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, 2000 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 of each of the Issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class of Common Stock as of November 6, 2000
$2.50 par value 2,363,694
<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 ended September 30, 2000 and 1999 and the
nine months ended September 30, 2000 and 1999 1
Consolidated statements of financial condition
as of September 30, 2000 and December 31, 1999 2
Consolidated statements of cash flows for the nine
months ended September 30, 2000 and 1999 3
Notes to consolidated interim financial statements
(unaudited) 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 - Certificate of Amendment of Certificate
of Incorporation of CNB Bancorp, Inc.
(b) Reports on Form 8-K - None
<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,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $3,901 $3,652 $11,400 $ 9,214
Interest on federal funds sold 67 98 248 356
Interest on balances due from depository institutions 3 4 57 65
Interest and dividends on securities available for sale 1,782 1,469 5,213 4,167
Interest on investment securities 240 203 625 660
Dividends on FRB and FHLB stock 35 29 119 62
------ ------ ------- -------
Total interest and dividend income 6,028 5,455 17,662 14,524
INTEREST EXPENSE
Interest on deposits:
Certificates and time deposits of $100,000 or more 829 581 2,481 1,627
Regular savings, NOW and money market accounts 682 655 2,066 1,571
Other time deposits 1,137 1,067 3,267 2,743
Interest on securities sold under agreements to repurchase 94 148 337 479
Interest on other borrowed money 388 105 721 249
------ ------ ------- -------
Total interest expense 3,130 2,556 8,872 6,669
NET INTEREST INCOME 2,898 2,899 8,790 7,855
Provision for loan losses 60 60 159 180
------ ------ ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,838 2,839 8,631 7,675
NON-INTEREST INCOME
Income from fiduciary activities 48 45 129 122
Service charges on deposit accounts 123 110 346 299
Net gain on sale of securities available for sale 0 0 0 70
Other income 396 284 808 584
------ ------ ------- -------
Total non-interest income 567 439 1,283 1,075
NON-INTEREST EXPENSE
Salaries and employee benefits 954 931 2,700 2,337
Occupancy expense, net 116 104 346 279
Furniture and equipment expense 104 196 308 411
External data processing expense 193 221 548 654
Other expense 638 621 1,883 1,572
------ ------ ------- -------
Total non-interest expense 2,005 2,073 5,785 5,253
------ ------ ------- -------
INCOME BEFORE INCOME TAXES 1,400 1,205 4,129 3,497
Applicable income taxes 456 376 1,272 1,035
------ ------ ------- -------
NET INCOME $ 944 $ 829 $ 2,857 $ 2,462
====== ====== ======= =======
Earnings per share
Basic $ 0.40 $ 0.35 $ 1.20 $ 1.03
Diluted 0.39 0.34 1.18 1.02
</TABLE>
Per share data has 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 share data)
(UNAUDITED)
<TABLE>
<CAPTION>
9/30/00 12/31/99
------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Non-interest bearing $ 9,709 $ 12,402
Interest bearing 263 2,128
Federal funds sold 9,400 5,300
-------- --------
Total cash and cash equivalents 19,372 19,830
Securities available for sale, at fair value 108,481 93,849
Investment securities (approximate fair value
at September 30, 2000 - $15,851; at December 31,
1999 - $13,611) 15,623 13,443
Investments required by law, stock in Federal Home
Loan Bank of New York and Federal Reserve Bank of
New York, at cost 2,224 1,988
Loans 198,106 183,785
Unearned income (13,513) (11,372)
Allowance for loan losses (2,748) (2,697)
-------- --------
Net loans 181,845 169,716
Premises and equipment, net 3,443 3,550
Accrued interest receivable 2,318 1,745
Other assets 10,947 10,787
-------- --------
Total assets $344,253 $314,908
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (non interest bearing) $ 30,718 $ 25,671
Regular savings, NOW and money market accounts 104,804 121,717
