SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 19, 1999
GOLD BANC CORPORATION, INC.
(Exact name of registrant as specified in its charter)
KANSAS 0-28936 48-1008593
(State or other (Commission File Number) (IRS Employer
jurisdiction Identification No.)
of incorporation)
11301 Nall Avenue, Leawood, Kansas 66211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 451-8050
None
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
On October 22, 1999 Gold Banc Corporation, Inc. ("Gold
Banc") entered into an Agreement and Plan of Reorganization to
acquire CountryBanc Holding Company, an Oklahoma corporation
("CountryBanc"). Attached hereto as Exhibits 99.1 and 99.2 are
certain financial statements of CountryBanc.
ITEM 7. FINANCIAL STATEMENTS AND OTHER EXHIBITS.
EXHIBITS NO. DESCRIPTION
23.1 Consent of Arthur Andersen LLP.
99.1 CountryBanc Holding Company's Report of
Independent Public Accountants; Consolidated
Statements of Financial Condition as of September
30, 1999 and 1998 (unaudited) and December 31,
1998 and 1997; Consolidated Financial Statements
of Income for the Nine Months ended September 30,
1999 and 1998 (unaudited) and Years Ended December
31, 1998, 1997 and 1996; Consolidated Statements
of Comprehensive Income for the Nine Months Ended
September 30, 1999 and 1998 (unaudited) and Years
Ended December 31, 1998, 1997 and 1996;
Consolidated Statements of Cash Flow for the Nine
Months Ended September 30, 1999 and 1998
(unaudited) and Years Ended December 31, 1998,
1997 and 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: November 19, 1999.
GOLD BANC CORPORATION, INC.
By: /s/ J. Craig Peterson
J. Craig Peterson,
Chief Financial Officer
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
CountryBanc Holding Company:
We have audited the accompanying consolidated statements of
financial condition of CountryBanc Holding Company (an Oklahoma
corporation) and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, comprehensive
income, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements and the
supplementary consolidating information referred to below are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements and supplementary consolidating information based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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 consolidated
financial position of CountryBanc Holding Company and
subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The
consolidating information included in Schedule I is presented for
purposes of additional analysis of the consolidated financial
statements rather than to present the financial position and
results of operations of the individual companies and is not a
required part of the basic consolidated financial statements.
This information has been subjected to the auditing procedures
applied in our audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material
respects in relation to the consolidated financial statements
taken as a whole.
Oklahoma City, Oklahoma,
April 2, 1999
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
ASSETS 1998 1997
Cash and due from banks $ 17,847,966 $22,551,612
Federal funds sold 4,250,000 -
Total cash and
cash equivalents 22,097,966 22,551,612
Interest-bearing deposits with
other banks 7,413,011 -
Debt and equity securities:
Available-for-sale 96,016,917 92,944,487
Held-to-maturity 6,374,663 -
Equity 2,727,936 1,637,632
Total debt and
equity securities 105,119,516 94,582,119
Loans receivable, net of
allowance for loan losses of
$5,097,012 in 1998 and
$4,715,647 in 1997 279,845,578 245,652,487
Premises and equipment, net 13,856,832 11,982,860
Intangibles, net of accumulated
amortization of $1,118,278
in 1998 and $521,213 in 1997 8,687,189 6,094,072
Accrued interest receivable 5,934,192 5,247,424
Other real estate and
assets owned, net 186,501 708,679
Other assets 949,226 506,116
Total assets $444,090,011 $387,325,369
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $51,150,855 $47,284,725
Savings, money market and
NOW 141,712,860 111,954,730
Time 189,871,183 171,161,251
Total deposits 382,734,898 330,400,706
Federal funds purchased - 13,000,000
Notes payable 18,900,000 7,225,000
Deferred income tax liability 2,467,124 2,039,245
Accrued interest payable and
other 2,551,073 3,351,827
Total liabilities 406,653,095 356,016,778
Minority interest - 784,570
Stockholders' equity:
Preferred stock, $.01 par value,
1,500,000 shares authorized;
508,767 shares issued and
outstanding 5,088 5,088
Common stock - Class A,
$.01 par value,
4,250,000 shares
authorized; 1,006,002 and
943,707 shares issued and
outstanding at
December 31, 1998 and 1997,
respectively 10,060 9,437
Common stock - Class B,
$.01 par value,
