UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File Number 0-17501
CNB BANCORP, INC.
NEW YORK 14-1709485
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10-24 NORTH MAIN STREET, P.O. BOX 873, GLOVERSVILLE, NEW YORK 12078
(Address of principal executive offices)
Registrant's telephone number, including area code: (518) 773-7911
Securities registered pursurant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.50 Par Value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [x]
Indicate the number of shares outstanding of each of the issurer's
classes of common stock:
Class of Common Stock Number of Shares Outstanding as of March 1, 2000
$2.50 Par Value 2,400,419
The aggregate market value of the Registrant's common stock (based upon
the average bid and asked prices on March 1, 2000) held by non-affiliates was
approximately $69,600,000.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to stockholders for the fiscal
year ended December 31, 1999.
(2) Portions of the Registrant's Proxy Statement for its Annual Meeting of
stockholders.
<PAGE>
ITEM 1. Business
On January 3, 1989, the corporate structure of City National Bank
and Trust Company (the Bank) was revised by the establishment of a
one-bank holding company, CNB Bancorp, Inc. (the Company).
Stockholders of the Bank retained their outstanding shares which
automatically became shares of the Company. The Company, in turn,
acquired all of the outstanding shares of the Bank.
Prior to the merger, the Bank was independently owned and operated and
organized in 1887. The Bank is headquartered in Gloversville, New York, with
five branches located in the county of Fulton and one branch located in the
county of Saratoga.
The Bank is engaged in a general banking business with a range of banking and
fiduciary services including checking, negotiable orders of withdrawal,
savings and certificates of deposit; the Bank offers a wide range of loan
products including commercial, real estate, and installment type lending.
Overdraft banking lines of credit are also provided.
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 issue 35,624 stock options to purchase CNB
Bancorp, Inc. stock at an exercise price of $15.22 per share. The estimated
fair value of these options as of the acquisition date was $11.04 per share.
The issuance of these options was included in the computation of goodwill,
with the offsetting increase to surplus.
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 and is generally not
deductible for tax purposes. 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.
Competition
Competition for banking business is experienced from regional based
commercial bank holding companies, as well as from savings banks, and credit
unions. The competition is reflected in both lending efforts and deposit
solicitations.
The Bank has a relatively stable deposit base and no material amount of
deposits is obtained from a single depositor or group of depositors. The Bank
has not experienced any significant seasonal fluctuations in the amount of
its deposits.
Employees
The Bank employs approximately 80 persons on a full time basis. There are
also 12 part time employees. The Bank provides a variety of employment
benefits and considers its relationship with its employees to be good.
Supervision and Regulation
The operations of the Bank are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, to
members of the Federal Reserve System, and to banks whose deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC"). Bank
operations are also subject to regulations of the Comptroller of the
Currency, the Federal Reserve Board, the FDIC, and the New York State Banking
Department.
The primary supervisory authority of the Bank is the Comptroller of the
Currency, who regularly examines the Bank. The Comptroller of the Currency
has the authority under the Financial Institutions Supervisory Act to prevent
a national bank from engaging in unsafe or unsound practice in conducting its
business.
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments a bank may make, the reserves
against deposits a bank must maintain, the loans a bank makes and collateral
it takes, the activities of a bank with respect to mergers and
consolidations, and the establishment of branches. Branches may be
established within the permitted area only after approval by the Comptroller
of the Currency. The Comptroller of the Currency is required to grant
approval only if it finds that there is a need for the banking services or
facilities contemplated by the proposed branch and may disapprove the
application if the bank does not have the capital and surplus deemed
necessary by the Comptroller of the Currency, or if the application relates
to the establishment of a branch in a county contiguous to the county in
which the applicant's principal place of business is located and another
banking institution that has its principal place of business in the county in
which the proposed branch would be located has in good faith notified the
Comptroller of the Currency of its intention to establish a branch in the
same municipal location in which the proposed branch would be located.
A subsidiary bank (which the Bank is) of a bank holding company is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries and
on taking such securities as collateral for loans. The Federal Reserve Act
and Federal Reserve Board regulations also place certain limitations and
reporting requirements on extensions of credit by a bank to principal
shareholders of its parent holding company, among others, and to related
interest of such principal shareholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a principal
shareholder of a holding company may obtain credit from banks with which the
subsidiary bank maintains a correspondent relationship.
Federal law also prohibits acquisitions of control of a bank holding company
without prior notice to certain federal bank regulators. Control is defined
for this purpose as the power, directly or indirectly, to direct the
management or policies of the bank or bank holding company or to vote 25% or
more of any class of voting securities of the bank holding company.
- 1-
<PAGE>
From time to time, various types of federal and state legislation has been
proposed that could result in additional regulation of, and restrictions on,
the business of the Bank. It cannot be predicted whether any such legislation
will be adopted or how such legislation would affect the business of the
Bank. As a consequence of the extensive regulation of commercial banking
activities in the United States, the Bank's business is particularly
susceptible to being affected by federal legislation and regulations that may
increase the costs of doing business.
The Depository Institutions Deregulation and Monetary Control Act of 1980
became effective in March, 1980. The principal effects of this law are to:
phase in the deregulation of the interest rates paid on personal deposits by
gradually eliminating regulatory ceilings on interest rates and dividends
paid on deposit accounts, as well as eliminating the interest rate
differential allowed thrifts and savings institutions; enable all banks to
offer personal interest bearing checking type accounts; phase in mandatory
and uniform reserve requirements; and override certain usury limits on loan
interest rates established by state laws. On October 1, 1983, the Depository
Institutions' Deregulation Committee, acting under the provisions of the Act,
removed all remaining interest rate ceilings and other regulations on time
deposits, except for early withdrawal penalties.
Under the Federal Deposit Insurance Act, the Comptroller of the Currency
possesses the power to prohibit institutions regulated by it (such as the
Bank) from engaging in any activity that would be an unsafe and unsound
banking practice or would otherwise be in violation of law. Moreover, the
Financial Institutions and Interest Rate Control Act of 1978 ("FIRA")
generally expands the circumstances under which officers or directors of a
bank may be removed by the institution's federal supervisory agency,
restricts lending by a bank to its executive officers, directors, principal
shareholders, or related interest thereof, restricts management personnel of
a bank from serving as directors or in other management positions with
certain depository institutions whose assets exceed a specified amount or
which have an office within a specified geographic area, and restricts
management personnel from borrowing from another institution that has a
correspondent relationship with their bank. Additionally, FIRA requires that
no person may acquire control of a bank unless the appropriate federal
supervisory agency has been given 60 days prior written notice and within
that time has not disapproved the acquisition or extended the period for
disapproval.
Under the Community Reinvestment Act of 1977, the Comptroller of the Currency
is required to assess the record of all financial institutions regulated by
it to determine if these institutions are meeting the credit needs of the
community (including low and moderate neighborhoods) which they serve and to
take this record into account in its evaluation of any applications made by
any such institutions for, among other things, approval of a branch or other
deposit facility, office relocation, a merger, or an acquisition of bank
shares.
The Garn-St. Germain Depository Institutions Act of 1982 (the "1982 Act")
removes certain restrictions on a bank's lending powers and liberalizes the
depository capabilities. The 1982 Act also amends FIRA (see above) by
eliminating the statutory limits on lending by a bank to its executive
officers, directors, principal shareholders, or related interest thereof and
by relaxing certain reporting requirements. However, the 1982 Act
strengthened FIRA provisions with regard to management interlocks and
correspondent bank relationships involving management personnel.
On December 19, 1991, President Bush signed the Federal Deposit Insurance
Corporation Improvement Act ('FDIC Act") into law. The FDIC Act makes a
number of far-reaching changes in the legal environment for insured banks.
The FDIC Act provides for an increase in the borrowing authority of the Bank
Insurance Fund ("BIF") to $30 billion from $5 billion, to be used to cover
losses in failed banks. The banking industry will repay BIF debt through
deposit insurance assessments. Statutory caps on deposit insurance
assessments were removed under the FDIC Act, therefore the FDIC may levy
deposit insurance assessments at any level in its sole discretion. Under the
FDIC Act, accepting brokered deposits is limited to institutions that have
capital in excess of regulatory minimums. The FDIC Act will require banks and
thrifts to devote greater time and resources to compliance and internal
controls. The FDIC Act details provisions and requires prompt regulatory
action by regulators in dealing with undercapitalized and poorly performing
institutions. The FDIC Act also contains expanded disclosure of consumer
provisions, extends the date for the required use of licensed or certified
appraisers to December 31, 1992 and sets limits on state bank powers.
The Gramm-Leach-Bliley Act of 1999 (the "GLBA") was enacted on November 12,
1999, providing for a range of new activities for qualifying financial
institutions. The GLBA repeals significant provisions of the Glass Steagall
Act to permit commercial banks, among other things, to have affiliates that
underwrite and deal in securities and make merchant banking investments
provided certain conditions are met. The GLBA modifies the BHCA to permit
bank holding companies that meet certain specified standards (known as
"financial holding companies") to engage in a broader range of financial
activities than previously permitted under the BHCA, and allows subsidiaries
of commercial banks meet certain specified standards (known as "financial
subsidiaries") to engage in a wide range of financial activities that are
prohibited to such banks themselves under certain circumstances.
Deposit Insurance Premiums
To the extent allowable by law, the deposits of the subsidiary Bank are
insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC"). During 1995, BIF reached its statutory target of 1.25%
of total insured deposits and the BIF assessment rates were reduced from
0.23% to 0.04% for the highest rated banks. For 1996, the highest rated banks
were not assessed on the level of their deposits but rather paid a minimum
fee of $2,000 to BIF. During 1997, 1998 and 1999, BIF-assessable deposits
were subject to an assessment schedule providing for as assessment range of
0% to 0.27%, with banks in the lowest risk category paying no assessments.
The subsidiary Bank was in the lowest risk category and paid no FDIC
insurance assessments during 1997, 1998 and 1999. BIF assessment rates are
subject to semi-annual adjustment by the FDIC Board of Directors. The FDIC
Board of Directors has retained the 1997, 1998 and 1999 BIF assessment
schedule through June 30, 2000.
In 1996, Congress enacted the Deposit Insurance Funds Act which establishes a
schedule to merge BIF with the Savings Association Insurance Fund ("SAIF").
The act also provides for funding Financing Corp ("FICO") bonds, to provide
funding for the Federal Savings and Loan Insurance Corporation prior to 1991.
BIF-assessable deposits are subject to assessment for payment on the FICO
bond obligation at one-fifth the rate of SAIF-assessable deposits through
year-end 1999, or until the insurance funds are merged, whichever occurs
first. The FICO assessment is adjusted quarterly based on call report
submissions to reflect changes in the assessment bases of the respective
funds. During 1999, BIF insured banks paid a rate of 0.0122% for purposes of
funding FICO bond obligations, resulting in an assessment of $48,021 for the
subsidiary Bank. The assessment rate for BIF member institutions has been set
at 0.0208% on an annualized basis for the first half of 2000.
Monetary Policy
The earnings of the Bank are affected by the policies of other regulatory
authorities including the Federal Reserve Board and the FDIC. An important
function of the Federal Reserve System is to regulate the money supply and
prevailing interest rates. Among the instruments used to implement those
objectives are open market operations in United States government securities
and changes in reserve requirements against member bank deposits. These
instruments are used in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their use may also
affect interest rates charged on loans or paid for deposits.
- 2-
<PAGE>
The Bank is a member of the Federal Reserve System and, therefore, the
policies and regulations of the Federal Reserve Board have had and will
probably continue to have a significant effect on the Bank's reserve
requirements, deposits, loans, and investment growth, as well as the rate of
interest earned and paid thereon, and are expected to affect the Bank's
operation in the future. The effect of such policies and regulations upon the
future business and earnings of the Bank cannot be predicted.
On August 9, 1989, the Financial Institutions Reform, Recovery & Enforcement
Act of 1989 (FIRREA) was signed into law. FIRREA was enacted to deal with the
problems involving the savings and loan industry. The basic provision of
FIRREA established a new regulatory structure for all financial institutions.
However, the principal changes were with respect to the savings associations
previously insured by the Federal Savings and Loan Insurance Corporation.
FIRREA created a new deposit insurance system which consists of two funds;
the Bank Insurance Fund (BIF) and the Savings Associations Insurance Fund
(SAIF). The Company's subsidiary bank is insured under BIF. FIRREA also
increased the insurance premiums and limited certain activities of savings
associations. The majority of the provisions of FIRREA have little effect on
the Company or its subsidiary.
General
In addition to historical information, this Report includes certain
forward-looking statements with respect to the financial condition, results
of operations and business of the Company and its subsidiary Bank based on
current management expectations. The Company's ability to predict results or
the effect of future plans and strategies is inherently uncertain and actual
results, performance or achievements could differ materially from those
management expectations. Factors that could cause future results to vary from
current management expectations include, but are not limited to, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the federal government, changes in tax policies, rates and
regulations of federal, state, and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
subsidiary Bank's loan and securities portfolios, changes in accounting
principles, polices or guidelines, and other economic, competitive,
governmental, and technological factors affecting the Company's operations,
markets, products, services and prices.
STATISTICAL DISCLOSURE REQUIRED BY BANK HOLDING COMPANIES
The following are exhibits included herewith:
Exhibit No. Exhibit
I. A.B. Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest Differential
I. C. Rate Volume Analysis and Interest Rate Sensitivity Analysis
II. Securities Portfolio
III. Loan Portfolio
IV. Summary of Loan Loss Experience
V. Deposits
VI. Return on Equity and Assets
- 3-
<PAGE>
<TABLE>
<CAPTION>
I. A.B. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential
1999 1998 1997
Interest Interest Interest
(in thousands) Average Earned/ Average Earned/ Average Earned/
Balance Paid<F2> Rate Balance Paid<F2> Rate Balance Paid<F2> Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Securities<F1>:
U.S Treasury & Government
Agencies $ 81,038 $ 5,066 6.25 % $ 68,002 $ 4,244 6.24 % $ 63,741 $ 4,094 6.42 %
State & Political
Subdivisions 23,667 1,994 8.43 21,432 1,952 9.11 21,555 2,012 9.33
Other 4,116 274 6.66 1,589 113 7.11 877 55 6.27
Total Securities 108,821 7,334 6.74 91,023 6,309 6.93 86,173 6,161 7.15
Interest Bearing Balances With
Other Financial Institutions 1,655 80 4.83 206 15 7.28 59 3 5.08
Federal Funds Sold 9,042 449 4.97 11,710 627 5.35 6,170 343 5.56
Loans:
Loans,Less
Unearned Income <F3> 152,974 12,816 8.38 121,252 10,598 8.74 112,785 9,990 8.86
Total Interest-Earning Assets 272,492 $20,679 7.59 % 224,191 $17,549 7.83 % 205,187 $16,497 8.04 %
Cash and Due From Banks 9,068 6,328 6,175
Reserve for Loan Losses (2,291) (1,541) (1,558)
Other Assets <F4> 11,593 8,237 5,757
Total Assets $290,862 $237,215 $215,561
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing Liabilities:
Deposits:
Savings:
Regular Savings $ 47,363 $ 1,189 2.51 % $ 38,862 $ 1,048 2.70 % $ 40,834 $ 1,136 2.78 %
NOW 27,158 333 1.23 21,721 319 1.47 21,457 322 1.50
Money Market Accounts 22,812 749 3.28 13,555 427 3.15 14,630 469 3.21
Certificates of Deposit
$100,000 or More 44,503 2,234 5.02 39,792 2,213 5.56 33,311 1,887 5.66
Other Time Interest-Bearing 74,148 3,798 5.12 61,420 3,340 5.44 57,324 3,095 5.40
Total Int.-Bearing Deposits 215,984 8,303 3.84 175,350 7,347 4.19 167,556 6,909 4.12
Other Short-Term Borrowings
& Repurchase Agreements 11,547 611 5.29 10,229 544 5.32 592 32 5.41
Notes Payable - FHLB 7,135 355 4.98 548 26 4.74 0 0 0.00
Total Interest-Bearing
Liabilities 234,666 $ 9,269 3.95 % 186,127 $ 7,917 4.25 % 168,148 $ 6,941 4.13 %
Demand Deposits 23,375 19,382 17,900
Other Liabilities 1,359 1,037 808
Total Liabilities 259,400 206,546 186,856
Stockholders' Equity 31,462 30,669 28,705
Total Liabilities and
Stockholders' Equity $290,862 $237,215 $215,561
<FN>
<F1> Includes available for sale and investment securities, both at amortized
cost, and FHLB and FRB stock.
<F2> Portions of income earned on U.S. Government obligations and
obligations of states and political subdivisions are exempt from
federal and/or state taxation. Appropriate adjustments have been made
to reflect the equivalent amount of taxable income that would have been
necessary to generate an equal amount of after tax income. The taxable
equivalent adjustment is based on a marginal Federal income tax rate of
34% for all periods presented, and a marginal state income tax rate of
9.00% for all periods presented.
<F3> For the purposes of this analysis, non-accruing loans have been
included in average balances; in accordance with Company policy on
non-accruing assets, income on such assets is not recorded unless
received.
<F4> Other assets include all assets except those specifically identified
above including the valuation adjustment related to the securities
available for sale.
</FN>
</TABLE>
- 4-
<PAGE>
I. A.B. The following table represents the average yield on all
interest-earning assets, the average effective rate paid on all
interest-bearing liabilities; and the net yield on
interest-earning assets for CNB Bancorp, Inc.
(Cont'd)
1999 1998 1997
Average yield on interest-
earning assets* 7.59 % 7.83 % 8.04 %
Average effective rate paid
on interest-bearing liabilities 3.95 % 4.25 % 4.13 %
Spread between interest-earning
assets and interest-bearing
liabilities* 3.64 % 3.58 % 3.91 %
Net interest income* (in thousands) $11,410 $9,632 $9,556
Net interest margin* 4.19 % 4.30 % 4.66 %
* On a fully taxable equivalent basis.
1. C. Rate Volume Analysis
The following tables set forth, for the periods indicated, a summary of
changes in interest earned and interest paid resulting from changes in
volume and changes in rates (in thousands)
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (decrease) due to:<F1> Increase (decrease) due to:<F1>
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Earned on:<F2>
Loans $2,632 ($414) $2,218 $ 742 ($134) $ 608
Taxable Securities<F3> 975 8 983 358 (150) 208
Non-Taxable Securities<F3> 148 (106) 42 (12) (49) (61)
Federal Funds Sold (136) (42) (178) 296 (12) 284
Interest-Bearing Balances
with Banks 68 (3) 65 11 2 13
Total 3,687 (557) 3,130 1,395 (343) 1,052
Interest Paid on:
Deposits 1,485 (529) 956 326 112 438
Short-Term Borrowings & Repos 70 (3) 67 513 (1) 512
Notes Payable - FHLB 328 1 329 26 0 26
Total 1,883 (531) 1,352 865 111 976
Net Interest Differential<F2> $1,804 ($26) $1,778 $ 530 ($454) $76
Notes to Rate Volume Analysis
<FN>
<F1> The change in interest due to both rate and volume have been allocated
to changes due to volume and changes due to rate in proportion to the
relationship of the absolute dollar amounts of the changes in each.