Certificates and time deposits of $100,000 or more 60,580 35,339
Other time deposits 80,198 82,353
-------- --------
Total deposits 276,300 265,080
Securities sold under agreements to repurchase 6,429 9,581
Notes payable - Federal Home Loan Bank 26,425 8,173
Other liabilities 2,207 789
-------- --------
Total liabilities 311,361 283,623
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value, 5,000,000 shares
authorized, 2,401,695 shares issued at September 30,
2000 and December 31, 1999 6,004 6,004
Surplus 4,385 4,415
Undivided profits 24,812 23,048
Accumulated other comprehensive loss (1,211) (2,182)
Treasury stock, at cost; 38,836 shares at
September 30, 2000 (1,098) 0
-------- --------
Total stockholders' equity 32,892 31,285
-------- --------
Total liabilities and stockholders' equity $344,253 $314,908
======== ========
</TABLE>
Share amounts 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>
9 MONTHS ENDED
SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,857 $ 2,462
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in accrued interest receivable (570) (63)
(Increase) decrease in other assets (292) 635
Increase (decrease) in other liabilities 1,149 (363)
Deferred income tax expense 47 51
Depreciation and amortization expense 607 518
Net increase in cash surrender value of bank-owned
life insurance (85) (76)
Amortization of premiums/discounts on securities, net 46 163
Net gain on sale of securities available for sale 0 (70)
Provision for loan losses 159 180
-------- --------
Total adjustments 1,061 975
-------- --------
Net cash provided by operating activities 3,918 3,437
-------- --------
Cash flows from investing activities:
Purchase of investment securities (4,523) (1,583)
Purchase of securities available for sale (29,030) (19,456)
Purchase of Federal Reserve Bank and Federal Home
Loan Bank stock (236) (550)
Proceeds from maturities, paydowns and calls of
investment securities 2,327 5,176
Proceeds from maturities, paydowns and calls of
securities available for sale 15,140 19,168
Proceeds from sale of securities available for sale 1,043 3,880
Net increase in loans (12,583) (1,524)
Purchases of premises and equipment, net (153) (182)
Net cash paid in acquisition (456) (10,828)
-------- --------
Net cash used by investing activities (28,471) (5,899)
-------- --------
Cash flows from financing activities:
Net increase in deposits 11,220 6,579
Decrease in securities sold under agreements to repurchase (3,152) (2,653)
Increase in notes payable - Federal Home Loan Bank 18,252 1,921
Treasury stock purchased (1,163) 0
Treasury stock sold 35 0
Cash dividends paid on common stock (1,097) (1,056)
-------- --------
Net cash provided by financing activities 24,095 4,791
-------- --------
Net (decrease) increase in cash and cash equivalents (458) 2,329
Cash and cash equivalents beginning of period 19,830 20,364
-------- --------
Cash and cash equivalents end of period $ 19,372 $ 22,693
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 8,210 $ 6,544
Income taxes 1,093 785
Supplemental schedule of noncash investing activities:
Net reduction in loans resulting from the transfer to
real estate owned 209 285
Fair value of non-cash assets acquired in acquisition $ 376 $ 65,464
Fair value of liabilities assumed in acquisition 269 59,026
Fair value of stock options issued in acquisition 0 393
</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),
City National Bank and Trust Company (subsidiary Bank) and Hathaway
Agency, Inc. (subsidiary Insurance Agency) conform to generally accepted
accounting principles in a consistent manner and are in accordance with
the general practices within the financial services industry. 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,
2000 and December 31, 1999 and the results of operations for the three and
nine months ended September 30, 2000 and 1999 and the cash flows for the
nine months ended September 30, 2000 and 1999. 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 1999
Annual Report and Form 10-K.
