-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RfUiijze4Qvv3epdH+LhIpwutv75ZAeABF/kKPnbu63raxRS4dEFdCqMaXpw4s1T ZPjSLWgIdouFb125VOZQTw== 0000912057-00-014893.txt : 20000331 0000912057-00-014893.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-014893 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNB FLORIDA BANCSHARES INC CENTRAL INDEX KEY: 0000852618 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 592958616 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25988 FILM NUMBER: 586294 BUSINESS ADDRESS: STREET 1: 201 N MARION ST STREET 2: P.O BOX 3239 CITY: LAKE CITY STATE: FL ZIP: 32056 BUSINESS PHONE: 9047553240 MAIL ADDRESS: STREET 1: 121 NORTH MARION ST STREET 2: P O BOX 3239 CITY: LAKE CITY STATE: FL ZIP: 32056 FORMER COMPANY: FORMER CONFORMED NAME: CNB INC /FL DATE OF NAME CHANGE: 19940426 FORMER COMPANY: FORMER CONFORMED NAME: BRADFORD BANKSHARES INC DATE OF NAME CHANGE: 19920703 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO: 0-25988 ------------------------ CNB FLORIDA BANCSHARES, INC. (Exact Name of Registrant as Specified in Its Charter) FLORIDA 59-2958616 - --------------------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) POST OFFICE BOX 3239 201 NORTH MARION STREET LAKE CITY, FLORIDA - --------------------------------------------- 32056 ----------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 755-3240 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, Par value $0.01 per share. ------------------------ 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 in this form, and no disclosure will 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. / / The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant's common stock as quoted on the National Association of Securities Dealers Automated Quotation ("NASDAQ") on March 1, 2000 was $35,713,608. The number of shares of the Registrant's common stock outstanding as of March 1, 2000 was 6,122,070 shares, $0.01 par value per share. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's 2000 Annual Meeting Proxy Statement is incorporated by reference in this report in Part III, pursuant to Instruction G of Form 10-K, except for the information relating to executive officers and key employees. The Company will file its definitive Proxy Statement with the Commission prior to April 15, 2000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I BUSINESS THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND UNCERTAINTIES WHICH ARE DESCRIBED IN THIS ANNUAL REPORT AND IN OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"). THE ACTUAL RESULTS OF CNB FLORIDA BANCSHARES, INC. (THE "COMPANY" OR "CNB") MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH SELECTED HISTORICAL FINANCIAL INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, WHICH ARE INCLUDED IN THIS FORM 10-K. GENERAL The Company is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), which commenced operations in 1987 by acquiring the capital stock of CNB National Bank (the "Bank"), which had been formed in 1986. The Company is currently headquartered in Lake City, Florida, but will relocate its headquarters to Jacksonville, Florida, during 2000 in connection with its expansion plans described below. The Bank is a national banking association subject to the supervision of the Office of the Comptroller of the Currency ("Comptroller"). It provides traditional deposit, lending and mortgage products and services to its commercial and retail customers through twelve full service branches located within the following contiguous counties in Northeast Florida: Alachua, Baker, Bradford, Columbia, Duval, Suwannee and Union County. At December 31, 1999, the Company had total assets of $346.1 million, total loans of $266.1 million, total deposits of $288.2 million, and total shareholders' equity of $43.1 million, reflecting compound annual growth rates of 15.5%, 25.3%, 13.6% and 27.2%, respectively, for the five-year period ended December 31, 1999. Net income for the years ended December 31, 1999, 1998 and 1997 was $2.9 million, $2.7 million and $3.0 million, respectively. For the five-year period ended December 31, 1999, the compound annual earnings growth rate was 17.3%. EVOLUTION OF THE FLORIDA BANKING MARKET Significant changes in interstate banking and branching laws, enacted during the early 1980s, have allowed bank holding companies to aggressively expand into new markets that have attractive growth rates and demographics. As a result, substantial consolidation of the Florida banking market has occurred. Management believes Florida has been particularly attractive to regional bank holding companies because it is the fourth largest state in the country in terms of total population and is among the ten fastest growing states in the country. As more out-of-state bank holding companies enter the Florida market, the Company believes that the number of depository institutions headquartered and operating in Florida will continue to decline. The Company has observed a similar consolidation trend in the markets in and around Gainesville and Jacksonville (the "Expansion Markets"), where it is expanding. Historically the Company competed successfully in its Core Markets, which consists of Columbia, Suwannee, Baker, Bradford and Union Counties, against larger bank holding companies for middle market customers. In the Company's Expansion Markets, many of such customers have preferred the banking services and products of banks that are locally headquartered. Increasingly, however, large regional bank holding companies are entering the Company's Expansion Markets by acquiring such previously locally headquartered banks. For example, in January 1998, NationsBank Corporation (now BankAmerica Corporation) ("BankAmerica") completed its acquisition of Jacksonville-based Barnett Banks, Inc. ("Barnett"), which, prior to its acquisition, was the largest bank headquartered in Florida. The acquisition of Barnett closely followed the acquisition of three of Jacksonville's five community banks by SouthTrust Bank Corporation ("SouthTrust") and Compass 2 Bancshares, Inc. ("Compass") in 1996 and 1997. Similarly, Gainesville State Bank, the largest community bank in Gainesville and the surrounding Alachua County (the "Gainesville Market"), was acquired by Compass in 1997. As a result, the Company now competes in its Core Markets, and will compete in its Expansion Markets, primarily with SunTrust Banks, Inc., BankAmerica, First Union Corporation, SouthTrust, AmSouth Bancorporation and Compass, all of which are headquartered outside of Florida. GROWTH OPPORTUNITY FOR THE COMPANY Management believes that a significant segment of the historical customer base of Barnett and those of other acquired community banks in Northeast Florida, particularly individuals and small and medium-sized businesses, prefer the personalized service that characterized their relationships with the locally headquartered banks that were acquired. Many of these personal relationships have been disrupted as the larger, regional financial institutions increasingly focus on larger corporate customers, offer primarily standardized loan and deposit products and services, and employ centralized management and more remote decision-making. Thus, Company management believes there exists a unique opportunity to address the under-served banking needs of individuals and small and medium-sized businesses in its Expansion Markets, which are contiguous and demographically similar to the Company's existing Core Markets. Accordingly, the Company's current strategic focus is to immediately capitalize on this market opportunity. In pursuing this opportunity, the Company will continue to focus on that specific segment of the market to which it has historically appealed. The Company believes that its historical strategy of providing personalized and consistent service to its small and middle-market corporate customers and individuals will allow it to continue to compete profitably, not only in the markets that it presently serves but in other markets as well. BUSINESS STRATEGY The Company's primary goal is to enhance profitability and shareholder returns through aggressive but sound growth. The Company's long-term strategy is to (i) continue to grow its full service banking operations by expanding into new markets, (ii) leverage current branch capacity, (iii) expand its mortgage, consumer, and commercial lending activities and (iv) continue to differentiate itself from its larger competitors by emphasizing personalized, relationship-driven service provided by a locally-headquartered financial institution. EXPAND IN UNDER-SERVED MARKETS The consolidation of the banking industry in Northeast Florida has created a window of opportunity for the Company to expand its operations in the Expansion Markets. The Expansion Markets are contiguous and culturally similar to the Core Markets. Like the Core Markets, the Expansion Markets consist in large part of individuals and small and medium-sized businesses. The Company believes that its familiarity with meeting the banking needs and expectations of similar customers in the Core Markets makes the Company particularly qualified to attract banking customers accustomed to banking with community banks in the Expansion Markets. The recent consolidation also has dislocated qualified banking professionals who have strong ties to, and an understanding of, their local markets. The Company believes that it has attracted and will continue to attract qualified banking professionals, thereby benefiting from their experience and their ability in many instances to bring with them the banking business of their loyal customers. These factors, together with the Bank's asset size and its capital base, position the Company to work more effectively with middle-market customers than many smaller community banks in the Expansion Markets. PROVIDE COMMUNITY BANKING SERVICE The Company believes that it can achieve the goals outlined above through a continued commitment to the "community bank philosophy", which emphasizes offering a broad range of personalized products and services through banking professionals who understand the banking industry and the banking needs of the local communities they serve. Each branch manager and individual loan officer is given a certain 3 degree of authority and discretion to approve loans and to price loans and services in order to respond quickly and efficiently to the needs of the Company's customers. In implementing this strategy, the Company will combine the experience and customer networks of its loan officers with centralized information technology to effectively price and provide customized banking services to enhance overall profitability. The Company intends to pursue this strategy throughout its Core and Expansion Markets and operate a multi-office community bank that emphasizes decision-making at the local level. To ensure that the Company's proposed expansion does not erode its standards for service and quality, the Company created three operating divisions: the Southern Division, the Eastern Division and the Central Division. The Company created a fourth division, the First Coast Division, when it moved into the Jacksonville Market in 1999. This new organizational structure will help to ensure that the Company's banking products and services are tailored to the individual markets it serves, as opposed to the "one size fits all" approach that generally is followed by larger financial institutions. The divisions are headed by Division Presidents who effectively have the authority to operate the division as a community bank, so long as it is done within the parameters of the Company's policies. In addition, the Company is creating advisory boards in each division composed of business leaders from that community. DEPOSIT PRODUCTS AND SERVICES The Company offers various deposit products and services to its retail and commercial customers. These products include commercial and retail checking accounts, specialized low-cost checking for customers who write few checks per month, money market accounts for consumers and commercial customers, NOW accounts and savings accounts. Additionally, the Company offers an interest-bearing transaction account for seniors with no minimum balance requirements, no service charge and no per-check charge. For customer convenience and ease of storage, the Company offers image-based monthly account statements, as well as an automated telephone banking service for balance reporting. The Company's deposit services include cash management for commercial customers for overnight investment, wire transfer services, collections, money orders, safe deposit boxes and traveler's checks. The Bank is currently a member of the STAR (formerly HONOR), PLUS and CIRRUS networks of automated teller machines that may be used by Bank customers in major cities throughout the United States. All deposits are insured by the FDIC up to the maximum amount permitted by law (generally $100,000 per depositor subject to aggregation rules). LOAN PRODUCTS AND LENDING POLICY IN GENERAL The Company provides to customers a full range of short- to medium-term commercial, agricultural, Small Business Administration ("SBA") guaranteed, Farmers Home Administration guaranteed, long term residential mortgages and personal loans, both secured and unsecured. Credit is extended consistent with a comprehensive loan policy that governs advance rates, maturities and acceptable collateral. The Company's loan policy grants lending authority based on a tiered schedule, with significant authority at the Division President level. Exceptions to the policy must be recommended by the applicable Division President, the Credit Administrator and approved by either the President or the Chief Executive Officer of the Bank before the credit commitment can be made. If the loan is for an amount exceeding $1.5 million, the Executive Committee of the Bank's Board of Directors must approve any exceptions to the Bank's loan policy. COMMERCIAL LOANS Commercial loan products include (I) short-term loans and lines of credit for working capital purposes, which are generally secured by the borrower's current assets (usually accounts receivables and inventory), (ii) intermediate term loans for farm and non-farm equipment and crop loans and (iii) SBA guaranteed loans. They include secured and unsecured loans for working capital, business expansion and purchases of equipment and machinery. 4 Lines of credit are subject to annual review and approval, generally not later than 120 days after the closing of the customer's fiscal year end. Advances are typically limited to 75.0% of eligible accounts receivable and up to 50.0% on inventory. These credits are usually monitored through the review of a receivables aging report and borrowing base report. Term loans having maturities greater than one year are generally secured by equipment or rolling stock with advances limited to no more than 75.0% of cost. In virtually all cases, the Bank requires the personal guaranty of the owners or major shareholders of the borrower. Agricultural loans are granted to experienced farmers with demonstrated capabilities, acceptable historical cash flows, reasonable cash flow projections and adequate secondary sources of repayment. COMMERCIAL REAL ESTATE LOANS The Company's commercial real estate lending products include: construction loans, mini-permanent and permanent financing for commercial properties, acquisition and development loans for residential and commercial property developers and investment property financing. Construction loan borrowers are generally required to inject equity equal to at least 20% of the total cost of the construction project before the Company will advance funds on the loan. The Company advances funds pursuant to a draw schedule and makes inspections prior to each draw request. The Company's construction lending requirements also may include a plan and cost review, depending on the complexity of the project. The plan and cost review and the inspections are out-sourced by the Company to qualified professionals. Mini-permanent and permanent financing loans are owner occupied projects which demonstrate proven cash flows that result in a debt service coverage ratio of at least 1.25 to 1, based on a twenty year amortization. Mini-permanent loan amortization may be as long as twenty-five years, but normally requires balloon maturities within five to eight years. The Company extends acquisition and development loans to borrowers who have historically fulfilled their financial obligations. The relevant acquisition or development project must demonstrate acceptable absorption periods and should have an equity investment of at least 25% of the total project costs. Such loans typically mature within twenty-four months. Loans on investment property are subject to the same underwriting criteria as mini-permanent loans and include a threshold debt service coverage ratio of at least 1.25 to 1. RESIDENTIAL AND CONSUMER LOANS Consumer lending products include open- and closed-ended home equity and home improvement loans, automobile, boat, and recreational vehicle loans and loans for other asset purchases. The Company offers Visa and MasterCard credit and debit card products to consumers and commercial customers. Applications for these products are evaluated based on the same credit requirements as direct loans. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower, the purpose of the credit, and the secondary source of repayment. Specifically, the lender reviews a credit bureau report for the borrower's credit history and calculates a debt-to-income ratio based on the borrower's gross monthly income to fixed debt payments. A ratio higher than 40.0% is generally considered unacceptable. For automobile loans, the policy requires a minimum down payment of 10.0% with maturities based on the age of the vehicle. The Company offers a variety of one-to four-family residential loan products, including residential construction loans and residential acquisition financing. Residential construction financing typically includes a construction loan agreement with a construction draw schedule and third party inspections. A commitment for permanent financing is required prior to 5 closing. Typical residential construction loans mature within six to twelve months. The Company offers a construction/permanent package loan product in instances where the Company acts as the permanent lender. Residential loans are originated for the Company's portfolio, as well as for sale in the secondary market. The maximum loan amount is based on a loan to value ratio of 80% or less, where the value is equal to the lesser of the cost or the appraised value. A loan to value ratio of 95% is available when private mortgage insurance can be obtained. The majority of these loans are originated for sale in the secondary market and are sold on a servicing released basis. The Company services loans originated for its portfolio. LOAN REVIEW AND NONPERFORMING ASSETS The Company's loan review officer, whose position is independent of the loan production and administration process, has the responsibility to perform timely reviews of credits within the portfolio with a review scope and assessment criteria comparable to that of the Bank's regulators. All new and renewed secured credits over $500,000 and unsecured credits over $100,000 are reviewed within one week of approval. Additionally, a comprehensive annual review is conducted on all credits over $250,000, past dues, non-performing assets and other real estate owned. Smaller credits are reviewed utilizing pre-determined standards, which include documentation and compliance, by a person in loan operations, with exceptions referred to the loan review officer. Problem credits, which include all non-performing assets, are reviewed at least quarterly with written documentation which includes the reason for the problem, collateral support, a plan for resolution of the problem and time frames for the resolution. Delinquent loans are reviewed at least weekly and monitored by the Board of Directors of the Bank in the monthly meetings. A written report is developed on the findings of the various loan review functions and reported directly to the Audit Committee of the Company's Board of Directors, which meets quarterly. The allowance for loan losses is reviewed monthly in order to make the appropriate loan loss provision based on the loan review findings, delinquency, historical loan losses and current economic trends. ASSET/LIABILITY MANAGEMENT The Bank's asset/liability committee is comprised of selected senior officers of the Bank who are charged with managing the assets and liabilities of the Bank. The asset/liability committee manages asset growth, liquidity and capital in order to maximize income and reduce interest rate risk. The asset/liability committee directs the Bank's overall acquisition and allocation of funds. At its quarterly meetings, the asset/liability committee reviews and discusses peer group comparisons, the ratio of rate-sensitive assets to rate-sensitive liabilities, the ratio of allowance for loan losses to outstanding and nonperforming loans, and other variables, such as expected loan demand, investment opportunities, core deposit growth within specified categories, regulatory changes, monetary policy adjustments and the overall state of the economy. INVESTMENT POLICY The Bank's investment portfolio policy is to maximize income consistent with liquidity, asset quality, regulatory constraints and asset/liability objectives. The policy is reviewed at least annually by the Bank's Board of Directors. The Board of Directors is provided monthly information recapping purchases and sales with the resulting gains or losses, average maturity, federal taxable equivalent yields and appreciation or depreciation by investment categories. The Bank invests primarily in direct obligations of the United States, obligations guaranteed as to principal and interest by the United States and obligations of agencies of the United States. In addition, the Bank enters into federal funds transactions with its principal correspondent banks. Other investments include Independent Bankers Bank stock, Federal Reserve Bank stock and Federal Home Loan Bank stock that are required for the Bank to be a member of, and to conduct business with, 6 such institutions. Dividends on such investments are determined by the institutions and are payable semi-annually or quarterly. COMPETITION Within the Jacksonville, Gainesville and Core Markets in which CNB operates (the "Markets"), there are competing financial institutions consisting primarily of other commercial banks, savings and loan offices and credit unions. Certain non-bank financial institutions affiliated with Florida banks or thrift institutions offer limited financial services, including lending and deposit gathering activities. The Bank also competes for deposits and loans with brokerage firms, mobile home lenders, consumer finance companies, insurance companies, mortgage banking companies, money market mutual funds and other financial institutions. In addition, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking and Branching Act") has removed substantially all state barriers to the acquisition of banks by out-of-state bank holding companies. In addition, certain out-of-state bank holding companies have entered the Florida banking market by acquiring failing thrift institutions and commercial banks. Florida banks and bank holding companies also may enter the Markets by acquiring a financial institution, by establishing de novo branches or by forming de novo banks within the market. Competition for deposit and loan business in the Markets will continue to be intense because of existing competitors, the accelerating pace of product deregulation and the likelihood of expansion into the Markets by other institutions. Many of these institutions have significantly greater financial resources than the Company. To compete, the Bank relies on specialized services, responsive handling of customer needs, customer contact by Bank officers, directors and staff, and the appeal of a locally-owned, relationship-driven institution. HISTORICAL GROWTH The Bank has operated in Lake City, Columbia County, Florida since its organization in 1986. In January 1987 the Company was formed as a bank holding company to facilitate expansion opportunities. In 1988, the Company organized Citizens Bank of Live Oak ("Citizens") and in November 1992 acquired an Anchor Savings Bank ("Anchor") office in Macclenny. In 1990, the Bank opened its first de novo branch in Fort White. In 1993, the Bank acquired additional banking offices in Lake City and Live Oak from Anchor. The Company consummated its first merger with another bank holding company on April 1, 1994, when Bradford Bankshares ("Bradford") combined with the Company resulting in a branch in Starke. On August 31, 1996, Riherd Bank Holding Company ("Riherd") merged with the Company. The Riherd merger resulted in three additional offices for the Bank, one of which is located in Lake Butler and two of which are in Gainesville. Both the Bradford and the Riherd transactions were accounted for as purchase transactions. In August 1997, the Bank opened its eleventh office, located in Lake City, and in June 1999 expanded into Jacksonville with its twelfth office. EMPLOYEES As of December 31, 1999, the Bank had 183 full-time equivalent employees. The Company's operations are conducted through the Bank and, consequently, the Company does not have any separate employees. 7 SUPERVISION AND REGULATION GENERAL As a registered bank holding company, the Company is subject to the supervision of, and regular inspection by, the Federal Reserve Board under the BHC Act. The Bank is organized as a national banking association, which is subject to regulation, supervision and examination by the Comptroller. The Bank is also subject to regulation by the FDIC and other federal regulatory agencies. In addition, the Company and the Bank are subject to various other laws and regulations and supervision and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of the Company and the Bank and their ability to make distributions. The following discussion summarizes certain aspects of those laws and regulations that affect the Company. The activities of the Company and the Bank are limited to banking, managing or controlling banks, or any other activity which the Federal Reserve Board determines to be so closely related to banking, managing or controlling banks as to be a proper incident thereto. In making such determinations, the Federal Reserve Board is required to consider whether the performance of such activities by the Company or the Bank can reasonably be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. Generally, the Company would be required to obtain prior approval of the Federal Reserve Board to engage in any new activity or to acquire more than 5% of any class of voting stock of any company or any bank which is not already majority-owned by the Company. Pursuant to the Interstate Banking and Branching Act, bank holding companies are able to acquire banks in states other than their respective home states, without regard to the permissibility of such acquisitions under state laws. The transaction would still be subject to any state requirement that the Bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the respective bank holding company, prior to or following the proposed acquisition, controls no more than ten percent (10%) of the total amount of deposits of insured depository institutions in the United States and less than thirty percent (30%) of such deposits in that state (or such lesser or greater amount set by state law). The Interstate Banking and Branching Act also authorizes banks to merge across state lines, thereby creating interstate branches. This provision, which was effective June 1, 1997, allowed each state, prior to the effective date, the opportunity to "opt out" of this provision, thereby prohibiting interstate branching within that state. Florida did not "opt out" of the interstate branching provisions of the Interstate Banking and Branching Act. Furthermore, pursuant to the Interstate Banking and Branching Act, a bank is now able to open new branches in a state in which it does not already have banking operations if such state enacts a law permitting de novo branching. Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such proposals or bills being enacted and the impact they might have on the Company and the Bank cannot be determined at this time. CAPITAL AND OPERATIONAL REQUIREMENTS The Federal Reserve Board, the Comptroller and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to United States banking organizations. In addition, those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. The Federal Reserve Board risk-based guidelines define a two-tier capital framework. Tier 1 capital consists of common and qualifying preferred shareholders' equity, less certain intangibles and other adjustments. Tier 2 capital consists of subordinated and other qualifying debt, and the allowance for credit losses up to 8 1.25% of risk-weighted assets. The sum of Tier 1 and Tier 2 capital less investments in unconsolidated subsidiaries represents qualifying total capital, at least 50% of which must consist of Tier 1 capital. Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk weights, based primarily on relative credit risk. The minimum Tier 1 capital ratio is 4% and the minimum total capital ratio is 8%. The Company's Tier 1 and total risk-based capital ratios under these guidelines at December 31, 1999, were 16.2% and 17.3%, respectively. The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets. Although the stated minimum ratio is 3%, most banking organizations are required to maintain ratios of at least 100 to 200 basis points above 3%. The Company's leverage ratio at December 31, 1999 was 12.7%. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized), and requires the respective federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An "undercapitalized" bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of 5% of the bank's assets at the time it became "undercapitalized" or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent's general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness related generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards. The various regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized. Under the regulations, a "well capitalized" institution must have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive order. An "adequately capitalized" institution must have a Tier 1 capital ratio of at least 4%, a total capital ratio of at least 8% and a leverage ratio of at least 4%, or 3% in some cases. Under these guidelines, the Bank is considered well capitalized. Banking agencies have also adopted regulations which mandate that regulators take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. That evaluation will be made as a part of the institution's regular safety and soundness examination. Banking agencies also have adopted final regulations requiring regulators to consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance sheet position) in the determination of a bank's capital adequacy. Concurrently, banking agencies have proposed a methodology for evaluating interest rate risk. After gaining experience with the proposed measurement process, those banking agencies intend to propose further regulations to establish an explicit risk-based capital charge for interest rate risk. DISTRIBUTIONS The Company's primary source of funds for cash distributions to its shareholders is dividends received from the Bank. The Bank is subject to various general regulatory policies and requirements relating to the 9 payment of dividends, including requirements to maintain capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of the bank or bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In addition to the foregoing, the ability of the Company and the Bank to pay dividends may be affected by the various minimum capital requirements and the capital and non-capital standards established under FDICIA, as described above. The right of the Company, its shareholders and its creditors to participate in any distribution of the assets or earnings of the Bank is further subject to the prior claims of creditors of the Bank. "SOURCE OF STRENGTH" POLICY According to Federal Reserve Board policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank. 10 PROPERTIES The Bank currently operates out of twelve branch offices and a non-customer operations center. All branches, except one Gainesville branch, have ATMs. The Company owns the following properties:
APPROXIMATE SQUARE YEAR ESTABLISHED/ OFFICE LOCATION FOOTAGE ACQUIRED - ---------------------------------------------------- ------------------- ----------------- LAKE CITY (COLUMBIA) 201 North Marion Street (1)....................... 22,000 1986 145 West Baya Avenue.............................. 10,100 1993 4420 U.S. 90 West................................. 2,870 1997 1 CNB Place, East U.S. 90 (2)..................... 7,000 1996 LIVE OAK (SUWANNEE) 205 White Avenue, S.E............................. 6,000 1988 1562 South Ohio Avenue............................ 2,000 1993 FORT WHITE (COLUMBIA) Highway 27........................................ 2,200 1990 MACCLENNEY (BAKER) 595 South Sixth Street............................ 4,800 1992 STARKE (BRADFORD) 606 West Madison Street........................... 8,000 1994 GAINESVILLE (ALACHUA) 5027 Northwest 34th Street........................ 2,000 1996 11411 North State Road 121........................ 4,500 1996 7515 West University Avenue (3)................... 14,000 2000 LAKE BUTLER (UNION) 300 West Main Street.............................. 6,750 1996 JACKSONVILLE (DUVAL) 9715 Gate Parkway North (4)....................... 26,000 2000
- ------------------------ (1) Main office. (2) Houses the operations center including bookkeeping, proof and accounting. (3) Scheduled to open in the second quarter of 2000. (4) Scheduled to open in the summer of 2000. The Company is currently leasing two properties in Jacksonville, Duval County. The leases on these properties expire in the summer of 2000, and at that time the Corporate Headquarters and the First Coast Division will relocate to the new office located at 9715 Gate Parkway North, Jacksonville. LEGAL PROCEEDINGS Neither the Company nor the Bank is a party to, nor is any of their property the subject of, any material pending legal proceedings. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 11 EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT K. C. Trowell 61 Mr. Trowell is Chairman and Chief Executive Officer of the Company and the Bank. He was elected to the Board of Directors in 1987 and serves as Chairman of the Executive Committee of the Board of Directors of the Company and the Bank. Mr. Trowell also serves on the Executive Committee of the Bank's Board of Directors. He has served as the Chairman and Chief Executive Officer of the Company since its inception in 1987. Mr. Trowell is a Lake City, Florida, native and has been actively involved in commercial banking management in North Florida for over twenty-five years. He has also held management positions with NationsBank of Lake City (and its predecessors), American Bank of Jacksonville, and Barnett Banks, Inc. in Jacksonville. He is a former Chairman of the Board of Trustees of Florida Bankers Insurance Trust. He is a past director of Community Bankers of Florida, past director of the Columbia County Committee of 100, a founding director of North Central Florida Areawide Development Company, and a former board member and chairman of both Lake City Medical Center and Columbia County Industrial Development Authority. G. Thomas Frankland 53 Mr. Frankland is the Executive Vice President and Chief Financial Officer of the Company and the Bank. Mr. Frankland served as Vice President and Chief Financial Officer of AirNet Communications Corporation in Melbourne, Florida, from March 1998 until he joined the Company in November 1998. From May 1994 until August 1996, Mr. Frankland was Vice Chairman and Chief Financial Officer of Ideon Group, Inc. ("Ideon"). Following the acquisition of Ideon by CUC International, Inc. ("CUC"), in August 1996, Mr. Frankland continued in a consulting capacity with CUC through December 1997. Prior to May 1994, Mr. Frankland was a partner with Price Waterhouse LLP. During his 24 years with Price Waterhouse LLP, including the seven years he served as managing partner of the Jacksonville office, he specialized primarily in the financial services industry. He currently serves on the Board of Directors of the University of Florida Foundation, the Warrington College of Business Advisory Council and the Fisher School of Accounting Steering Committee. Bennett Brown 53 Mr. Brown is the Executive Vice President of the Company and is the President and Chief Operating Officer of the Bank. Mr. Brown joined the Company in April 1999. Mr. Brown's background includes leading the formation of Enterprise National Bank of Jacksonville as President and Chief Executive Officer in 1987 until it was acquired by Compass Bancshares in early 1997. He served as City President of Compass Bank in Jacksonville until March 1999. Prior to forming Enterprise Bank, Mr. Brown was with Florida National Bank for 10 years and was previously a National Bank Examiner with the Office of the Comptroller of the Currency for 7 years. Mr. Brown is a graduate of the University of South Carolina with a major in Banking and Finance. He currently is a member of the Downtown Jacksonville Rotary Club, and a member of the Board of Trustees for Wolfson Children's Hospital in Jacksonville.
