10-K 1 cnb-10k.txt FORM 10-K 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, 2004 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 pursuant 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [x] As of March 28, 2005, 2,221,721 shares of Common Stock were outstanding. As of June 30, 2004 (the last business day of the registrant's most recently completed second fiscal quarter) the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $ 51,700,000. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Registrant's Annual Report to stockholders for the fiscal year ended December 31, 2004 are incorporated into Part II; Item 5, Item 6, Item 7, Item 7a and Item 8. (2) Portions of the Registrant's Proxy Statement for its Annual Meeting of stockholders to be held on April 19, 2005 are incorporated into Part III; Item 10, Item 11, Item 12, Item 13 and Item 14. CNB BANCORP, INC. TABLE OF CONTENTS Filing Sections Page No. Part I Business 1 Competition 1 Employees 1 Supervision and Regulation 1 Deposit Insurance Premiums 2 Monetary Policy 3 General 3 Statistical Disclosure Required By Bank Holding Companies Exhibit I. A, B - Distribution of Assets, Liabilities and Stockholders' Equity; 4 Interest Rates and Interest Differential Exhibit I. C - Rate Volume Analysis and Interest Rate Sensitivity Analysis 5 Exhibit II. A, B - Securities Portfolio 7 Exhibit III. A, B, C - Loan Portfolio 8 Exhibit IV - Summary of Loan Loss Experience 10 Exhibit V. A, B, C, D - Deposits 11 Exhibit VI. - Return on Equity and Assets 11 Properties 12 Legal Proceedings 12 Submission of Matters to a Vote of Security Holders 12 Executive Officers of the Registrant 12 Part II Market for Registrant's Common Equity and Related Stockholders Matters 12 Selected Financial Data 13 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Forward-Looking Statements 13 Liquidity 13 Capital 13 Contractual Obligations 13 Recent Accounting Pronouncements 13 Critical Accounting Policies 13 Quantitative and Qualitative Disclosures About Market Risk 14 Financial Statements and Supplementary Data 14 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 Controls and Procedures 14 Other Information 14 Part III Directors and Executive Officers of the Registrant 14 Audit Committee Financial Expert 15 Code of Ethics 15 Insider Compliance 15 Executive Compensation 15 Security Ownership of Certain Beneficial Owners and Management 15 Certain Relationships and Related Transactions 15 Part IV Principal Accountant Fees and Services 15 Exhibits and Financial Statement Schedules 15 List of Exhibits 15 Signatures 16 Exhibits Subsidiaries Consent of Independent Registered Public Accounting Firm Certifications PART I 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, one branch located in the county of Saratoga, one branch located in the county of Hamilton and one branch located in the county of Montgomery. 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 7, 2000, CNB Bancorp, Inc. received approval from the Federal Reserve Bank of New York to change from a bank holding company to a financial holding company. See Supervision and Regulation section below. On July 30, 2004, the subsidiary Bank acquired two branches from HSBC BANK USA. These branches are located in Amsterdam, New York and Speculator, New York. The acquisition was accounted for in accordance with FASB Statement No. 141, "Business Combinations". The purchase agreement called for a premium of $2.4 million which will be amortized for tax purposes using the straight-line method over fifteen years. At the time of the acquisition, the fair value of assets acquired was $39.3 million and the fair value of liabilities assumed was $41.7 million. The core deposit intangible portion of the purchase premium was $0.6 million which will be amortized over eight years to expense using the straight-line method. The remaining $1.8 million portion of the purchase premium was considered to be goodwill which will be evaluated annually to determine if any impairment loss is required to be recognized. On July 1, 2000, the Company acquired Hathaway Agency, Inc. (Hathaway or the Insurance Agency), a local insurance agency. 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 was allocated to the respective assets acquired and liabilities assumed based on their estimated fair values. The acquisition of Hathaway resulted in approximately $300,000 in excess of cost over net assets acquired ("goodwill"). Covenant not to compete payments are being expensed as paid over the five year period of the covenant. On June 1, 1999, the Company acquired Adirondack Financial Services Bancorp, Inc. (Adirondack) and its wholly owned subsidiary, Gloversville Federal Savings and Loan Association. The acquisition was accounted for using purchase accounting in accordance with APB Opinion No. 16. The acquisition of Adirondack resulted in approximately $4.8 million in excess of cost over net assets acquired ("goodwill"). 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. Competition for insurance services is experienced from other locally based agencies and national insurance companies with representatives in our service area. The Insurance Agency has a good mix of commercial and individual accounts and has had a relatively stable base of customers for many years in the Fulton County area. Employees The Bank employs approximately 105 persons on a full time basis. There are also 3 part time employees. The Insurance Agency employs approximately 6 persons on a full time basis. There are also 3 part time employees. The Bank and the Insurance Agency provide a variety of employment benefits for their employees and considers their relationship with their 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 Office of the Comptroller of the Currency(OCC), the Federal Reserve Board and the FDIC. The primary supervisory authority of the Bank is the OCC which regularly examines the Bank and has authority to prevent a national bank from engaging in unsafe or unsound practice in conducting its business. The primary supervisory authority of the Insurance Agency is the New York State Insurance Department. 