<F2> A "tax equivalent adjustment" has been included in the calculations to
reflect this income as if it had been fully taxable. The "tax
equivalent adjustment" is based upon the federal and state income tax
rates.
<F3> Includes securities available for sale, investment securities, FHLB and
FRB stock.
</FN>
</TABLE>
- 5-
<PAGE>
1. C. Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
Maturity/Repricing Period at December 31, 1999
After 3 Mo. After One
Within But Within But Within After
(in thousands) 3 Months 1 Year Five Years Five Years Total
<S> <C> <C> <C> <C> <C>
Rate sensitive assets(RSA):
Securities<F1> $25,778 $27,001 $25,581 $34,494 $112,854
Loans, net of unearned discount 42,033 21,881 59,101 49,398 172,413
Cash & Cash Equivalents 7,428 0 0 0 7,428
Total rate sensitive assets $75,239 $48,882 $84,682 $83,892 $292,695
Rate sensitive liabilities(RSL):
Savings, NOW & MMDA accounts $42,366 $ 3,449 $ 3,285 $72,617 $121,717
Time deposits 31,556 50,658 35,478 0 117,692
All other rate sensitive liabilities 8,984 3,252 5,388 130 17,754
Total rate sensitive liabilities $82,906 $57,359 $44,151 $72,747 $257,163
<FN>
<F1> Includes securities available for sale and investment securities at
amortized cost and FHLB and FRB stock at cost.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GAP (RSA - RSL) ($7,667) ($8,477) $40,531 $11,145
CUMULATIVE GAP (RSA - RSL) (7,667) (16,144) 24,387 35,532
RSA divided by RSL 90.8 % 85.2 % 191.8 % 115.3 %
RSA divided by RSL - Cumulative 90.8 88.5 113.2 113.8
GAP divided by equity (24.5) (27.1) 129.6 35.6
GAP divided by equity - Cumulative (24.5) (51.6) 78.0 113.6
RSA divided by total assets 23.9 15.5 26.9 26.6
RSA divided by total assets - Cumulative 23.9 39.4 66.3 92.9
RSL divided by total assets 26.3 18.2 14.0 23.1
RSL divided by total assets - Cumulative 26.3 44.5 58.6 81.7
GAP divided by total assets (2.4) (2.7) 12.9 3.5
GAP divided by total assets - Cumulative (2.4) (5.1) 7.7 11.3
</TABLE>
CNB Bancorp, Inc., through its subsidiary Bank, actively manages its interest
rate sensitivity position through the use of new products and repricing
techniques. The objectives of interest rate risk management are to control
exposure of net interest income to risks associated with interest rate
movements and to achieve consistent growth in net interest income. The
measurement of the interest rate sensitivity position at any specific point
in time involves many assumptions and estimates. Nonetheless, the
accompanying interest sensitivity analysis, broken into future repricing time
frames, helps to illustrate the potential impact of future changes in
interest rates on net interest income. The table above shows the interest
rate sensitivity gap position. The table presents data at a single point in
time. The under one year cumulative gap was (5.1)% of assets at December 31,
1999. Interest sensitivity, however, is only one measure of the extent to
which changes in interest rates might affect net interest income; the mix
within the interest earning asset and interest bearing liability portfolios
is continually changing as well. To date, the Company has not used financial
futures or interest rate swaps in the management of interest rate risk. The
Asset Liability Management Committee, using policies and procedures set by
the board of directors and senior management, is responsible for managing CNB
Bancorp, Inc.'s rate sensitivity position.
In evaluating the Company's exposure to interest rate risk, certain factors
inherent in the method of analysis presented in the table above must be
considered. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different
degrees to changes in market rates. Further, certain assets, such as
adjustable rate mortgages, have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. The Company
considers the anticipated effects of these various factors in implementing
its interest rate risk management objectives. It should also be noted that
the interest rate sensitivity level shown in the table above could be changed
by external factors such as loan prepayments or by factors controllable by
CNB Bancorp, Inc. such as asset sales.
The Company has identified a portion of it's savings deposits as being rate
sensitive based on prior years historical experience, due mainly to the shift
in dollar volume from certificates of deposit to savings accounts over and
above the historical level of core deposits. In addition, the Asset/Liability
Management Committee reviews, on a quarterly basis, the potential impact to
the Company's net interest margin based on a shift of +/- 200 bp change in
interest rates. At December 31, 1999 the net interest margin exposure,
expressed in dollars, for the one year cumulative gap based on a +200bp
change was an increase of approximately $173,000.
Another function of asset/liability management is to assure adequate
liquidity by maintaining an appropriate balance between interest sensitive
assets and interest sensitive liabilities. Liquidity management involves the
ability to meet the cash flow requirements of the Company's loan and deposit
customers. Interest sensitivity is related to liquidity because each is
affected by maturing assets and liabilities. Interest sensitivity analysis,
however, also considers that certain assets and liabilities may be subject to
rate adjustments prior to maturity. It is the Company's policy to manage its
affairs so that liquidity needs are fully satisfied through normal bank
operations. To maintain short-term liquidity, the Company strives to be a net
seller of Federal Funds, to keep a significant amount of the investments
available for sale portfolio in unpledged assets that are less than 18 months
to maturity, and to maintain lines of credit with correspondent banks.
Long-term liquidity involves the laddering of the investment portfolio to
provide stable cash flow, and the matching of fixed rate mortgage loans with
identified core deposits.
- 6-
<PAGE>
II. Securities Portfolio
A. The carrying amounts of the Company's securities for the years ended
December 31 are summarized below:
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Securities Available for Sale:
Debt Securities:
U.S. Treasury and other U.S. Government Agencies $77,966 $74,865 $44,548
State and Political Subdivisions 12,863 10,897 9,810
Corporate securities 2,970 3,395 0
Total Debt Securities Available for Sale 93,799 89,157 54,358
Equity Securities:
Corporate securities 50 0 0
Total Equity Securities Available for Sale 50 0 0
Total Securities Available for Sale $93,849 $89,157 $54,358
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Investment Securities:
Obligations of U.S. Government Agencies $ 2,269 $ 6,105 $20,732
State and Political Subdivisions 11,174 11,292 12,315
Total $13,443 $17,397 $33,047
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Investments Required By Law:
Federal Reserve Bank stock $ 692 $ 240 $ 240
Federal Home Loan Bank stock 1,296 735 644
Total $ 1,988 $ 975 $ 884
</TABLE>
B. Maturity Distribution of the Company's securities as of December 31,
1999: (in thousands)
<TABLE>
<CAPTION>
Maturing
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Amount Yield<F2> Amount Yield<F2> Amount Yield<F2> Amount Yield<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Securities Available for Sale<F1>
US Treasury and other U.S. Gov't Agencies $40,652 6.27 % $12,052 6.55 % $11,032 6.56 % $14,230 6.62 %
State and Political Subdivisions 1,638 10.35 2,734 8.54 8,181 7.27 310 7.39
Corporate securities 0 0.00 1,967 7.74 1,003 8.12 0 0.00
Total<F3> $42,290 6.42 % $16,753 7.00 % $20,216 6.92 % $14,540 6.63 %
<FN>
<F1> Maturities are based on the earlier of the maturity date or the call date.
<F2> A "tax equivalent adjustment" has been included in the calculation of
the yields to reflect this income as if it had been fully taxable. The
"tax equivalent adjustment" is based on federal and state income tax
rates. The yield on securities available for sale is calculated based
upon the amortized cost of the securities.
<F3> There are no securities of individual issuers that represent greater than
10% of stockholders' equity at December 31, 1999.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Maturing
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
Amount Yield<F2> Amount Yield<F2> Amount Yield<F2> Amount Yield<F2>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities<F1>
U.S. Government Agencies $1,597 7.02 % $ 672 6.95 % $ 0 0.00 % $ 0 0.00 %
State and Political Subdivisions 3,580 8.43 5,034 9.29 2,480 8.17 80 7.44
Total<F3> $5,177 8.00 % $ 5,706 9.02 % $ 2,480 8.17 % $ 80 7.44 %
<FN>
<F1> Maturities are based on the earlier of the maturity date or the call date.
<F2> A "tax equivalent adjustment" has been included in the calculation of
the yields to reflect this income as if it had been fully taxable. The
"tax equivalent adjustment" is based on federal and state income tax
rates. The yield on securities available for sale is calculated based
upon the amortized cost of the securities.
<F3> There are no securities of individual issuers that represent greater than
10% of stockholders' equity at December 31, 1999.
</FN>
</TABLE>
Investments Required By Law
Federal Reserve Bank Stock and Federal Home Loan Bank Stock are nonmarketable
equity securities carried at cost with no stated maturity date. The fully tax
effected yield on these stocks as of December 31, 1999 was 6.53%.
- 7-
<PAGE>
<TABLE>
<CAPTION>
III. Loan Portfolio
A. Types of Loans 1999 1998 1997
December 31 (in thousands) Balance %<F1> Balance %<F1> Balance %<F1>
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans<F2> $ 90,780 49.4 % $ 46,423 35.1 % $ 46,750 36.4 %
Commercial and Commercial
Real Estate 37,868 20.6 35,877 27.2 37,265 29.0
Consumer Loans 55,137 30.0 49,727 37.7 44,537 34.6
Total 183,785 100.0 % 132,027 100.0 % 128,552 100.0 %
Less: Allowance for loan losses 2,697 1,580 1,492
Unearned Income 11,372 10,190 9,414
Total $169,716 $120,257 $117,646
<FN>
<F1> % represents the percentage of loans in the category to total loans
(gross of reserves and unearned).
<F2> Real Estate Loans consists of only regular residential mortgage loans.
At December 31, 1999, 1998 and 1997 the subsidiary Bank did not have any
construction loans in the loan portfolio.
</FN>
</TABLE>
B. Maturities and Sensitivity to changes in Interest Rates
Shown below are the amounts of loans outstanding (excluding certain mortgages
and consumer loans) as of December 31, 1999, which, based on remaining
scheduled repayments or repricing of principal, are due in the periods
indicated and the relative sensitivity of such loans to changes in interest
rates:
<TABLE>
<CAPTION>
After One
One Year But Within After
(in thousands) or Less<F1><F2> Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial and Commercial
Real Estate $28,695 $8,045 $1,128 $37,868
<FN>
<F1> Includes demand loans having no stated schedule of repayments and no
stated maturity and overdrafts.
<F2> Includes floating rate loans of $20,044 that are repriceable at
least quarterly.
</FN>
</TABLE>
C. Risk Elements
1. Nonaccrual, Past Due, and Restructured Loans
Risk elements consist of nonaccrual, past due, and restructured loans.
(in thousands) 1999 1998 1997
Loans on a non-accrual basis $1,507 $280 $283
Loans past due 90 days or more 108 249 88
Restructured loans 0 0 0
Total non-performing loans $1,615 $529 $371
Total non-performing loans as a percent
of total loans - net of unearned income 0.9% 0.4% 0.3%
For loans on a non-accrual basis, loans past due 90 days or more and
restructured loans the difference between the interest collected and
recognized as income and the amounts which would have been accrued is
not significant.
Non-Performing Loans
Non-Performing loans are composed of (1) loans on a non-accrual basis, (2)
loans which are contractually past due 90 days or more as to interest or
principal payments but have not been classified non-accrual, and (3) loans
whose terms have been restructured to provide a reduction of interest or
principal because of a deterioration in the financial position of the
borrower.
The Company's policy with regard to non-accrual loans varies by the type
of loan involved. Generally, commercial, financial, and agricultural loans
are placed on a non-accrual status when they are 90 days past due unless
they are well secured and in the process of collection. In some instances,
consumer loans are classified non-accrual when payments are past due 90
days; but as a matter of general policy, these loans are charged off after
they become 120 days past due unless they are well secured and in the
process of collection. Mortgage loans are generally not placed on a
non-accrual basis unless it is determined that the value or marketability
of real estate securing the loans has deteriorated to the point that a
potential loss of principal or interest exists. Once a loan is on
non-accrual basis, interest is recorded only as received. Interest
previously accrued on non-accrual loans which has not been paid is
reversed and charged against income during the period in which the loan is
placed on non-accrual status. Interest on restructured loans is only
recognized in current income at the renegotiated rate and then only to the
extent that such interest is deemed collectible.
- 8-
<PAGE>
III. Loan Portfolio
(cont'd)
C. Risk Elements
2. Potential Problem Loans
In addition to the total non-performing loans set forth above, loans in
the amount of $2.8 million at December 31, 1999 were classified as
potential problem loans. These are loans for which management has
information which indicates that the borrower may not be able to comply
with the present payment terms. Although there is some doubt about the
ability of these borrowers to comply with payment terms, minimal losses,
if any, are anticipated in 2000.
3. Foreign Outstandings - None
4. Loan Concentrations
Loan concentrations, as defined by the Securities and Exchange Commission,
are considered to exist when there are amounts loaned to a multiple number
of borrowers engaged in similar activities which would cause them to be
similarly impacted by economic or other conditions. CNB Bancorp, Inc.'s
business area consists of the Counties of Fulton and Saratoga and,
therefore, there are certain concentrations of loans within this
geographic area. The subsidiary Bank strives to maintain a diverse loan
portfolio and accomplishes this through rigid underwriting standards and
by offering a wide variety of business and consumer loans. At December 31,
1999, the only concentration of loans that existed within the Bank's
portfolio were loans to the leather and leather related industries. Loans
to this segment were $4.1 million, which represented 2.2% of the gross
loans outstanding at December 31, 1999.
- 9-
<PAGE>
IV. Summary of Loan Loss Experience
The following table summarizes year end loan balances, average loans
outstanding and changes in the allowance for loan losses due to loan losses,
recoveries and additions charged to expense.
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
(in thousands)
Amount of loans outstanding at end
of year (less unearned income) $172,413 $121,837 $119,138
Average loans outstanding during the year
(less average unearned income) $152,974 $121,252 $112,785
Balance of allowance at beginning of year $ 1,580 $ 1,492 $ 1,620
Loans charged off:
Commercial and Commercial Real Estate (30) (17) (230)
Real Estate (105) (8) (41)
Consumer (146) (124) (133)
Total loans charged off (281) (149) (404)
Recoveries of loans previously charged off:
Commercial and Commercial Real Estate 1 0 1
Real Estate 28 0 0
Consumer 22 17 20
Total Recoveries 51 17 21
Net loans charged off (230) (132) (383)
Merger-related addition to allowance 1,167 0 0
Additions to allowance charged to operating expense 180 220 255
Balance of allowance at end of year $ 2,697 $ 1,580 $ 1,492
Net charge-offs as percent of average
loans outstanding during year
(less average unearned income) 0.15 % 0.11 % 0.34 %
Net charge-offs as percent of allowance
beginning of year. 14.56 % 8.85 % 23.64 %
Allowance as percent of loans outstanding
at end of year
(less unearned income) 1.56 % 1.30 % 1.25 %
</TABLE>
The provision for loan losses charged to expense, as well as the amount of
the allowance for loan losses, are determined by management as a result of
its evaluation of the loan portfolio. Management considers general economic
conditions, changes in the volume of loans and changes in the nature of the
collateral and other relevant factors, including risk elements. The primary
risk element considered by management with respect to consumer and real
estate mortgage loans is lack of current payments. The primary risk elements
considered with respect to commercial, financial and agricultural loans are
the financial condition of the borrower, the sufficiency of collateral and
the record of payment. A subjective review of all non-performing loans, other
problem loans, and overall delinquency is made prior to the end of each
calendar quarter to determine current adequacy of the allowance.
During 1999, the subsidiary Bank made a provision to its reserve for loan
losses in the amount of $180,000. The subsidiary Bank's allowance for loan
losses at December 31, 1999 totaled $2,697,000 or 1.56% of total loans, net
of unearned income. Net charge offs for 1999 totaled $230,000. Certain other
commercial, financial, and agricultural loans known to have problems are not
expected to increase the subsidiary Bank's losses during 2000. At year-end
1999, there were $1,507,000 of loans in a non-accrual status. At December 31,
1999, $300,000 of the allowance for loan losses was allocated to the
non-accrual loans outstanding. Losses during 2000 in the real estate and
consumer categories are expected to approximate the average of the past three
years. Although management of the Company believes that the allowance is
adequate to provide for inherent risk of loss, there can be no assurance that
the Company will not sustain losses in any given period which could be
substantial to the size of the allowance.
-10-
<PAGE>
V. Deposits
A. The following table presents the average amount of deposits and rates paid
by major category for the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
Average Average Average
(in thousands) Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits $ 23,375 $ 19,382 $ 17,900
Regular Savings, NOW, and
Money Market 97,333 2.33 % 74,138 2.42 % 76,921 2.51 %
Certificates of Deposit and
Other Time Deposits 118,651 5.08 % 101,212 5.49 % 90,635 5.50 %
Total $239,359 $194,732 $185,456
</TABLE>
B. There were no foreign deposits in domestic offices at the end of any year
in the three year period ended December 31, 1999.
C. The following table indicates the maturities of time certificates of
deposit in amounts of $100,000 or more at December 31, 1999. (in thousands)
Maturing in:
Three months or less $17,294
Over three months through six months 6,377
Over six months through twelve months 6,017
Over twelve months 5,651
D. There are no time certificates of deposit and other time deposits in the
amount of $100,000 or more issued by foreign offices.
VI. Return on Equity and Assets
The following table shows the ratio of net income to average stockholders'
equity and average total assets, and certain other ratios for the years ended
December 31:
1999 1998 1997
Percentage of net income to:
Average total assets 1.13 % 1.36 % 1.44 %
Average total stockholders' equity 10.49 10.52 10.81
Percentage of cash dividends paid
to net income 42.92 41.71 41.28
Percentage of average stockholders' equity
to average total assets 10.82 12.93 13.32
-11-
<PAGE>
ITEM 2. Properties
The Bank's main office building is owned by the Company. In addition,
the Company owns property located at 52 N. Main Street and 185 Fifth
Avenue, Gloversville, New York, 231 Bridge Street, Northville, New York,
142 North Comrie Avenue, Johnstown, New York, 4178 State Highway 30,
Amsterdam, New York and 295 Broadway, Saratoga Springs, New York.