12 Joyce A. Bruner 47 Ms. Bruner has served, since the opening of the Bank in 1986, as Vice President, Cashier, Senior Operations Officer, Senior Vice President and Senior Administrative Officer, and currently, Executive Vice President. She also serves as Secretary of the Company. Prior to joining the Bank during its organizational phase, Ms. Bruner served as Operations Officer for NationsBank of Lake City (and its predecessors) for a period of three years where she had responsibility for branch operations. Ms. Bruner has 23 years of banking experience. Martha S. Tucker 49 Ms. Tucker has served as Senior Vice President and Controller of the Company and the Bank since July, 1997. From 1991 through 1997, Ms. Tucker was Vice President and Cashier of the Bank. From 1988 through 1991, Ms. Tucker was Cashier for Citizens Bank of Live Oak, which merged into the Bank in November 1992. From 1986 to 1988, Ms. Tucker served as Assistant Cashier for the Bank and prior to 1986 held management positions with NationsBank of Live Oak (and its predecessors). Ms. Tucker is a life-long resident of Live Oak, Florida and has over 32 years of banking experience. She is a member of the Altrusa Club and the Suwannee County Chamber of Commerce. In addition, Ms. Tucker volunteers for Hospice of North Florida. Lloyd D. Adams 52 Mr. Adams serves as the Central Division President of the Bank. Prior to joining the Company in May 1998, Mr. Adams served as the Executive Vice President/Senior Corporate Banker for Barnett Bank, North Central Florida from November 1996 until January 1998. He served as Senior Credit Policy Officer with Barnett from 1992 through 1996. A native of the area, Mr. Adams has deep roots as a community banker in this Central Division. Mr. Adams has a strong background in retail and business banking and credit policy, from both a small community bank and large corporate bank perspective. He is a graduate of Florida State University, Florida School of Banking and the ABA Commercial Lending Graduate School in Norman, OK. He has been in the banking industry for 25 years. Robert E. Cameron 55 Mr. Cameron serves as the Southern Division President of the Bank. Prior to joining the Company in April 1998, Mr. Cameron was a Senior Vice President of Barnett Bank of Alachua County from 1988 until 1998. He also was a member of the Board of Directors of United Gainesville Community Development Board. He has worked in the banking industry for 31 years. Currently he is a member of the Board of Directors of the Gainesville Builders Association and Child Care Resources and a member of the City of Gainesville Development Review Board. John D. Kennedy 43 Mr. Kennedy has served as the Eastern Division President of the Bank since August 1998. From 1996 through 1998, Mr. Kennedy was the President of the Bank's Macclenny branch. From October 1973 until August 1996 he was with The Citizens Bank of Macclenny, where he served as President beginning in January 1987. He is a member of the Board of Directors of Baker County Hospital Authority, Baker County Council on Aging and Baker County Tip-Off Club. He is also Chairman of the Baker County Education Foundation, President of the Girls Softball League of Baker County and on the Advisory Committee of the Baker County State Housing Initiative Partnership ("SHIP") Program. Mr. Kennedy has 27 years of banking experience.
13 Suzanne M. Norris 36 Ms. Norris has served as Senior Vice President and Senior Credit Administrator since July, 1997. Ms. Norris came to the Bank in September, 1996 and has 13 years of banking experience, working in various management and lending positions with NationsBank in St. Petersburg, Tampa and Lake City, including acting as commercial market manager/ senior banking executive for Lake City and Gainesville from June, 1995 to September, 1996. Ms. Norris, a graduate of the University of Florida, has been active in the community, having served as the President of the Lake City/Columbia County Chamber of Commerce. She currently serves on the Board of Trustees for Lake City Community College, the Board of Directors for the United Way of Suwannee Valley and Epiphany Catholic School and is a member of Altrusa.
PART II MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's articles of incorporation authorize it to issue up to 10,000,000 shares of Common Stock. As of March 17, 2000, there were 6,115,270 shares of Common Stock issued and outstanding, and 285,548 shares subject to currently exercisable options. On January 29, 1999, the Company's common stock began trading on the NASDAQ National Market under the symbol "CNBB", resulting from the issuance of 1,250,000 shares of common stock in the Company's initial public offering at $10.25 per common share. Proceeds from the offering net of underwriting discount and expenses totaled $11.4 million. The Company contributed $10.0 million of the $11.4 million net proceeds from the offering to CNB National Bank in February 1999. There is no trading information for any prior years, since there was not an established market for the Company's common stock. See TABLE 12: "Selected Quarterly Data" in Management's Discussion and Analysis of Financial Condition for the quarterly market price for the last fiscal year. Shareholders' equity at December 31, 1999 was $43.1 million, as compared to $30.9 million at December 31, 1998. On July 15, 1998, the Company declared a two-for-one stock split for shareholders of record on August 10, 1998, effective August 17, 1998. Company dividends for 1999 consisted of the payment of quarterly cash dividends in the amount of $0.05 per common share on February 5, May 5, August 5 and November 5, 1999. The Company also paid $0.20 total dividends in 1998. The Company's ability to pay dividends on the Common Stock depends significantly on the ability of the Bank to pay dividends to the Company in amounts sufficient to service its obligations. Such obligations may include an obligation to make any payments with respect to securities issued in the future which have an equal or greater dividend preference to the Common Stock. The Bank may also issue additional capital stock or incur indebtedness. Furthermore, the regulations of the Comptroller, regulatory capital levels and the net income of the Bank determine its ability to pay dividends or make other capital distributions. 14 CNB FLORIDA BANCSHARES INC. AND SUBSIDIARY SELECTED FINANCIAL DATA `
1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- DOLLARS IN THOUSANDS EXCEPT PER SHARE INFORMATION. SUMMARY OF OPERATIONS: Interest Income.................... $ 23,758 $ 21,119 $ 19,420 $ 15,090 $ 12,745 Interest Expense................... (9,052) (9,417) (8,663) (6,612) (5,966) ---------- ---------- ---------- ---------- ---------- Net Interest Income................ 14,706 11,702 10,757 8,478 6,779 Provision for Loan Loss............ (1,160) (710) (440) (335) (230) ---------- ---------- ---------- ---------- ---------- Net Interest Income After Provision for Loan Losses.................. 13,546 10,992 10,317 8,143 6,549 Non-Interest Income................ 2,952 2,392 2,153 1,777 1,478 Non-Interest Expense............... (11,994) (9,298) (7,914) (6,360) (5,172) ---------- ---------- ---------- ---------- ---------- Income Before Taxes................ 4,504 4,086 4,556 3,560 2,855 Income Taxes....................... (1,563) (1,407) (1,581) (1,247) (1,014) ---------- ---------- ---------- ---------- ---------- Net Income......................... $ 2,941 $ 2,679 $ 2,975 $ 2,313 $ 1,841 ========== ========== ========== ========== ========== PER COMMON SHARE: (1) Basic Earnings..................... $ 0.49 $ 0.55 $ 0.69 $ 0.67 $ 0.56 Diluted Earnings................... 0.48 0.55 0.68 0.65 0.55 Book Value......................... 7.04 6.36 5.98 5.08 4.50 Dividends.......................... 0.20 0.20 0.14 0.11 0.09 Actual Shares Outstanding.......... 6,116,070 4,856,770 4,856,770 3,875,810 3,279,466 Basic Weighted Average Shares Outstanding...................... 5,995,474 4,856,770 4,327,534 3,478,248 3,279,466 Diluted Weighted Average Shares Outstanding...................... 6,069,737 4,897,922 4,406,616 3,547,390 3,338,674 KEY RATIOS: Return on Average Assets........... 0.91% 0.93% 1.14% 1.14% 1.06% Return on Average Shareholders' Equity........................... 7.03% 8.92% 12.38% 13.88% 13.24% Dividend Payout.................... 40.82% 36.36% 20.29% 16.54% 16.07% Efficiency Ratio................... 67.92% 65.97% 61.30% 62.02% 62.64% Total Risk-Based Capital Ratio..... 17.25% 16.62% 18.67% 13.58% 14.90% Average Shareholders' Equity to Average Assets................... 13.01% 10.43% 9.22% 8.24% 7.99% Tier 1 Capital to Total Assets/ Leverage Ratio................... 12.70% 9.70% 10.20% 7.25% 7.87% FINANCIAL CONDITION AT YEAR END: Assets............................. $346,076 $311,565 $273,331 $254,945 $176,733 Loans.............................. 266,084 187,015 159,649 148,824 102,349 Deposits........................... 288,203 265,109 231,444 226,824 159,003 Shareholders' Equity............... 43,075 30,896 29,025 19,669 14,754 OTHER DATA: Banking Locations.................. 12 11 11 10 7 Full-Time Equivalent Employees..... 183 149 144 134 95
- ------------------------ (1) Per share data reflects the two-for-one stock split effective August 17, 1998. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following analysis reviews important factors affecting the financial condition and results of operations of CNB Florida Bancshares, Inc. for the periods shown. This section should be read in conjunction with the Consolidated Financial Statements and related notes. This discussion should facilitate a better understanding of the major factors and trends which affect the Company's financial condition and earnings performance, and how the Company's performance during 1999 compares with prior years. Throughout this section, CNB Florida Bancshares, Inc. and its subsidiary, CNB National Bank are referred to as "CNB", "the Company", or "the Bank." On January 29, 1999, CNB completed its initial public offering and its common stock began trading on the NASDAQ National Market. CNB shareholders now have greater access to purchasing or selling shares of common stock and in addition CNB obtained additional capital to support its expansion plans, as well as for general corporate purposes. The Company contributed as capital to CNB National Bank $10.0 million of the $11.4 million net proceeds from the offering in February 1999. In March 1999, the Company completed the acquisition of a site in Jacksonville which will be utilized for its corporate offices and as headquarters for the Bank's commercial banking activities in Jacksonville. Construction should be completed on the 26,000 square foot building in the summer of 2000. Construction also began in 1999 on CNB's new Gainesville headquarters located on Tower Road, with completion scheduled for the second quarter of 2000. As approved by shareholders at the Company's 1999 annual meeting, CNB, Inc. became CNB Florida Bancshares, Inc. on June 30, 1999. The new name better reflects the nature of the Company's business and its geographic focus. RESULTS OF OPERATIONS In 1999, the Company's earnings were $2.9 million, or $0.49 per basic share, compared to $2.7 million, or $0.55 per basic share, and $3.0 million, or $0.69 per basic share, in 1998 and 1997, respectively. Per share earnings for 1999 were adversely impacted by the Company's initial public offering completed in the first quarter of 1999. The Company sold 1,250,000 shares raising $11.4 million, net of underwriting discounts and expenses, to support its expansion plans and for general corporate purposes. Weighted average shares increased 23% in 1999 compared to 1998. Per share earnings for 1998 were also adversely affected by the stock sale from the Rights Offering in July 1997, which resulted in a 12% increase in the weighted shares outstanding from 1997 to 1998. NET INTEREST INCOME/MARGINS Net interest income is the single largest source of revenue of the Company and is equal to interest and fee income generated by earning assets less interest expense. In 1999, net interest income increased $3.0 million, or 26%. This follows an increase of $945,000 or 9%, in 1998, and $2.3 million, or 27% in 1997. The increase in 1999 is mainly attributable to loan portfolio growth and related increase in interest income from loans of $3.5 million. Also contributing to the increase was a 4% decrease in interest expense resulting from an improved interest rate mix, and an 18% increase in non-interest bearing deposits, while total deposits grew 9%. The increase in net interest income for 1998 is primarily the result of loan interest and fee income growth of $1.3 million, investment income growth of $364,000, offset by an increase in interest expense of $754,000. The Company's net interest margin increased to 5.00% in 1999, compared to 4.43% and 4.52% in 1998 and 1997, respectively. The higher yield in 1999 reflects a more favorable earning asset mix as the 16 loan portfolio, which is the largest and highest yielding component of earning assets, increased 42% from $187.0 million in 1998 to $266.1 million in 1999. Table 1: "Average Balances--Yields and Rates", below, presents comparative earning asset composition as well as earning asset yields and interest bearing liabilities for 1999, 1998 and 1997. Table 1a: "Analysis of Changes in Interest Income and Expense" shows the changes in net interest income by category due to shifts in volumes and rates for years presented. TABLE 1: AVERAGE BALANCES--YIELDS AND RATES
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------------------- ------------------------------- ------------------------------- INTEREST INTEREST INTEREST AVERAGE INCOME OR AVERAGE AVERAGE INCOME OR AVERAGE AVERAGE INCOME OR AVERAGE BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE -------- --------- -------- -------- --------- -------- -------- --------- -------- (DOLLARS IN THOUSANDS) ASSETS: Federal Funds Sold........ $ 13,285 $ 643 4.84% $ 32,583 $ 1,701 5.22% $ 13,480 $ 720 5.34% Investment Securities Available for Sale...... 45,082 2,671 5.92 47,675 2,869 6.01 58,442 3,560 6.09 Investment Securities Held to Maturity............. 9,151 504 5.51 6,519 326 5.00 9,160 490 5.35 Loans (1)................. 215,861 19,412 8.99 171,048 15,877 9.28 155,168 14,542 9.37 Interest Bearing Deposits................ 10,533 528 5.01 6,494 346 5.36 1,946 108 5.55 -------- ------- ---- -------- ------- ---- -------- ------- ----- TOTAL EARNING ASSETS........ 293,912 23,758 8.08 264,319 21,119 7.99 238,196 19,420 8.15 All Other Assets.......... 27,543 23,774 22,508 -------- -------- -------- TOTAL ASSETS................ $321,455 $288,093 $260,704 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: NOW & Money Markets....... $ 80,132 1,749 2.18% $ 68,950 1,682 2.44% $ 62,465 1,555 2.49% Savings................... 17,445 245 1.40 16,379 312 1.90 15,146 296 1.95 Time Deposits............. 131,548 6,731 5.12 129,157 7,057 5.46 119,545 6,404 5.36 Short Term Borrowings..... 6,854 322 4.70 7,233 359 4.96 4,738 239 5.04 Federal Funds Purchased... 93 5 5.40 -- -- -- -- -- Notes Payable & Debentures.............. -- -- -- 85 7 8.00 2,100 169 8.05 -------- ------- ---- -------- ------- ---- -------- ------- ----- TOTAL INTEREST BEARING LIABILITIES............... 236,072 9,052 3.83 221,804 9,417 4.25 203,994 8,663 4.25 Demand Deposits........... 40,761 33,161 30,246 Other Liabilities......... 2,813 3,086 2,434 Shareholders' Equity...... 41,809 30,042 24,030 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $321,455 $288,093 $260,704 ======== ======== ======== ---- ---- ----- INTEREST SPREAD (2)......... 4.25% 3.74% 3.90% ==== ==== ===== ------- ------- ------- NET INTEREST INCOME......... $14,706 $11,702 $10,757 ======= ======= ======= NET INTEREST MARGIN (3)..... 5.00% 4.43% 4.52% ==== ==== =====
- ------------------------------ (1) Interest income on average loans includes loan fee recognition of $697,000, $572,000 and $531,000 in 1999, 1998 and 1997 respectively. (2) Represents the average rate earned minus average rate paid. (3) Represents net interest income divided by total earning assets. 17 TABLE 1A: ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
NET CHANGE DECEMBER 31, NET CHANGE DECEMBER 31, 1998-1999 ATTRIBUTABLE TO: 1997-1998 ATTRIBUTABLE TO: -------------------------------- -------------------------------- NET NET VOLUME (1) RATE (2) CHANGE VOLUME (1) RATE (2) CHANGE ---------- -------- -------- ---------- -------- -------- (THOUSANDS) INTEREST INCOME: Federal Funds Sold....................... $(1,007) $ (51) $(1,058) $ 1,020 $ (39) $ 981 Investment Securities Available for Sale................................... (158) (40) (198) (656) (37) (693) Investment Securities Held to Maturity... 132 46 178 (141) (23) (164) Loans.................................... 4,160 (625) 3,535 1,488 (153) 1,335 Interest Bearing Deposits................ 218 (36) 182 253 (13) 240 ------- ----- ------- ------- ----- ------- Total.................................. 3,345 (706) 2,639 1,964 (265) 1,699 INTEREST EXPENSE: NOW & Money Markets...................... 273 (206) 67 161 (34) 127 Savings.................................. 20 (87) (67) 24 (8) 16 Time Deposits............................ 130 (456) (326) 515 138 653 Short Term Borrowings.................... (18) (19) (37) 124 (4) 120 Federal Funds Purchased.................. 5 -- 5 -- -- -- Notes Payable & Debentures............... (7) -- (7) (162) -- (162) ------- ----- ------- ------- ----- ------- Total.................................. 403 (768) (365) 662 92 754 ------- ----- ------- ------- ----- ------- Net Interest Income.................. $ 2,942 $ 62 $ 3,004 $ 1,302 $(357) $ 945 ======= ===== ======= ======= ===== =======
