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 June 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 July 30, 1999
$2.50 par value 2,400,000
<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 1
ending June 30, 1999 and 1998 and the six months ending
June 30, 1999 and 1998
Consolidated statements of financial condition as of June 2
30, 1999 and December 31, 1998
Consolidated statements of cash flows for the six months 3
ending June 30, 1999 and 1998
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 - Annual
meeting
Item 5 Other information - none
Item 6 (a) Exhibits - not applicable
(b) Reports on Form 8-K - June 1, 1999 - Acquisition of
Adirondack Financial Services Bancorp, Inc.
<PAGE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $2,964 $2,707 $5,562 $5,368
Interest on federal funds sold 132 170 258 254
Interest on balances due from depository institutions 59 3 61 8
Interest on securities available for sale 1,371 884 2,698 1,710
Interest on investment securities 212 407 457 899
Dividends on FRB and FHLB stock 16 16 33 32
------ ------ ------ ------
Total interest and dividend income 4,754 4,187 9,069 8,271
INTEREST EXPENSE
Interest on deposits:
Certificates and time deposits of $100,000 or more 566 582 1,046 1,059
Regular savings, N.O.W. and money market accounts 491 440 916 902
Other time deposits 891 832 1,676 1,641
Interest on securities sold under agreements to repurchase 166 131 331 213
Interest on other borrowed money 82 0 144 0
------ ------ ------ ------
Total interest expense 2,196 1,985 4,113 3,815
NET INTEREST INCOME 2,558 2,202 4,956 4,456
Provision for loan losses 60 60 120 120
------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,498 2,142 4,836 4,336
OTHER INCOME
Income from fiduciary activities 38 38 77 74
Service charges on deposit accounts 100 83 189 157
Net gain on sale of securities 70 0 70 0
Other income 148 115 300 224
------ ------ ------ ------
Total other income 356 236 636 455
OTHER EXPENSES
Salaries and employee benefits 747 644 1,406 1,302
Occupancy expense, net 81 77 175 159
Furniture and equipment expense 131 76 215 158
External data processing expense 251 161 433 300
Other expenses 530 311 951 647
------ ------ ------ ------
Total other expenses 1,740 1,269 3,180 2,566
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 1,114 1,109 2,292 2,225
Applicable income taxes 312 325 659 655
------ ------ ------ ------
NET INCOME $ 802 $ 784 $1,633 $1,570
====== ====== ====== ======
Earnings per share
Basic $ 0.33 $ 0.33 $ 0.68 $ 0.65
Diluted 0.33 0.33 0.68 0.65
</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
-1-
<PAGE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
6/30/99 12/31/98
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Non-interest bearing $ 8,987 $ 6,422
Interest bearing 541 42
Federal funds sold 5,900 13,900
--------- ---------
Total cash and cash equivalents 15,428 20,364
Securities available for sale, at fair value 94,336 89,157
Investment securities (approximate fair value at June 30, 1999 -
$14,565; at December 31, 1998 - $18,125) 14,164 17,397
Investments required by law, stock in Federal Home Loan
Bank of New York and Federal Reserve Bank of New York,
at cost 1,536 975
Loans 185,612 132,027
Unearned income (10,469) (10,190)
Allowance for loan losses (2,783) (1,580)
--------- ---------
Net loans 172,360 120,257
Premises and equipment 3,700 2,575
Accrued interest receivable 1,773 1,460
Other assets 11,055 3,383
--------- ---------
Total assets $ 314,352 $ 255,568
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (non interest bearing) $ 23,278 $ 23,268
Regular savings, N.O.W. and money market accounts 108,890 90,934
Certificates and time deposits of $100,000 or more 43,448 30,439
Other time deposits 84,970 61,745
--------- ---------
Total deposits 260,586 206,386
Securities sold under agreements to repurchase 12,773 12,844
Notes payable - Federal Home Loan Bank 8,333 4,000
Other liabilities 1,334 827
--------- ---------
Total liabilities 283,026 224,057
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value, 5,000,000 shares authorized,
2,400,000 shares issued at June 30, 1999 and 1,600,000
shares issued at December 31, 1998 6,000 4,000
Surplus 2,393 4,000
Undivided profits 24,044 23,165
Accumulated other comprehensive income/(loss) (1,111) 346
--------- ---------
Total stockholders' equity 31,326 31,511
--------- ---------
Total liabilities and stockholders' equity $ 314,352 $ 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
-2-
<PAGE>
CNB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
6 MONTHS ENDED
JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,633 $ 1,570