ITEM 3. Legal Proceedings
The nature of the Company's business generates a certain amount of
litigation involving matters arising in the ordinary course of
business. However, in the opinion of management of the Company,
after consultation with counsel, there are no proceedings pending
to which the Company is a party to or which its property is subject
which are material in relation to the Company's net worth or
consolidated financial condition, nor are there any proceedings
pending other than ordinary routine litigation incident to the
business of the Company. In addition, no material proceedings are
pending or are known to be threatened or contemplated against the
Company by governmental authorities or others.
ITEM 4. Submission of Matter to a Vote of Security Holders
None
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholders Matters
The information set forth under the heading "Market and Dividend
Information" on page 32 of the registrant's 1999 Annual Report is
incorporated herein by reference.
ITEM 6. Selected Financial Data
The information set forth under the heading "Five Year Summary of
Operations" on page 12 of the registrant's 1999 Annual Report is
incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information set forth under the heading "Financial Review" on
pages 5 through 11 of the registrant's 1999 Annual Report is
incorporated herein by reference.
Liquidity
Liquidity represents a banking enterprise's capacity to meet its daily
obligations, such as loan demand and the maturity or withdrawal of deposits
and other financial obligations. In addition to maintaining liquid assets,
factors such as capital position, profitability, asset quality, and
availability of funding affect a bank's ability to meet its liquidity needs.
The Company's primary sources of liquidity continue to be federal funds sold
and interest bearing time deposits. Other sources of liquidity include
repayment of loans and the federal funds market, which is a vehicle banks use
to trade surplus funds. When the Company experiences a net outflow of funds,
maturing long term investments are not reinvested until sufficient excess
funds are available. See Financial Review" section page 9 of Company's 1999
Annual Report for additional discussion on liquidity.
The Company, on average, during 1999 sold $9.0 million of federal funds.
Capital
At December 31, 1999, stockholders' equity was $31.3 million, which represents
a decrease of $0.2 million, or 0.6% over 1998. This follows an increase of
$1.8 million, or 6.1% over 1997. The decrease from 1998 to 1999 was primarily
due to the increase in the net unrealized loss in market value of the available
for sale securities. The increase from 1997 to 1998 was due to the retention
of earnings.
The adequacy of the Company's capital is reviewed by management on an ongoing
basis in relation to the size, composition and quality of the Company's
resources and in conjunction with regulatory guidelines.
The currently required risk-based capital ratio, as established by the Federal
Reserve Board, is 8.00% as of December 31, 1999. The Company's risk-based
capital ratio was 18.7% and 24.6% at December 31, 1999 and 1998 respectively.
Dividends per share declared in 1999 were $0.59 as compared to $0.56 in 1998
and $0.53 in 1997 after adjusting for the 3 for 2 stock split declared in July
1999 and the 2 for 1 stock split declared in January 1997.
See "Financial Review" section page 9 of Company's 1998
Annual Report for additional discussion on capital.
Recently Issued Accounting Standards
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 one year from fiscal quarters of fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000. Management
is currently evaluating the impact of this Statement on the Company's
consolidated financial statements.
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
The information set forth under the heading "Financial Review - Market Risk"
pages 10 and 11 of the registrant's 1999 Annual Report is incorporated herein
by reference.
ITEM 8. Financial Statements and Supplementary Data
The information set forth on pages 13 through 31 of the registrant's 1999
Annual Report is incorporated by references.
Additional supplementary data not found in registrant's annual report.
-12-
<PAGE>
UNAUDITED INTERIM FINANCIAL INFORMATION (In thousands, except per share data).
The following is a summary of unaudited quarterly financial information for
each quarter of 1999 and 1998.
<TABLE>
<CAPTION>
1999 Quarters ended 1998 Quarters ended
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and Dividend Income $4,315 $4,754 $5,455 $5,444 $4,084 $4,187 $4,261 $4,311
Net Interest and Dividend Income 2,398 2,558 2,899 2,844 2,254 2,202 2,201 2,269
Provision for Loan Losses 60 60 60 0 60 60 60 40
Income Before Income Taxes 1,178 1,114 1,205 1,190 1,116 1,109 1,121 1,257
Net Income 831 802 829 837 786 784 789 863
Per Share: Basic Earnings 0.35 0.33 0.35 0.34 0.32 0.33 0.33 0.36
Per Share: Diluted Earnings 0.35 0.33 0.34 0.34 0.32 0.33 0.33 0.36
</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.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant Election
of Directors
The by-laws of the Company provide that the Board of Directors shall consist
of not less than five nor more than 25 members, and that the total number of
directors may be fixed by action of the Board of Directors or the shareholders.
The by-laws further provide that the directors shall be divided into three (3)
classes as nearly equal in number as possible, known as Class 1, consisting of
not more than eight (8) directors; Class 2, consisiting of not more than eight
(8) directors; and Class 3, consisting of not more than nine (9) directors.
Such classes became effective after the first annual meeting of shareholders
in 1989. Each class holds office for a term of three years, but only one class
comes up for election each year. Each director shall serve until his successor
shall have been elected and shall qualify, even though his term of office as
herein provided has otherwise expired, except in the event of his earlier
resignation, removal, or disqualification.
The twelve persons listed below are currently directors of the Corporation.
Except as noted below, all of the nominees have held the same or another
executive position with the same employer during the past five years.
<TABLE>
<CAPTION>
Principal Occupation Director of
Name, Age for Past Five Years Class the Corp. Since
<S> <C> <C> <C>
John C. Miller, 69 President, John C. Miller, Inc. 2 1988
Automobile Dealer
Frank E. Perrella, 72 President, Sira Corp. 2 1988
Consultant
Robert L. Maider, 68 Attorney-at-Law, Maider & Smith 2 1988
William N. Smith, 59 Chairman of the Board, President 1 1988
and Chief Executive Officer
of the Company and the Bank
George A. Morgan, 57 Vice President & Secretary 3 1991
of the Company and Executive Vice President,
Cashier & Trust Officer of the Bank
Clark Easterly, Sr., 73 Chairman of the Board 1 1992
The Johnstown Knitting Mill Company
Manufacturer of Knitwear
Brian K. Hanaburgh, 50 Owner 1 1994
D/B/A McDonald's Restaurants
Fast Food Restaurants
Clark D. Subik, 45 President, Superb Leather, Inc. 3 1995
Leather Merchandiser
Deborah H. Rose, 49 Vice President, Hathaway Agency, Inc. 3 1996
General Insurance
Theodore E. Hoye, III, 51 President, First Credit Corporation 3 1998
Financing and Insuring of Manufactured Housing
Timothy E. Delaney, 37 President, Delaney Construction Corporation 2 1999
Heavy/Highway Construction
Richard D. Ruby, 53 President, Ruby & Quiri, Inc. 1 1999
Home Furnishings Retailer
</TABLE>
-13-
<PAGE>
Management is not aware of any family relationships between the above
name directors.
The Board of Directors of the Company does not have a standing nominating
committee or compensation committee. These functions are performed by the
Company's Executive Committee which met four times during 1999. Its members
are Messrs. Smith, Chairman, Hannaburgh, Morgan and Maider, and in addition,
up to two other members of the Board may serve as rotating members on a monthly
basis. The Executive Committee reviews and recommends to the full Board of
Directors, nominees for election or re-election as directors. The Executive
Committee will consider the names of individuals recommended by shareholders
for nomination to be directors of the Company. Persons wishing to recommend
individuals for consideration should send such recommendations to the
Secretary of the Company.
The Board of Directors of the Company met nine times during 1999. All members
attended at least 75% of the aggregate number of meetings of the Board of
Directors and committees of the Board of which they are menbers.
The subsidiary Bank does not have a standing nomininating committee. This
function is performed by the Executive and Discount Committee. The Executive
and Discount Committee, in addition to matters pertaining to loans and
discounts, exercises, when the Board is not in session, all other powers of
the Board which may be delegated. The Committee met 45 times during 1999 and
these functions were discussed at various times during these meetings.
Its permanent members are Messrs. Maider, Hannaburgh, Morgan and Smith, in
addition up to two other members of the subsidiary Bank Board may serve as
rotating members on a monthly basis.
The Board of Directors of the subsidiary Bank had 15 meetings during 1999.
All members attended at least 75% of the aggregate number of meetings of the
Board of Directors and committees of the Board of which they are members.
The subsidiary Bank has a compensation committee that met three times during
1999. Its members are Messrs. Perrella, Chairman; Easterly and Miller. The
committee reviews the salaries and other forms of compensation of the key
executive officers of the subsidiary Bank, reviews salary policies and general
salary administration throughout the subsidiary Bank and recommends to the
Board of Directors profit sharing contributions to be made to the employee
profit sharing plan.
The subsidiary Bank has a trust investment committee that met twelve times
during 1999. Its members are Messrs. Morgan, Chairman; Smith, Ruby, Miller
and Easterly. The committee reviews the investments made by the trust
department and other actions taken on a monthly basis.
The Company and the subsidiary Bank have standing audit committees. Their
members are Company and subsidiary Bank directors; Rose, Chairman; Hoye,
Delaney and Subik. These Committees met six times in 1999. The Committees
each year verify certain assets of the subsidiary Bank. KPMG LLP, certified
public accountants, are engaged to perform an audit of the full consolidated
financial statements of the Company, in accordance with generally accepted
auditing standards. The committees meet with representatives of KPMG LLP to
discuss the results of their audit, and these results are then reported to
the full Board of Directors. The Chairman of the Committees, from time to time
during the year, held informal meetings with the Company and subsidiary Bank's
internal auditor.
Principal Officers
The Following table sets forth, as of December 31, 1999, selected information
about the principal officers of the subsidiary Bank, each of whom is elected
by the Board of Directors and each of whom holds offices at the discretion of
the Board of Directors:
<TABLE>
<CAPTION>
Bank
Office and Position Employee Shares of Hldg. Co.
Name, Age with the Bank Held Since Since Common Stock Owned<F1>
<S> <C> <C> <C> <C>
Bill Argotsinger, 48 Vice President 1999 1998 15
Robert W. Bisset, 63 Senior Vice President 1999 1968 4,500
Ronald J. Bradt, 56 Senior Vice President 1999 1966 5,136
Deborah A. Brandis, 40 Vice President 1999 1979 1,630
Denise L. Cerasia, 27 Vice President 1999 1996 65
George E. Doherty, 43 Vice President 1988 1983 2.520
Michael J. Frank, 53 Vice President and 1994 1990 5.750
Comptroller
Donald R. Houghton, 62 Vice President 1989 1955 2.490
David W. McGrattan, 59 Senior Vice President 1993 1988 3,450
George A. Morgan, 57 Executive Vice President, 1988 1967 31,224
Cashier and Trust Officer
Lawrence D. Peck, 58 Vice President 1999 1993 6,390
Michael J. Pepe, 41 Vice President 1999 1999 0
William N. Smith, 59 Chairman of the Board, 1984 1974 48,000
President and Chief
Executive Officer
<FN>
<F1> The number of shares owned includes exercisable stock options held as
of December 31, 1999.
</FN>
</TABLE>
-14-
<PAGE>
With the exceptions of Mr. Argotsinger, Ms. Cerasia and Mr. Pepe, each of the
principal officers of the subsidiary Bank, as listed above, have been
principally employed as an officer or employee of the subsidiary Bank for more
than the past five years. Prior to joining the subsidiary Bank in 1998,
Mr. Argotsinger was employed by the State Employee's Federal Credit Union as
a mortgage loan officer. Prior to joining the subsidiary Bank in 1996,
Ms. Cerasia was employed by the Cohoes Savings Bank as a policy and procedure
analyst . Prior to joining the subsidiary Bank in 1999, Mr. Pepe was employed
by Gloversville Federal Savings and Loan as Vice President in charge of
commercial lending.
ITEM 11. Executive Compensation
Remuneration of Directors and Officers
At present, directors of the Company are not compensated in any way for their
services. The Board of Directors of the subsidiary Bank are the same
individuals who are directors of the Company. Directors of the subsidiary Bank
are compensated for all services as directors as follows:
For attending regular and special meetings of the Board; $600 for each meeting.
For service as regular members of the Executive and Discount Committee, except
salaried officers; $11,700 per annum, payable quarterly. For service as special
members of the Executive and Discount Committee; $900 for the month of service.
For service as members of the Trust Investment Committee, except salaried
officers, $2,700 per annum, payable quarterly. For service as members of the
Examining Committee; $225 for each meeting attended. In addition to the
foregoing, the Chairman of the Examining Committee received an annual fee of
$600, payable quarterly. For service as members of the Compensation Committee,
except for salaried officers; $225 for each meeting attended. Total directors'
fees during 1999 amounted to $226,106. At present, officers of the Company are
not compensated in any way for their services. The following summary
compensation table shows the annual compensation for the last three years for
the subsidiary Bank's chief executive officer and executive vice president,
the only officers whose total salary and bonus exceeded $100,000 in 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
All Other
Name and Principal Position Year Salary Bonus Options # Compensation<F1>
<S> <C> <C> <C> <C> <C>
William N. Smith, Chief
Executive Officer, 1999 $184,000 $17,360 39,900 $22,471
Chairman of the Board 1998 176,000 7,040 45,000 20,223
and President of both 1997 169,000 6,760 0 16,567
the Company and the
subsidiary Bank<F2>
George A. Morgan, Vice 1999 $123,000 $12,420 26,700 $18,556
President and Secretary 1998 117,000 4,680 30,000 16,457
of the Company and Executive 1997 113,000 4,520 0 14,764
Vice President, Cashier
and Trust Officer of the Bank<F2>
<FN>
<F1> Includes contributions to Mr. Smith's profit sharing plan account of $13,121, $11,973 and $9,167 and Board of
Directors fees of $9,350, $8,250 and $7,400 for the years 1999, 1998 and 1997, respectively and contributions
to Mr. Morgan's profit sharing account of $9,206, $8,207 and $7,364 and Board of Directors fees of $9,350, $8,250
and $7,400 for the same periods.
<F2> The aggregate amount of personal benefits, on an individual basis, for these officers did not exceed $10,000 in 1999.
</FN>
</TABLE>
Option Grants in Last Fiscal Year
The following table provides information on grants of stock options in 1999 to
the named executives.
<TABLE>
<CAPTION>
Potential realizable
Number of Percent of value at assumed
securities total options annual rate of stock
underlying granted to Exercise price appreciation
options employees in or base Expiration for option term
granted(#) fiscal year price($/sh) date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
William N. Smith 39,900 37.7 % $26.25 04/20/09 $658,689 $1,669,246
George A. Morgan 26,700 25.2 26.25 04/20/09 440,777 1,117,014
</TABLE>
-15-
<PAGE>
Aggregated Option Exercises in 1999
and Year-end Option Values
The following table sets forth the options exercised in 1999 and the
December 31, 1999 unexercised value of both vested and unvested options for
the named executives.
<TABLE>
<CAPTION>
Value of
Number of unexercised
unexercised in-the-money
options options
at year end (#) at year end ($)
Shares
acquired on Value Exercisable/ Exercisable/
exercise (#) realized ($) Unexercisable Unexercisable<F1>
<S> <C> <C> <C> <C>
William N. Smith 0 0 45,000/39,900 $149,850/$29,925
George A. Morgan 0 0 30,000/26,700 $99,900/$20,025
None of the named executive officers elected to exercise any options during
the fiscal year ended December 31, 1999.
<FN>
<F1> Value is based on the difference between the fair market value and the exercise price of the securities underlying the
options at December 31, 1999. The actual amount, if any, realized upon the exercise of stock options will depend upon the
market value of the Company's common stock relative to the exercise price per share of the optioned stock at the time the
stock option is exercised.
</FN>
</TABLE>
Employment Arrangements
The Company and the subsidiary Bank have entered into agreements with
William N. Smith and George A. Morgan which provide that if a "change of
control" of the Company or the subsidiary Bank should occur, Mr. Smith and
Mr. Morgan will be entitled to continued employment by the Company and the
subsidiary Bank for a minimum of five years following the "change of control"
with the same position and duties held at the time of a "change of control" and
at salaries which are no less than those in effect at the time the "change of
control" occurs. If, within five years of a "change of control", the Company or
the subsidiary Bank should terminate Mr. Smith's or Mr. Morgan's employment for
reasons other than "cause" or disability or if Mr. Smith or Mr. Morgan should
resign for "good reason" he would be entitled to a lump sum termination payment
equal to three times his annual compensation plus, if applicable, a grossed up
amount so that the after tax amount is equal to any excise tax imposed on such
termination payment pursuant to Internal Revenue Code Section 4999.
Employee Benefit Plans
The subsidiary Bank has a non-contributory defined benefit Retirement Plan by
participation in the New York State Bankers Retirement System. This Plan covers
all employees of the Bank age 21 years, and less than 65 years, with more than
one year of service who complete 1,000 or more hours of service during the
year. An employee becomes fully vested in the Plan after five years of service.
The amount of contributions, payment, or accrual in respect to a specified
person, is not and cannot readily be separately or individually calculated by
the actuaries of the Plan. During 1999, the aggregate amount expensed for
retirement contributions to the Plan equaled approximately 2.51% of the total
covered remuneration paid to participants in the Plan. In addition, the
subsidiary Bank has entered into an agreement with William N. Smith whereby
the subsidiary Bank has agreed to pay Mr. Smith a supplemental retirement
benefit equivalent to the excess of the benefit he would receive under the
Plan if the compensation limitations provided by Section 401(a) (17) of the
Internal Revenue Code did not exist over his Plan benefit. The agreement also
provides that, for purposes of computing the supplemental benefit payable to
Mr. Smith, he will receive credit for an additional ten years of service
beyond his actual service with the subsidiary Bank and the Company. Mr. Smith's
supplemental retirement benefit under this Agreement is only payable on his
termination of employment on or after his normal retirement date, his earlier
death or disability or if his employment terminates within four years of a
change in control of the Company or the subsidiary Bank. The subsidiary Bank
has purchased a life insurance policy on Mr. Smith's life so that it will have
funds available to satisify its obligations under this Agreement. This life
insurance is held in a so-called "Rabbi" trust but is available to the
creditors of the subsidiary Bank. Amounts expensed for retirement contributions
are not included in the above cash compensation table. Under the Plan, as
supplemented by the Agreement, each participant who retires at age 65 is
entitled to receive an annual retirement income for life equal to 1.75% of the
average of the highest consecutive five years of compensation during his or
her career (average compensation) times creditable service up to 35 years,
plus 1.25% of the average compensation times creditable service in excess of
35 years (up to five such years), less .49% of the final three year average
compensation (limited to covered compensation, which is defined as the average
of the individual's last 35 years of taxable social security wage base) times
creditable service up to 35 years. The following are examples of estimated
annual benefits to individual employees for the years of service indicated,
exclusive of social security benefits. (The Plan and the Agreement contain
provisions for optional benefits of equivalent actuarial value which may be
elected by the employee). As of December 31, 1999, William N. Smith had 24
years of credited service with the subsidiary Bank and George A. Morgan
had 32 years.