- ------------------------ (1) The volume variance reflects the change in the average balance outstanding multiplied by the actual average rate during the prior period. (2) The rate variance reflects the change in the actual average rate multiplied by the average balance outstanding during the prior period. Changes which are not solely due to volume changes or solely due to rate changes have been attributed to rate changes. NON-INTEREST INCOME Non-interest income increased $560,000 or 23% in 1999, compared with $239,000 or 11% in 1998 compared with 1997. Service charges on deposit accounts increased $311,000 or 17% in 1999, compared to an increase of 4% in 1998. The main contributing factor for the increase in 1999 was an increase in service charge fees that went into effect March 1, 1999. Other fee income, which includes credit card fees, credit life insurance income, safe deposit box fees, net gains and losses from sale of securities and other miscellaneous fees had an increase of $249,000 or 43% in 1999 and $162,000 or 39% in 1998. The main contributing factors for the increase in 1999 were fees associated with ATM surcharges coupled with mortgage servicing fees collected from the mortgage loans sold to secondary markets. Non-interest income as a percentage of average assets was 0.92% in 1999 compared to 0.83% and 0.83% in 1998 and 1997, respectively. NON-INTEREST EXPENSE Non-interest expense increased by $2.7 million, or 29%, for the year ended 1999, as compared to increases of $1.4 million, or 18%, and $1.6 million, or 24%, for 1998 and 1997, respectively. At the end of 1999, non-interest expenses as a percentage of average assets increased to 3.73%, as compared to 3.23% and 3.04% in 1998 and 1997, respectively. Salaries and employee benefits have increased $1.6 million from 1998, compared to $859,000 from 1997. The increase from 1998 to 1999 reflects the continued execution of 18 management's strategy to expand CNB into the Jacksonville and Gainesville markets and the building of an infrastructure to support the expansion strategy. In June 1999, the Bank opened and staffed a temporary branch office in Jacksonville on Beach Boulevard. The increase in non-interest expense from 1997 to 1998 was due mainly to the implementation of the Company's business plan and also involved hiring a Bank President, three Division Presidents, a Chief Financial Officer and several other key positions. As a percentage of average total assets, salaries and employee benefits have increased to 2.01% in 1999 compared 1.67% and 1.52% in 1998 and 1997, respectively. Occupancy expenses (including furniture, fixtures & equipment) increased to $1.8 million in 1999 compared to $1.6 million in 1998 and $1.4 million in 1997. Occupancy expenses in 1999 were impacted by costs associated with the opening of the temporary branch office on Beach Boulevard and the lease expense of temporary offices for holding company personnel in Jacksonville. Offsetting these expenses in 1999 was a reduction in maintenance contract expenses. The increase from 1997 to 1998 was largely due to expenses associated with the West 90 Office opening in Lake City during August 1997. Other operating expenses increased $836,000 and $320,000 in 1999 and 1998, or 29% and 12%, respectively. The increase in 1999 was attributable to: (1) an increase in postage and delivery expense of approximately $91,000 due to increased deposit accounts and additional courier runs due to the opening of the temporary Jacksonville branch office; (2) an increase of $152,000 in telephone expense, with much of the increase resulting from the installation of a bank-wide systems network and the added expenses from the offices opened in Jacksonville; (3) an increase in marketing expense of $115,000 due to the Company's increased advertising in the new markets and enhanced promotion of the Bank in its present markets; (4) an increase in legal and professional fees of $102,000, which is mainly attributable to increased accounting and data processing fees. The main contributing factors in 1998 was an increase in telephone expense, which resulted from the installation of a new toll free telephone banking system in April 1997 allowing customers access to their accounts 24 hours a day, seven days a week. Other contributing factors were increases in employee education expense, legal and professional fees, and postage and delivery service. The following table details the areas of significance in other operating expenses. TABLE 2: OTHER OPERATING EXPENSES (DOLLAR AMOUNTS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Data processing..................................... $ 590 $ 540 $ 519 Postage and delivery................................ 468 377 336 Telephone........................................... 423 271 185 Advertising and promotion........................... 354 239 257 Legal and professional.............................. 327 225 158 Supplies............................................ 299 244 231 Administrative...................................... 182 123 103 Amortization of intangible assets................... 179 190 202 Loan expenses....................................... 165 133 135 Regulatory fees..................................... 143 134 119 Other............................................... 593 411 322 ------ ------ ------ Total other operating expenses.................... $3,723 $2,887 $2,567 ====== ====== ======
19 INCOME TAXES The effective tax rate for the year ended December 31, 1999 was 34.7%, compared to 34.4% for 1998 and 34.7% for 1997. The consolidated provision for income taxes increased to $1.6 million in 1999, compared to $1.4 million in 1998 and $1.6 million in 1997. Tax exempt investment income had a positive impact on the effective rate of 2.7%, 2.9% and 2.3% in 1999, 1998 and 1997, respectively. LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity management addresses CNB's ability to meet deposit withdrawals either on demand or at contractual maturity, to repay borrowings and to make new loans and investments as they arise. Management measures the Company's liquidity position by giving consideration to both on- and off-balance sheet sources of and demands for funds on a daily and weekly basis. In addition to core deposit growth, sources of funds available to meet liquidity demands include cash received through ordinary business activities such as the collection of interest and fees, federal funds sold, loan and investment maturities and lines of credit for the purchase of federal funds by the Company's from its principal correspondent banks. Average liquid assets (cash and amounts due from banks, interest-bearing deposits in other banks, federal funds sold and securities available-for-sale) totaled $81.1 million and represented 30.0% of average total deposits during 1999, compared to $96.9 million and 39.1% for 1998. The Company has available lines of credit with other financial institutions totaling $15.0 million. The Company is also a member of the Federal Home Loan Bank and as such has access to both long and short term funds. There was an outstanding balance of $4.8 million in federal funds purchased at December 31, 1999. The asset mix of the balance sheet is evaluated continually in terms of several variables: yield, credit quality, appropriate funding sources and liquidity. Management of the liability mix of the balance sheet focuses on expanding the various funding sources. The Company's gap and liquidity positions are reviewed on a regular basis by management to determine whether or not changes in policies and procedures are necessary to achieve financial goals. Included in the review is an internal analysis of the possible impact on net interest income due to market changes and interest rates. TABLE 3, "Rate Sensitivity Analysis" presents rate sensitive assets and liabilities by maturity, separating fixed and variable interest rates. The estimated fair value of each instrument category is also shown in the table. While these fair values are based on management's judgment of the most appropriate factors, there is no assurance that, were the Company to have disposed of such instruments on December 31, 1999, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. Sources of liquidity include cash and cash equivalents, net of federal requirements to maintain reserves against deposit liabilities; investment securities eligible for pledging to secure borrowings from dealers and customers pursuant to securities sold under repurchase agreements; loan repayments; loan sales; deposits and certain interest rate-sensitive deposits; and borrowings under overnight federal fund lines available from correspondent banks. In addition to interest rate-sensitive deposits, the Company's primary demand for liquidity is anticipated fundings under credit commitments to customers. 20 TABLE 3: RATE SENSITIVITY ANALYSIS DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
FAIR 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS BEYOND TOTAL VALUE -------- -------- -------- -------- -------- -------- -------- -------- INTEREST-EARNING ASSETS: Loans Fixed Rate Loans.................... $ 19,714 $13,394 $20,399 $20,582 $27,358 $ 57,203 $158,650 $157,147 Average Interest Rate............. 8.22% 9.64% 8.67% 8.79% 8.35% 8.17% 8.48% Variable Rate Loans................. 19,362 12,927 4,816 4,707 3,713 61,909 107,434 107,434 Average Interest Rate............. 9.17% 8.85% 9.16% 8.89% 9.24% 8.10% 8.50% Investment Securities(1) Fixed Rate Investments.............. 4,429 7,587 90 179 20,431 10,187 42,903 41,324 Average Interest Rate............. 5.82% 6.50% 4.10% 7.10% 6.02% 5.71% 6.01% Variable Rate Investments........... -- -- -- -- -- 1,792 1,792 1,797 Average Interest Rate............. 6.04% 6.04% Other Earning Assets(2)............... 2,140 -- -- -- -- -- 2,140 2,192 Average Interest Rate............. 6.40% 6.40% -------- ------- ------- ------- ------- -------- -------- -------- TOTAL INTEREST-EARNING ASSETS......... $ 45,645 $33,908 $25,305 $25,468 $51,502 $131,091 $312,919 $309,894 AVERAGE INTEREST RATE............. 8.30% 8.64% 8.75% 8.80% 7.49% 7.92% 8.12% ======== ======= ======= ======= ======= ======== ======== ======== INTEREST-BEARING LIABILITIES: NOW................................... $ 14,358 $ -- $ -- $ -- $ -- $ 47,619 $ 61,977 $ 61,977 Average Interest Rate............. 4.72% 1.16% 1.98% Money Market.......................... 31,411 -- -- -- -- 2,178 33,589 33,589 Average Interest Rate............. 4.66% 2.78% 4.54% Savings............................... -- -- -- -- -- 16,537 16,537 16,537 Average Interest Rate............. 1.39% 1.39% CD's $100,000 and Over................ 38,651 4,118 1,871 209 -- -- 44,849 44,846 Average Interest Rate............. 5.49% 5.85% 5.94% 4.83% 5.54% CD's Under $100,000................... 72,714 12,071 3,088 1,064 204 -- 89,141 89,200 Average Interest Rate............. 4.83% 5.39% 5.45% 5.23% 5.54% 4.93% Securities Sold Under Repurchase Agreements............... 7,263 -- -- -- -- -- 7,263 7,263 Average Interest Rate............. 5.20% 5.20% Federal Funds Purchased............... 4,800 -- -- -- -- -- 4,800 4,800 Average Interest Rate............. 5.36% 5.36% -------- ------- ------- ------- ------- -------- -------- -------- TOTAL INTEREST-BEARING LIABILITIES.... $169,197 $16,189 $ 4,959 $ 1,273 $ 204 $ 66,334 $258,156 $258,212 AVERAGE INTEREST RATE............. 4.97% 5.51% 5.63% 5.16% 5.54% 1.27% 4.07% ======== ======= ======= ======= ======= ======== ======== ========
- ------------------------------ (1) Securities available for sale are shown at their amortized cost, excluding market value adjustment for unrealized gains of $857,000. (2) Represents interest bearing deposits with Banks, Federal Reserve Bank Stock, Federal Home Loan Bank Stock and other marketable equity securities. 21 Core deposits, which represent all deposits other than time deposits in excess of $100,000, averaged 84.9% of total average deposits in 1999 and 85.0% in 1998. The Company closely monitors its reliance on time deposits in excess of $100,000. The Bank does not nor has it ever solicited brokered deposits. TABLE 4, sets forth the amounts of time deposits with balances of $100,000 or more that mature within indicated periods. TABLE 4: MATURITY OF TIME DEPOSITS OF $100,000 OR MORE DECEMBER 31, 1999
AMOUNT ----------- (THOUSANDS) Three Months or Less........................................ $ 9,228 Three Through Six Months.................................... 12,159 Six Through Twelve Months................................... 17,264 Over Twelve Months.......................................... 6,198 ------- Total....................................................... $44,849 =======
LENDING ACTIVITIES Loan growth of 42% in 1999 reflected continued growth in the Company's core markets combined with the Company's execution of its expansion strategy in the Jacksonville and Gainesville markets. An increased focus on commercial and commercial real estate lending contributed significantly to the overall growth in loans. The Company's loan to deposit ratio reached 92% at December 31, 1999 compared to 71% at the 1998 year end. The 1999 loan growth contributed to a 26% increase in net interest income to $14.7 million for the year ended December 31, 1999 compared to $11.7 million in 1998. As of December 31, 1999 the Company had total loans of $266.1 million, as compared to $187.0 million at December 31, 1998, an increase of $79.1 million or 42%. This growth was mainly due to $51.7 million, or 61% increase in commercial, financial and agricultural loans. Real estate construction loans totaled $18.9 million, or 7% of the loan portfolio, as compared to 4% in 1998. Commercial, financial and agricultural loans, which include loans secured by owner-occupied commercial real estate, totaled $136.9 million, or 52% of the loan portfolio as compared to 46% in 1998. Real estate mortgage loans primarily consisted of single family residential mortgages totaled $86.3 million, or 32% of the loan portfolio in comparison to 39% in 1998. Installment and consumer loans, which include credit card balances of approximately $1.5 million, totaled $23.9 million, or 9% of the loan portfolio as compared to 11% in 1998. The composition of the Company's loan portfolio for the past five years is presented in TABLE 5. Loan concentrations are considered to exist where there are amounts loaned to multiple borrowers engaged in similar activities which collectively would be similarly impacted by economic or other conditions and when the total of such amounts exceed 25% of total capital. Due to the lack of diversified industry and the relative proximity of markets served, the Company has concentrations in geographic as well as in types of loans funded. 22 TABLE 5: LOAN PORTFOLIO COMPOSITION
AS OF DECEMBER 31, ---------------------------------------------------- TYPES OF LOANS 1999 1998 1997 1996 1995 - -------------- -------- -------- -------- -------- -------- (THOUSANDS) Commercial, Financial and Agricultural.... $136,937 $ 85,208 $ 69,238 $ 68,595 $ 48,948 Real Estate--Construction................. 18,926 8,527 3,336 4,029 2,159 Real Estate--Mortgage..................... 86,275 72,357 68,561 56,787 34,912 Installment and Consumer.................. 23,946 20,923 18,514 19,413 16,330 -------- -------- -------- -------- -------- Total Loans, Net of Unearned Discount..... 266,084 187,015 159,649 148,824 102,349 Less: Allowance for Loan Losses........... (2,671) (1,875) (1,495) (1,396) (946) -------- -------- -------- -------- -------- Net Loans................................. $263,413 $185,140 $158,154 $147,428 $101,403 ======== ======== ======== ======== ========
TABLE 6 sets forth the maturity distribution for selected components of the Company's loan portfolio as of December 31, 1999. Demand loans and overdrafts are reported as due in one year or less, and loan maturity is based upon scheduled principal payments. TABLE 6: MATURITY SCHEDULE OF SELECTED LOANS
DECEMBER 31, 1999 ----------------------------------------- 0-12 1-5 OVER 5 MONTHS YEARS YEARS TOTAL -------- -------- -------- -------- (THOUSANDS) Commercial, Financial & Agricultural....................... $14,447 $ 72,737 $ 49,753 $136,937 Real Estate--Construction............ 18,926 -- -- 18,926 All Other Loans...................... 5,703 35,159 69,359 110,221 ------- -------- -------- -------- Total................................ $39,076 $107,896 $119,112 $266,084 ======= ======== ======== ======== Fixed Interest Rate.................. $19,714 $ 81,733 $ 57,203 $158,650 Variable Interest Rate............... $19,362 $ 26,163 $ 61,909 $107,434
Loan concentrations are considered to exist where there are amounts loaned to multiple borrowers engaged in similar activities which collectively would be similarly impacted by economic or other conditions and when the total of such amounts exceed 25% of total capital. Due to the lack of diversified industry and the relative proximity of markets served, the Company has concentrations in geographic as well as in types of loans funded. LOAN QUALITY Non-performing assets consist of non-accrual loans, loans past due 90 days or more and still accruing interest, other real estate owned and repossessions. Non-performing assets declined from $2.0 million at December 31, 1998 to $831,000 at December 31, 1999. Non-performing assets as a percentage of total assets decreased to 0.24% in 1999 from 0.65% in 1998. The improvement (or decrease) in non-performing assets is attributed to the liquidation of several other real estate owned ("OREO") properties, as well as liquidating several loans guaranteed by the Small Business Administration. Management is continually analyzing its loan portfolio in an effort to recognize and resolve its problem assets as quickly and efficiently as possible. TABLE 7 sets forth certain categories of risk elements on non-performing assets for the past five years. 23 TABLE 7: NON-PERFORMING ASSETS
DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Non-Accrual Loans...................... $ 549 $1,393 $1,045 $ 87 $ 372 Past Due Loans 90 Days or More and Still Accruing................... 180 22 158 229 159 Other Real Estate Owned & Repossessions...................... 102 613 320 88 126 ----- ------ ------ ----- ----- Total Non-Performing Assets........ $ 831 $2,028 $1,523 $ 404 $ 657 ===== ====== ====== ===== ===== Percent of Total Assets................ 0.24% 0.65% 0.56% 0.16% 0.37% ===== ====== ====== ===== =====