4,250,000 shares authorized;
201,920 and 177,120 shares
issued and outstanding at
December 31, 1998 and 1997,
respectively 2,019 1,771
Capital surplus 28,664,486 26,552,870
Retained earnings 8,520,751 3,779,835
Unrealized gains on
available-for-sale securities,
net of tax of $143,733 in 1998
and $107,270 in 1997 234,512 175,020
Total stockholders'
equity 37,436,916 30,524,021
Total liabilities
and stockholders'
equity $ 444,090,011 $387,325,369
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Interest and dividend income:
Loans, including fees $26,657,093 $23,932,351
Debt securities
available-for-sale 6,016,673 5,511,740
Debt securities
held-to-maturity 250,285 -
Interest-bearing deposits
with other banks 847,952 -
Federal funds sold and other 464,849 783,130
Dividends 137,862 53,578
Total interest and
dividend income 34,374,714 30,280,799
Interest expense:
Deposits 14,703,080 12,978,834
Notes payable 749,141 580,949
Other borrowed funds 151,121 89,037
Total interest expense 15,603,342 13,648,820
Net interest and
dividend income 18,771,372 16,631,979
Provision for loan losses 736,000 1,476,000
Net interest income
after provision for
loan losses 18,035,372 15,155,979
Noninterest income:
Service charges on
deposit accounts 1,879,810 1,928,106
Other 566,372 635,641
Total noninterest income 2,446,182 2,563,747
Noninterest expense:
Salaries and employee benefits 7,334,945 6,320,786
Depreciation and amortization 1,758,995 1,276,667
Professional and other services 621,186 622,030
Supplies and postage 534,513 635,218
Occupancy expenses 441,289 363,730
Advertising and business
development 349,412 306,722
Data processing 338,116 272,699
Equipment maintenance 301,033 317,139
Telephone 253,162 217,134
Deposit insurance assessments
and examination fees 131,679 177,284
Other 975,582 812,860
Total noninterest
expense 13,039,912 11,322,269
Income before income
tax expense and
minority interest 7,441,642 6,397,457
Income tax expense 2,700,726 2,449,882
Income before minority
interest 4,740,916 3,947,575
Minority interest - 158,686
Net income $4,740,916 $3,788,889
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
Net income $4,740,916 $3,788,889
Unrealized holding gains
(losses) arising during the
period, net of tax 59,492 (4,990)
Total comprehensive
income $4,800,408 $3,783,899
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED COMMON COMMON CAPITAL
STOCK STOCK STOCK SURPLUS
<S> <C> <C> <C> <C>
BALANCE,
December 31, 1996 $5,088 $ 9,437 $1,771 $26,528,940
Amortization of
employee stock awards - - - 23,930
Net income - - - -
Net change in
unrealized gains
on available-for-
sale securities,
net of tax of
($3,059) - - - -
BALANCE,
December 31, 1997 5,088 9,437 1,771 26,552,870
Amortization of
employee stock
awards - - - 19,144
Issuance of Class A
common stock,
net of issue costs - 623 - 1,497,800
Issuance of Class B
common stock,
net of issue costs - - 248 594,672
Net income - - - -
Net change in
unrealized gains on
available-for-
sale securities,
net of tax of
$36,463 - - - -
BALANCE,
December 31, 1998 $5,088 $10,060 $2,019 $28,664,486
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized
Retained Investment Total
Earnings Security Stockholders'
(Deficit) Gains Equity
<S> <C> <C> <C>
Balance,
December 31, 1996 $(9,054) $180,010 $26,716,192
Amortization of
employee stock awards - - 23,930
Net income 3,788,889 - 3,788,889
Net change in
unrealized gains
on available-for-
sale securities,
net of tax of
($3,059) - (4,990) (4,990)
BALANCE,
December 31, 1997 3,779,835 175,020 30,524,021
Amortization of
employee stock
awards - - 19,144
Issuance of Class A
common stock,
net of issue costs - - 1,498,423
Issuance of Class B
common stock,
net of issue costs - - 594,920
Net income 4,740,916 - 4,740,916
Net change in
unrealized gains on
available-for-
sale securities,
net of tax of
$36,463 - 59,492 59,492
BALANCE,
December 31, 1998 $8,520,751 $234,512 $37,436,916
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash provided (absorbed) by
operating activities:
Net income $ 4,740,916 $ 3,788,889
Adjustments to reconcile net
income to net cash provided by
operating activities-
Provision for loan losses 736,000 1,476,000
Depreciation and amortization 1,758,995 1,276,667
Deferred income tax provision 115,673 511,001
Amortization of employee stock awards 19,144 23,930
Gain on sale of assets (5,190) -
Net amortization of debt securities:
Available-for-sale 235,647 104,161
Held-to-maturity 25,203 -
Stock dividends received (58,700) (26,400)
(Increase) decrease in accrued
interest receivable 531,240 (273,607)
(Increase) decrease in
other assets (337,651) 506,558
Increase (decrease) in accrued
interest, taxes and other
liabilities (1,428,773) 1,254,038