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
Years of Service
Highest 5-Year Average
Base Compensation 20 30 40
$ 25,000 $ 6,300 $ 9,450 $ 12,588
50,000 14,260 21,390 28,080
75,000 23,010 34,515 44,955
100,000 31,760 47,640 61,830
125,000 40,510 60,765 78,705
150,000 49,260 73,890 95,580
175,000 58,010 87,015 112,455
200,000 66,760 100,140 129,330
250,000 84,260 126,390 163,080
-16-
<PAGE>
The subsidiary Bank has a non-contributory deferred profit sharing plan. At
present, the profit sharing plan provides for annual contributions, if any,
by the subsidiary Bank at the discretion of the Board of Directors. Employees
are eligible to participate in the profit sharing plan after completing one
year of service with the subsidiary Bank and having reached age 21 years.
Contributions on behalf of participating employees are allocated to
participants' shares in proportion to their annual compensation. Amounts
expensed for deferred profit sharing plan contributions are included in the
above summary compensation table. Participants are fully vested over a six
year period. Contributions are invested and administered by the subsidiary
Bank as sole trustee and administrator. In addition, the Agreement between
William N. Smith and the subsidiary Bank provides that Mr. Smith will receive
credit in an account maintained on the books of the subsidiary Bank for an
amount equal to the difference between the amount actually credited to
Mr. Smith's account under the profit sharing plan and the contribution he would
have received without regard to the compensation limitations of Section 401
(a)(17) of the Internal Revenue Code. The balance in Mr. Smith's supplemental
profit sharing account is payable on his termination of employment on or after
his normal retirement date, his earlier death or disability or if his
employment terminates within four years of a change in control of the Company
or the subsidiary Bank. The subsidiary Bank is contributing money to the
"Rabbi" trust previously referred to so that it will have funds available to
satisfy its obligation under the Agreement to pay Mr.Smith supplemental profit
sharing benefits.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Principal Beneficial Owners Common Stock
As of December 31, 1999, the Trust Department of the Bank held, in various
fiduciary capacities, 15,180 shares of the Company's common stock as co-trustee
and 21,670 shares of the Company's common stock as sole trustee. Management
does not exercise voting power over these shares. These holdings represent
1.53% of the total shares outstanding.
The following table sets forth, as of December 31, 1999, the amount and
percentage of the common stock of the Company beneficially owned by each
director and by all directors and principal officers as a group.
Name of Individual or Shares of Company Common Percent of
Identity of Group Stock Owned (1) Class
Robert L. Maider 23,089 (2) 0.96
John C. Miller 75,000 3.12
George A. Morgan 31,224 (3) 1.26
Frank E. Perrella 52,076 (4) 2.17
William N. Smith 48,000 (5) 1.94
Clark Easterly, Sr. 5,448 (6) 0.23
Brian K. Hanaburgh 2,100 (7) 0.09
Clark D. Subik 6,600 0.27
Deborah H. Rose 6,525 (8) 0.27
Theodore E. Hoye, III 11,415 (9) 0.48
Timothy E. Delaney 6,028 (10) 0.24
Richard D. Ruby 3,782 (11) 0.15
All Directors and Principal Officers
of the Company as a Group (13 persons) 277,037 (12) 11.17
(1) The securities "benefically owned" by an individual are determined in
accordance with the definition of "beneficial ownership" as set forth in
the regulations of the Securities and Exchange Commission. Accordingly,
they may include securities owned by or for the individual's spouse and
minor children and any other relative who has the same home, as well as
other securities as to which the individual has or shares voting or
investment power. Beneficial ownership may be disclaimed as to certain
of the securities.
(2) Includes 370 shares owned individually by his spouse.
(3) Includes 30,000 shares issuable upon the exercise of exercisable
stock options.
(4) Includes 51,000 shares owned individually by his spouse and 600 shares
owned by his spouse as custodian.
(5) Includes 45,000 shares issuable upon the exercise of exercisable
stock options.
(6) Includes 2,100 shares owned individually by his spouse.
(7) Includes 450 shares owned individually by his spouse.
(8) Includes 2,025 shares owned as custodian.
(9) Includes 6,600 shares in the name of First Credit
Corporation and 4,140 shares in a Money Purchase and Profit Sharing Plan.
(10) Includes 570 shares issuable upon the exercise of exercisable
stock options.
(11) Includes 300 shares owned individually by his spouse and 570 shares
issuable upon the exercise of exercisable stock options.
(12) Includes 2,250 shares issuable upon the exercise of exercisable
stock options.
-17-
<PAGE>
ITEM 13. Certain Relationships and Related Transactions
The subsidiary Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with many of its directors,
executive officers and the businesses in which they are associated. During the
calendar year 1999, loans to directors and executive officers, together with
their business interests, reached maximum aggregate totals of $6,396,608, or
20.45% of the December 31, 1999 equity capital accounts. At year-end, 1999,
loans to directors and executive officers, together with their business
interests, were $4,084,325, or 13.06% of the December 31, 1999 equity capital
accounts. All extensions of credit to such persons have been made in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and in the opinion of the management of the
subsidiary Bank, do not involve more than a normal risk of collectibility or
present other unfavorable features.
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following consolidated financial statements of the registrant and its
subsidiary and the independent auditors' report thereon included in the
registrant's Annual Report to Shareholders for the fiscal year ended December
31, 1999, are incorporated herein by reference:
Financial Statements (Consolidated)
Independent Auditors' Report
Statements of Condition - Decmeber 31, 1999 and 1998
Statements of Income - Years ended December 31, 1999, 1998 and 1997
Statements of Changes in Stockholders' Equity - Years ended December 31, 1999,
1998, and 1997
Statements of Cash flows - Years ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
(All financial statement schedules for the registrant and its subsidiary have
been omitted as the required information is included in the consolidated
financial statements or the related notes thereto.)
-18-
<PAGE>
The following are the exhibits:
Exhibit No. Exhibit
3. Articles of Incorporation and Bylaws
(incorporated by reference)
10. Material contracts:
Contract with data processing servicer
(incorporated by reference)
Supplemental Executive Retirement Plan
(incorporated by reference)
13. Annual Report to Security Holders(included herewith)
21. Subsidiaries of the Registrant(incorporated by reference)
22. Published report regarding matters submitted to a vote of
security holders April 20, 1999 proxy materials
(incorporated by reference)
23. Independent auditors' consent of KPMG LLP filed herewith
EXHIBIT INDEX
Reg. S - K
Exhibit Number Description
3. Articles of Incorporation and Bylaws
10. Material contracts:
Contract with data processing servicer
Supplemental Executive Retirement Plan
13. Annual Report to Security Holders
21. Subsidiaries of the Registrant
22. Published report regarding matters submitted
to vote of security holders
April 20, 1999 proxy materials
23. Independent auditors' consent of KPMG LLP filed herewith
-19-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CNB Bancorp, Inc.
By: /s/ William N. Smith
William N. Smith, Chairman of the Board, President and
Chief Executive Officer
By: /s/ George A. Morgan
George A. Morgan, Vice President and Secretary
(principal financial officer)
Dated: March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
CNB Bancorp, Inc.
By /s/ John C. Miller By /s/ Brian K. Hanaburgh
By /s/ Frank E. Perrella By /s/ Clark D. Subik
By /s/ Robert L. Maider By /s/ Deborah H. Rose
By /s/ William N. Smith By /s/ Theodore E. Hoye III
By /s/ George A. Morgan By /s/ Timothy E. Delaney
By /s/ Clark Easterly, Sr. By /s/ Richard D. Ruby
-20-
CNB BANCORP, Inc.
1999 ANNUAL REPORT
City National Bank
and Trust Company
<PAGE>
DIRECTORS
CNB Bancorp, Inc. and City National Bank and Trust Company
John C. Miller
PRESIDENT, JOHN C. MILLER, INC., AUTOMOBILE DEALER
Frank E. Perrella
PRESIDENT, SIRA CORP., CONSULTANT
Robert L. Maider
PARTNER, MAIDER & SMITH ATTORNEYS
William N. Smith
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER OF THE COMPANY AND THE SUBSIDIARY BANK
George A. Morgan
VICE-PRESIDENT AND SECRETARY OF THE COMPANY AND EXECUTIVE VICE-PRESIDENT,
CASHIER AND TRUST OFFICER OF THE SUBSIDIARY BANK
Clark Easterly, Sr.
CHAIRMAN OF THE BOARD, THE JOHNSTOWN KNITTING MILL COMPANY
MANUFACTURER OF KNITWEAR
Brian K. Hanaburgh
OWNER, D/B/A MCDONALD'S RESTAURANTS, FAST FOOD RESTAURANTS
Clark D. Subik
PRESIDENT, SUPERB LEATHERS, INC., LEATHER MERCHANDISER
Deborah H. Rose
VICE-PRESIDENT, HATHAWAY AGENCY, INC., GENERAL INSURANCE
Theodore E. Hoye, III
PRESIDENT, FIRST CREDIT CORP., FINANCING AND INSURING OF MANUFACTURED HOUSING
Timothy E. Delaney
PRESIDENT, DELANEY CONSTRUCTION CORP., HEAVY/HIGHWAY CONSTRUCTION
Richard D. Ruby
PRESIDENT, RUBY & QUIRI, INC., HOME FURNISHINGS RETAILER
HONORARY DIRECTORS
Lydon F. Maider Henry Buanno Ross H. Higier
Richard B. Parkhurst Alfred J. Washburn Theodore E. Hoye, Jr.
Edward F. Vonderahe Richard E. Hathaway James W. St. Thomas
Henry C. Tauber Paul E. Smith Richard P. Tatar
Lloyd Politsch Leon Finkle
<PAGE>
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
1999 1998 1997
NET INCOME $ 3,299 $ 3,222 $ 3,101
Earnings Per Share
Basic 1.37 1.34 1.29
Diluted 1.36 1.34 1.29
CASH DIVIDENDS DECLARED $ 1,416 $ 1,344 $ 1,280
Per Share 0.59 0.56 0.53
STOCKHOLDERS' EQUITY AT YEAR-END $ 31,285 $ 31,511 $ 29,679
Per Share 13.03 13.13 12.37
RETURN ON AVERAGE STOCKHOLDERS' EQUITY 10.5% 10.5% 10.8%
RETURN ON AVERAGE ASSETS 1.13% 1.36% 1.44%
TOTAL ASSETS AT YEAR-END $314,908 $255,568 $222,325
Per share figures have been adjusted to reflect the 3 for 2 stock split
effected through the 50% stock dividend declared in July 1999.
- - 1 -
<PAGE>
PRESIDENT'S MESSAGE
I am extremely pleased to report that 1999 proved to be an outstanding year
for our Company. My sincere thanks to our dedicated staff and Board of
Directors for their contributions to this success.
The highlight of the year was the acquisition of Adirondack Financial
Services Bancorp, Inc., parent company of Gloversville Federal Savings and
Loan Association, that was completed on June 1, 1999. This added two
locations to the bank, a branch at 295 Broadway, Saratoga Springs, New York,
and their former main office at 52 North Main Street, Gloversville, New York.
Following the conversion of Gloversville Federal's computer data to City
National's system on September 11, 1999, it was decided to relocate the
teller and customer service activity of 52 North Main Street to the Fremont
Street side of the building. This made available sizable space at 52 North
Main Street that was then converted to a new trust and financial services
office, offering privacy and convenience for trust and investment clients. To
help grow the trust department, a new trust officer, Deborah Buck, was hired
in December. Her primary focus is new business development.
Net income for the year was $3.3 million, a 2.4% increase over the prior
year's result of $3.2 million. Diluted earnings per share were $1.36,
compared to $1.34 in 1998, after adjusting to reflect the 3 for 2 stock split
effected through a 50% stock dividend declared in July, 1999.
Several key balance sheet categories reached record year-end levels, most
notably, total assets, loans and deposits. These impressive increases were
due to the Adirondack Financial acquisition, as well as some internally
generated growth. Total assets increased $59.3 million or 23.2%, resulting in
total assets at year-end of $314.9 million. Total loans, net of unearned
income, increased $50.6 million or 41.5%, resulting in total loans, net of
unearned income, at year-end, of $172.4 million. Deposits increased $58.7
million or 28.4%, resulting in total deposits at year-end of $265.1 million.
Despite the substantial growth, asset quality remained strong as evidenced by
the low levels of nonperforming loans and net loan losses. At year-end,
nonperforming loans were $1.6 million and represented 0.9% of year-end loans,
net of unearned income, while net loan losses for the year equaled 0.1% of
year-end loans, net of unearned income.
In January the Board of Directors increased the dividend for the thirty-third
consecutive year. The dividend per share for the year was $0.59, an increase
of 5.4%, as compared to $0.56 in 1998, after adjusting to reflect the 3 for 2
stock split, effected through the 50% stock dividend declared in July, 1999
and paid on September 1, 1999 to stockholders of record as of August 26,
1999. Total dividends paid to stockholders for the year amounted to
$1,416,000. At year-end the bid price per share of stock was $27.00, an
increase of $2.17 or 8.7% from the prior year, after adjusting for the above
referred stock split.
In May, Timothy E. Delaney, President of Delaney Construction Corporation of
Mayfield, New York, and Richard D. Ruby, President of Ruby & Quiri, Inc. of
Gloversville, New York, former directors of Adirondack Financial, were
appointed to the Board of Directors. Mr. Delaney, in heavy construction, and
Mr. Ruby, in retailing, bring a new perspective to the board that I am sure
will prove of great value to the company.
The operating results for the year were particularly gratifying because there
were a number of nonrecurring expenses that were paid during the year
including certain nonrecurring expenses incurred with the acquisition of
Adirondack Financial; however, these expenses have helped position the
Company for continued future growth.
Throughout the year, a significant amount of staff time and effort was
devoted to Y2K preparedness and I am pleased to report that our Year 2000
Plan was a complete success as our systems transitioned into the new
millennium without interruption.
As always, we welcome your comments and suggestions, and please remember to
use our banking services and recommend us to your friends and neighbors.
/s/ WILLIAM N. SMITH
WILLIAM N. SMITH
Chairman of the Board, President and Chief Executive,
Officer of the Company and the subsidiary Bank
- - 2 -
<PAGE>
Year-End Total Assets
Five Years (1995-1999)
(Thousands)
1995 $201,516
1996 $214,762
1997 $222,325
1998 $255,568
1999 $314,908
Net Income
Five Years (1995-1999)
(Thousands)
1995 $3,003
1996 $3,045
1997 $3,101
1998 $3,222
1999 $3,299
- - 3 -
<PAGE>
Bid Price Per Common
Share Year End
Five Years (1995-1999)
(Dollars)
1995 $15.00
1996 $16.58
1997 $22.00
1998 $24.83
1999 $27.00
Dividend Paid Per
Common Share
Five Years (1995-1999)
(Dollars)
1995 $0.45
1996 $0.49
1997 $0.53
1998 $0.56
1999 $0.59
- - 4 -
<PAGE>
FINANCIAL REVIEW
The financial review is a presentation of management's discussion and
analysis of the consolidated financial condition and results of operations of
CNB Bancorp, Inc. and its subsidiary, City National Bank & Trust Company. The
financial review is presented to provide a better understanding of the
financial data contained in this report and should be read in conjunction
with the consolidated financial statements and other schedules that follow.
In addition to historical information, this Annual Report includes certain
forward-looking statements with respect to the financial condition, results
of operations and business of the Company and its subsidiary Bank based on
current management expectations. The Company's ability to predict results or
the effect of future plans and strategies is inherently uncertain and actual
results, performance or achievements could differ materially from those
management expectations. Factors that could cause future results to vary from
current management expectations include, but are not limited to, general
economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the federal government, changes in tax policies, rates and
regulations of federal, state, and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
subsidiary Bank's loan and securities portfolios, changes in accounting
principles, policies or guidelines, and other economic, competitive,
governmental, and technological factors affecting the Company's operations,
markets, products, services and prices.
On January 23, 1999, the Company entered into a definitive agreement of
merger with Adirondack Financial Services Bancorp, Inc., (Adirondack)
Gloversville, New York, parent company of Gloversville Federal Savings and
Loan Association, to purchase all of Adirondacks' outstanding shares for
$14.6 million in cash. The transaction closed on June 1, 1999. 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.
In addition, under the merger agreement, the Company agreed to issue 35,624
options to purchase CNB Bancorp, Inc. stock at a price of $15.22. The
estimated fair value of these options was $11.04 per share. The issuance of
these options was included in the computation of goodwill, with the
offsetting increase to surplus.
The acquisition was accounted for using purchase accounting in accordance
with APB Opinion No. 16, "Business Combination" (APB No. 16). Under purchase
accounting, the purchase price is allocated to the respective assets acquired
and liabilities assumed based on their estimated useful 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. The discussion and analysis of the financial information that
follows reflects the acquisition, at year-end and on average for seven
months.
Financial Condition: The table below presents a comparison of average and
year-end consolidated balance sheet categories over the past three years (in
thousands).
Increase/
(Decrease)
Average Consolidated 1999/ 1998/
Balance Sheet 1999 1998 1997 1998 1997
Assets:
Cash and due from banks $ 9,068 $ 6,328 $ 6,175 $ 2,740 $ 153
Federal funds sold 9,042 11,710 6,170 (2,668) 5,540
Int. bearing deposits
with banks 1,655 206 59 1,449 147
Total securities* 107,914 91,816 86,622 16,098 5,194
Loans, net 150,683 119,711 111,227 30,972 8,484
Other assets 12,500 7,444 5,308 5,056 2,136
Total Assets $290,862 $237,215 $215,561 $53,647 $21,654
- - 5 -
<PAGE>
FINANCIAL REVIEW (Continued)
Liabilities:
Demand deposits $ 23,375 $ 19,382 $ 17,900 $ 3,993 $ 1,482
Savings, NOW and Money
market accounts 95,830 73,503 76,386 22,327 (2,883)
Time deposits 120,133 101,827 91,151 18,306 10,676
Borrowed funds and
repurchase agreements 18,682 10,777 592 7,905 10,185
Other liabilities 1,380 1,057 827 323 230
Stockholders' equity 31,462 30,669 28,705 793 1,964
Total Liabilities and Equity $290,862 $237,215 $215,561 $53,647 $21,654
*At amortized cost and includes average Federal Reserve Bank and Federal Home
Loan Bank equity securities.