The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on past due and other loans that management believes require attention. The provision for loan losses is a charge to earnings in the current period to maintain the allowance for loan losses at an adequate level. Loans are charged against the allowance when management believes collection of the principal is unlikely. Management considers the allowance appropriate and adequate to cover potential losses inherent in the loan portfolio; however, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove to be valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required. TABLE 8: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
DECEMBER 31, -------------------------------------------------------------------------- 1999 1998 1997 1996 ------------------- ------------------- ------------------- -------- PERCENT PERCENT PERCENT OF LOANS OF LOANS OF LOANS IN EACH IN EACH IN EACH CATEGORY CATEGORY CATEGORY TO TOTAL TO TOTAL TO TOTAL AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Commercial, Financial and Agricultural............ $1,670 51.5% $1,061 45.6% $ 932 43.4% $ 821 Real Estate--Construction.... 12 7.1% 6 4.5% 9 2.1% 5 Real Estate--Mortgage..... 220 32.4% 127 38.7% 163 42.9% 154 Consumer.................. 769 9.0% 621 11.2% 391 11.6% 416 Unallocated............... -- -- 60 -- -- -- -- ------ ----- ------ ----- ------ ----- ------ Total................... $2,671 100% $1,875 100% $1,495 100% $1,396 ====== ===== ====== ===== ====== ===== ====== DECEMBER 31, ------------------------------ 1996 1995 -------- ------------------- PERCENT PERCENT OF LOANS OF LOANS IN EACH IN EACH CATEGORY CATEGORY TO TOTAL TO TOTAL LOANS AMOUNT LOANS -------- -------- -------- (DOLLARS IN THOUSANDS) Commercial, Financial and Agricultural............ 46.1% $476 47.8% Real Estate--Construction.... 2.7% 5 2.1% Real Estate--Mortgage..... 38.2% 72 34.1% Consumer.................. 13.0% 389 16.0% Unallocated............... -- 4 -- ----- ---- ----- Total................... 100% $946 100% ===== ==== =====
The allowance for loan losses on December 31, 1999, was $2.7 million, or 1.00% of total loans outstanding, net of unearned income compared to $1.9 million or 1.00% at December 31, 1998. The increase in the allowance is a direct result of the loan growth experienced in 1999. TABLE 8 provides an allocation of the allowance for loan losses to specific loan categories for each of the past five years. TABLE 9: "Activity in Allowance for Loan Losses" indicates activity in the allowance for loan losses for the years 1999, 1998, 1997, 1996 and 1995. 24 TABLE 9: ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Balance at Beginning of Year.............. $ 1,875 $ 1,495 $ 1,396 $ 946 $ 827 Allowance Acquired by Merger.............. -- -- -- 370 -- Loans Charged-Off: Commercial, Financial and Agricultural.......................... 312 123 160 79 11 Real Estate, Mortgage................... 13 3 -- 1 -- Consumer................................ 309 296 248 203 159 -------- -------- -------- -------- -------- Total Loans Charged-Off............... (634) (422) (408) (283) (170) Recoveries on Loans Previously Charged-Off: Commercial, Financial and Agricultural.......................... 188 41 24 7 17 Real Estate Mortgage.................... -- 7 -- 1 -- Consumer................................ 82 44 43 20 42 -------- -------- -------- -------- -------- Total Loan Recoveries................. 270 92 67 28 59 -------- -------- -------- -------- -------- Net Loans Charged-Off............... (364) (330) (341) (255) (111) -------- -------- -------- -------- -------- Provision for Loan Losses Charged to Expense...................... 1,160 710 440 335 230 -------- -------- -------- -------- -------- Ending Balance............................ $ 2,671 $ 1,875 $ 1,495 $ 1,396 $ 946 ======== ======== ======== ======== ======== Total Loans Outstanding................... $266,084 $187,015 $159,649 $148,824 $102,349 Average Loans Outstanding................. $215,861 $171,048 $155,168 $117,450 $ 93,454 Allowance for Loan Losses to Loans Outstanding............................. 1.00% 1.00% 0.94% 0.94% 0.92% Net Charge-Offs to Average Loans Outstanding............................. 0.17% 0.19% 0.22% 0.22% 0.12%
INVESTMENT PORTFOLIO The Company uses its securities portfolio primarily as a source of liquidity and a base from which to pledge assets for repurchase agreements and public deposits. The total recorded value of securities was $45.7 million at December 31, 1999, a decrease of 27% from $62.3 million at the end of 1998. Securities are classified as either held-to-maturity or available-for-sale which are recorded at fair market value. Securities available-for-sale, which made up 77% of the total investment portfolio as of December 31, 1999 had a value of $35.1 million. With most of the portfolio being in the available-for-sale category, the Company has the flexibility in case an immediate need for liquidity arises. The unrealized gains or losses, net of tax, do not impact net income or regulatory capital but are recorded as adjustments to shareholders' equity. At December 31, 1999, shareholders' equity included a net unrealized loss of $537,000 compared to net unrealized gain of $418,000 at December 31, 1998. As a percent of total earning assets, the investment portfolio has deceased to a level of 15% at December 31, 1999 compared to 22% for year ended 1998. The significant decrease in the size of the portfolio relative to total earning assets is attributable to the increase in loan growth which improved the mix of earning assets. The Company invests primarily in direct obligations of the United States, obligations guaranteed as to the principal and interest by the United States and obligations of agencies of the United States. In addition, the Company enters into federal funds transactions with its principal correspondent banks. The Federal Reserve Bank and Federal Home Loan Bank also require equity investments to be maintained by the Company. 25 TABLE10 sets forth the breakdown of investment securities by maturities and TABLE 10A displays the average yield by range of maturities. TABLE 10: MATURITY DISTRIBUTION OF INVESTMENT SECURITIES (1) DECEMBER 31, 1999
HELD TO MATURITY AVAILABLE FOR SALE ------------------------ ------------------------ AMORTIZED ESTIMATED AMORTIZED ESTIMATED COST MARKET VALUE COST MARKET VALUE --------- ------------ --------- ------------ DOLLARS IN THOUSANDS U.S. Treasury: One Year or Less............................... $ -- $ -- $ 2,498 $ 2,501 Over One Through Five Years.................... -- -- 7,482 7,513 ------- ------ ------- ------- Total U.S. Treasury.............................. -- -- 9,980 10,014 U.S. Government Agencies and Corporations: Over One Through Five Years.................... -- -- 20,000 19,062 Over Five Through Ten Years.................... 8,721 8,132 -- -- ------- ------ ------- ------- Total U.S. Government Agencies and Corporations................................... 8,721 8,132 20,000 19,062 Obligations of State and Political Subdivisions: Over One Through Five Years.................... -- -- 85 85 Over Five Through Ten Years.................... -- -- 790 786 Over Ten Years................................. -- -- 708 704 ------- ------ ------- ------- Total Obligations of State and Political Subdivisions................................... -- -- 1,583 1,575 Mortgage-Backed Securities (2): One Year or Less............................... 1,846 1,770 -- -- Over One Through Five Years.................... 15 15 -- -- Over Five Through Ten Years.................... -- -- 865 865 Over Ten Years................................. -- -- 1,685 1,688 ------- ------ ------- ------- Total Mortgage-Backed Securities................. 1,861 1,785 2,550 2,553 Other Securities: Over Ten Years (3)............................. -- -- 1,855 1,907 ------- ------ ------- ------- Total Other Securities........................... -- -- 1,855 1,907 ------- ------ ------- ------- Total Securities................................. $10,582 $9,917 $35,968 $35,111 ======= ====== ======= =======
- ------------------------ (1) All securities, excluding Obligations of State and Political Subdivisions, are taxable. (2) Represents investments in mortgage-backed securities which are subject to early repayment. (3) Represents investment in Federal Reserve Bank and Federal Home Loan Bank stock and other marketable equity securities. 26 TABLE 10A: WEIGHTED AVERAGE YIELD BY RANGE OF MATURITIES
DECEMBER 31, ----------------------- 1999 1998 -------- -------- One Year or Less............................................ 5.81% 5.23% Over One through Five Years................................. 6.15 6.26 Over Five through Ten Years................................. 5.78 5.82 Over Ten Years(1)........................................... 5.65 5.91
- ------------------------ (1) Represents adjustable rate, mortgage-backed securities which are repriceable within one year. CAPITAL RESOURCES Shareholders' equity at December 31, 1999 was $43.1 million, as compared to $30.9 million at December 31, 1998. In 1999, the Board of Directors declared dividends totaling $0.20 per share, consistent with 1998. At December 31, 1999, the Company's common stock had a book value of $7.04 per share compared to $6.36 per share in 1998. On January 29, 1999 the Company began trading on the NASDAQ National Market under the symbol "CNBB" after issuing 1,250,000 shares of common stock in the initial public offering at $10.25 per common share. Proceeds from the offering net of underwriting discount and expenses totaled $11.4 million, which are being used to support expansion plans and for general corporate purposes. The Comptroller establishes risk based capital guidelines for national banks. These guidelines are intended to provide an additional measure of a bank's capital adequacy by assigning weighted levels of risk to asset categories. Banks are also required to systematically hold capital against such "off balance sheet" activities as loans sold with recourse, loan commitments, guarantees and standby letters of credit. These guidelines are intended to strengthen the quality of capital by increasing the emphasis on common equity and restricting the amount of loss reserves and other forms of equity such as preferred stock that may be included in capital. Under the terms of the guidelines, banks must meet minimum capital adequacy based upon both total assets and risk adjusted assets. All banks are required to maintain a minimum ratio of total capital to risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to risk-weighted assets of 4%. Tier 1 Capital includes common shareholders' equity and qualifying preferred stock, less goodwill and other adjustments. Tier 2 Capital consists of preferred stock not qualifying as Tier 1 Capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt and the allowance for credit losses up to 1.25% of risk-weighted assets. Total Capital consists of Tier 1 Capital and Tier 2 Capital. The regulatory agencies have also established an additional capital adequacy guideline referred to as the Tier 1 leverage ratio that measures the ratio of Tier 1 capital to average quarterly assets. At December 31, 1999, the Company's Tier 1 capital, total risk-based capital and Tier 1 leverage ratios were 16.2%, 17.3% and 12.7%, respectively. Adherence to these guidelines has not had an adverse impact on the Company or its banking subsidiary. Selected capital ratios at year end 1999 as compared to 1998 are shown in TABLE 11. TABLE 11: CAPITAL RATIOS
DECEMBER 31, ----------------------- WELL CAPITALIZED REGULATORY 1999 1998 REQUIREMENTS MINIMUMS -------- -------- ---------------- ---------- Risk Based Capital Ratios: Tier 1 Capital Ratio................................ 16.2% 15.6% 6.0% 4.0% Total Capital to Risk-Weighted Assets............... 17.3% 16.6% 10.0% 8.0% Tier 1 Leverage Ratio................................. 12.7% 9.7% 5.0% 4.0%
27 QUARTERLY FINANCIAL INFORMATION Table 12 sets forth, for the periods indicated, certain consolidated quarterly financial information of the Company. This information is derived from the Company's unaudited financial statements which include, in the opinion of management, all normal recurring adjustments which management considers necessary for a fair presentation of the results for such periods. The results for any quarter are not necessarily indicative of results for any future period. TABLE 12: SELECTED QUARTERLY DATA
1999 1998 ----------------------------------------- ----------------------------------------- 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q -------- -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Summary of Operations: Net interest income..................... $ 3,998 $ 3,774 $ 3,589 $ 3,345 $ 3,028 $ 2,943 $ 2,941 $ 2,790 Provision for loan losses............... (375) (275) (310) (200) (310) (170) (150) (80) -------- -------- -------- -------- -------- -------- -------- -------- Net interest income after provision for loan losses........................... 3,623 3,499 3,279 3,145 2,718 2,773 2,791 2,710 Other income (excluding securities transactions)......................... 783 739 743 687 674 579 565 570 Securities gains, net................... -- -- -- -- 2 -- -- 2 Other expenses.......................... (3,465) (3,026) (2,819) (2,684) (2,463) (2,381) (2,292) (2,162) -------- -------- -------- -------- -------- -------- -------- -------- Income before income tax expense........ 941 1,212 1,203 1,148 931 971 1,064 1,120 Income tax expense...................... (322) (423) (418) (400) (319) (333) (367) (388) -------- -------- -------- -------- -------- -------- -------- -------- Net income.............................. $ 619 $ 789 $ 785 $ 748 $ 612 $ 638 $ 697 $ 732 ======== ======== ======== ======== ======== ======== ======== ======== Per Common Share: Basic earnings per common share......... $ 0.10 $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.15 $ 0.15 Diluted earnings per common share....... 0.09 0.13 0.13 0.13 0.13 0.13 0.14 0.15 Dividends Declared...................... 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 Book Value.............................. 7.04 7.05 6.99 6.99 6.36 6.29 6.18 6.09 Market Price (1) High.................................. 10.56 10.88 10.25 10.25 -- -- -- -- Low................................... 9.00 8.75 9.66 8.00 -- -- -- -- Close................................. 9.63 10.69 10.00 9.75 -- -- -- -- Balance Sheet Data: Assets.................................. $346,076 $330,106 $314,816 $315,653 $311,565 $290,566 $287,752 $279,546 Loans................................... 266,084 228,371 216,856 200,326 187,015 176,622 173,854 160,403 Deposits................................ 288,203 274,456 263,408 262,895 265,109 249,173 248,003 241,417 Shareholders' Equity.................... 43,075 43,075 42,715 42,691 30,896 30,555 30,016 29,558
- ------------------------------ (1) Prior to January 29, 1999, there was not an established trading market for the common stock of CNB Florida Bancshares, Inc. 28 QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK On January 28, 1997, the Securities and Exchange Commission adopted amendments to Regulation S-K, Regulation S-X, and various forms (Securities Act Release No. 7386) to clarify and expand existing requirements for disclosures about derivatives and market risks inherent in derivatives and other financial instruments. No derivative financial instruments are held by the Company, but other financial instruments, which include investments, loans and deposit liabilities are included in the Company's balance sheet. The release requires quantitative and qualitative disclosures about market risk. See section titled "Liquidity and Interest Rate Sensitivity" for further discussion on the Company's management of interest rate risk. Financial instruments that have market risk are included in Table 3: "Rate Sensitivity Analysis". These instruments are shown by maturity, separated by fixed and variable interest rates. The estimated fair value of each instrument category is also shown in the table. While these estimates of fair value are based on management's judgement of the most appropriate factors, there is no assurance that, were the Company to have disposed of such instruments at December 31, 1999, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at December 31, 1999 would not necessarily be considered to apply at subsequent dates. FINANCIAL STATEMENTS The consolidated financial statements which follow have been audited by the Company's independent certified public accountants, Arthur Andersen LLP. Their opinion on the Company's consolidated financial statements is also included therein. 29 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS 30 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of CNB Florida Bancshares, Inc. and Subsidiary: We have audited the accompanying consolidated statements of financial condition of CNB FLORIDA BANCSHARES, INC. (a Florida corporation) AND SUBSIDIARY as of December 31, 1999 and 1998 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the 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 audit. We conducted our audits in accordance with generally accepted auditing standards in the United States. 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 financial statements referred to above present fairly, in all material respects, the financial position of CNB Florida Bancshares, Inc. and Subsidiary as of December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Jacksonville, Florida February 10, 2000 31 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, ----------------------- 1999 1998 ---------- ---------- (DOLLARS IN THOUSANDS) ASSETS Cash and due from banks..................................... $ 17,235 $ 12,630 Federal funds sold.......................................... -- 25,250 Interest-bearing deposits in other banks.................... 285 11,007 -------- -------- Total cash and cash equivalents....................... 17,520 48,887 Investment securities available for sale.................... 35,111 59,337 Investment securities held to maturity...................... 10,582 2,940 Loans, net.................................................. 263,413 185,140 Premises and equipment, net................................. 14,395 10,754 Other assets................................................ 5,055 4,507 -------- -------- Total assets.......................................... $346,076 $311,565 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Non-interest bearing demand............................... $ 42,110 $ 35,701 Savings, NOW and money market............................. 112,103 92,495 Time under $100,000....................................... 89,141 95,369 Time $100,000 and over.................................... 44,849 41,544 -------- -------- Total deposits........................................ 288,203 265,109 Securities sold under repurchase agreements................. 7,263 12,570 Federal funds purchased..................................... 4,800 -- Other liabilities........................................... 2,735 2,990 -------- -------- Total liabilities..................................... 303,001 280,669 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTES 17 AND 18) SHAREHOLDERS' EQUITY Preferred stock, $.01 par value; 500,000 shares authorized, no shares issued or outstanding........................... -- -- Common stock, $.01 par value; 10,000,000 shares authorized, 6,116,070 shares issued and outstanding for 1999 and 4,856,770 shares issued and outstanding for 1998.......... 61 49 Additional paid-in capital.................................. 30,805 19,465 Retained earnings........................................... 12,746 10,964 Accumulated other comprehensive (loss) income, net of taxes..................................................... (537) 418 -------- -------- Total shareholders' equity............................ 43,075 30,896 -------- -------- Total liabilities and shareholders' equity............ $346,076 $311,565 ======== ========