2. EARNINGS PER COMMON SHARE
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, 2000 and 1999. Per share figures and weighted average shares
outstanding have been adjusted to reflect the 3 for 2 stock split effected
through the 50% stock dividend declared in July 1999. (In thousands,
except per share amounts)
<TABLE>
<CAPTION>
Weighted
Average
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<C> <S> <S> <S>
For the Three Months Ended September 30, 2000:
Basic EPS $ 944 2,367 $0.40
=====
Dilutive Effect of Stock Options 0 31
------ -----
Diluted EPS $ 944 2,398 $0.39
====== ===== =====
For the Three Months Ended September 30, 1999:
Basic EPS $ 829 2,400 $0.35
=====
Dilutive Effect of Stock Options 0 36
------ -----
Diluted EPS $ 829 2,436 $0.34
====== ===== =====
For the Nine Months Ended September 30, 2000:
Basic EPS $2,857 2,384 $1.20
=====
Dilutive Effect of Stock Options 0 27
------ -----
Diluted EPS $2,857 2,411 $1.18
====== ===== =====
For the Nine Months Ended September 30, 1999:
Basic EPS $2,462 2,400 $1.03
=====
Dilutive Effect of Stock Options 0 22
------ -----
Diluted EPS $2,462 2,422 $1.02
====== ===== =====
</TABLE>
3. COMPREHENSIVE INCOME
The Company recorded total comprehensive income of $1,712,000 for the
three months ended September 30, 2000 as compared to total comprehensive
income of $481,000 for the three months ended September 30, 1999. For the
nine month periods ended September 30, 2000 and 1999 the Company recorded
total comprehensive income of $3,828,000 and $657,000, respectively. At
the Company, comprehensive income represents net income plus other
comprehensive income(loss), which consists of the after tax net change in
unrealized gains and losses on securities available for sale for the
period. The following summarizes the components of other comprehensive
income(loss) for the nine month periods ended September 30 (in thousands):
-4-
<PAGE>
<TABLE>
<CAPTION>
2000 1999
---- --------
<S> <C> <C>
Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) arising during the period,
net of taxes of ($646) in 2000 and $1,190 in 1999 $971 ($1,763)
Reclassification adjustment for net realized gains included in income,
net of taxes of $0 in 2000 and ($28) in 1999 0 42
---- --------
Other comprehensive income (loss), net of taxes of ($646) in 2000
and $1,162 in 1999 $971 ($1,805)
==== ========
</TABLE>
4. ACQUISITION
On July 1, 2000, the Company acquired Hathaway Agency, Inc. (Hathaway), a
local insurance agency. At the date of the acquisition, Hathaway had
approximately $1,300,000 in assets, $300,000 in liabilities and $1,000,000 in
shareholders' equity. Pursuant to the merger agreement, Hathaway became a
wholly owned subsidiary of CNB Bancorp, Inc.
Upon consummation of the acquisition, each preferred share of Hathaway was
exchanged for $100 in cash which totaled approximately $700,000 and each
common share of Hathaway was exchanged for $2,432 in cash which totaled
approximately $600,000. In addition, under a non-compete agreement each
preferred and common shareholder of Hathaway will receive payments over a
period of five years totaling, in the aggregate, approximately $300,000.
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 Hathaway resulted in approximately $300,000 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. Covenant not to
compete payments are being expensed as paid over the five year period of the
covenant.
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. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Derivative Instruments and Hedging Activities, and Amendment
to FASB Statement No. 133." This Statement amends the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
certain hedging activities. Management expects the impact of SFAS No. 133, as
amended by SFAS No. 138, to have no material effect 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.
November 6, 2000 By /s/ William N. Smith
---------------- --------------------
Date William N. Smith
Chairman of the Board,
President and
Chief Executive Officer
November 6, 2000 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. (the Company), a New York corporation, organized in
1988, is a registered financial holding company headquartered in
Gloversville, New York. Its wholly-owned subsidiaries, City National Bank and
Trust Company (the subsidiary Bank) and Hathaway Agency, Inc. (the subsidiary
Insurance Agency), were organized in 1887 and 1915, respectively and are also
headquartered in Gloversville, New York. The subsidiary Bank has five
branches located in the county of Fulton and one branch located in the county
of Saratoga. The subsidiary Insurance Agency has one office located in the
county of Fulton. The subsidiary Bank is a full service commercial bank that
offers a broad range of demand and time deposits; consumer, mortgage, and
commercial loans; and trust and investment services. The subsidiary Bank is a
member of the Federal Deposit Insurance Corporation and the Federal Reserve
System and is subject to regulation and supervision of the Federal Reserve
and the Comptroller of the Currency. The subsidiary Insurance Agency offers a
broad range of general insurance products and is under the supervision of the
State Insurance Department.
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 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:
Acquisitions:
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
and its subsidiary 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.
On July 1, 2000, the Company acquired Hathaway Agency, Inc. (Hathaway),
a local insurance agency. At the date of the acquisition, Hathaway had
approximately $1,300,000 in assets, $300,000 in liabilities and $1,000,000 in
shareholders' equity. Pursuant to the merger agreement, Hathaway became a
wholly owned subsidiary of CNB Bancorp, Inc.
