOME-PRE-EXTRAORDINARY> 829 2,462
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 829 2,462
<EPS-BASIC> 0.35 1.03
<EPS-DILUTED> 0.34 1.02
<YIELD-ACTUAL> N/A 3.95
<LOANS-NON> N/A 236
<LOANS-PAST> N/A 204
<LOANS-TROUBLED> N/A 0
<LOANS-PROBLEM> N/A 0
<ALLOWANCE-OPEN> N/A 1,580
<CHARGE-OFFS> N/A 168
<RECOVERIES> N/A 31
<ALLOWANCE-CLOSE> N/A 2,790
<ALLOWANCE-DOMESTIC> N/A 2,624
<ALLOWANCE-FOREIGN> N/A 0
<ALLOWANCE-UNALLOCATED> N/A 166
</TABLE>