The accompanying notes are an integral part of these financial statements. 32 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- (DOLLARS AND SHARES IN THOUSANDS) INTEREST INCOME Interest and fees on loans................................ $19,412 $15,877 $14,542 Interest on investment securities available for sale...... 2,671 2,869 3,560 Interest on investment securities held to maturity........ 504 326 490 Interest on federal funds sold............................ 643 1,701 720 Interest on interest-bearing deposits..................... 528 346 108 ------- ------- ------- Total interest income............................... 23,758 21,119 19,420 ------- ------- ------- INTEREST EXPENSE Interest on deposits...................................... 8,725 9,051 8,255 Interest on short-term borrowings......................... 327 359 239 Interest on notes payable................................. -- 7 169 ------- ------- ------- Total interest expense.............................. 9,052 9,417 8,663 ------- ------- ------- NET INTEREST INCOME......................................... 14,706 11,702 10,757 PROVISION FOR LOAN LOSS..................................... 1,160 710 440 ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS........... 13,546 10,992 10,317 ------- ------- ------- NON-INTEREST INCOME Service charges........................................... 2,122 1,811 1,734 Other fees and charges.................................... 830 577 418 Gain on sale of securities................................ -- 4 1 ------- ------- ------- Total non-interest income........................... 2,952 2,392 2,153 ------- ------- ------- NON-INTEREST EXPENSE Salaries and employee benefits............................ 6,461 4,819 3,960 Occupancy and equipment expenses.......................... 1,810 1,592 1,387 Other operating expenses.................................. 3,723 2,887 2,567 ------- ------- ------- Total non-interest expense.......................... 11,994 9,298 7,914 ------- ------- ------- INCOME BEFORE INCOME TAXES.................................. 4,504 4,086 4,556 INCOME TAXES................................................ 1,563 1,407 1,581 ------- ------- ------- NET INCOME.................................................. $ 2,941 $ 2,679 $ 2,975 ======= ======= ======= EARNINGS PER SHARE Basic earnings per share.................................. $ 0.49 $ 0.55 $ 0.69 ======= ======= ======= Basic weighted average shares outstanding................. 5,995 4,857 4,328 ======= ======= ======= Diluted earnings per share................................ $ 0.48 $ 0.55 $ 0.68 ======= ======= ======= Diluted weighted average shares outstanding............... 6,070 4,898 4,407 ======= ======= =======
The accompanying notes are an integral part of these financial statements. 33 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999, 1998 AND 1997 ---------------------------------------------------------------------------- ACCUMULATED COMMON OTHER STOCK ADDITIONAL COMPREHENSIVE TOTAL ------------------- PAID-IN RETAINED INCOME (LOSS), SHAREHOLDERS' SHARES VALUE CAPITAL EARNINGS NET OF TAXES EQUITY -------- -------- ---------- -------- -------------- ------------- (DOLLARS AND SHARES IN THOUSANDS) BALANCE, DECEMBER 31, 1996................ 3,875 $39 $12,663 $ 6,901 $ 66 $19,669 Comprehensive income: Net income.............................. 2,975 Change in unrealized gain on investment securities available for sale, net of taxes................................. 189 Total comprehensive income.......... 3,164 Cash dividends............................ (620) (620) Issuance of common stock, net of offering cost.................................... 969 10 6,744 6,754 Issuance of common stock for option agreements, net of repurchases.......... 12 58 58 ----- --- ------- ------- ----- ------- BALANCE, DECEMBER 31, 1997................ 4,856 49 19,465 9,256 255 29,025 Comprehensive income: Net income.............................. 2,679 Change in unrealized gain on investment securities available for sale, net of taxes................................. 163 Total comprehensive income.......... 2,842 Cash dividends............................ (971) (971) ----- --- ------- ------- ----- ------- BALANCE, DECEMBER 31, 1998................ 4,856 49 19,465 10,964 418 30,896 Comprehensive income: Net income.............................. 2,941 Change in unrealized gain on investment securities available for sale, net of taxes................................. (955) Total comprehensive income.......... 1,986 Cash dividends............................ (1,159) (1,159) Issuance of common stock, net of offering cost.................................... 1,250 12 11,356 11,368 Exercise of stock options................. 2 9 9 Repurchase of common stock................ (10) (96) (96) Issuance of restricted stock.............. 18 71 71 ----- --- ------- ------- ----- ------- BALANCE, DECEMBER 31, 1999................ 6,116 $61 $30,805 $12,746 $(537) $43,075 ===== === ======= ======= ===== =======
The accompanying notes are an integral part of these financial statements. 34 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 2,941 $ 2,679 $ 2,975 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 971 894 828 Provision for loan losses............................... 1,160 710 440 Investment securities (accretion) amortization, net..... (278) 54 135 Non-cash compensation................................... 71 -- -- Deferred income tax benefit............................. (242) (14) (30) Changes in assets and liabilities: Other assets.......................................... 82 (515) (246) Other liabilities..................................... (255) 735 219 -------- -------- -------- Net cash provided by operating activities........... 4,450 4,543 4,321 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in loans..................................... (79,433) (27,696) (11,165) Purchases of investment securities available for sale..... (20,413) (28,908) (17,192) Purchases of investment securities held to maturity....... (8,754) -- -- Proceeds from called investment securities available for sale.................................................... 3,000 -- -- Proceeds from maturities of investment securities available for sale...................................... 40,442 22,654 25,417 Proceeds from maturities of investment securities held to maturity................................................ 1,064 5,121 1,877 Purchases of premises and equipment....................... (4,432) (1,341) (1,284) -------- -------- -------- Net cash used in investing activities............... (68,526) (30,170) (2,347) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits.................................. 23,094 33,665 4,620 Net (decrease) increase in securities sold under repurchase agreements................................... (5,307) 3,413 5,390 Federal funds purchased................................... 4,800 -- -- Repayment of note payable................................. -- (1,450) (1,200) Cash dividends............................................ (1,159) (971) (620) Issuance of common stock.................................. 11,368 -- 6,754 Repurchase of common stock................................ (96) -- -- Exercise of stock options................................. 9 -- 58 -------- -------- -------- Net cash provided by financing activities........... 32,709 34,657 15,002 -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (31,367) 9,030 16,976 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 48,887 39,857 22,881 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 17,520 $ 48,887 $ 39,857 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 35 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION AND NATURE OF OPERATIONS CNB Florida Bancshares, Inc. (the "Company") is a registered bank holding company incorporated in Florida. The Company operates a wholly owned banking subsidiary, CNB National Bank (the "Bank"), which is chartered as a national bank. The Bank is a member of the Federal Reserve System and conducts business from a total of 12 banking offices in north Florida. The Company offers a full range of lending and deposit products. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company follows generally accepted accounting principles and reporting practices applicable to the banking industry in the United States. RECLASSIFICATIONS Certain amounts and captions presented in the 1998 and 1997 financial statements have been adjusted to conform to the 1999 presentation. The financial statements, as well as share and per share data, and other information have been reclassified to reflect the two-for-one stock split effective August 17, 1998. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENT SECURITIES AVAILABLE FOR SALE Securities available for sale represent investment securities which are used for asset/liability, liquidity, and other funds management purposes which are deemed to have indefinite holding periods. These securities are recorded at fair value, with unrealized gain and losses, net of deferred income taxes, recorded in the accumulated other comprehensive (loss) income component of shareholders' equity. HELD TO MATURITY Securities held to maturity represent investment securities where the Company's intent and ability is to hold the securities to maturity. These securities are stated at cost, adjusted for amortization of premiums and accretion of discounts. Amortization and accretion of premiums and discounts are recognized as adjustments to interest income. Realized gains and losses are recognized using the specific identification method. 36 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LOANS AND LOAN FEES Loans are stated at the amount of unpaid principal, reduced by an allowance for loan loss. Interest on substantially all loans other than installment loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding. Interest on some installment loans is recognized using the rule-of-78s method, the results of which are not materially different than the interest method. Loan fees, net of loan origination costs, are capitalized and amortized as yield adjustments over the respective loan terms using a method which does not differ significantly from the interest method. For 1999, 1998 and 1997, loan fees included in interest and fees on loans amounted to approximately $697,000, $572,000 and $531,000, respectively. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established through a provision for loan losses charged to income. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb inherent losses on existing loans that may become uncollectible based on evaluations of the collectibility of the loans. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrowers' ability to pay. Accrual of interest is discontinued on loans that are 90 days or more past due, unless substantially collateralized and in the process of collection, or sooner if, in the opinion of management, the borrower's financial condition is such that collection of principal or interest is doubtful. PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expenses as incurred. Gains and losses on dispositions are reflected in income. Long-lived assets are evaluated regularly for other-than-temporary impairment. If circumstances suggest that their value may be impaired, an assessment of recoverability is performed prior to any write-down of the asset. OTHER REAL ESTATE OWNED Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or at fair value, less cost to sell. INTANGIBLES The Company has intangible assets with carrying amounts of approximately $1,187,000 and $1,366,000 at December 31, 1999 and 1998, respectively. Intangible assets consist of core deposits and goodwill. Core deposit intangibles are being amortized over a 10-year period using the straight-line method. Goodwill is 37 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) being amortized over a 15-year period on a straight-line method. Amortization of intangible assets was approximately $179,000, $190,000 and $202,000 for 1999, 1998 and 1997, respectively. Periodically, the Company reviews its intangible assets for events or changes in circumstances that may indicate that the carrying amounts of the assets are not recoverable. INCOME TAXES The Company uses the liability method of accounting for income taxes. This method requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company and the Bank file consolidated federal and state income tax returns. Under a tax-sharing arrangement, income tax charges or credits are generally allocated to the Company and the Bank on the basis of their respective taxable income or loss that is included in the consolidated income tax return, as determined by the separate return method. EARNINGS PER SHARE Basic earnings per share is calculated based on weighted average number of shares of common stock outstanding. Diluted earnings per share is calculated based on the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents are determined using the treasury method for diluted shares outstanding. The difference between diluted and basic shares outstanding is common stock equivalents from stock options and restricted stock outstanding in the years ended December 31, 1999, 1998 and 1997. SUPPLEMENTAL CASH FLOW INFORMATION For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods and all cash equivalents have an original maturity of 90 days or less. Cash paid for interest was approximately $9,206,000, $9,049,000 and $8,308,000 during 1999, 1998 and 1997, respectively, and cash paid for income taxes was approximately $1,720,000, $1,384,000 and $1,785,000 during 1999, 1998 and 1997, respectively. 38 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENT SECURITIES Amortized cost and estimated fair value of investment securities available for sale at December 31, 1999 and 1998 are as follows (in thousands):
U.S. U.S. STATE, MORTGAGE- TREASURY GOVERNMENT COUNTY, AND BACKED 1999 SECURITIES AGENCIES MUNICIPAL SECURITIES OTHER TOTAL - ---- ---------- ---------- ----------- ---------- -------- -------- Amortized cost............ $ 9,980 $20,000 $1,583 $2,550 $1,855 $35,968 Gross unrealized: Gains................... 34 -- -- 3 52 89 Losses.................. -- (938) (8) -- -- (946) ------- ------- ------ ------ ------ ------- Estimated fair value...... $10,014 $19,062 $1,575 $2,553 $1,907 $35,111 ======= ======= ====== ====== ====== =======
U.S. U.S. STATE, MORTGAGE- TREASURY GOVERNMENT COUNTY, AND BACKED 1998 SECURITIES AGENCIES MUNICIPAL SECURITIES OTHER TOTAL - ---- ---------- ---------- ----------- ---------- -------- -------- Amortized cost............ $17,966 $33,525 $1,581 $4,157 $1,443 $58,672 Gross unrealized: Gains................... 460 23 80 25 82 670 Losses.................. -- -- -- (5) -- (5) ------- ------- ------ ------ ------ ------- Estimated fair value...... $18,426 $33,548 $1,661 $4,177 $1,525 $59,337 ======= ======= ====== ====== ====== =======
Amortized cost and estimated fair value of investment securities held to maturity at December 31, 1999 and 1998 are as follows (in thousands):
U.S. MORTGAGE- GOVERNMENT BACKED 1999 AGENCIES SECURITIES TOTAL - ---- ---------- ---------- -------- Amortized cost................................. $8,721 $1,861 $10,582 Gross unrealized: Gains........................................ -- -- -- Losses....................................... (589) (76) (665) ------ ------ ------- Estimated fair value........................... $8,132 $1,785 $ 9,917 ====== ====== =======
MORTGAGE- BACKED 1998 SECURITIES TOTAL - ---- ---------- -------- Amortized cost............................................. $2,940 $2,940 Gross unrealized: Gains.................................................... 4 4 Losses................................................... -- -- ------ ------ Estimated fair value....................................... $2,944 $2,944 ====== ======