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 only after approval by the OCC. The OCC 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 OCC, 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 OCC of its intention to establish a branch in the same municipal location in which the proposed branch would be located. -1- A subsidiary bank (which the Bank is) of a financial holding company is subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the financial holding company or its subsidiaries, on investments in the stock or other securities of the financial 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 financial holding company or to vote 25% or more of any class of voting securities of the financial holding company. From time to time, various types of federal and state legislation have 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. Under the Federal Deposit Insurance Act, the OCC 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 OCC 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. On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act ('FDIC Act") was signed into law. The FDIC Act makes a number of far-reaching changes in the regulatory 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 requires 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 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 which 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. On June 7, 2000, CNB Bancorp, Inc. received approval from the Federal Reserve Bank of New York to change from a bank holding company to a financial holding company. The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate governance and reporting measures for companies that have securities registered under the Exchange Act, including publicly-held bank holding companies such as the Company. Specifically, the Sarbanes-Oxley Act of 2002 and the various regulations promulgated thereunder, established, among other things: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) the forfeiture of bonuses or other incentive-based compensation and profits from the sale of the reporting company's securities by the Chief Executive Officer and the Chief Financial Officer in the twelve-month period following the initial publication of any financial statements that later require restatement; (iv) the creation of an independent accounting oversight board; (v) new standards for auditors and regulation of audits, including independence provisions that restrict non-audit services that accountants may provide to their audit clients; (vi) increased disclosure and reporting obligations for the reporting company and their directors and executive officers, including accelerated reporting of stock transactions and a prohibition on trading during pension blackout periods; (vii) a prohibition on personal loans to directors and officers, except loans made by insured financial institutions on non-preferential terms and in compliance with other bank regulatory requirements; and (viii) a range of new and increased civil and criminal penalties for fraud and other violations of the securities laws. The Company has a Real Estate Investment Trust (REIT), CNB REIT CORP. Currently, the Company derives a New York State tax benefit, as a portion of the dividends from the REIT is exempt from income tax expense. There is proposed legislation for the 2005 New York State Budget no longer allowing the exclusion of REIT dividend income effective for tax years beginning on January 1, 2005. If the legislation noted above is approved, the Company expects that impact on diluted earnings per share will be approximately $0.06 for 2005. We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified, which is generally in the third quarter of the subsequent year for U.S. federal and New York State provisions. 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 -2- 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. From 1997 through 2004, BIF-assessable deposits were subject to an assessment schedule providing for an 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 from 1997 through 2004. BIF assessment rates are subject to semi-annual adjustment by the FDIC Board of Directors. The FDIC Board of Directors has retained the 1997 through 2004 BIF assessment schedule through June 30, 2005. 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 2004, BIF insured banks paid a rate of 0.01505% for purposes of funding FICO bond obligations, resulting in an assessment of $47,030 for the subsidiary Bank. The assessment rate for BIF member institutions has been set at 0.01440% on an annualized basis for the first half of 2005. 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. 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. 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. A.B. Securities Portfolio III. A.B.C. Loan Portfolio IV. Summary of Loan Loss Experience V. A.B.C.D. Deposits VI. Return on Equity and Assets -3- I. A.B. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates and Interest Differential