Increase/
(Decrease)
Year-End Consolidated 1999/ 1998/
Balance Sheet 1999 1998 1997 1998 1997
Assets:
Cash and due from banks $ 12,402 $ 6,422 $ 6,585 $ 5,980 ($163)
Federal funds sold 5,300 13,900 2,800 (8,600) 11,100
Int. bearing deposits
with banks 2,128 42 22 2,086 20
Total securities* 109,280 107,529 88,289 1,751 19,240
Loans, net 169,716 120,257 117,646 49,459 2,611
Other assets 16,082 7,418 6,983 8,664 435
Total Assets $314,908 255,568 $222,325 $59,340 $33,243
Liabilities:
Demand deposits $ 25,671 $ 23,268 $ 21,391 $ 2,403 $ 1,877
Savings, NOW and Money
market accounts 121,717 90,934 81,980 30,783 8,954
Time deposits 117,692 92,184 84,284 25,508 7,900
Borrowed funds and
repurchase agreements 17,754 16,844 4,322 910 12,522
Other liabilities 789 827 669 (38) 158
Stockholders' equity 31,285 31,511 29,679 (226) 1,832
Total Liabilities
and Equity $314,908 $255,568 $222,325 $59,340 $33,243
*At amortized cost and includes Federal Reserve Bank and Federal Home Loan
Bank equity securities.
Total assets at December 31, 1999 reached $314.9 million as compared to
$255.6 million at December 31, 1998, an increase of 23.2%. Most of the asset
growth during 1999 can be attributed to the acquisition of Adirondack, which
had total assets of $68.5 million at the merger date. Average assets for 1999
totaled $290.9 million, an increase of $53.7 million or 22.6% from the 1998
average of $237.2 million.
Loans, which constitute the subsidiary Bank's largest segment of earning
assets, represented 53.9% of total assets at December 31, 1999. Net loans
increased approximately $49.5 million or 41.1% during 1999. The Adirondack
acquisition accounted for approximately $49.4 million or 99.8% of the
increase for the year. The increase was primarily in residential real estate
mortgage loans. Average loans for 1999 increased $31.0 million or 25.9% over
1998.
Federal funds sold, which is a source of liquidity for the subsidiary Bank,
decreased $8.6 million or 61.9% during 1999, which is largely attributable to
the cash outlay related to the purchase of Adirondack.
- - 6 -
<PAGE>
Deposits continue to be the subsidiary Bank's primary source of funding.
Total deposits at December 31, 1999 reached $265.1 million, an increase of
$58.7 million or 28.4% over the previous year end. Core deposits which
consist of demand, savings, NOW, and money market accounts, grew by $33.2
million or 29.1%, and time deposits increased $25.5 million or 27.7%. Average
deposits increased during the year to $239.3 million from $194.7 million, an
increase of $44.6 million or 22.9%. Consistent with the growth in loans, the
increase in deposits is largely attributable to the acquisition of
Adirondack, which had total deposits of $56.4 million as of the merger date.
Cash and cash equivalents decreased to $19.8 million at year-end 1999 from
$20.4 million at year-end 1998, a decrease of only 2.9%. However, the
components of each cash and cash equivalents changed more significantly. Cash
and due from banks increased to $12.4 million at December 31, 1999 from $6.4
million at December 31, 1998, an increase of $6.0 million. This increase was
attributed to higher vault cash held due to Y2K preparedness.
Other assets increased to $16.1 million at December 31, 1999 from $7.4
million at December 31, 1998, a $8.7 million increase. The increase is
primarily related to goodwill recorded in connection with the acquisition of
Adirondack.
Stockholder's equity at year-end 1999 was $31.3 million as compared to $31.5
million at year-end 1998. The decrease was due mainly to a combination of net
retained earnings of $1.9 million and a net unrealized loss of market value
on securities available for sale, net of tax, in the amount of $2.5 million.
The consolidated statements of changes in shareholders' equity included in
this annual report detail the changes in equity capital, including payments
to shareholders in the form of cash dividends.
Results of Operations:
The comparative consolidated statements of income summarizes income and
expense for the last three years. Despite one-time costs of approximately
$475,000 related to the Adirondack acquisition and consulting fees associated
with tax planning strategies, the Company continued its trend of achieving
record earnings. Net income for 1999 was $3,299,000, as compared to
$3,222,000 for 1998, an increase of 2.4% over the previous year. Net income
for 1998 was 3.9% above 1997 net income of $3,101,000. The return on average
assets for the three years ended December 31, 1999, 1998 and 1997 was 1.13%,
1.36% and 1.44%, respectively. The return on average equity for the same
periods was 10.5%, 10.5% and 10.8%.
Net interest income, the most significant component of earnings, is the
amount by which the interest generated from earning assets exceeds the
expense associated with funding those assets. Changes in net interest income
from year to year result from changes in the level and mix of the average
balances (volume) of earning assets and interest-bearing liabilities and from
the yield earned and the cost paid (rate). In the following discussion,
interest income is presented on a fully taxable equivalent basis applying the
statutory Federal income tax rate of 34%. Net interest income for 1999
increased $1,778,000 or 18.5%, compared to an increase of $76,000 or 0.8% for
the previous year. The large increase in 1999 was attributable to higher
volumes of earning assets offset by higher volumes of deposits related to the
acquisition of Adirondack. Interest and fees on loans for 1999 increased by
$2,218,000 or 20.9% from the previous year, compared to an increase of
$608,000 or 6.1%, for 1998 over 1997. The increase for 1999 was due to an
increase in average loans of $31.7 million despite a decrease in yields of 36
basis points from 8.74% in 1998 to 8.38% in 1999. Interest on securities
increased $1,025,000 or 16.2% for the year, as compared to an increase of
$148,000 or 2.4% for 1998 over 1997. The increase in 1999 was due to the
average volumes of securities increasing by $16.1 million or 17.5% for the
year, which was somewhat offset by a 19 basis point decrease in the yield
from 6.93% in 1998 to 6.74% in 1999. Interest on federal funds sold decreased
$178,000 or 28.4%, compared to an increase of $284,000 or 82.8% for 1998 over
1997. The decrease in 1999 was primarily due to the Company's use of cash to
purchase Adirondack and maintain higher balances of vault cash in the second
half of the year related to preparations for Y2K.
- - 7 -
<PAGE>
FINANCIAL REVIEW (Continued)
For comparison purposes, the table below shows interest income converted to a
fully taxable basis to recognize the income tax savings between taxable and
tax-exempt assets (in thousands).
% Change % Change
1999/ 1998/
1999 1998 1997 1998 1997
Total interest income $19,968 $16,843 $15,763 18.6% 6.9%
Total interest expense 9,269 7,917 6,941 17.1 14.1
Net interest income 10,699 8,926 8,822 19.9 1.2
Tax equivalent adjustment 711 706 734 0.7 (3.8)
Net interest income taxable
equivalent basis $11,410 $9,632 $9,556 18.5% 0.8%
Total interest expense increased $1,352,000 or 17.1% in 1999 over that of
1998 compared to an increase of $976,000 or 14.1% for 1998 over 1997. The
increase in 1999 was due primarily to higher interest bearing deposit volumes
as a result of the Adirondack acquisition as well as an increase in the
average volumes of securities sold under agreements to repurchase and notes
payable to the FHLB. The $48.5 million increase in average interest bearing
liabilities from $186.1 million in 1998 was somewhat offset by a 30 basis
point decrease in yields from 4.25% in 1998 to 3.95% in 1999.
Total other income for 1999 increased by $346,000 or 30.9% due to additional
fees earned on new accounts obtained from the Adirondack acquisition and
higher merchant credit card fees. Total other income for 1998 increased by
$338,000 or 43.2% over that for 1997. Total other expense increased
$2,075,000 or 39.7% over the preceding year as compared to an increase of
$326,000 or 6.7% for 1998 over 1997. The 1999 increase was due primarily to
the acquisition of Adirondack. The acquisition resulted in higher salary and
benefit costs associated with retained employees, one-time data processing
conversion costs, the write-down of obsolete software, and the goodwill
amortization associated with the acquisition. It is anticipated that the
non-tax deductible goodwill amortization will be $319,000 for 2000 as
compared to $172,000 for 1999 as a result of the full year's amortization in
2000. Other costs for 1999 include the subsidiary Banks' formation of a real
estate investment trust and higher credit card processing costs.
Net interest spread, the difference between average earning assets yield and
the cost of average interest bearing funds, increased 6 basis points or 1.7%
from 1998 to 1999 compared to a decrease of 33 basis points or 8.4% from 1997
to 1998. Net interest margin, net interest income as a percentage of earning
assets, decreased 11 basis points or 2.6%, whereas the change from 1997 to
1998 decreased 36 basis points or 7.7%. The small increase in the net
interest spread for 1999 is a result of the deposit and loan mix received
from the Adirondack acquisition as well as lower yielding federal funds
decreasing and being replaced by higher yielding securities and loans. The
slight decrease in net interest margin from 1998 is largely attributed to
overall growth of interest earning assets coupled with a decrease in related
yields of 24 basis points from 7.83% in 1998 to 7.59% in 1999.
Interest rate spread and net interest margin (in thousands):
(Tax equivalent basis)
1999 1998 1997
Yearly Yearly Yearly
Average Rate Average Rate Average Rate
Earning assets $272,492 7.59% $224,191 7.83% $205,186 8.04%
Interest bearing
liabilities 234,666 3.95 186,127 4.25 168,148 4.13
Net interest rate spread 3.64% 3.58% 3.91%
Net interest margin 4.19% 4.30% 4.66%
- - 8 -
<PAGE>
Capital Resources: Stockholders' equity ended 1999 at $31,285,000 down
$226,000 or 0.7% primarily due to the increase in the net unrealized loss in
market value of the available for sale securities. At December 31, 1999, the
ratio of stockholders' equity to total assets was 9.9%, as compared to 12.3%
at December 31, 1998. The decrease in the ratio for 1999 was due to the
influx of assets associated with the Adirondack acquisition.
As of December 31, 1990, banks were required to report new risk-based capital
ratios that require bank holding companies to meet a ratio of qualifying
total capital to risk-weighted assets. Risk-based assets are the value of
assets carried on the books of the Company, as well as certain off-balance
sheet items, multiplied by an appropriate factor as stipulated in the
regulation. Tier 1 capital consists of common stock and qualifying
stockholders' equity reduced by intangible assets. Total capital consists of
Tier 1 capital plus a portion of the allowance for loan losses. Currently,
the minimum risk-based ratios, as established by the Federal Reserve Board,
for Tier 1 and total capital are 4% and 8%, respectively. At December 31,
1999, the Company had Tier 1 and total capital risk-based ratios of 17.4% and
18.7%, respectively. The Company also maintained a leverage ratio of 9.3% as
of December 31, 1999. The leverage ratio is defined as Tier 1 capital in
relation to fourth quarter average assets.
Liquidity: The primary objective of liquidity management is to ensure
sufficient cash flows to meet all of the Company's funding needs, such as
loan demand and customers' withdrawals from their deposit accounts. While the
primary source of liquidity consists of maturing securities, other sources of
funds are federal funds sold, repayment of loans, sale of securities
available for sale, growth of deposit accounts and borrowed funds and
securities sold under agreements to repurchase. Throughout 2000,
approximately $11 million of securities are scheduled to mature. In addition
to existing liquid assets the subsidiary Bank maintains lines of credit with
a correspondent bank and the Federal Home Loan Bank (FHLB) to supplement its
short term borrowing needs.
The subsidiary Bank has pledged certain assets as collateral for deposits
from municipalities, FHLB borrowings and repurchase agreements. By utilizing
collateralized funding sources, the subsidiary Bank is able to access a
variety of cost effective sources of funds. Management monitors its liquidity
position on a regular basis and does not anticipate any negative impact to
its liquidity from pledging activities. While there are no known trends or
demands that are likely to affect the Bank's liquidity position in any
material way during the coming year, the above funds are available to satisfy
any needs that may arise.
Provision for loan losses: The Company establishes an allowance for loan
losses based on an analysis of risk factors in its loan portfolio. The
analysis includes concentrations of credit, past loan loss experience,
current economic conditions, amount and composition of the loan portfolio,
estimated fair market value of underlining collateral, delinquencies and
other factors.
The allowance for loan losses as a percentage of loans, net of unearned
discount is 1.56% at December 31, 1999 compared to 1.30% at December 31,
1998. The increase is primarily related to the Adirondack acquisition where
the loans acquired had an allowance to loan percentage higher than the
Company's percentages due to the historical high charge-offs and level of
non-performing loans in the acquired loan portfolio. As part of the
acquisition, the Company acquired $1.2 million of allowance for loan losses.
Offsetting this increase was the effect of 1999 net loan charge-offs of
$230,000 which exceeded the provision for loan losses of $180,000.
Non-performing loans at December 31, 1999 of $1.6 million were significantly
up from the non-performing loans at December 31, 1998 of $529,000. This
increase is primarily related to one commercial loan which management is
closely monitoring and believes to be appropriately reserved. The Company's
allowance for loan loss coverage of non-performing loans decreased as of
December 31, 1999 to 167% from 333% at December 31, 1998. Net loan
charge-offs were $230,000, $132,000, and $383,000 for the years ended 1999,
1998, and 1997, respectively. The provision for loan losses was $180,000,
$220,000, and $255,000 for the years ended 1999, 1998, and 1997,
respectively. The reduction in the provision for loan losses over the past
two years has resulted from management's overall assessment of the loan
portfolio and the adequacy of the allowance for loan losses. There are no
other loans in the Company's portfolio that management is aware of that pose
significant adverse risk to the eventual full collection of principal and
interest.
- - 9 -
<PAGE>
FINANCIAL REVIEW (Continued)
The Company will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
conditions dictate. Although the Company maintains its allowance at a level
which it considers to be adequate to provide for inherent risk of loss in its
loan portfolio there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods. In addition, the Company's determination as to
the amount of the allowance for loan losses is subject to review by the OCC,
as part of its examination process, which may result in the establishment of
an additional allowance based on the OCC's judgement of the information
available to it at the time of examination.
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 acceptance
activities. Although the subsidiary Bank manages other risks, such 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 Bank's financial
condition and results of operation. The Company does not currently have a
trading portfolio or use derivatives such as swaps or options 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. 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
contractural 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 net
interest income as of December 31, 1999, assuming an increase or decrease of
200 basis points in interest rates (in thousands).
Change in Interest Rates Estimated net Change in Net
(basis points) Interest Income Interest Income
+200 $10,872 1.6%
+100 10,778 0.7
0 10,747 0.4
- -100 10,544 (1.4)
- -200 10,486 (2.0)
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 maturity dates are modeled based on historical run-off
characteristics of these products in periods of rising rates. Loans and
security maturities are based on contractural maturities. At December 31,
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.
- - 10 -
<PAGE>
As of December 31, 1999, the subsidiary Bank was in a liability sensitive
position for one year, which means that more liabilities are scheduled to
mature or reprice within the next year than assets. However, beyond one year,
the subsidiary Bank is in an asset sensitive position, which means that more
assets are scheduled to mature, beyond one year, than liabilities. The
following table shows the interest rate sensitivity gaps as of December 31,
1999 highlighting the gap percentages within one year.
Balance Maturing or Subject to Repricing (in Thousands)
After After
3 Mo. One But
But Within After
Within Within Five Five
AT DECEMBER 31, 1999 3 Months 1 Year Years Years Total
Interest Earning Assets:
Securities* $25,778 $27,001 $25,581 $34,494 $112,854
Total Loans, net of
unearned discount 42,033 21,881 59,101 49,398 172,413
Other Earning Assets 7,428 0 0 0 7,428
Total Earning Assets 75,239 48,882 84,682 83,892 292,695
Fair Value Below Cost
of Securities
Available for Sale (3,574)
Other Assets 25,787
TOTAL ASSETS $314,908
Interest-Bearing Liabilities:
Savings, NOW and MMDA $42,366 $ 3,449 $ 3,285 $72,617 $121,717
Time Deposits 31,556 50,658 35,478 0 117,692
Other Interest-Bearing
Liabilities 8,984 3,252 5,388 130 17,754
Total Interest-Bearing
Liabilities 82,906 57,359 44,151 72,747 257,163
Demand Deposits 25,671
Other Liabilities & Equity 32,074
TOTAL LIABILITIES & EQUITY $314,908
Interest Rate
Sensitivity Gap ($ 7,667) ($ 8,477) $40,531 $11,145
Cumulative Interest
Rate Sensitivity Gap ($ 7,667) ($16,144) $24,387 $35,532 $35,532
(5.1)%
*Includes Available for Sale Securities and Investment Securities at
amortized cost and FHLB and FRB stock at cost.
Impact of year 2000: The Company is happy to report that the subsidiary Bank
has successfully entered the year 2000. Thanks to the diligence of the Year
2000 Committee and the many other officers and employees involved in the
project, the Bank entered the year 2000 without incident. As expected, there
was no significant impact on the Company's consolidated financial condition,
operational systems or cash flow.
As reported last year, the Bank spent approximately $200,000 in 1998 on the
conversion of its data processing to the Horizon software system. In
addition, during 1999 the subsidiary Bank spent approximately $100,000 to
complete our Y2K preparedness. The Bank does not foresee any additional costs
related to this project.
The Bank will continue its efforts to monitor critical dates as the year
progresses.
- - 11 -
<PAGE>
FIVE-YEAR SUMMARY OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Consolidated statement of income data
Interest and dividend income:
Loans $ 12,816 $ 10,598 $ 9,990 $ 9,541 $ 9,504
Securities<F1> 6,623 5,603 5,427 5,369 4,727
Money market instruments 529 642 346 395 320
Total interest and dividend income 19,968 16,843 15,763 15,305 14,551
Interest expense:
Deposits 8,303 7,347 6,909 6,914 6,451
Borrowings 966 570 32 10 22
Total interest expense 9,269 7,917 6,941 6,924 6,473
Net interest income 10,699 8,926 8,822 8,381 8,078
Provision for loan losses 180 220 255 220 230
Net interest income after
provision for loan losses 10,519 8,706 8,567 8,161 7,848
Other income 1,467 1,121 783 717 748
Other expenses 7,299 5,224 4,898 4,562 4,314
Income before income taxes 4,687 4,603 4,452 4,316 4,282
Applicable income taxes 1,388 1,381 1,351 1,271 1,279
Net income $ 3,299 $ 3,222 $ 3,101 $ 3,045 $ 3,003
Per share data:
Basic earnings per share $ 1.37 $ 1.34 $ 1.29 $ 1.27 $ 1.25
Diluted earnings per share 1.36 1.34 1.29 1.27 1.25
Cash dividends paid 0.59 0.56 0.53 0.49 0.45
Selected year-end consolidated
statement of condition data:
Total assets $314,908 $255,568 $222,325 $214,762 $201,516
Securities<F1> 109,280 107,529 88,289 87,886 77,664
Net loans 169,716 120,257 117,646 105,365 102,969
Deposits 265,080 206,386 187,655 186,422 174,348
Stockholders' equity<F1> 31,285 31,511 29,679 27,747 25,980
<FN>
<F1> Securities figures include investment securities, securities available for
sale, FRB and FHLB stock. Securities available for sale were recorded at fair
value with any unrealized gain or loss at December 31 included in
stockholders' equity, on a net of tax basis.