Interest income earned on tax-exempt securities in 1999, 1998 and 1997 was approximately $87,000, $83,000 and $91,000, respectively. Dividends of approximately $113,000, $93,000 and $84,000 on stock of 39 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENT SECURITIES (CONTINUED) the Federal Reserve Bank and the Federal Home Loan Bank are included in interest on investment securities available for sale in 1999, 1998 and 1997, respectively. The amortized cost and estimated fair value of securities at December 31, 1999, by contractual maturity, are shown below (in thousands):
INVESTMENT SECURITIES INVESTMENT SECURITIES AVAILABLE FOR SALE HELD TO MATURITY ---------------------- ---------------------- AMORTIZED ESTIMATED AMORTIZED ESTIMATED DUE IN: COST FAIR VALUE COST FAIR VALUE - ------- --------- ---------- --------- ---------- One year or less..................... $ 2,498 $ 2,501 $ -- $ -- After one through five years......... 27,567 26,660 -- -- After five through ten............... 790 786 8,721 8,132 Over ten years....................... 708 704 -- -- Mortgage-backed securities and others............................. 4,405 4,460 1,861 1,785 ------- ------- ------- ------ $35,968 $35,111 $10,582 $9,917 ======= ======= ======= ======
At December 31, 1999, U. S. Treasury and Government agency securities with an amortized cost of approximately $26,611,000 and an estimated fair value of approximately $25,792,000 were pledged to secure public funds, treasury tax and loan deposits, and repurchase agreements. 4. LOANS, ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS Loans at December 31, 1999 and 1998 were comprised of the following (in thousands):
1999 1998 -------- -------- Commercial, financial, and agricultural................. $136,937 $ 85,208 Real estate--construction............................... 18,926 8,527 Real estate--mortgage................................... 86,275 72,357 Installment and consumer lines.......................... 23,946 20,923 -------- -------- Total loans, net of unearned discount............... 266,084 187,015 Less allowance for loan losses.......................... (2,671) (1,875) -------- -------- Net loans........................................... $263,413 $185,140 ======== ========
Activity in the allowance for loan losses account was as follows for the years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 -------- -------- -------- Balance beginning of year........................... $1,875 $1,495 $1,396 Provision......................................... 1,160 710 440 Charge-offs....................................... (634) (422) (408) Recoveries........................................ 270 92 67 ------ ------ ------ Balance at end of year.............................. $2,671 $1,875 $1,495 ====== ====== ======
40 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. LOANS, ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS (CONTINUED) Nonaccrual loans totaled approximately $549,000 and $1,393,000 at December 31, 1999 and 1998, respectively. Foregone interest, which would have otherwise been recorded on nonaccrual loans, including those loans that were nonaccrual at sometime during the year and later paid, reinstated or charged off, was approximately $23,000, $56,000 and $51,000, in 1999, 1998 and 1997, respectively. In addition to nonaccrual loans, nonperforming assets include other real estate owned related to property acquired by foreclosure in settlement of debt. Other real estate owned was approximately $88,000 and $600,000 at December 31, 1999 and 1998, respectively, and is included in other assets in the accompanying consolidated statement of financial condition. The Company recognizes income on impaired loans primarily on the cash basis. Any change in the present value of expected cash flows is recognized through the allowance for loan losses. Impaired loan information for the year ended December 31, 1999, 1998 and 1997 is as follows (in thousands):
1999 1998 1997 -------- -------- -------- Impaired loans with an allowance..................... $686 $1,744 $ 811 Impaired loans without an allowance (1).............. -- -- 583 ---- ------ ------ Total impaired loans............................. $686 $1,744 $1,395 ==== ====== ====== Allowance for impaired loans......................... $159 $ 408 $ 267 ==== ====== ====== Interest income recognized on impaired loans during the year........................................... $ 21 $ 93 $ 73 ==== ====== ======
- ------------------------ (1) Impaired loans determined to be carried at or below fair value of the underlying collateral and, as such, do not require an allowance. The average balance of impaired loans during 1999, 1998 and 1997 approximated $1.2 million. 5. PREMISES AND EQUIPMENT Premises and equipment were comprised of the following components at December 31 (in thousands):
1999 1998 -------- -------- Buildings and improvements................................ $ 8,757 $ 8,629 Equipment and furnishings................................. 5,382 4,213 Land...................................................... 3,904 2,552 Construction in progress.................................. 1,813 52 ------- ------- 19,856 15,446 Less accumulated depreciation............................. (5,461) (4,692) ------- ------- $14,395 $10,754 ======= =======
Depreciation was approximately $792,000, $704,000 and $626,000 for 1999, 1998 and 1997, respectively. 41 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. TIME DEPOSITS At December 31, 1999, the scheduled maturities of time certificates of deposit are as follows (in thousands): 2000........................................................ $111,365 2001........................................................ 16,189 2002........................................................ 4,959 2003........................................................ 1,273 2004 and thereafter......................................... 204 -------- $133,990 ========
7. REPURCHASE AGREEMENTS The Bank has entered into repurchase agreements with several customers under which the Bank pledges investment securities owned and under its control as collateral against the one-day agreements. The daily average balance of these agreements during 1999, 1998, and 1997 was approximately $6,854,000, $7,233,000 and $4,738,000, respectively. Interest expense in 1999, 1998 and 1997 was approximately $322,000, $359,000 and $238,000, respectively, resulting in an average rate paid of 4.70% in 1999, 4.97% in 1998 and 5.03% in 1997. The highest amount outstanding during 1999, 1998 and 1997 was approximately $10,700,000, $12,570,000 and $9,157,000, respectively. 8. OTHER OPERATING EXPENSES Components of other operating expenses are as follows for the years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 -------- -------- -------- Data processing..................................... $ 590 $ 540 $ 519 Postage and delivery................................ 468 377 336 Advertising and promotion........................... 354 239 257 Supplies............................................ 299 244 231 Amortization of intangible assets................... 179 190 202 Telephone........................................... 423 271 185 Legal and professional.............................. 327 225 158 Loan expense........................................ 165 133 135 Regulatory fees..................................... 143 134 119 Administrative...................................... 182 123 103 Other............................................... 593 411 322 ------ ------ ------ $3,723 $2,887 $2,567 ====== ====== ======
42 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. INCOME TAXES The income tax provision (benefit) for the years ended December 31, 1999, 1998 and 1997 consisted of the following components (in thousands):
1999 1998 1997 -------- -------- -------- Current: Federal........................................... $1,598 $1,365 $1,438 State............................................. 207 56 173 ------ ------ ------ Total........................................... $1,805 $1,421 $1,611 ====== ====== ====== Deferred: Federal........................................... $ (244) $ (147) $ (69) State............................................. 2 133 39 ------ ------ ------ Total........................................... $ (242) $ (14) $ (30) ====== ====== ====== Total: Federal........................................... $1,354 $1,218 $1,369 State............................................. 209 189 212 ------ ------ ------ Total........................................... $1,563 $1,407 $1,581 ====== ====== ======
Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities and their respective tax bases. Significant components of and the resultant deferred tax assets and liabilities at December 31, 1999 and 1998 are as follows:
1999 1998 -------- -------- Deferred tax liabilities: Property and equipment.................................... $(650) $(685) Unearned loan fees........................................ (81) (37) Unrealized gain on investment securities available for sale.................................................... -- (248) ----- ----- (731) (970) ----- ----- Deferred tax assets: Loan loss provisions...................................... 858 607 Unrealized loss on investment securities available for sale.................................................... 320 -- Intangible assets......................................... 105 94 Other items............................................... 39 50 ----- ----- 1,322 751 ----- ----- Net deferred tax asset (liability).......................... $ 591 $(219) ===== =====
43 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. INCOME TAXES (CONTINUED) The reasons for the differences between the statutory federal income tax rate and the effective tax rate are summarized as follows for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 -------- -------- -------- Statutory rates....................................... 34.0% 34.0% 34.0% Increase (decrease) resulting from: Effect of tax-exempt income......................... (2.7) (2.9) (2.3) State income taxes, net............................. 2.5 2.6 2.5 Nondeductible expenses.............................. 0.9 0.7 0.5 ---- ---- ---- 34.7% 34.4% 34.7% ==== ==== ====
10. COMPREHENSIVE INCOME The Company's comprehensive income consists of net income and changes in unrealized gains (losses) on securities available-for-sale, net of income taxes. Comprehensive income for 1999, 1998 and 1997 is calculated as follows (in thousands):
1999 1998 1997 -------- -------- -------- Unrealized (loss) gains recognized in other comprehensive income (net): Before tax....................................... $(1,523) $ 258 $ 301 Income tax....................................... (568) 95 112 ------- ------ ------ Net of tax....................................... $ (955) $ 163 $ 189 ======= ====== ====== Amounts reported in net income: Gain on sale of securities....................... $ -- $ 4 $ 1 Net (accretion) amortization..................... (278) 54 135 ------- ------ ------ Reclassification adjustment...................... (278) 58 136 Income tax expense............................... 96 (20) (47) ------- ------ ------ Reclassification adjustment, net of tax.......... $ (182) $ 38 $ 89 ======= ====== ====== Amounts reported in other comprehensive income: Unrealized (loss) gains arising during period, net of tax..................................... $(1,137) $ 201 $ 278 Reclassification adjustment, net of tax.......... 182 (38) (89) ------- ------ ------ Unrealized (loss) gains recognized in other comprehensive income (net)..................... (955) 163 189 Net income....................................... 2,941 2,679 2,975 ------- ------ ------ Total comprehensive income..................... $ 1,986 $2,842 $3,164 ======= ====== ======
44 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. LOANS TO RELATED PARTIES Certain officers and directors, and companies in which they held a 10% or more beneficial ownership, were indebted to(or in some cases, guaranteed loans by) the Bank. An analysis of such activities follows (in thousands):
1999 1998 -------- -------- Balance, January 1.......................................... $3,306 $4,450 New loans and advances.................................... 1,646 3,127 Repayments (excluding renewals)........................... (1,267) (4,271) ------ ------ Balance, December 31........................................ $3,685 $3,306 ====== ======
The loans analyzed above were made in the normal course of business at prevailing interest rates and terms. 12. DIVIDEND RESTRICTIONS The Company's primary source of funds is dividends it receives from the Bank. The payment of dividends by the Bank, in turn, is subject to the regulations of the Comptroller of the Currency, which require, among other things, that dividends be paid only from net profits of the current and immediately preceding two years. At December 31, 1999, the Bank had approximately $3,477,000 of retained earnings available for dividends to the Company without being required to seek special regulatory approvals. 13. EQUITY DIVIDENDS DECLARED During 1999, 1998 and 1997, the Company declared cash dividends of $.20, $.20 and $.14 per share, respectively. COMMON STOCK During February 1999, the Company sold 1,250,000 shares of common stock resulting in proceeds of approximately $11.4 million, net of underwriting discount and expenses. On July 15, 1997, the Company issued 968,960 shares of common stock at $7 per share. 14. STOCK BASED COMPENSATION STOCK OPTIONS The Company has long-term incentive plans that provide stock-based awards, including stock options to certain key employees. The terms of the Performance-Based Incentive Plan ("the Plan"), which were approved by shareholders at the annual meeting in April 1998, allow for a maximum grant of 540,000 shares. Prior to the approval of the Plan, there were issued and outstanding options totaling 166,766 of which 1,200 were exercised in 1999. There are 134,900 shares remaining to be issued under the Plan as of December 31, 1999. Generally, the options granted under the Plan become exercisable 33% in each year following the year of grant, and expire ten years after the date of the grant. The grant price of all options has been equal to the estimated fair market value of a share of stock as of the date of grant. 45 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. STOCK BASED COMPENSATION (CONTINUED) Options outstanding and the activity for December 31, 1999, 1998 and 1997 are presented below:
1999 1998 1997 ---------------------- ---------------------- ---------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE SHARES GRANT PRICE SHARES GRANT PRICE SHARES GRANT PRICE -------- ----------- -------- ----------- -------- ----------- Employee stock option plans: Outstanding at beginning of year...... 359,766 $6.26 166,766 $4.32 149,016 $3.75 Options granted..................... 214,600 9.92 193,000 7.93 34,000 7.00 Options exercised................... 1,800 5.00 -- -- 14,550 4.82 Options forfeited................... 20,000 8.00 -- -- 1,700 4.00 ------- ----- ------- ----- ------- ----- Outstanding at end of year............ 552,566 $7.63 359,766 $6.26 166,766 $4.32 ======= ===== ======= ===== ======= ===== Options exercisable at year-end......... 258,466 $5.90 184,500 $4.98 121,374 $3.99 ======= ===== ======= ===== ======= ===== Weighted-average fair value of options granted during the year............... $ 2.59 $ 1.98 $ 2.05 ======= ======= =======
The Company applies the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its stock option and award plans and has adopted the disclosure-only option under SFAS No. 123, "Accounting for Stock-Based Compensation." If the Company had adopted the accounting provisions of SFAS 123 and recognized expense for the fair value of employee stock options granted in 1999, 1998 and 1997, over the vesting life of the options, pro forma net income would be as indicated below (dollars in thousands, except per share data):
AS REPORTED PRO FORMA ------------------------------ ------------------------------ 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- -------- Net income.................................. $2,941 $2,679 $2,975 $2,658 $2,634 $2,973 Basic earnings per common share............. $ 0.49 $ 0.55 $ 0.69 $ 0.44 $ 0.54 $ 0.69 Diluted earnings per common share........... $ 0.48 $ 0.55 $ 0.68 $ 0.44 $ 0.54 $ 0.67
In determining the pro forma disclosures above, the fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model was developed to estimate the fair value of traded options, which have different characteristics than employee stock options, and changes to the subjective assumptions used in the model can result in materially different fair value 46 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. STOCK BASED COMPENSATION (CONTINUED) estimates. The weighted-average grant date fair values of the options granted during 1999, 1998 and 1997 were based on the following assumptions:
RISK-FREE INTEREST RATES DIVIDEND YIELD -------------------------------- -------------------------------- 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- -------- Performance-Based Incentive and other stock option plans...... 5.89% 4.62% 5.89% 2.03% 2.50% 2.86%
EXPECTED LIVES VOLATILITY ------------------------------ ------------------------------ 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- -------- Performance-Based Incentive and other stock option plans................. 6 years 6 years 8 years 0.20% 0.25% 0.25%
Compensation expense under the fair value-based method is recognized over the vesting period of the related stock options. Accordingly, the pro forma results of applying SFAS No. 123 in 1999, 1998 and 1997 may not be indicative of future amounts. The following table summarizes information about stock options outstanding at December 31, 1999.