Upon consummation of the acquisition, each preferred share of Hathaway
was exchanged for $100 in cash which totaled approximately $700,000 and each
common share of Hathaway was exchanged for $2,432 in cash which totaled
approximately $600,000. In addition, under a non-compete agreement each
preferred and common shareholder of Hathaway will receive payments over a
period of five years totaling, in the aggregate, approximately $300,000.
-1-
<PAGE>
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 Hathaway resulted in approximately $300,000 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.
Covenant not to compete payments are being expensed as paid over the five
year period of the covenant.
Financial Condition:
Total assets at September 30, 2000 were $344.3 million an increase of
$29.3 million, or 9.3%, over the December 31, 1999 amount of $314.9 million.
The increases were primarily related to loan growth of $12.2 million,
securities available for sale of $14.6 million and investment securities of
$2.2 million. Asset growth was financed by deposit growth of $11.2 million
and increased Federal Home Loan Bank borrowings of $18.3 million.
Non-interest bearing cash balances decreased to $9.7 million at
September 30, 2000 from $12.4 million at December 31, 1999 due primarily to
the reduction in vault cash that had been accumulated for any Year 2000
related needs. Interest bearing cash balances decreased to $0.3 million at
September 30, 2000 from $2.1 million at December 31, 1999 due primarily to
temporary deposits at year end 1999 being invested this year in the bond
portfolio and fededal funds sold for liquidity purposes.
Securities available for sale increased by $14.6 million, from $93.8
million at December 31, 1999, to $108.5 million at September 30, 2000
primarily as a result of the reduction of cash held at year end being
invested in the bond portfolio coupled with deposit growth and increased
borrowings from the Federal Home Loan Bank.
Loans receivable, net of unearned income, increased $12.2 million, or
7.1%, from $172.4 million at December 31, 1999, to $184.6 million at
September 30, 2000, due primarily to the increase of $6.7 million in the
commercial loan portfolio and the increase of $6.9 million in the consumer
installment loan portfolio.
Deposits at September 30, 2000 were $276.3 million, an increase of $11.2
million, or 4.2%, over the balance of $265.1 million at December 31, 1999.
This increase is primarily attributed to the increase in demand deposits and
large municipal certificates of deposit, partially offset by the decrease in
regular savings, NOW and money market deposits.
Stockholders' equity increased to $32.9 million at September 30, 2000
from $31.3 million at December 31, 1999, an increase of 5.1%. This increase
was primarily due to the retention of earnings, less dividends paid, during
the first nine months of 2000 coupled with the improvement in the accumulated
other comprehensive loss related to the securities available for sale
portfolio, less the cost of the purchase of 38,836 shares of stock which were
placed into treasury.
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 2000. 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:
Stockholders' equity to total assets decreased during the first nine
months of 2000 from 9.9% at December 31, 1999 to 9.6% at September 30, 2000.
This decrease was primarily due to the growth in assets of $29.3 million or
9.3% during the first nine months while stockholders' equity increased $1.6
million or 5.1%.
The table below shows the Company's September 30, 2000 ratios, December
31, 1999 ratios and the current regulatory guideline ratios for
classification as well capitalized as established by the Federal Reserve
Board.
<TABLE>
<CAPTION>
Regulatory
09/30/00 12/31/99 Guidelines
<S> <C> <C> <C>
Tier 1 risk based capital to net risk weighted assets 15.6% 17.4% 6.0%
Total risk based capital to net risk weighted assets 16.9 18.7 10.0
Leverage ratio (Tier 1/adjusted total assets) 8.9 9.3 5.0
</TABLE>
These strong ratios are well in excess of regulatory minimums.
-2-
<PAGE>
Results of Operations:
Most Recent Quarter and Same Quarter in Preceding Year:
Total interest and dividend income for the third quarter of 2000
increased $573,000 or 10.5% from the corresponding period in 1999, while
total interest expense increased $574,000 or 22.5% from the corresponding
period in 1999. Net interest income remained virtually unchanged, showing a
decrease of $1,000 from the corresponding period in 1999. Narrower margins
between interest earning assets and interest bearing liabilities were the
reason for the net interest income remaining unchanged from the corresponding
period of 1999 despite overall growth in loans, investments and deposits.
The increase in interest and fees on loans of $249,000 compared to the
third quarter of 1999 is primarily due to the growth in commercial loans and
consumer loans over the same period of 1999.