</FN>
</TABLE>
Per share figures have been adjusted to reflect the 3 for 2 stock split
effected through the 50% stock dividend declared in July 1999.
- - 12 -
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
December 31,
1999 1998
ASSETS
Cash and cash equivalents
Non-interest bearing $ 12,402 $ 6,422
Interest bearing 2,128 42
Federal funds sold 5,300 13,900
Total cash and cash equivalents 19,830 20,364
Securities available for sale, at fair value 93,849 89,157
Investment securities (approximate fair value at December 31,
1999 - $13,611; at December 31, 1998 - $18,125) 13,443 17,397
Investments required by law, stock in Federal Home Loan
Bank of New York and Federal Reserve Bank of New
York, at cost 1,988 975
Loans 183,785 132,027
Unearned income (11,372) (10,190)
Allowance for loan losses (2,697) (1,580)
Net loans 169,716 120,257
Premises and equipment, net 3,550 2,575
Accrued interest receivable 1,745 1,460
Other assets 10,787 3,383
Total assets $314,908 $255,568
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (non-interest bearing) $ 25,671 $ 23,268
Regular savings, NOW and money market accounts 121,717 90,934
Certificates and time deposits of $100,000 or more 35,339 30,439
Other time deposits 82,353 61,745
Total deposits 265,080 206,386
Securities sold under agreements to repurchase 9,581 12,844
Notes payable - Federal Home Loan Bank 8,173 4,000
Other liabilities 789 827
Total liabilities 283,623 224,057
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value, 5,000,000 shares authorized,
2,401,695 shares issued at December 31, 1999 and
1,600,000 issued at December 31, 1998 6,004 4,000
Surplus 4,415 4,000
Undivided profits 23,048 23,165
Accumulated other comprehensive (loss)/income (2,182) 346
Total stockholders' equity 31,285 31,511
Total liabilities and stockholders' equity $314,908 $255,568
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 financial statements.
- - 13 -
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $12,816 $10,598 $ 9,990
Interest on federal funds sold 449 627 343
Interest on balances due from depository institutions 80 15 3
Interest on securities available for sale 5,668 3,985 3,356
Interest on investment securities 860 1,555 2,015
Dividends on FRB and FHLB stock 95 63 56
Total interest and dividend income 19,968 16,843 15,763
INTEREST EXPENSE
Interest on deposits:
Certificates and time deposits of $100,000 or more 2,234 2,213 1,887
Regular savings, NOW and money market accounts 2,270 1,794 1,927
Other time deposits 3,799 3,340 3,095
Interest on securities sold under agreements to repurchase 611 544 31
Interest on other borrowed money 355 26 1
Total interest expense 9,269 7,917 6,941
NET INTEREST INCOME 10,699 8,926 8,822
Provision for loan losses 180 220 255
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,519 8,706 8,567
OTHER INCOME
Income from fiduciary activities 163 150 126
Service charges on deposit accounts 415 330 333
Net gain on sale of securities 70 116 1
Other income 819 525 323
Total other income 1,467 1,121 783
OTHER EXPENSES
Salaries and employee benefits 3,186 2,628 2,531
Occupancy expense, net 363 297 298
Furniture and equipment expense 514 318 318
External data processing expense 883 694 479
F.D.I.C. insurance expense 48 22 23
Printing, stationary and supplies 201 132 143
Other expense 2,104 1,133 1,106
Total other expenses 7,299 5,224 4,898
INCOME BEFORE INCOME TAXES 4,687 4,603 4,452
Applicable income taxes 1,388 1,381 1,351
NET INCOME $ 3,299 $ 3,222 $ 3,101
Earnings per share
Basic $ 1.37 $ 1.34 $ 1.29
Diluted 1.36 1.34 1.29
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 financial statements.
</TABLE>
- - 14 -
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
For the three years ended December 31, 1999
Accumulated
Other Total
Common Undivided Comprehensive Stockholders'
Stock Surplus Profits Income/(Loss) Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 4,000 $ 4,000 $19,466 $ 281 $27,747
Comprehensive income:
Net income -- -- 3,101 -- 3,101
Other comprehensive income -- -- -- 111 111
Total comprehensive income -- -- -- -- 3,212
2-for-1 stock split (800,000 shares) 4,000 (4,000) -- -- --
Reduce par value from $5.00 to $2.50 (4,000) 4,000 -- -- --
Cash dividends ($0.53 per share) -- -- (1,280) -- (1,280)
Balance at December 31, 1997 4,000 4,000 21,287 392 29,679
Comprehensive income:
Net income -- -- 3,222 -- 3,222
Other comprehensive loss -- -- -- (46) (46)
Total comprehensive income -- -- -- -- 3,176
Cash dividends ($0.56 per share) -- -- (1,344) -- (1,344)
Balance at December 31, 1998 4,000 4,000 23,165 346 31,511
Comprehensive income:
Net income -- -- 3,299 -- 3,299
Other comprehensive loss -- -- -- (2,528) (2,528)
Total comprehensive income -- -- -- -- 771
Three for two stock split (800,000 shares) 2,000 -- (2,000) -- --
Exercise of stock options (1,695 shares issued) 4 22 -- -- 26
Stock options issued in connection with the acquisition -- 393 -- -- 393
Cash dividends ($0.59 per share) -- -- (1,416) -- (1,416)
Balance at December 31, 1999 $ 6,004 $ 4,415 $23,048 ($ 2,182) $31,285
Cash dividends per share 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 financial statements.
</TABLE>
- - 15 -
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,299 $ 3,222 $ 3,101
Adjustments to reconcile net income to cash and cash
equivalents provided by operating activities:
Decrease/(increase) in interest receivable 150 (47) (9)
Decrease/(increase) in other assets 883 (122) 80
(Decrease)/increase in other liabilities (293) 158 77
Deferred income tax (benefit) expense (70) (24) 62
Depreciation and amortization expense 723 290 296
Net increase in cash surrender value of bank-owned life insurance (101) (107) 0
Amortization of premiums/discounts on securities, net 200 222 129
Net gain on sale of securities (70) (116) (1)
Provision for loan losses 180 220 255
Total adjustments 1,602 474 889
Net cash provided by operating activities 4,901 3,696 3,990
Cash flows from investing activities:
Purchase of investment securities (1,920) (1,267) (8,968)
Purchase of AFS securities (24,306) (65,140) (16,505)
Purchase of FRB and FHLB stock (552) (91) (50)
Proceeds from maturity, paydowns and calls of investment securities 5,851 16,888 6,788
Proceeds from maturity, paydowns and calls of AFS securities 23,582 27,932 18,134
Proceeds from sale of AFS securities 3,880 2,255 254
Net increase in loans (203) (2,868) (12,681)
Purchase of bank-owned life insurance (130) 0 (2,135)
Purchases of premises and equipment, net (252) (357) (56)
Net cash paid in acquisition (10,828) 0 0
Net cash used by investing activities (4,878) (22,648) (15,219)
Cash flows from financing activities:
Net increase in deposits 2,256 18,731 1,232
(Decrease)/increase in securities sold under agreement to repurchase (3,263) 8,522 4,322
Increase in notes payable - FHLB 1,840 4,000 0
Cash dividends paid on common stock (1,416) (1,344) (1,280)
Proceeds from the exercise of stock options 26 0 0
Net cash (used) provided by financing activities (557) 29,909 4,274
Net (decrease) increase in cash and cash equivalents (534) 10,957 (6,955)
Cash and cash equivalents beginning of year 20,364 9,407 16,362
Cash and cash equivalents end of year $19,830 $20,364 $9,407
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $ 9,286 $ 7,757 $ 7,118
Income taxes 1,065 1,394 1,146
Supplemental schedule of noncash investing activities:
Net reduction in loans resulting from the transfer to real estate owned $ 285 $ 37 $ 144
Fair value of non-cash assets acquired in acquisition $65,464 $ 0 $ 0
Fair value of liabilities assumed in acquisition 59,026 0 0
Fair value of stock options issued in acquisition 393 0 0
See accompanying notes to consolidated financial statements.
</TABLE>
- - 16 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CNB Bancorp, Inc. (Company) and City
National Bank and Trust Company (subsidiary Bank) conform to generally
accepted accounting principles in a consistant manner and are in accordance
with the general practices within the banking field. The following is a
summary of the significant policies used in the preparation of the
consolidated financial statements.
BASIS OF PRESENTATION - The Parent Company is a bank holding company whose
principal activity is the ownership of all outstanding shares of the
subsidiary Bank's stock. The subsidiary Bank is a commercial bank providing
community banking services to individuals, small businesses and local
municipal governments in Fulton County and Saratoga County, New York.
Management makes operating decisions and assesses performance based on an
ongoing review of the subsidiary Bank's community banking operations, which
constitute the Company's only operating segment for financial reporting
purposes. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary after elimination of all significant
intercompany transactions. The investment in the subsidiary Bank is carried
under the equity method of accounting.
SECURITIES - Management determines the appropriate classification of
securities at the time of purchase. If management has the positive intent and
ability to hold debt securities to maturity, they are classified as
investment securities and are stated at amortized cost. If securities are
purchased for the purpose of selling them in the near term, they are
classified as trading securities and they are reported at fair value with
unrealized holding gains and losses reflected in current earnings. All other
marketable securities are classified as securities available for sale and are
reported at the fair value, with net unrealized gains or losses reported, net
of income taxes, as a separate component of shareholders' equity. A decline
in the fair value of any security below cost that is deemed other than
temporary is charged to earnings resulting in the establishment of a new cost
basis for the security.
Nonmarketable equity securities such as Federal Reserve Bank stock, and
Federal Home Loan Bank stock, are carried at cost. These investments are
required for membership.
Gains and losses on the disposition of all securities are based on the
adjusted cost of the specific security sold. The adjusted cost of each debt
security sold is determined by taking the stated cost and adjusting for any
amortization of premiums or accretion of discount to the earlier of call or
maturity date. At December 31, 1999 and 1998, the subsidiary Bank did not
have any securities classified as trading securities.
LOANS - Loans are shown at their principal amount outstanding, less any
unearned discount and the allowance for loan losses. Interest income is
accrued on the basis of unpaid principal.
When, in the opinion of management, the collection of interest and/or
principal is in doubt, the loan is categorized as non-accrual. Generally,
loans past due greater than 90 days are categorized as non-accrual.
Thereafter, no interest is taken into income until received in cash or until
such time as the borrower demonstrates the ability to make scheduled payments
of interest and principal.
Management considers a loan to be impaired if, based on current information,
it is probable that the subsidiary Bank will be unable to collect all
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value
of expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market price or
the fair value of collateral if the loan is collateral dependent. Except for
loans restructured in a troubled debt restructuring subsequent to January 1,
1995, management excludes large groups of smaller balance homogeneous loans
such as residential mortgages and consumer loans which are collectively
evaluated. Impairment losses, if any are recorded through a charge to the
provision for loan losses.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is maintained at a
level estimated by management to provide adequately for probable losses
inherent in the loan portfolio. The allowance is increased by provisions for
loan losses charged to operating expense and decreased by loan charge-offs
net of recoveries. Adequacy of the allowance and determination of the amount
to be charged to operating expense are based on an evaluation of the loan
portfolio, its overall composition, size of the individual loans,
concentration by industry, past due and non-accrual loan statistics,
historical loss experience and general economic conditions in the Company's
market area.
While management uses all of the above information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for losses on loans. Such agencies may require the Company to
recognize additions to the allowance based on their judgments of information
available to them at the time of their examination which may not be presently
available.
- - 17 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
OTHER REAL ESTATE OWNED - Included in other assets is other real estate owned
which consists of properties acquired through foreclosure or by acceptance of
a deed in lieu of foreclosure. These assets are recorded at the lower of the
recorded investment in the loan or fair value of the property, less any
estimated costs of disposal. Loan losses arising from the acquisition of such
assets are charged to the allowance for loan losses and subsequent valuation
write-downs are charged to non-interest expense. Operating costs associated
with the properties are charged to expense as incurred. Gains on the sale of
other real estate owned are included in income when title has passed and the
sale has met the minimum down payment requirements prescribed by generally
accepted accounting principles.
BANK PREMISES AND EQUIPMENT - These assets are reported at cost less
accumulated depreciation. Depreciation is charged to operating expense over
the useful lives of the assets using the straight line method. Maintenance
and repairs are charged to operating expense as incurred.
GOODWILL - Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired for transactions accounted for using
purchase accounting. Goodwill is being amortized over fifteen years using the
straight-line method. Accumulated amortization of goodwill amounted to
approximately $185,000 at December 31, 1999. Goodwill is periodically
reviewed by management to assess recoverability, and impairment if any, is
recognized as a charge to income if a permanent loss in value is indicated.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
Company's policy is that deferred tax assets are reduced by a valuation
reserve if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will be realized. In
considering if it is more likely than not that some or all of the deferred
tax assets will be realized, the Company considers temporary taxable
differences, historical taxes and estimates of future taxable income.
EARNINGS PER COMMON SHARE - Basic earnings per share ("EPS") is computed by
dividing income available to common stockholders (net income less dividends
on perferred stock, if any) by the weighted average number of common shares
outstanding for the period. Entities with complex capital structures must
also present diluted EPS which reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted into common shares that then shared in the earnings of the
entity, such as the Company's stock options.
Basic earnings per common share were computed based on average outstanding
common shares of 2,400,301 in 1999 and 2,400,000 in 1998 and 1997,
respectively. Diluted earnings per common share were computed based on
average outstanding common shares of 2,423,481 in 1999, 2,400,885 in 1998 and
2,400,000 in 1997. Share amounts have been adjusted to reflect the 3 for 2
stock split effected through the 50% stock dividend declared in July 1999.
DIVIDEND RESTRICTIONS - Certain restrictions exist regarding the ability of
the subsidiary Bank to transfer funds to the Company in the form of cash
dividends. The approval of the Comptroller of the Currency is required to pay
dividends in excess of the subsidiary Bank's earnings retained in the current
year plus retained net profits, as defined, for the preceding two years.
TRUST ASSETS - Assets held in fiduciary or agency capacities for customers of
the subsidiary Bank are not included in the accompanying consolidated
statements of condition as such assets are not assets of the subsidiary Bank.
Trust assets under management totaled $25.0 million as of December 31, 1999.
CASH FLOWS - Cash and cash equivalents as shown in the consolidated
statements of condition and consolidated statements of cash flows consists of
cash, due from banks and federal funds sold.
FINANCIAL INSTRUMENTS - The Company is a party to certain financial
instruments with off-balance sheet risk, such as commitments to extend
credit, unused lines of credit, standby letters of credit and commercial
letters of credit. The Company's policy is to record such instruments when
funded.
USE OF ESTIMATES - The preparation of the consolidated financial statements,
in conformity with generally accepted accounting principles, requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
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 report-
- - 18 -
<PAGE>
ing 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 years beginning after June 15, 2000. Management is currently
evaluating the impact of this Statement on the Company's consolidated
financial statements.
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 issue 35,624 stock options to purchase CNB
Bancorp, Inc. stock at an exercise price of $15.22 per share. The estimated
fair value of these options as of the acquisition date was $11.04 per share.
The issuance of these options was included in the computation of goodwill,
with the offsetting increase to surplus.
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 and is generally not
deductible for tax purposes. 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.
RECLASSIFICATIONS - Amounts in the prior years' financial statements are
reclassified, whenever necessary, to conform to the presentation in the
current year's financial statements.
Note 2: RESERVE REQUIREMENTS
The subsidiary Bank is required to maintain certain reserves of cash and/or
deposits with the Federal Reserve Bank. The amount of this reserve
requirement, included in cash and cash equivalents, was approximately
$2,782,000 and $1,094,000 at December 31, 1999 and 1998, respectively.
Note 3: SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of securities available for sale as of December 31 are
as follows (in thousands):
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt securities available for sale:
U.S. Treasury securities $ 4,003 $ 0 $ 24 $ 3,979
Obligations of U.S. Government agencies 64,466 32 2,554 61,944
Collateralized mortgage obligations:
U.S. Government agencies 12,653 3 613 12,043
Corporate securities 3,003 3 36 2,970
Obligations of states and political subdivisions 13,248 110 495 12,863
Total debt securities available for sale 97,373 148 3,722 93,799
Equity securities available for sale:
Corporate securities 50 0 0 50
Total equity securities available for sale 50 0 0 50
Total securities available for sale $97,423 $148 $3,722 $93,849
</TABLE>
- - 19 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt securities available for sale:
U.S. Treasury securities $ 7,015 $ 20 $ 0 $ 7,035
Obligations of U.S. Government agencies 49,658 243 100 49,801
Collateralized mortgage obligations:
U.S. Government agencies 18,071 66 108 18,029
Corporate securities 3,351 44 0 3,395
Obligations of states and political subdivisions 10,485 420 8 10,897
Total debt securities available for sale $88,580 $793 $216 $89,157
</TABLE>
The amortized cost and estimated fair value of debt securities available for
sale at December 31, 1999, by contractual maturity, are shown in the
accompanying table (in thousands). Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties. Mortgage backed
securities are included in this schedule based on the contractual maturity date.
Amortized Estimated
Cost Fair Value
Due in one year or less $ 8,625 $ 8,617
Due after one year through five years 12,287 12,128
Due after five year through ten years 29,056 27,810
Due after ten years 47,405 45,244
Total debt securities available for sale $97,373 $93,799
Proceeds from sales of securities available for sale during 1999, 1998 and
1997 were $3,880,000, $2,255,000 and $254,000, respectively. Gross gains in
1999, 1998 and 1997 were $70,000, $116,000 and $1,000, respectively. There
were no losses on sales during 1999, 1998 and 1997.
The fair value of all securities available for sale pledged to secure public
deposits and for other purposes as required or permitted by law at December
31, 1999 and 1998 were $72,129,000 and $61,543,000, respectively. Actual
deposits secured by these securities at December 31, 1999 and 1998 were
$46,861,000 and $20,197,000, respectively. Repurchase agreements secured by
these securities at December 31, 1999 and 1998 were $9,581,000 and
$12,844,000, respectively.