Adjustments to reconcile net income to cash and cash
equivalents provided by operating activities:
Decrease in interest receivable 122 16
Increase in other assets (370) (316)
Increase in other liabilities 252 85
Deferred income tax (benefit) expense (113) 16
Depreciation and amortization expense 231 139
Net increase in cash surrender value of bank-owned life insurance (51) (53)
Amortization of premiums/discounts on securities, net 112 107
Net gain on sale of securities (70) 0
Provision for loan losses 120 120
-------- --------
Total adjustments 233 114
-------- --------
Net cash provided by operating activities 1,866 1,684
-------- --------
Cash flows from investing activities:
Purchase of investment securities (988) (261)
Purchase of securities available for sale (15,669) (22,853)
Purchase of FRB and FHLB stock (100) (23)
Proceeds from matured investment securities 4,209 9,517
Proceeds from matured securities available for sale 16,259 13,469
Proceeds from sale of securities available for sale 3,880 0
Net increase in loans (2,615) (4,472)
Purchases of premises and equipment, net (129) (244)
Cash and cash equivalents acquired in acquisition, net of cash paid (10,636) 0
-------- --------
Net cash used by investing activities (5,789) (4,867)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits (2,238) 5,146
Increase (decrease) in securities sold under agreement to repurchase (71) 7,594
Increase in notes payable - FHLB 2,000 0
Payment of dividends (704) (672)
-------- --------
Net cash provided (used) by financing activities (1,013) 12,068
-------- --------
Net increase (decrease) in cash and cash equivalents (4,936) 8,885
Cash and cash equivalents beginning of period 20,364 9,407
-------- --------
Cash and cash equivalents end of period $ 15,428 $ 18,292
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 3,889 $ 3,668
Income taxes 510 767
Supplemental schedule of noncash investing activities:
Net reduction in loans resulting from the transfer to real estate owned 176 3
Fair value of non-cash assets acquired in acquisition $ 65,610 $ 0
Fair value of liabilities assumed in acquisition 59,151 0
Fair value of stock options issued in acquisition 393 0
</TABLE>
See accompanying notes to consolidated interim financial statements
-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
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 June 30, 1999 and December 31, 1998 and
the results of operations for the three and six months ended June 30, 1999
and 1998 and the changes in cash flows for the six months ended June 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 six month periods ended June 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 June 30, 1999:
Basic EPS: Income Available to Common Shareholders $ 802 2,400 $0.33
=====
Dilutive Effect of Stock Options 0 21
------ -----
Diluted EPS: Income Available to Common Shareholders
and Assumed Conversions $ 802 2,421 $0.33
====== ===== =====
For the Three Months Ended June 30, 1998:
Basic EPS: Income Available to Common Shareholders $ 784 2,400 $0.33
=====
Dilutive Effect of Stock Options 0 0
------ -----
Diluted EPS: Income Available to Common Shareholders
and Assumed Conversions $ 784 2,400 $0.33
====== ===== =====
For the Six Months Ended June 30, 1999:
Basic EPS: Income Available to Common Shareholders $1,633 2,400 $0.68
=====
Dilutive Effect of Stock Options 0 17
------ -----
Diluted EPS: Income Available to Common Shareholders
and Assumed Conversions $1,633 2,417 $0.68
====== ===== =====
For the Six Months Ended June 30, 1998:
Basic EPS: Income Available to Common Shareholders $1,570 2,400 $0.65
=====
Dilutive Effect of Stock Options 0 0
------ -----
Diluted EPS: Income Available to Common Shareholders
and Assumed Conversions $1,570 2,400 $0.65
====== ===== =====
</TABLE>
3. COMPREHENSIVE INCOME
The Company recorded a total comprehensive loss of $313,000 for the three
months ended June 30, 1999 as compared to total comprehensive income of
$808,000 for the three months ended June 30, 1998. For the six month periods
ended June 30, 1999 and 1998 the Company recorded total comprehensive income
of $176,000 and $1,573,000, 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 six month periods ending June 30 (in thousands):
-4-
<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 $941 in 1999 and ($1) in 1998 $(1,415) $ 3
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 $913 in 1999 and
($1) in 1998 $(1,457) $ 3
======= =======
</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 $67.8 million in assets, $56.4 million in deposits and $8.9
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 $4.7 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.