The increase in interest on securities available for sale of $313,000 is
largely due to an increase of $15.4 million in the average outstanding
balance of available for sale securities compared to the third quarter of
1999. The increase is attributed to the Company's strategy of deploying
excess cash from deposit growth and borrowed funds into the securities
available for sale portfolio.
The decrease in interest income on federal funds sold is primarily
attributed to the decrease in the average outstanding balance of $3.5 million
from the third quarter of 1999 to the third quarter of 2000.
The increase in interest expense is primarily related to the increase in
the average balance of certificates of deposit over $100,000 of $7.6 million
as compared to the third quarter of 1999 and additional borrowings from the
Federal Home Loan Bank.
The provision for loan losses was unchanged from the corresponding
period in 1999 at $60,000. Net charge-offs increased $31,000 to $84,000 from
the prior year period. Non-performing loans decreased from $1,615,000 at
December 31, 1999 to $1,046,000 at September 30, 2000, a decrease of
$569,000. The provision was deemed to be adequate based on the overall
evaluation of the allowance for loan losses as of September 30, 2000 and
1999. The allowance for loan losses as a percent of net loans outstanding was
1.49% at September 30, 2000 as compared to 1.56% at December 31, 1999 and
1.60% at September 30, 1999.
Non-interest income increased $128,000 or 29.2% from the corresponding
period of 1999. This increase was primarily due to the acquisition of
Hathaway Agency, Inc. as of July 1, 2000 and the recording of $103,000 in
insurance commission income for the third quarter of 2000. Increases were
also recorded in deposit account service charges and service fees collected
on merchant credit card sales.
Non-interest expense decreased $68,000 or 3.3% from the corresponding
period of 1999 due primarily to the non-recurring acquisition expenses
associated with the purchase of Gloversville Federal Savings and Loan
Association primarily related to furniture and equipment expense and external
data processing expense during the third quarter of 1999. These reductions
were partially offset by higher salaries and employee benefits due to the
acquisition of Hathaway Agency, Inc. during the third quarter of 2000 and
normal salary adjustments. Occupancy expense also increased over the prior
year period due to additional maintenance and repair expenses and utility
costs. Other expense increases were primarily related to the amortization of
goodwill and a covenant not to compete associated with the acquisition of
Hathaway Agency, Inc. on July 1, 2000.
Net income increased $115,000 or 13.9% as compared to the same period of
1999. This increase was primarily due to the increase in non-interest income
coupled with the decrease in non-interest expense.
Most Recent Year to Date and Corresponding Year to Date Period:
Total interest and dividend income for the first nine months of 2000
increased $3,138,000 or 21.6% from the corresponding period in 1999, while
total interest expense increased $2,203,000 or 33.0% from the corresponding
period in 1999. Net interest income increased $935,000 or 11.9% from the
prior year period resulting primarily from volume increases in interest
earning assets and interest bearing liabilities related to the acquisition of
Adirondack on June 1, 1999 and other growth in interest earning assets and
interest bearing liabilities as compared to the first nine months of 1999.
The increase in interest and fees on loans of $2,186,000 compared to the
first nine months of 1999 is largely due to the acquisition of approximately
$50.0 million in loans in the Adirondack purchase on June 1, 1999. Commercial
loan and consumer loan balances have also increased over the same period of
1999.
-3-
<PAGE>
The increase in interest on securities available for sale of $1,046,000
is largely due to the increase of $18.0 million in the average outstanding
balance of available for sale securities compared to the first nine months of
1999. The increase is largely attributed to securities acquired from
Adirondack totaling $12 million as well as the Company's strategy of
deploying excess cash from deposit growth and borrowed funds into the
securities available for sale portfolio.
The decrease in interest income on federal funds sold is primarily
attributed to the decrease in the average outstanding balance of $4.3 million
from the first nine months of 1999 to the first nine months of 2000.
The increase in interest expense is primarily related to the increased
balance of interest bearing liabilities associated with the acquisition of
Adirondack on June 1, 1999. Additional interest expense resulted from the
increase in the average balance of certificates of deposit over $100,000 of
$12.1 million as compared to the first nine months of 1999.