Note 4: INVESTMENT SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of investment securities as of December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of U.S. Government agencies $ 2,269 $ 1 $54 $ 2,216
Obligations of states and political subdivisions 11,174 254 33 11,395
Total investment securities $13,443 $255 $87 $13,611
</TABLE>
<TABLE>
<CAPTION> 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of U.S. Government agencies $ 6,105 $ 73 $0 $ 6,178
Obligations of states and political subdivisions 11,292 659 4 11,947
Total investment securities $17,397 $732 $4 $18,125
</TABLE>
- - 20 -
<PAGE>
The amortized cost and estimated fair value of investment securities at
December 31, 1999, by contractual maturity, are shown in the accompanying
table (in thousands). Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
Due in one year or less $ 2,700 $ 2,712
Due after one year through five years 6,295 6,468
Due after five year through ten years 3,813 3,814
Due after ten years 635 617
Total investment securities $13,443 $13,611
The amortized cost of all investment securities pledged to secure public
deposits and for other purposes as required or permitted by law at December
31, 1999 and 1998 were $8,792,000 and $13,123,000, respectively. Actual
deposits secured by these securities at December 31, 1999 and 1998 were
$7,508,000 and $9,092,000, respectively.
Note 5: LOANS
Loans on the accompanying consolidated statement of financial condition are
comprised of the following at December 31 (in thousands):
1999 1998
Commercial and Commercial Real Estate $ 37,868 $ 35,877
Residential Real Estate 90,780 46,423
Installment 55,137 49,727
Total loans $183,785 $132,027
Non-accrual loans at December 31, 1999, 1998 and 1997 were $1,507,000,
$280,000 and $283,000, respectively. The difference between the interest
collected on these loans and recognized as income, and the amounts which
would have been accrued is not significant. There were loans ninety days past
due and still accruing interest of $108,000, $249,000 and $88,000 as of
December 31, 1999, 1998 and 1997, respectively.
In the ordinary course of business, the subsidiary Bank has made loans to
certain directors and executive officers of the Company and the subsidiary
Bank, and other related parties. Such transactions are on substantially the
same terms, including interest rates and collateral on loans, as comparable
transactions made to others. Total loans to these persons and companies on
December 31, 1999 and 1998 amounted to $4,085,000 and $2,231,000,
respectively. During 1999, $17,852,000 of new loans were made and repayments
totaled $15,998,000.
As of December 31, 1999 and 1998, respectively, there were $1,507,000 and
$276,000 of commercial loans that were placed on non-accrual status and were
classified as impaired loans. As of December 31, 1999 and 1998, $300,000 and
$55,000 of the allowance for loan losses was allocated to the impaired loans,
respectively. During 1999, 1998 and 1997, the average balance of impaired
loans was $275,000, $270,000, and $498,000, respectively. Interest income of
$2,000, $6,000 and $10,000 was recognized on impaired loans during 1999, 1998
and 1997, respectively.
The subsidiary Bank's primary business area consists of the Counties of
Fulton and Saratoga and, therefore, there are certain concentrations of loans
and loan commitments within that geographic area. Accordingly, a substantial
portion of its debtors' ability to honor their contracts is dependent upon
the economy of this region. At December 31, 1999 and 1998, the only area of
industry concentration that existed within the subsidiary Bank's commitments
were to the leather and leather-related industries. Outstanding commitments
to this segment were $4.4 million as of December 31, 1999 and $4.2 million as
of December 31, 1998. These figures represent 14.7% and 16.7% of the total
commitments outstanding at the end of each respective year. Loans outstanding
to this segment were $4.1 million as of December 31, 1999 and $5.6 million as
of December 31, 1998. These figures represent 2.2% and 4.2% of gross loans
outstanding at the end of each respective year.
Note 6: ALLOWANCE FOR LOAN LOSSES
A summary of the changes in the allowance for loan losses is as follows (in
thousands):
1999 1998 1997
Balance at beginning of year $1,580 $1,492 $1,620
Provision charged to income 180 220 255
Loans charged off (281) (149) (404)
Recoveries of loans charged off 51 17 21
Merger-related acquisition 1,167 0 0
Balance at end of year $2,697 $1,580 $1,492
- - 21 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7: BANK PREMISES AND EQUIPMENT
Premises and equipment at December 31 (in thousands), 1999 1998
Land $ 687 $ 604
Bank Premises 3,168 2,285
Equipment, furniture and fixtures 2,508 2,041
6,363 4,930
Less: Accumulated depreciation and amortization (2,813) (2,355)
Total bank premises and equipment $3,550 $2,575
Depreciation and amortization expense amounted to $464,000, $290,000, and
$296,000 for the years 1999, 1998 and 1997, respectively.
Note 8: DEPOSITS
The approximate amount of contractual maturities of time deposit accounts for
the years subsequent to December 31, 1999 are as follows (in thousands):
Years ended December 31,
2000 $ 82,212
2001 28,276
2002 2,754
2003 2,604
2004 1,846
$117,692
Note 9: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For the years ended December 31, 1999 and 1998, the average balance of
Securities Sold Under Agreements to Repurchase was $11,550,000 and
$10,225,000, respectively. The highest month end balances for these
securities during 1999 and 1998 were $12,878,000 and $12,844,000,
respectively. The average rate paid for these securities during 1999 and 1998
was 5.29% and 5.32%, respectively.
The underlying securities associated with customer repurchase agreements are
under the control of the subsidiary Bank. The underlying securities
associated with repurchase agreements with the Federal Home Loan Bank and
brokerage firms are held in collateral accounts for our account until
maturity of the agreements.
Note 10: NOTES PAYABLE - FEDERAL HOME LOAN BANK
In fiscal 1999, the subsidiary Bank began using convertible and floating rate
fixed term advances and monthly amortizing fixed rate advances from the
Federal Home Loan Bank, as a source of funds. The subsidiary Bank also
acquired monthly amortizing fixed rate advances as a result of the merger
with Adirondack. Information on the borrowings is summarized as follows (in
thousands):
Convertible and Floating Rate Fixed Term Advances
Interest Rate as
Maturity Date Amount of 12/31/99 Call Date
02/16/2000 $ 500 5.290%
12/08/2003 1,000 4.870 12/07/2001
02/03/2004 1,000 4.800 02/03/2001
10/23/2008 2,000 4.355 10/23/2000
11/28/2003* 1,000 6.140
02/05/2004* 1,000 6.255
*These borrowings are non-callable but retain a quarterly repricing frequency
to the current 3-month LIBOR rate plus 4 and 10 basis points, respectively.
The interest on the November 28, 2003 borrowing is calculated on an
actual/365-day basis and is payable monthly to the Federal Home Loan Bank.
The interest on the February 5, 2004 borrowing is calculated on an
actual/360-day basis and is payable quarterly to the Federal Home Loan Bank.
- - 22 -
<PAGE>
Monthly Amortizing Fixed Rate Advances
Balance at Interest Rate as
Maturity Date 12/31/1999 of 12/31/99
10/28/2003 $322 5.038%
11/10/2003 821 5.412
10/28/2005 347 5.228
10/28/2008 183 5.436
These borrowings call for monthly payments of principal and interest of
approximately $35,000 per month. Interest on these advances is calculated on
a 30/360 day basis.
At December 31, 1999 and 1998, the subsidiary Bank had available lines of
credit with correspondent banks and the Federal Home Loan Bank of $99,472,000
and $80,670,000, respectively. Advances on these lines are secured by the
subsidiary Bank's real estate mortgages, investment securities, available for
sale securities and Federal Home Loan Bank stock. At December 31, 1999 and
1998, advances outstanding on these lines with the Federal Home Loan Bank
were $8,173,000 and $4,000,000, respectively.
Note 11: EMPLOYEE BENEFIT PLANS
Pension Plan - The subsidiary Bank is a member of the New York State Bankers
Retirement System and offers a non-contributory defined benefit retirement
plan to substantially all full-time employees. Benefit payments to retired
employees are based upon their length of service and percentages of average
compensation during the final three to five years of employment.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future.
Assets of the plan are primarily invested in equity and debt securities.
The following table sets forth the plan's funded status as of a September 30
measurement date, and the amounts recognized in the accompanying consolidated
financial statements (in thousands).
1999 1998
Change in projected benefit obligation:
Projected benefit obligation at beginning of year $2,943 $2,590
Service cost 147 140
Expenses (28) (37)
Interest cost 202 196
Benefits paid (137) (123)
Assumption changes and other 125 177
Projected benefit obligation at end of year 3,252 2,943
Change in plan assets:
Fair value of plan assets at beginning of year 3,479 3,339
Actual return on plan assets 542 141
Employer contribution 167 159
Benefits paid (137) (123)
Expenses (28) (37)
Fair value of plan assets at end of year 4,023 3,479
Funded status 771 536
Unrecognized net actuarial loss/(gain) (58) 68
Unrecognized prior service cost (20) (23)
Unrecognized transition asset (3) (4)
Prepaid pension cost $ 690 $ 577
Weighted average assumptions as of September 30
Discount rate 7.50% 7.00%
Rate of compensation increase 4.00 4.00
Expected return on plan assets 7.50 8.50
Components of net periodic pension cost: 1999 1998 1997
Service cost $147 $140 $123
Interest cost 202 196 176
Expected return on plan assets (292) (280) (228)
Amortization of unrecognized prior service cost (2) (2) (2)
Amortization of unrecognized transition asset (1) 0 0
Net periodic pension cost $ 54 $ 54 $ 69
- - 23 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The subsidiary Bank has a Supplemental Executive Retirement Plan for key
management personnel. The subsidiary Bank's expense for the years ended
December 31, 1999, 1998 and 1997 was approximately $59,000, $57,000, and
$55,000, respectively.
The subsidiary Bank has also established a Supplemental Life Insurance
Plan/Split Dollar for all officers, vice president and above, with at least
ten years of service to the Company. Under the terms of this plan, upon the
death of a participant, the beneficiary receives an amount equal to three
times the final year's salary of the participant. The subsidiary Bank
invested approximately $130,000 in 1999 and $2,135,000 in 1997 as a funding
source for this plan and is receiving an annual tax-free return.
Profit Sharing Plan - The subsidiary Bank has a non-contributory deferred
profit sharing plan under which discretionary contributions are made by the
subsidiary Bank to a separate trust for the benefit of the subsidiary Bank's
participating employees. Annual contributions to the plan are determined by
the board of directors of the subsidiary Bank. Contributions are accrued
during the year and are distributed December 31st of each year. The
subsidiary Bank's contribution to the plan for 1999, 1998 and 1997 was
$130,000, $108,000 and $102,000, respectively.
Other than certain life insurance benefits which are provided to a closed
group of retirees, the Company does not provide post-retirement benefits to
employees. The costs associated with the life insurance to the closed group
of retirees is not significant in 1999, 1998 or 1997.
Note 12: STOCK BASED COMPENSATION
On October 20, 1998, the Company's shareholders approved the CNB Bancorp,
Inc. Stock Option Plan (Stock Option Plan) which permits the issuance of
options to selected employees. The primary objective of the Stock Option Plan
is to provide employees with a proprietary interest in the Company and as an
incentive to encourage such persons to remain with the Company.
Under the Stock Option Plan, 240,000 shares of authorized but unissued common
stock are reserved for issuance upon option exercises. The Company also has
the alternative to fund the Stock Option Plan with treasury stock. Options
under the plan may be either non-qualified stock options or incentive stock
options. Each option entitles the holder to purchase one share of common
stock at an exercise price equal to the fair market value on the date of the
grant. Options expire no later than ten years following the date of the
grant.
On October 26, 1998, 98,250 options were awarded at an exercise price of
$23.67 per share. These options have a ten-year term with fifty percent
vesting immediately and the remaining fifty percent vesting one year from the
grant date. On April 20, 1999, 105,900 options were awarded at an exercise
price of $26.25 per share. These options have a ten-year term with fifty
percent vesting one year from the grant date and the remaining fifty percent
vesting two years from the grant date.
On June 1, 1999, 35,624 options to purchase CNB Bancorp, Inc. stock were
issued to certain holders of Adirondack Financial Services Bancorp, Inc.
options under the terms of the merger agreement. These options have a
ten-year term expiring in October 2008, ten years from the date of the
original grant by Adirondack, and vest at a rate of 20% per year beginning in
October 1999. The exercise price of these options is $15.22 per share. The
estimated fair value of these options was $11.04 per share. The issuance of
these options was included in the computation of goodwill, with the
offsetting increase to surplus.
A summary of the status of the Company's stock option plans as of December
31, 1999 and 1998 and changes during the year is presented below:
<TABLE>
<CAPTION>
1999 1998
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C>
Options:
Outstanding at beginning of year 98,250 $23.67 0 $ .00
Granted 105,900 26.25 98,250 23.67
Issued in acquisition 35,624 15.22 0 .00
Exercised (1,695) 15.22 0 .00
Cancelled 0 .00 0 .00
Outstanding at year-end 238,079 23.61 98,250 23.67
Exercisable at year-end 103,680 $23.23 49,125 $23.67
</TABLE>
The following table summarizes information about the Company's stock options
at December 31, 1999:
Weighted Average
Exercise Remaining
Price Outstanding Contract Life Exercisable
23.67 98,250 8.8 years 98,250
26.25 105,900 9.3 years 0
15.22 33,929 8.7 years 5,430
238,079 103,680
- - 24 -
<PAGE>
Companies not using a fair value based method of accounting for employee
stock options or similar plans must provide pro forma disclosure of net
income and earnings per share as if that method of accounting had been
applied. The fair value of each option grant, excluding the options granted
in connection with the acquisition of Adirondack, is estimated on the date of
the grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 1999 and 1998:
dividend yield of 2.16% and 2.25%, respectively; expected volatility of 15.0%
and 25.0%, respectively; risk free interest rate of 5.54% and 5.15%,
respectively; and an expected life of five years for grants awarded in both
years. Based on the aforementioned assumptions, the Company has estimated
that the fair value of the options granted on April 20, 1999 was $5.04 and
the options granted on October 26, 1998 was $5.89. Had the Company determined
compensation cost based on the fair value at the grant dates for these
options, the pro forma disclosures for the Company for the years ending
December 31, 1999 and 1998 would be as follows (in thousands, except per
share data):
1999 1998
Net income:
As reported $3,299 $3,222
Pro forma 2,917 3,001
Basic earnings per share:
As reported 1.37 1.34
Pro forma 1.22 1.25
Diluted earnings per share:
As reported 1.36 1.34
Pro forma 1.20 1.25
Because the Company's employee stock options have characteristics
significantly different from those of traded options for which the
Black-Scholes model was developed, and because changes in the subjective
input assumptions can materially affect the fair value estimate, the existing
models, in management's opinion, do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Note 13: INCOME TAXES
The following is a summary of the components of income tax expense for the
years ended December 31 (in thousands):
1999 1998 1997
Current tax expense:
Federal $1,152 $1,062 $ 965
State 306 343 324
Total current tax expense 1,458 1,405 1,289
Deferred tax expense (benefit):
Federal 22 (30) 51
State (92) 6 11
Total deferred tax expense (benefit) (70) (24) 62
Provision for income taxes $1,388 $1,381 $1,351
The provision for income taxes is less than the amount computed by applying
the U.S. Federal income tax rate of 34% to income before taxes as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $1,594 34.0% $1,565 34.0% $1,514 34.0%
Increase (decrease) resulting from:
Tax-exempt interest income (438) (9.3) (429) (9.3) (443) (9.9)
State tax expense, net of federal deductions 125 2.7 224 4.9 215 4.8
Elimination of valuation allowance (163) (3.5) -- -- -- --
Interest expense incurred to carry
tax-exempt bonds 51 1.1 49 1.1 47 1.1
Amortization of goodwill 58 1.2 -- -- -- --
Other 161 3.4 (28) (0.6) 18 0.4
Provision for income taxes $1,388 29.6% $1,381 30.1% $1,351 30.4%
</TABLE>
- - 25 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Significant temporary differences that give rise to the deferred tax assets
and liabilities as of December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,089 $680
Director's deferred compensation 9 9
Post-retirement benefits 109 88
Purchase accounting adjustments 154 0
Loan fees (FASB 91) 28 0
Total gross deferred tax assets 1,389 777
Less valuation allowance 0 (163)
Net deferred tax assets 1,389 614
Deferred tax liabilities:
Premises and equipment, primarily due to accelerated depreciation (98) (76)
Securities discount accretion (37) (34)
Prepaid pension obligation (269) (230)
Purchase accounting adjustments (199) 0
Total gross deferred tax liabilities (603) (340)
Net deferred tax asset end of year 786 274
Net deferred tax asset beginning of year 274 250
(512) (24)
Initial deferred tax liability for purchase accounting adjustments (45) 0
Net deferred tax asset acquired with acquisition 487 0
Deferred tax benefit ($70) ($24)
</TABLE>
In addition to the deferred tax assets and liabilities described above, the
Company also has a deferred tax asset of $1,392,000 at December 31, 1999 and
a deferred tax liability of $230,000 at December 31, 1998 relating to the net
unrealized loss on securities available for sale as of December 31, 1999 and
the net unrealized gain on securities available for sale as of December 31,
1998.
Deferred tax assets are recognized subject to management's judgement that
realization is more likely than not. In considering if it is more likely than
not that some or all of the deferred tax assets will not be realized, the
Company considers temporary taxable differences, historical taxes and future
taxable income. The valuation allowance of $0 and $163,000 as of December 31,
1999 and 1998, respectively, relates to New York State deferred tax assets.
The elimination of the valuation reserve in 1999 is primarily the result of a
reduction of the New York State deferred tax asset caused by the enactment of
legislation in 1999 which lowered the state tax rate for banks. Based
primarily on the sufficiency of historical taxable income, management
believes it is more likely than not that the remaining net deferred tax asset
at December 31, 1999 and 1998 will be realized.
Note 14: COMPREHENSIVE INCOME
Comprehensive income represents the sum of net income and items of "other
comprehensive income" which are reported directly in stockholders' equity,
such as the net unrealized gain or loss on securities available for sale. The
Company has reported its comprehensive incomes for 1999, 1998 and 1997 in the
consolidated statements of changes in stockholders' equity.
The Company's accumulated other comprehensive income, which is included in
stockholders' equity, represents the after-tax net unrealized gain/(loss) on
securities available for sale at the consolidated balance sheet date. The
Company's other comprehensive income, which is attributable to gains and
losses on securities available for sale, consisted of the following
components for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net unrealized holding gains (losses) arising during the year,
net of taxes of $1,650 in 1999, ($16) in 1998 and ($73) in 1997 ($2,486) $23 $112
Reclassification adjustment for net realized gains included in
income, net of taxes of $28 in 1999, $47 in 1998 and $0 in 1997 (42) (69) (1)
Other comprehensive income (loss), net of taxes of $1,622 in 1999,
$31 in 1998 and ($73) in 1997 ($2,528) ($46) $111
</TABLE>
- - 26 -
<PAGE>
Note 15: COMMITMENTS AND CONTINGENT LIABILITIES
Various commitments and contingent liabilities arise in the normal conduct of
the subsidiary Bank's business that include certain financial instruments
with off-balance sheet risk to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, unused
lines of credit, standby letters of credit and commercial letters of credit.