-5-
<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.
July 30, 1999 By /s/ William N. Smith
- ----------------- ----------------------------------
Date William N. Smith
Chairman of the Board, President
and Chief Executive Officer
July 30, 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 $67.8 million in assets, $56.4 million in deposits and $8.9
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 $4.7 million in
excess of cost over net
-1-
<PAGE>
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.
Financial Condition:
Comparison of Financial Condition at June 30, 1999 and December 31,
1998. Total assets at June 30, 1999 were $314.4 million, an increase of $58.8
million, or 23.0%, 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 $67.8 million at the date
of the acquisition.
Federal funds sold decreased to $5.9 million at June 30, 1999 from $13.9
million at December 31, 1998 due primarily to the cash purchase of
Adirondack. Securities available for sale increased by $5.1 million, from
$89.2 million at December 31, 1998, to $94.3 million at June 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) stock increased $0.6
million, or 60.0%, due to a combination of purchases of additional stock of
$0.1 million and the $0.5 million in FHLB stock acquired from Adirondack.
Loans receivable, net increased $53.3 million, or 43.8%, from $121.8
million at December 31, 1998, to $175.1 million at June 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 $4.7 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 June 30, 1999 were $260.6 million an increase of $54.2
million, or 26.3%, 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 decreased $0.2 million, or 0.6%, from $31.5 million
at December 31, 1998 to $31.3 million at June 30, 1999, due primarily to the
reduction in accumulated other comprehensive income of $1.5 million, from an
unrealized gain of $0.4 million at December 31, 1998 to an unrealized loss of
$1.1 million at June 30, 1999. This reduction was offset by year to date net
income of $1.6 million less cash dividends paid of $0.7 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 June 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
six 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 six months
of 1999 from 12.3% at December 31, 1998 to 10.0% at June 30, 1999. This
decrease was primarily due to the resulting goodwill of approximately $4.7
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.
-2-
<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
06/30/99 12/31/98 Guidelines
-------- -------- ----------
<S> <C> <C> <C>
Tier 1 risk based capital to net risk weighted assets 16.3% 23.4% 4.0%
Total risk based capital to net risk weighted assets 17.6 24.6 8.0
Leverage ratio (Tier 1/adjusted total assets) 9.9 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 second quarter of 1999
increased $567,000 or 13.5% from the corresponding period of 1998, while
total interest expense increased $211,000 or 10.6% from the corresponding
period of 1998. Net interest income increased $356,000 or 16.2% from the
prior year period reflecting the average increase in interest earning assets
over interest bearing liabilities of $2.1 million as compared to the
corresponding period of 1998. This was partially offset by a decline in the
net interest margin from 4.32% in 1998 to 4.14% in 1999. The increases in the
average interest earning assets and interest bearing liabilities are
primarily the result of the acquisition of Adirondack which began effecting
these averages as of the acquisition date of June 1, 1999.
The increase in interest on securities available for sale of $487,000 is
due to the increase of $32.6 million in average outstanding volume of
available for sale securities compared to the second 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 provision for loan losses of $60,000 was unchanged from the prior
year period. Net charge-offs decreased $6,000 to $35,000 from the prior year
period, a decrease of 14.6%. Non-performing loans increased from $529,000 at
December 31, 1998 to $1,143,000 at June 30, 1999, an increase of $614,000.
The provision was maintained at its current level due primarily to the
increase in non-performing loans. The allowance for loan losses as a percent
of loans outstanding was 1.59% at June 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.
Non-interest income increased $120,000 or 50.8% from the corresponding
period of 1998. This increase was primarily due to sales of available for
sale securities, deposit account service charges and increases in service
fees collected on merchant credit card sales.
Non-interest expense increased $471,000 or 37.1% 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 $18,000 or 2.3% 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.
-3-
<PAGE>
Most Recent Year to Date and Corresponding Year to Date Period:
Total interest and dividend income for the first six months of 1999
increased $798,000 or 9.6% from the corresponding period of 1998, while total
interest expense increased $298,000 or 7.8% from the corresponding period of
1998. Net interest income increased $500,000 or 11.2% from the prior year
period reflecting the average increase in interest earning assets over
interest bearing liabilities of $2.9 million as compared to the corresponding
period of 1998. This was partially offset by a decline in the net interest
margin from 4.46% in 1998 to 4.23% in 1999. The increases in year to date
average interest earning assets and interest bearing liabilities were also
due to the Adirondack acquisition.