(a) Includes available for sale securities, investment securities, Federal Home Loan Bank stock and Federal Reserve Bank stock at amortized cost. (b) 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 7.50% for 2004, 7.50% for 2003 and 8.00% for 2002 (less Federal tax effect) for all periods presented. (c) 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. (d) Other assets include all assets except those specifically identified above, including the valuation adjustment related to the securities available for sale. -4- 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) 2004 2003 2002 ---- ---- ---- Average yield on interest- earning assets* 5.40% 5.59% 6.49% Average effective rate paid on interest-bearing liabilities 1.65% 2.04% 2.66% Spread between interest-earning assets and interest-bearing liabilities* 3.75% 3.55% 3.83% Net interest income* (in thousands) $14,980 $13,904 $14,647 Net interest margin* 3.95% 3.77% 4.14% *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):

Notes to Rate Volume Analysis (a) The changes 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. (b) 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 marginal income tax rates. -5- 1. C. Interest Rate Sensitivity Analysis

*Includes securities available for sale and investment securities at amortized cost and FHLB and FRB stock at cost.

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 (13.1)% of assets at December 31, 2004. 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 the Company'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 sales of securities available for sale. The Asset Liability Management Committee reviews, on a quarterly basis, the potential impact to the Company's net interest income based on an immediate and sustained shift in interest rates of +/- 200 bp. At December 31, 2004 the net annualized interest income exposure, based on a +200bp rate change was a decrease of approximately $1,044,000 as compared to a decrease of approximately $599,000 at December 31, 2003. At December 31, 2004 the net annualized interest income exposure, based on a -200bp rate change was a decrease of approximately $787,000 as compared to a decrease of approximately $873,000 at December 31, 2003. 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 available for sale portfolio in investments 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- II. Securities Portfolio A. The carrying amounts of the Company's securities as of December 31 are summarized below: (in thousands)

B. Maturity Distribution of the Company's securities as of December 31, 2004:

(a) 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 marginal(other than U.S. Government and U.S. Government Agencies) income tax rates. The yield on securities available for sale is calculated based upon the amortized cost of the securities. (b) The only securities of individual issuers that represent greater than 10% of stockholders' equity at December 31, 2004 are U.S. Agency Securities as shown in the table below: Amortized Estimated Cost Fair Value ------- ---------- Federal Farm Credit Bureau $ 9,504 $ 9,477 Federal Home Loan Bank 35,724 35,646 Federal Home Loan Mortgage Corporation 55,550 55,111 Federal National Mortgage Association 38,342 38,278 Government National Mortgage Association 10,958 11,060 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 weighted average dividend on these stocks as of December 31, 2004 was 3.73%. -7- III. Loan Portfolio A. Types of Loans(1)

(1) At December 31, 2000 through December 31, 2004, the subsidiary Bank did not have any construction loans in the loan portfolio. (2) % represents the percentage of loans in the category to total loans. B. Maturities and Sensitivity of Loans to Changes in Interest Rates Shown below are the amounts of loans outstanding (excluding certain mortgages and consumer loans) as of December 31, 2004, 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:

(a) Includes demand loans having no stated schedule of repayments and no stated maturity and overdrafts. C. Risk Elements 1. Nonaccrual, Past Due, and Restructured 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.