Those instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized on the consolidated statements of financial
condition. The contract amounts of those instruments reflect the extent of
involvement the subsidiary Bank has in particular classes of financial
instruments. The subsidiary Bank's exposure to credit loss in the event of
nonperformance by the other party to the commitments to extend credit, unused
lines of credit, standby letters of credit and commercial letters of credit
are represented by the contractual notional amount of those instruments. The
subsidiary Bank uses the same credit policies in making commitments as it
does for on-balance sheet instruments.
Contract amounts of financial instruments that represent credit risk as of
December 31, 1999 and 1998 at fixed and variable rates are as follows (in
thousands):
1999
Commitment and unused lines of credit: Fixed Variable Total
Home equity loans $ 0 $ 4,414 $ 4,414
Commercial loans 4,166 18,355 22,521
Overdraft loans 1,296 0 1,296
Mortgage loans 1,276 0 1,276
6,738 22,769 29,507
Standby & Commercial letters of credit 0 444 444
Total commitments $6,738 $23,213 $29,951
1998
Commitment and unused lines of credit: Fixed Variable Total
Home equity loans $ 0 $ 4,678 $ 4,678
Commercial loans 137 18,064 18,201
Overdraft loans 1,256 0 1,256
Mortgage loans 900 0 900
2,293 22,742 25,035
Standby & Commercial letters of credit 0 85 85
Total commitments $2,293 $22,827 $25,120
Commitments to extend credit and unused lines of credit are agreements to
lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being fully drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The subsidiary Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral, if any, required by the
subsidiary Bank upon the extension of credit is based on management's credit
evaluation of the customer. Mortgage and Home Equity loan commitments are
secured by a lien on real estate. Collateral on extensions of credit for
commercial loans varies but may include accounts receivable, inventory,
property, plant and equipment, and income producing property.
Standby and Commercial letters of credit are conditional commitments issued
by the subsidiary Bank to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support borrowing
arrangements. The credit risk involved in issuing standby letters of credit
and commercial letters of credit is essentially the same as that involved in
extending loan facilities to customers.
The Company and its subsidiary may, from time to time, be defendants in legal
proceedings relating to the conduct of their business. In the best judgements
of management, the consolidated financial position of the Company and its
subsidiary Bank would not be affected materially by the outcome of any
pending legal procedures.
Note 16: REGULATORY CAPITAL REQUIREMENTS
National banks are required to maintain minimum levels of regulatory capital
in accordance with regulations of the Office of the Comptroller of the
Currency ("OCC"). The Federal Reserve Board ("FRB") imposes similar
requirements for consolidated capital of bank holding companies. The OCC and
FRB regulations require a minimum leverage ratio of Tier 1 capital to total
adjusted average assets of 3.0% to 4.0% depending on the institution and
minimum ratios of Tier 1 and total capital to risk-weighted assets of 4.0%
and 8.0%, respectively.
Under its prompt corrective action regulations, the OCC is required to take
certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized bank. Such actions could have a direct
material effect on a bank's financial statements. The regulations establish a
framework for the classification of banks into five categories: well
capitalized,
- - 27 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. Generally, a bank is considered well capitalized
if it has a leverage (Tier 1) capital ratio of at least 5.0%; (based on total
adjusted average assets); a Tier 1 risk-based capital ratio of at least 6.0%;
and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgements by the regulators
about capital components, risk weightings and other factors.
As of December 31, 1999 and 1998, the Company and the subsidiary Bank met all
capital adequacy requirements to which they are subject. Further, the most
recent OCC notification categorized the subsidiary Bank as a well-capitalized
bank under the prompt corrective action regulations. There have been no
conditions or events since that notification that management believes have
changed the subsidiary Bank's capital classification.
The following is a summary of the actual capital amounts and ratios as of
December 31, 1999 and 1998 for the Company (consolidated) and the subsidiary
Bank (in thousands):
1999 1998
Amount Ratio Amount Ratio
Consolidated
Leverage (Tier 1) capital $28,935 9.3% $31,165 12.5%
Risk-based capital:
Tier 1 28,935 17.4 31,165 23.4
Total 31,019 18.7 32,745 24.6
Subsidiary Bank
Leverage (Tier 1) capital $28,771 9.3% $31,158 12.5%
Risk-based capital:
Tier 1 28,771 17.3 31,158 23.4
Total 30,855 18.6 32,738 24.6
Note 17: PARENT COMPANY ONLY FINANCIAL INFORMATION
The following presents the financial condition of the Parent Company as of
December 31, 1999 and 1998 and the results of its operations and cash flows
for the years ended December 31, 1999, 1998 and 1997 (in thousands):
CONDENSED STATEMENTS OF CONDITION (Parent only)
At December 31,
1999 1998
ASSETS
Cash $ 114 $ 7
Securities available for sale, at fair value 50 0
Investment in subsidiary 31,121 31,504
Total assets $31,285 $31,511
STOCKHOLDERS' EQUITY
Common stock $ 6,004 $ 4,000
Surplus 4,415 4,000
Undivided profits 23,048 23,165
Accumulated other comprehensive (loss)/income (2,182) 346
Total stockholders' equity 31,285 31,511
Total liabilities and stockholders' equity $31,285 $31,511
CONDENSED STATEMENTS OF INCOME (Parent only)
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Income:
Dividends from subsidiary $16,214 $1,344 $1,290
Expenses:
Other expense 3 3 6
Income before income taxes and distributions in excess of equity in undistributed net
income of subsidiary 16,211 1,341 1,284
Income tax benefit 0 1 2
Income before distribution in excess of equity in undistributed net income of subsidiary 16,211 1,342 1,286
(Distribution in excess of) equity in undistributed net income of subsidiary (12,912) 1,880 1,815
Net income $ 3,299 $3,222 $3,101
</TABLE>
- - 28 -
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS (Parent only)
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,299 $ 3,222 $ 3,101
Distributions in excess of (equity in) undistributed
earnings of subsidiary 12,912 (1,880) (1,815)
Net cash provided by operating activities 16,211 1,342 1,286
Cash flows from investing activities:
Purchase of Adirondack Financial Service Bancorp, Inc. (14,714) 0 0
Net cash used by investing activities (14,714) 0 0
Cash flows from financing activities:
Proceeds from the exercise of stock options 26 0 0
Payment of dividends (1,416) (1,344) (1,280)
Net cash used by financing activities (1,390) (1,344) (1,280)
Net increase (decrease) in cash 107 (2) 6
Cash beginning of year 7 9 3
Cash end of year $ 114 $ 7 $ 9
</TABLE>
Note 18: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
A financial instrument is defined as cash, evidence of ownership interest in
an entity, or a contract that imposes on one entity a contractual obligation
to deliver cash or another financial instrument to a second entity or to
exchange other financial instruments on potentially unfavorable terms with a
second entity and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity or to
exchange other financial instruments on potentially favorable terms with the
first entity.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the subsidiary Bank's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the subsidiary Bank's financial instruments, fair value estimates
are based on judgments regarding future expected net cash flows, current
economic conditions, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
Fair value estimates are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the net deferred tax asset
and premises and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in the estimates of fair
value. In addition, there are significant intangible assets that the fair
value estimates do not recognize, such as the value of "core deposits", the
subsidiary Bank's branch network, trust relationships and other items
generally referred to as "goodwill".
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument.
Cash and Cash Equivalents
For these short-term instruments, carrying value approximates fair value.
Securities Available for Sale & Investment Securities
The fair value of securities available for sale and investment securities,
except certain state and municipal securities, is estimated on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of certain state and municipal securities is not
readily available through market sources other than dealer quotations, so
fair value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments and the
instruments being valued. The estimated fair value of stock in the Federal
Reserve Bank and Federal Home Loan Bank is assumed to be its cost given the
lack of a public market for these investments.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, consumer,
and real estate. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and nonperforming
categories.
The fair value of performing loans is calculated by discounting scheduled
cash flows through the contractual estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the
loan. The estimate of maturity is based on the term of the loans to maturity,
adjusted for estimated prepayments.
- - 29 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair value for nonperforming loans is based on recent external appraisals and
discounting of cash flows. Estimated cash flows are discounted using a rate
commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific
borrower information.
Accrued Interest Receivable
For accrued interest receivable, a short-term instrument, carrying value
approximates fair value.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, NOW accounts and money market accounts is
estimated to be the amount payable on demand. The fair value of certificates
and time deposits is based on the discounted value of contractual cash flows.
The discount rate is estimated using the rates currently offered for deposits
of similar remaining maturities. These fair value estimates do not include
the benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market.
Securities Sold Under Agreements to Repurchase
For these short-term instruments that mature in one day through ninety days,
carrying value approximates fair value. For these instruments that mature in
more than ninety days the fixed borrowing rate is compared to rates for
similar advances and a premium or discount calculated.
Notes Payable - Federal Home Loan Bank
For these instruments that mature in more than ninety days the current
borrowing rate is compared to rates for similar advances and a premium or
discount calculated.
Accrued Interest Payable
For accrued interest payable, a short-term instrument, carrying value
approximates fair value.
Commitments to Extend Credit, Standby and Commercial Letters of Credit,
and Financial Guarantees Written
The fair value of commitments to extend credit and unused lines of credit is
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed rate loan commitments, fair
value also considers the difference between current levels of interest rates
and the committed rates. The fair value of financial guarantees written and
letters of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. Fees, such as these are not a major part
of the subsidiary Bank's business and in the subsidiary Bank's business
territory are not a "normal business practice". Therefore, based upon the
above facts it is stated that book value equals fair value and the amounts
are not significant.
Financial Instruments
The estimated fair values of the Company's financial instruments at December
31 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 19,830 $ 19,830 $ 20,364 $ 20,364
Securities available for sale<F1> 95,837 95,837 90,132 90,132
Investment securities 13,443 13,611 17,397 18,125
Loans (net of unearned income) 172,413 168,254 121,837 122,552
Less allowance for loan losses 2,697 0 1,580 0
Net loans 169,716 168,254 120,257 122,552
Accrued interest receivable 1,745 1,745 1,460 1,460
Financial Liabilities:
Deposits
Non-interest bearing demand $ 25,671 $ 25,671 $ 23,268 $ 23,268
Savings, NOW and money market 121,717 121,717 90,934 90,934
Certificates of deposit and other time 117,692 118,221 92,184 92,607
Total deposits 265,080 265,609 206,386 206,809
Securities sold under agreements to repurchase 9,581 9,531 12,844 13,004
Notes Payable - FHLB 8,173 8,058 4,000 3,989
Accrued interest payable 334 334 351 351
<FN>
<F1>Includes investments required for membership in FRB and FHLB.
</FN>
</TABLE>
- - 30 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders of CNB Bancorp, Inc.:
We have audited the accompanying consolidated statements of condition of CNB
Bancorp, Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1999. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNB
Bancorp, Inc. and subsidiary at December 31, 1999 and 1998, the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Albany, N.Y.
February 4, 2000
- - 31 -
<PAGE>
DESCRIPTION OF BUSINESS
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
Bank and the Office of the Comptroller of the Currency.
MARKET AND DIVIDEND INFORMATION
CNB BANCORP, INC.
The common capital stock - $2.50 par value is the only registered security of
the Company and is inactively traded. The range of prices of this security
known to management based on records of the Company and as supplied by Ryan,
Beck and Co. on a quarterly basis and the quarterly cash dividends paid for
the most recent two years are shown below.
1999 1998
Bid Asked Bid Asked
High Low High Low High Low High Low
First Quarter 27.34 24.83 28.67 27.34 23.67 22.33 24.67 23.33
Second Quarter 28.67 25.67 28.67 25.67 24.67 23.67 25.33 24.67
Third Quarter 28.50 26.67 28.75 27.08 24.67 24.00 25.67 25.00
Fourth Quarter 28.50 26.25 29.25 26.50 25.00 23.67 25.67 25.00
Cash dividends paid - per share
1999 1998
First Quarter $0.146 $0.140
Second Quarter 0.147 0.140
Third Quarter 0.147 0.140
Fourth Quarter 0.150 0.140
Total cash dividends per share $0.590 $0.560
Number of shareholders on December 31 700 694
Share amounts have been adjusted to reflect the 3 for 2 stock split effected
through the 50% stock dividend declared in July 1999.
A copy of Form 10K (Annual Report) for 1999, filed with the Securities and
Exchange Commission by the Company, is available to shareholders free of
charge by written request to:
George A. Morgan, Vice President and Secretary
CNB Bancorp, Inc., 10-24 N. Main Street, P.O. Box 873, Gloversville, NY 12078
- - 32 -
<PAGE>
CNB BANCORP, INC.
OFFICERS
WILLIAM N. SMITH, CHAIRMAN OF THE BOARD AND PRESIDENT
GEORGE A. MORGAN, VICE-PRESIDENT AND SECRETARY
MICHAEL J. FRANK, TREASURER
BRIAN R. SEELEY, AUDITOR
CITY NATIONAL BANK & TRUST COMPANY
OFFICERS
ADMINISTRATION
WILLIAM N. SMITH, CHAIRMAN OF THE BOARD AND PRESIDENT
GEORGE A. MORGAN, EXECUTIVE VICE-PRESIDENT, CASHIER, AND TRUST OFFICER
LENDING
DAVID W. MCGRATTAN, SENIOR VICE-PRESIDENT
ROBERT W. BISSET, SENIOR VICE-PRESIDENT
MICHAEL J. PEPE, VICE-PRESIDENT
BILL ARGOTSINGER, VICE-PRESIDENT
MARY E. IANNOTTI, ASSISTANT VICE-PRESIDENT
ELIZABETH J. SIMONDS, ASSISTANT VICE-PRESIDENT
GARY R. CANFIELD, ASSISTANT VICE-PRESIDENT
DARRIN R. AMBRIDGE, LOAN OFFICER
KATHRYN E. SMULLEN, LOAN OFFICER
OPERATIONS
RONALD J. BRADT, SENIOR VICE-PRESIDENT
DENISE L. CERASIA, VICE-PRESIDENT
PAULA K. TUCKER, SYSTEMS OFFICER
FINANCE
MICHAEL J. FRANK, VICE-PRESIDENT AND COMPTROLLER
COMPLIANCE
GEORGE E. DOHERTY, VICE-PRESIDENT
HUMAN RESOURCES
DEBORAH A. BRANDIS, VICE-PRESIDENT
CAROLE A. GOTTUNG, TRAINING OFFICER
MARKETING
LAWRENCE D. PECK, VICE-PRESIDENT
TRUST
DEBORAH M. BUCK, TRUST OFFICER
INVESTMENT SERVICES
DONALD F. STANYON, JR., FINANCIAL SERVICES OFFICER
AUDIT
BRIAN R. SEELEY, AUDITOR
BRANCH OFFICES
GLOVERSVILLE - NORTH MAIN STREET
LYNNE M. CIRILLO, ASSISTANT VICE-PRESIDENT
GLOVERSVILLE - FIFTH AVENUE
CONSTANCE A. ROBINSON, ASST. VICE-PRESIDENT
JOANNE M. SHY, BRANCH OFFICER
PERTH
TIENA M. DIMATTIA, ASSISTANT VICE-PRESIDENT
NORTHVILLE
DONALD R. HOUGHTON, VICE-PRESIDENT
JOHNSTOWN
TAMMY L. WARNER, ASSISTANT VICE-PRESIDENT
AMY M. PRAUGHT, BRANCH OFFICER
SARATOGA
PETER E. BROWN, ASSISTANT VICE-PRESIDENT
<PAGE>
City National Bank
and Trust Company
BANKING OFFICES
MAIN OFFICE
10-24 North Main Street
P.O. Box 873
Gloversville, NY 12078
TRUST AND INVESTMENT SERVICES
52 North Main Street
Gloversville, NY 12078
FREMONT STREET DRIVE-UP OFFICE
Gloversville, NY 12078
FIFTH AVENUE OFFICE
185 Fifth Avenue
Gloversville, NY 12078
JOHNSTOWN OFFICE
142 North Comrie Avenue
Johnstown, NY 12095
NORTHVILLE OFFICE
231 Bridge Street
Northville, NY 12134
PERTH OFFICE
4178 State Highway 30
Town of Perth
Amsterdam, NY 12010
SARATOGA SPRINGS OFFICE
295 Broadway
Saratoga Springs, NY 12866
OTHER ATMs LOCATED
Nathan Littauer Hospital, Gloversville
Holiday Inn, Johnstown
KPMG
515 Broadway
Albany NY 12207
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CNB Bancorp, Inc.:
We consent to incorporation by reference in the Registration Statements, Form
S-8 (No. 333-83303) of CNB Bancorp, Inc. and subsidiary, of our report dated
February 4, 2000, relating to the consolidated statements of condition of CNB
Bancorp, Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1999, which report appears in the December 31, 1999 Annual Report on Form
10-K of CNB Bancorp, Inc.
/s/ KPMG LLP
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 0 12,402
<INT-BEARING-DEPOSITS> 0 2,128
<FED-FUNDS-SOLD> 0 5,300
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 93,849
<INVESTMENTS-CARRYING> 0 13,443
<INVESTMENTS-MARKET> 0 13,611
<LOANS> 0 172,413
<ALLOWANCE> 0 2,697
<TOTAL-ASSETS> 0 314,908
<DEPOSITS> 0 265,080
<SHORT-TERM> 0 3,714
<LIABILITIES-OTHER> 0 789
<LONG-TERM> 0 14,040
0 0
0 0
<COMMON> 0 6,004
<OTHER-SE> 0 25,281
<TOTAL-LIABILITIES-AND-EQUITY> 0 314,908
<INTEREST-LOAN> 3,602 12,816
<INTEREST-INVEST> 1,734 6,623
<INTEREST-OTHER> 108 529
<INTEREST-TOTAL> 5,444 19,968
<INTEREST-DEPOSIT> 2,362 8,303
<INTEREST-EXPENSE> 2,600 9,269
<INTEREST-INCOME-NET> 2,844 10,699
<LOAN-LOSSES> 0 180
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 2,046 7,299
<INCOME-PRETAX> 1,190 4,687
<INCOME-PRE-EXTRAORDINARY> 837 3,299
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 837 3,299
<EPS-BASIC> 0.34 1.37
<EPS-DILUTED> 0.34 1.36
<YIELD-ACTUAL> 0 3.93
<LOANS-NON> 0 1,507
<LOANS-PAST> 0 108
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 0 1,580
<CHARGE-OFFS> 0 281
<RECOVERIES> 0 51
<ALLOWANCE-CLOSE> 0 2,697
<ALLOWANCE-DOMESTIC> 0 2,323
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 374
</TABLE>