OUTSTANDING EXERCISABLE ------------------------------- ------------------- AVERAGE AVERAGE EXERCISE AVERAGE EXERCISE EXERCISE PRICE RANGE SHARES LIFE PRICE SHARES PRICE - ----------- -------- -------- --------- -------- -------- $3.06-$3.64.................. 49,226 1.59 $3.22 49,226 $ 3.22 $4.00-$4.68.................. 67,108 6.54 4.14 67,108 4.14 $5.00-$8.00.................. 222,232 8.87 7.59 128,132 7.40 $9.00-$10.25................. 214,000 9.42 9.94 14,000 10.00 ------- ---- ----- ------- ------ Total...................... 552,566 8.15 $7.69 258,466 $ 5.90 ======= ==== ===== ======= ======
RESTRICTED STOCK The Company has awarded 17,500 shares of restricted stock under the Performance-Based Incentive Plan (6,250 shares have vested in 1999). The weighted average grant price of restricted stock granted and vested during 1999 was $9.75 and $8.00, respectively. 15. EMPLOYEE BENEFITS PROFIT-SHARING PLAN The Company sponsors a 401(k) profit-sharing plan in which substantially all full-time employees are eligible to participate. This plan allows eligible employees to defer a portion of their salaries on a pretax basis. The Company matches these deferrals on a pro rata basis as defined in the plan. Contributions and administrative expenses related to the plan totaled approximately $100,000, $99,000 and $84,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 47 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. EMPLOYEE BENEFITS (CONTINUED) HEALTH AND WELFARE PLAN The Company also provides health care and life insurance benefits to all employees through Florida Bankers Insurance Trust. Total cost related to these benefits for 1999, 1998 and 1997 were approximately $453,000, $354,000 and $319,000, respectively. 16. CAPITAL The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). If such minimum amounts and ratios are met, the Bank is considered "adequately capitalized." If a bank exceeds the requirements of "adequately capitalized" and meets even more stringent minimum standards, it is considered to be "well capitalized." Management believes that as of December 31, 1999 and 1998, the Bank meets and exceeds all capital adequacy requirements to which it is subject. As of December 31, 1999, the most recent notification from the Bank's regulatory agency categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. There have 48 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. CAPITAL (CONTINUED) been no conditions or events since that notification that management believes have changed the institution's category.
ADEQUATELY WELL ACTUAL CAPITALIZED CAPITALIZED AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- -------- ----------- -------- ----------- -------- As of December 31, 1999: Total capital (to risk-weighted assets): Consolidated................................... $45,096 17.3% $20,942 8.0% $26,178 10.0% Bank........................................... 36,797 14.0% 21,018 8.0% 26,273 10.0% Tier I capital (to risk-weighted assets): Consolidated................................... 42,425 16.2% 10,471 4.0% 15,707 6.0% Bank........................................... 34,126 13.0% 10,509 4.0% 15,764 6.0% Tier I capital (to average assets): Consolidated................................... 42,425 12.7% 13,363 4.0% 16,704 5.0% Bank........................................... 34,126 10.3% 13,219 4.0% 16,523 5.0% As of December 31, 1998: Total capital (to risk-weighted assets): Consolidated................................... 30,987 16.6% 14,916 8.0% 18,645 10.0% Bank........................................... 24,122 12.8% 15,117 8.0% 18,896 10.0% Tier I capital (to risk-weighted assets): Consolidated................................... 29,112 15.6% 7,458 4.0% 11,187 6.0% Bank........................................... 22,247 11.8% 7,558 4.0% 11,337 6.0% Tier I capital (to average assets): Consolidated................................... 29,112 9.7% 12,009 4.0% 15,011 5.0% Bank........................................... 22,247 7.4% 11,978 4.0% 14,972 5.0%
17. COMMITMENTS AND CONTINGENCIES FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The financial statements do not reflect various commitments and contingent liabilities, or off-balance sheet risks, that arise in the normal course of business to meet the financing needs of customers. These include commitments to extend credit and to honor standby letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risks in excess of amounts reflected in the balance sheets. The extent of the Bank's involvement in these commitments or contingent liabilities is expressed by the contractual, or notional, amounts of the instruments. The Company's maximum exposure to credit loss under standby letters of credit and commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in establishing commitments and issuing letters of credit as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer so 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 commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash 49 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. COMMITMENTS AND CONTINGENCIES (CONTINUED) requirements. The amount of collateral obtained, if any, is based on management's credit evaluation in the same manner as though an immediate credit extension were to be granted. Commitments to extend credit amount to approximately $52,000,000 and $26,000,000 at December 31, 1999 and 1998, respectively. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. The Company had approximately $4,156,000 and $2,022,000 of standby letters of credit outstanding at December 31, 1999 and 1998, respectively. The Company does not anticipate any material losses as a result of participating in standby letters of credit or commitments to extend credit. CONCENTRATIONS OF CREDIT RISK The Bank originates residential and commercial real estate loans and other consumer and commercial loans primarily in the north Florida area. In addition, the Bank occasionally purchases loans, primarily in Florida. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers' ability to repay their loans is dependent upon economic conditions in the Bank's market area. FEDERAL RESERVE REQUIREMENT The Federal Reserve Board requires that certain banks maintain reserves, based on their average deposits, in the form of vault cash and average deposit balances at a Federal Reserve Bank. The requirement as of December 31, 1999 and 1998 was approximately $6.8 million and $3.7 million, respectively. LEGAL CONTINGENCIES In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition, operations, or liquidity of the Company. 18. FAIR VALUE OF FINANCIAL INSTRUMENTS Many of the Company's assets and liabilities are short-term financial instruments whose carrying values approximate fair value. These items include cash and due from banks, interest-bearing deposits with other banks, federal funds sold, and securities sold under repurchase agreements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. The resulting fair values may be significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. 50 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The methods and assumptions used to estimate the fair value of the Company's other financial instruments are as follows: INVESTMENT SECURITIES Fair values for investment securities are based on quoted market prices. If a quoted market price is not available, fair value is estimated using market prices for similar securities. LOANS The loan portfolio is segregated into categories and the fair value of each loan category is calculated using present value techniques based on projected cash flows and estimated discount rates. The calculated present values are then reduced by an allocation of the allowance for loan losses against each respective loan category. DEPOSITS The fair values of noninterest-bearing deposits, NOW accounts, money market accounts, and savings accounts are the amounts payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT The estimated fair values for other financial instruments and off-balance sheet loan commitments are considered to approximate carrying amounts at December 31, 1999 and 1998. The Company's financial instruments which have estimated fair values differing from their respective carrying values are presented as follows at December 31, 1999 and 1998 (in thousands):
1999 1998 --------------------- --------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- Financial assets: Investment securities held to maturity........................ $ 10,582 $ 9,917 $ 2,940 $ 2,944 Net loans......................... $263,413 $261,910 $185,140 $185,780 Financial liabilities: Time deposits..................... $133,990 $134,046 $136,913 $136,283
While these estimates of fair value are based on management's judgment of the most appropriate factors, there is no assurance that, were the Company to have disposed of such financial instruments at December 31, 1999, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at December 31, 1999 would not necessarily be indicative of fair values at future dates. 51 CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. CONDENSED FINANCIAL DATA (PARENT COMPANY ONLY) STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 1999 AND 1998
1999 1998 -------- -------- (DOLLARS IN THOUSANDS) Assets Cash and cash equivalents................................... $ 4,187 $ 6,005 Investment in CNB National Bank............................. 34,670 23,913 Other assets................................................ 4,218 988 ------- ------- Total assets............................................ $43,075 $30,906 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Other liabilities......................................... $ -- $ 10 ------- ------- Total liabilities....................................... -- 10 ------- ------- Shareholders' equity Common stock.............................................. 61 49 Additional paid-in capital................................ 30,805 19,465 Retained earnings......................................... 12,746 10,964 Accumulated other comprehensive (loss) income, net of taxes................................................... (537) 418 ------- ------- Total shareholders' equity.............................. 43,075 30,896 ------- ------- Total liabilities and shareholders' equity.............. $43,075 $30,906 ======= =======
52 STATEMENT OF INCOME
1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Dividend income............................................. $1,679 $1,853 $1,913 Interest income............................................. 298 328 195 Interest expense............................................ -- (7) (169) ------ ------ ------ Net interest and dividend income............................ 1,977 2,174 1,939 Noninterest expense, net.................................... (1,016) (110) (40) ------ ------ ------ Income before income taxes and equity in undistributed net income of subsidiary...................................... 961 2,064 1,899 Income tax benefit (provision).............................. 268 (79) 5 ------ ------ ------ Income before equity in undistributed net income of subsidiary................................................ 1,229 1,985 1,904 Equity in undistributed net income of subsidiary............ 1,712 694 1,071 ------ ------ ------ Net income.................................................. $2,941 $2,679 $2,975 ====== ====== ======
53 STATEMENT OF CASH FLOWS
1999 1998 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net income................................................ $ 2,941 $ 2,679 $ 2,975 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Undistributed earnings of subsidiary.................... (1,712) (694) (1,071) Non-cash compensation................................... 71 -- -- Changes in assets and liabilities: Other assets.......................................... (1,891) (135) 27 Other liabilities..................................... (10) -- (14) -------- ------- ------- Net cash (used in) provided by operating activities........................................ (601) 1,850 1,917 -------- ------- ------- Cash flows from investing activities: Cash paid related to investment in subsidiary............. (10,000) -- -- Cash paid related to land purchase........................ (1,339) (677) -- -------- ------- ------- Cash flows from financing activities: Payments on notes payable................................. -- (1,450) (1,200) Cash dividends............................................ (1,159) (971) (620) Proceeds from issuance of common stock.................... 11,377 -- 6,812 Payment to repurchase common stock........................ (96) -- -- -------- ------- ------- Net cash provided by (used in)financing activities........................................ 10,122 (2,421) 4,992 -------- ------- ------- Net (decrease) increase in cash and cash equivalents........ (1,818) (1,248) 6,909 Cash and cash equivalents, beginning of year................ 6,005 7,253 344 -------- ------- ------- Cash and cash equivalents, end of year...................... $ 4,187 $ 6,005 $ 7,253 ======== ======= =======
54 PART III Except for the information relating to the Company's executive officers and its key employees, the material required by items 10 through 13 is hereby incorporated by reference from the Company's definitive proxy statement pursuant to Instruction G of Form 10-K. The Company will file its definitive Proxy Statement with the Commission prior to April 15, 2000. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS - --------------------- 3(i) Articles of Incorporation (Incorporated by reference to Exhibit 3.3 to the Company's Registration Statement No. 33-71082, as amended, on Form S-4 filed February 8,1994). 3(ii) By-laws (Incorporated by reference to Exhibit 3.4 to the Company's Registration Statement No. 33-71082, as amended, on Form S-4 filed February 8, 1994). 10 Bennett Brown Employment Agreement (Incorporated by reference to Exhibit 10 of the Company's June 30, 1999 10-Q filed on August 16, 1999). 10(i) K. C. Trowell Employment Agreement (Incorporated by reference to Exhibit 10(i) to the Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form S-2 filed as of January 26, 1999). 10(ii) G. Thomas Frankland Employment Agreement (Incorporated by reference to Exhibit 10 (ii) to the Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form S-2 filed as of January 26, 1999). 10(iii) 1998 Performance-Based Incentive Plan (Incorporated by reference to Exhibit 99 to the Company's Registration Statement on Form S-8 filed December 7, 1998). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen, LLP, independent certified public accountants. 27 Financial Data Schedule. REPORT OF FORM 8-K: a) On January 13, 1999, the Company filed a Form 8-K to report the unaudited 1998 results. b) On March 16, 1999, the Company filed a Form 8-K to report the resignation of Corey J. Coughlin as President and Chief Operating Officer of CNB National Bank and Executive Vice President of CNB Florida Bancshares, Inc. and the hiring of Bennett Brown as President and Chief Operating Officer of CNB National Bank and Executive Vice President of CNB Florida Bancshares, Inc. c) On May 19, 1999, the Company filed a Form 8-K to report the approval of its shareholders to change the name of the Company to CNB Florida Bancshares, Inc.
55 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 FLORIDA BANCSHARES, INC. (Registrant) By: /s/ G. THOMAS FRANKLAND ----------------------------------------- G. Thomas Frankland EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: March 24, 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 dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ THOMAS R. ANDREWS ------------------------------------------- Director March 24, 2000 Thomas R. Andrews /s/ AUDREY S. BULLARD ------------------------------------------- Director March 24, 2000 Audrey S. Bullard /s/ RAYMON J. LAND ------------------------------------------- Director March 24, 2000 Raymon J. Land /s/ MARVIN H. PRITCHETT ------------------------------------------- Director March 24, 2000 Marvin H. Pritchett /s/ WILLIAM J. STREICHER ------------------------------------------- Director March 24, 2000 William J. Streicher /s/ K. C. TROWELL ------------------------------------------- Director March 24, 2000 K. C. Trowell Executive Vice President /s/ G. THOMAS FRANKLAND and Chief Financial ------------------------------------------- Officer (Principal March 24, 2000 G. Thomas Frankland Financial Officer) /s/ MARTHA S. TUCKER Sr. Vice President and ------------------------------------------- Controller (Principal March 24, 2000 Martha S. Tucker Accounting Officer)
56 EX-21 2 EXHIBIT 21 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT --------------------- SUBSIDIARIES OF THE REGISTRANT --------------------- CNB FLORIDA BANCSHARES, INC. --------------------- EXHIBIT 21 58 MARCH 22, 2000 Subsidiaries of CNB Florida Bancshares, Inc.:
State of Subsidiary Organization Business Name ---------- ------------ ------------- 1. CNB National Bank * CNB National Bank
* CNB National Bank is organized as a National Association. 59 EX-23 3 EXHIBIT 23 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT --------------------- CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------- CNB FLORIDA BANCSHARES, INC. --------------------- EXHIBIT 23 60 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File No. 333-68459. ARTHUR ANDERSEN LLP Jacksonville, Florida March 27, 2000 61 EX-27 4 EXHIBIT 27
9 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 17,235 285 0 0 35,111 10,582 9,917 266,084 2,671 346,076 288,203 12,063 2,735 0 0 0 61 43,014 346,076 19,412 3,175 1,171 23,758 8,725 9,052 14,706 1,160 0 11,994 4,504 2,941 0 0 2,941 0.49 0.48 5.00 549 180 0 0 1,875 634 270 2,671 2,671 0 0
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