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 was not significant for the years 2000 through 2004. 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 or until such time as the borrower demonstrates the ability to make scheduled payments of interest and principal. 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- 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 $1.6 million at December 31, 2004 were classified as substandard and are considered 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 2005. 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, Saratoga, Hamilton and Montgomery and, therefore, there are substantial concentrations of loans within this geographic area. The subsidiary Bank strives to maintain a diverse loan portfolio and accomplishes this through prudent underwriting standards and by offering a wide variety of business and consumer loans. At December 31, 2004, the only concentration of loans that existed within the Bank's portfolio, other than the geographic concentration referred to above, were loans to the leather and leather related industries. Loans to this customer segment were $1.2 million, which represented 0.6% of the gross loans outstanding at December 31, 2004. Loans totaling approximately $0.8 million to this customer segment are currently on the subsidiary Bank's internal watch list. Commitments to this segment were $1.4 million, which represented 3.9% of the total commitments outstanding at December 31, 2004. -9- IV. Summary of Loan Loss Experience A. 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.

B. Allocation of the allowance for loan losses

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 2004, the Company recorded a provision for loan losses of $500,000. The subsidiary Bank's allowance for loan losses at December 31, 2004 totaled $2,331,000 or 1.24% of total loans, net of unearned income. Net charge-offs for 2004 totaled $587,000. At year-end 2004, there were $561,000 of loans in a non-accrual status. At December 31, 2004, $112,000 of the allowance for loan losses was allocated to the non-accrual loans outstanding. 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. -10- V. Deposits A. The following table presents the average amount of deposits and rates paid by major category for the year ended December 31:

B. There were no foreign deposits in domestic offices at December 31, 2004, 2003 and 2002. C. The following table indicates the maturities of time certificates of deposit in amounts of $100,000 or more at December 31, 2004. (in thousands) Maturing in: Three months or less $8,456 Over three months through six months 3,698 Over six months through twelve months 6,799 Over twelve months 5,704 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: 2004 2003 2002 ----- ----- ----- Percentage of net income to: Average total assets 1.10% 0.92% 1.22% Average total stockholders' equity 11.47 9.66 12.83 Percentage of cash dividends paid to net income 39.28 46.13 34.09 Percentage of average stockholders' equity to average total assets 9.60 9.50 9.55 -11- 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. The Company also leases property at 1 Market Street, Amsterdam, New York and Routes 8 & 30, Speculator, New York. All properties are currently used for branch offices and are considered to be adequate in meeting current and projected customer and subsidiary Bank needs. The Insurance Agency leases property at 7 Church Street, Gloversville, New York, which property is adequate for its use. 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 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 Matters to a Vote of Security Holders None Executive Officers of the Registrant The following table sets forth selected information about the executive officers of the Company.

Each of the executive officers of the Company have been principally employed as an officer of the Company or the subsidiary Bank for the past five years. 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 40 of the registrant's 2004 Annual Report is incorporated herein by reference. Over-the-counter quotations reflect inter-dealer prices and may not necessarily represent actual transactions. The Company increased its dividend in 2004 for the thirty-eighth consecutive year and anticipates paying comparable dividends in the future. Information regarding restrictions on dividend payments can be found on page 22 of the registrant's 2004 Annual Report under "Notes to Consolidated Financial Statements - Dividend Restrictions". Unregistered sales of equity securities and use of proceeds ISSUER PURCHASES OF EQUITY SECURITIES