The increase in interest on securities available for sale of $988,000 is
due to the increase of $33.2 million in average outstanding volume of
available for sale securities compared to the first six 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 provision for loan losses of $120,000 was unchanged from the prior
year period. Net charge-offs increased $19,000 to $83,000 from the prior year
period, an increase of 29.7%. The provision was maintained at its current
level due to the increase in net charge offs as well as the increase in
non-performing loans discussed above.
Non-interest income increased $181,000 or 39.8% from the corresponding
period of 1998. This increase was primarily due to sales of available for
sale securities, deposit account service charges and increases in service
fees collected on merchant credit card sales.
Non-interest expense increased $614,000 or 23.9% 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 $63,000 or 4.0% 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
-4-
<PAGE>
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.
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.
-5-
<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 June 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 10,213 2.0%
+100 10,098 0.8
0 10,013 0.0
-100 9,770 (2.4)
-200 9,611 (4.0)
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 June 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 June 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 June 30, 1999 was 3.51% of total assets. The acquisition of
Adirondack did not have any material impact on the cumulative interest rate
sensitivity gap as of June 30, 1999.
-1-
<PAGE>
CNB BANCORP, INC.
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders - Annual Meeting
1. Election of Directors:
At the annual meeting held April 20, 1999, shareholders of the Company
were asked to consider the Company's nominees for directors and to elect
three (3) directors, to serve for a term of three (3) years. The Company's
nominees for director were: William N. Smith, Brian K. Hanaburgh, and Clark
Easterly, Sr. The results of shareholder voting are as follows:
Director For Against Abstain
- -------- --- ------- -------
William N. Smith 1,010,752 160 0
Brian K. Hanaburgh 1,009,392 1,520 0
Clark Easterly, Sr. 1,010,752 160 0
Directors continuing in office are: John C. Miller, Frank E. Perrella,
Robert L. Maider, George A, Morgan, Clark D. Subik, Deborah H. Rose and
Theodore E. Hoye III.
-1-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[TYPE] EX-27
[DESCRIPTION] ARTICLE 9 FDS FOR 10-Q
[TEXT]
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> N/A 8,987
<INT-BEARING-DEPOSITS> N/A 541
<FED-FUNDS-SOLD> N/A 5,900
<TRADING-ASSETS> N/A 0
<INVESTMENTS-HELD-FOR-SALE> N/A 94,336
<INVESTMENTS-CARRYING> N/A 14,164
<INVESTMENTS-MARKET> N/A 14,565
<LOANS> N/A 175,143
<ALLOWANCE> N/A 2,783
<TOTAL-ASSETS> N/A 314,352
<DEPOSITS> N/A 260,586
<SHORT-TERM> N/A 2,897
<LIABILITIES-OTHER> N/A 1,334
<LONG-TERM> N/A 18,209
N/A 0
N/A 0
<COMMON> N/A 4,000
<OTHER-SE> N/A 27,326
<TOTAL-LIABILITIES-AND-EQUITY> N/A 314,352
<INTEREST-LOAN> 2,964 5,562
<INTEREST-INVEST> 1,599 3,188
<INTEREST-OTHER> 191 319
<INTEREST-TOTAL> 4,754 9,069
<INTEREST-DEPOSIT> 1,948 3,638
<INTEREST-EXPENSE> 2,196 4,113
<INTEREST-INCOME-NET> 2,558 4,956
<LOAN-LOSSES> 60 120
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,740 3,180
<INCOME-PRETAX> 1,114 2,292
<INCOME-PRE-EXTRAORDINARY> 802 1,633
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 802 1,633
<EPS-BASIC> 0.50 1.02
<EPS-DILUTED> 0.49 1.01
<YIELD-ACTUAL> N/A 3.95
<LOANS-NON> N/A 967
<LOANS-PAST> N/A 176
<LOANS-TROUBLED> N/A 0
<LOANS-PROBLEM> N/A 0
<ALLOWANCE-OPEN> N/A 1,580
<CHARGE-OFFS> N/A 99
<RECOVERIES> N/A 16
<ALLOWANCE-CLOSE> N/A 2,783
<ALLOWANCE-DOMESTIC> N/A 1,454
<ALLOWANCE-FOREIGN> N/A 0
<ALLOWANCE-UNALLOCATED> N/A 1,329
</TABLE>