The provision for loan losses decreased $21,000 from the corresponding
period in 1999 to $159,000. Net charge-offs decreased $29,000 to $108,000
from the prior year period. Non-performing loans decreased from $1,615,000 at
December 31, 1999 to $1,046,000 at September 30, 2000, a decrease of
$569,000. The provision was deemed to be adequate based on the overall
evaluation of the allowance for loan losses as of September 30, 2000 and
1999. The allowance for loan losses as a percent of net loans outstanding was
1.49% at September 30, 2000 as compared to 1.56% at December 31, 1999 and
1.60% at September 30, 1999.
Non-interest income increased $208,000 or 19.3% from the corresponding
period of 1999. This increase was primarily due to the increase in deposit
account service charges and increases in service fees collected on merchant
credit card sales partially offset by a gain on securities sales in 1999.
Insurance commission income from the acquisition of Hathaway Agency, Inc.
also contributed to this increase.
Non-interest expense increased $532,000 or 10.1% from the corresponding
period of 1999 due primarily to higher salaries and employee benefits, higher
occupancy expense and higher other expenses. The higher salaries and employee
benefits were primarily attributed to the addition of two new offices as of
June 1, 1999 with the acquisition of Gloversville Federal Savings and Loan
Association, the acquisition of Hathaway Agency, Inc. as of July 1, 2000 and
normal salary adjustments. The higher occupancy expense relates primarily to
the two additional offices as a result of the acquisition of Gloversville
Federal. Higher other expense is primarily due to the amortization of
goodwill associated with the purchase of Adirondack and Hathaway Agency,
Inc.and the amortization of a covenant not to compete associated with the
acquisition of Hathaway Agency, Inc.. Other increases were in advertising,
stationary and supplies and telephone expense primarily associated with the
two additional offices. Credit card processing expenses also increased in
relation to the increase in other income discussed above. These increases
were partially offset by a reduction in data processing expense and furniture
and equipment expense related to the merger in 1999.
Net income increased $395,000 or 16.0% as compared to the same period of
1999. This increase was primarily due to the increase in net interest income
and non-interest income more than offsetting the increase in non-interest
expense.
-4-
<PAGE>
CNB BANCORP, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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, such as 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 ALCO, 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 ALCO 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 200 basis point rise or fall in
interest rates 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 income as of September 30, 2000 assuming the
immediate increases or decreases in interest rates shown below:
Change in Estimated Net Change in
Interest Rate Interest Income Net Interest
(basis points) ($000 omitted) Income
+200 11,054 (5.3)%
+100 11,348 (2.7)
0 11,668 0.0
-100 11,666 (0.0)
-200 11,610 (0.5)
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. As of September
30, 2000 the subsidiary Bank was in a liability sensitive or "negative gap"
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, 2000 was 10.66% of total assets.
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.
-1-
<PAGE>
Exhibit:
Certificate of Amendment of Certificate of
Incorporation of CNB Bancorp, Inc.
under Section 805 of the Business Corporation Law
We, the undersigned, the President and Secretary respectively of CNB Bancorp,
Inc. hereby certify:
1. The name of the Corporation is CNB Bancorp, Inc.
2. The Certificate of its incorporation was filed by the Department of State
on August 9, 1988.
3. The Certificate of Incorporation is amended:
a. To change all of the two million (2,000,000) authorized common shares,
having a par value of $5.00 each, into two million (2,000,000) common
shares having a par value of $2.50 each; of said authorized shares,
1,600,000 shares are issued and 400,000 shares are unissued, and shall
be changed at the rate of one $5.00 par value share for one $2.50 par
value share.
b. To authorize the issuance of an additional three million shares, all
of which shares shall be common shares, each having a par value of $2.50.
4. Paragraph 4 of the Certificate of Incorporation, which refers to the
number of authorized shares, is amended to read as follows:
"4. Number of Shares: The aggregate number of shares which the Corporation
shall have authority to issue is: Five Million (5,000,000) shares, each
and all of which shall be common shares having a par value of $2.50.
5. The amendment to the Certificate of Incorporation was authorized by the
affirmative vote of the Board of Directors followed by the affirmative vote
of the holders of a majority of all the outstanding shares entitled to vote
thereon at a meeting of shareholders.
IN WITNESS WHEREOF, the undersigned President and Secretary subscribe this
Certificate and affirm it as true under the penalties of perjury on this 28th
day of April, 1997.
By /s/ William N. Smith
--------------------
William N. Smith, President
By /s/ George A. Morgan
--------------------
George A. Morgan, Secretary