The current common stock buyback program was approved by the Company's Board of Directors effective June 1, 2003 for a period of two years, to expire on June 1, 2005. The total number of shares authorized to be purchased under the plan is 110,820. -12- ITEM 6. Selected Financial Data The information set forth under the heading "Five Year Financial Summary" on page 15 of the registrant's 2004 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 6 through 14 of the registrant's 2004 Annual Report is incorporated herein by reference. Forward-Looking Statements Certain statements in this report constitute 'forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to the financial condition and prospects, lending risks, plans for future business development and marketing activities, capital spending and financing sources, capital structure, the effects of regulation and competition, and the prospective business of both the Company and its wholly-owned subsidiary, City National Bank and Trust Company (the "Bank"). Where used in this report, the words "anticipate," "believe," " estimate," "expect," "intend," and similar words and expressions, as they relate to the Company or the Bank or their respective management, identify forward- looking statements. Such forward-looking statements reflect the current views of the Company and are based on information currently available to the management of the Company and the Bank and upon current expectations, estimates, and projections about the Company and its industry, management's belief with respect thereto, and certain assumptions made by management. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to: (i) significant increases in competitive pressure in the banking and financial services industries; (ii) in the interest rate environment which could reduce anticipated or actual margins; (iii) changes in political conditions or the legislative or regulatory environment; (iv) general economic conditions, either nationally or regionally (especially in Fulton, Saratoga, Hamilton and Montgomery Counties, New York), becoming less favorable than expected resulting in, among other things, a deterioration in credit quality of assets; (v) changes occurring in business conditions and inflation; (vi) changes in technology; (vii) changes in monetary and tax policies; (viii) changes in the securities markets; and (ix) other risks and uncertainties detailed from time to time in the filings of the Company with the Commission. The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 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 pages 11 and 12 of the Company's 2004 Annual Report for additional discussion on liquidity. The Company, on average, during 2004 had $10.3 million of its assets invested in federal funds sold. Capital At December 31, 2004, stockholders' equity was $40.0 million, which represents an increase of $2.0 million, or 5.2% over 2003. This follows an increase of $1.2 million, or 3.1% over 2002. The increase from 2003 to 2004 was due mainly to a combination of net income after dividends and a reduction in accumulated other comprehensive income plus net treasury stock transactions. The increase from 2002 to 2003 was due mainly to a combination of net income after dividends and a reduction in accumulated other comprehensive income less net treasury stock transactions. 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, 2004. The Company's risk- based capital ratio was 16.3% and 17.5% at December 31, 2004 and 2003, respectively. Dividends per share declared in 2004 were $0.80 as compared to $0.76 in 2003 and $0.70 in 2002. See "Financial Review" section page 11 of the Company's 2004 Annual Report for additional discussion on capital. Contractual Obligations As of December 31, 2004 the Company is contractually obligated to make the following payments:

See Note 10 "Time Deposits" on page 27 and Note 17 "Commitments and Contingent Liabilities" on pages 33 and 34 of the Company's 2004 Annual Report for additional discussion on contractual obligations. Recent Accounting Pronouncements The information set forth under the heading "Recent Accounting Pronouncements" on page 23 of the registrant's 2004 Annual Report is incorporated herein by reference. Critical Accounting Policies The information set forth under the heading "Financial Review - Critical Accounting Policies" pages 6 through 7 of the registrant's 2004 Annual Report is incorporated herein by reference. -13- ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk The information set forth under the heading "Financial Review - Market Risk" pages 12 through 14 of the registrant's 2004 Annual Report is incorporated herein by reference. Also, the information reported on page 6 of this report is incorporated by reference. ITEM 8. Financial Statements and Supplementary Data The information set forth on pages 16 through 39 of the registrant's 2004 Annual Report is incorporated herein by reference. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None ITEM 9a. Controls and Procedures The Company, under the supervision, and with the participation, of its management, including the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of December 31, 2004, pursuant to the requirements of Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2004, in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. There was no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 9b. Other Information 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, consisting 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 eleven persons listed below are currently directors of the Company. Except as noted below, all of the directors have held the same or another executive position with the same employer during the past five years.

Management is not aware of any family relationships between the above named directors. -14- Executive Officers Information required by this item is included in Item I of this 10-K. Audit Committee Financial Expert The Board of Directors has determined that the Company does not have an audit committee financial expert serving on its audit committee. However, the Board of Directors has determined that each audit committee member has sufficient knowledge in financial and auditing matters to serve on the committee. The Board of Directors has concluded that no current Director qualifies as a financial expert, and, at this time, the Board does not believe it is necessary to actively search for an outside person to serve on the Board who would qualify as a financial expert. Code of Ethics The Company has adopted a code of ethics that applies to its principal executive, financial and accounting officers. A copy of the code of ethics is posted on the Company's web site at http://www.citynatlbank.com. In the event we make any amendment to, or grant any waiver of, a provision of the code of ethics that applies to the principal executive, financial or accounting officer, or any person performing similar functions, that requires disclosure under applicable SEC rules, we intend to disclose such amendment or waiver, the nature of and reasons for it, along with the name of the person to whom it was granted and the date, on our internet website. Insider Compliance Information required by this item is hereby incorporated by reference herein from the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 10 of the Registrant's Proxy Statement for its 2005 Annual Meeting of Shareholders. ITEM 11. Executive Compensation The information required by this item is hereby incorporated herein by reference from the captions entitled "Executive Officers' Compensation", "Employment Arrangements", "Compensation of Directors" and "Compensation Pursuant to Plans", at pages 10 through 15 of the Registrant's Proxy Statement for its 2005 Annual Meeting of Shareholders; provided however that the caption entitled "Compensation Committee Report on Executive Compensation" shall not be deemed to be incorporated herein by reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Information required by this item is hereby incorporated by reference herein from the caption "Proposal 1 - Election of Directors" at pages 3 through 6 of the Registrant's Proxy Statement for its 2005 Annual Meeting of Shareholders. Equity Compensation Plan Information

(1) Represents common shares covered by options assumed by registrant in connection with its acquisition, through merger, of Adirondack Financial Services Bancorp, Inc. on the terms set forth in the Adirondack Financial Services stock option plan and at an exchange ratio of .575 of a registrant common share for each Adirondack Financial Services' common share. ITEM 13. Certain Relationships and Related Transactions Information required by this item is hereby incorporated by reference herein from the caption "Related Party Transactions" on page 18 of the Registrant's Proxy Statement for its 2005 Annual Meeting of Shareholders. PART IV ITEM 14. Principal Accountant Fees and Services Information required by this item is hereby incorporated by reference herein from the caption "Principal Accounting Firm Fees" on pages 9 and 10 of the Registrant's Proxy Statement for its 2005 Annual Meeting of Shareholders. ITEM 15. Exhibits and Financial Statement Schedules The following consolidated financial statements of the registrant and its subsidiary and the independent registered public accounting firms' report thereon included in the registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2004, are incorporated herein by reference: Report of Independent Registered Public Accounting Firm Financial Statements (Consolidated) Statements of Condition - December 31, 2004 and 2003 Statements of Income - Years ended December 31, 2004, 2003 and 2002 Statements of Changes in Stockholders' Equity - Years ended December 31, 2004, 2003, and 2002 Statements of Cash Flows - Years ended December 31, 2004, 2003, and 2002 Notes to Consolidated Financial Statements (All financial statement schedules for the registrant and its subsidiaries have been omitted as the required information is included in the consolidated financial statements or the related notes thereto.) The following are the exhibits:

Location (1) Incorporated by reference to Exhibit 3 to the report on Form 8-K filed by the Company with the SEC on August 10, 2001. (2) Incorporated by reference to Exhibit 3 to the annual report on Form 10-K filed by the Company with the SEC on March 31, 1996. (3) Incorporated by reference to Exhibit 10.1 to the annual report on Form 10-K filed by the Company with the SEC on March 29, 2002. (4) Incorporated by reference to Exhibit A to the Company's Proxy Statement on Schedule 14-A filed by the Company with the SEC on September 7, 1998. (5) Incorporated by reference to Exhibit 10.3 to the annual report on Form 10-K filed by the Company with the SEC on March 31, 2002. (6) Incorporated by reference to Exhibit 10.4 to the annual report on Form 10-K filed by the Company with the SEC on March 31, 2002. (7) Incorporated by reference to Appendix B to the Company's Proxy Statement on Schedule 14-A filed by the Company with the SEC -15- SIGNATURES 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 (chief executive officer) By: /s/ George A. Morgan ---------------------------------------------- George A. Morgan, Vice President and Secretary (principal financial and accounting officer) Dated: March 28, 2005 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.

-16- EXHIBIT INDEX

-17-

CNB BANCORP INC /NY/ 10-K