Net cash provided by
operating activities 6,332,504 8,641,237
Cash provided (absorbed) by
investing activities:
Proceeds from sales of
equity securities 180,800 86,154
Proceeds from maturities and
paydowns on debt and equity securities-
Available-for-sale 62,268,505 62,760,256
Held-to-maturity 1,845,096 -
Purchases of debt and equity
securities-
Available-for-sale (44,319,755) (79,310,622)
Held-to-maturity (1,994,688) -
Equity (1,085,954) (895,100)
Proceeds from maturities of
interest-bearing deposits with
other banks 11,256,258 -
Increase in loans, net (5,255,238) (7,030,968)
Capital expenditures (1,591,418) (586,741)
Proceeds from sales of premises and
equipment 26,253 21,325
Proceeds from sales of other real estate
and assets owned 677,744 836,699
Cash paid (net of consideration received)
in bank acquisitions (6,792,147) -
Net cash provided (absorbed)
by investing activities 15,215,456 (24,118,997)
Cash provided (absorbed) by
financing activities:
Net change in deposits (21,985,379) (11,156,810)
Increase (decrease) in federal
funds purchased (13,000,000) 13,000,000
Proceeds from issuance of common
stock 2,093,343 -
Payments on borrowings (5,825,000) -
Proceeds from borrowings 17,500,000 (800,000)
Purchase of minority interest (784,570) (1,037,823)
Net cash provided
(absorbed) by financing
activities (22,001,606) 5,367
Net change in cash and cash equivalents (453,646) (15,472,393)
Cash and cash equivalents at
beginning of year 22,551,612 38,024,005
Cash and cash equivalents at end of year $22,097,966 $22,551,612
Cash paid for income taxes $4,343,278 $709,000
Cash paid for interest $15,139,433 $ 13,149,415
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES:
NATURE OF BUSINESS
CountryBanc Holding Company ("CBH"), an Oklahoma corporation, and
subsidiaries (collectively referred to as the "Company") provides
a full range of banking services to individual and corporate
customers primarily in Kingfisher, Hennessey, Enid, El Reno,
Guymon, Geary, Helena, Hobart, Wakita, Marshall, Weatherford,
Cordell and Corn, Oklahoma, including the contiguous counties
thereof, as well as Elkhart, Kansas. The Company is subject to
competition from other financial service companies and financial
institutions. The Company is also subject to the regulations of
certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of CBH and its wholly owned subsidiaries, People First
Bank ("PFB") The First State Holding Company of Elkhart ("FSH"),
and its subsidiary People First Bank, Elkhart, Kansas ("PFE")
(collectively referred to as the "Banks"). During 1998, certain
other subsidiaries namely PNB Financial Corporation and City
National Bancshares, and its subsidiary City Bank of Weatherford,
were merged into CBH or People First Bank as applicable.
Intercompany transactions and balances have been eliminated in
consolidation.
Certain reclassifications have been made to the 1997 balances to
provide consistent financial statement classifications in the
periods presented herein. Such reclassifications had no effect
on net income or total assets.
USE OF ESTIMATES
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make use of certain estimates and assumptions. Those
estimates and assumptions relate primarily to the determination
of the allowance for loan losses, the valuation of other real
estate and assets owned, income tax expense and the fair value of
financial instruments. Actual results could differ from those
estimates. The accounting policies for these items and other
significant accounting policies are presented below.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the consolidated statements of
cash flows, cash and cash equivalents are defined as those
amounts included in the consolidated statements of financial
condition as cash and due from banks and federal funds sold.
<PAGE>
DEBT AND EQUITY SECURITIES
Debt securities and equity securities which have a readily
determinable fair value, that management intends to use as part
of its asset/liability management strategy or that may be sold in
response to changes in interest rates or prepayment risk are
classified as available-for-sale and are carried at estimated
fair value with unrealized gains and losses reported as a
separate component of stockholders' equity, net of income taxes.
Debt securities that management has the ability and intent to
hold to maturity are classified as held-to-maturity and are
carried at cost, adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion
of discounts are recognized in interest income using a method
that approximates the effective interest method over the period
to maturity. Equity securities which do not have a readily
determinable fair value are carried at cost. Gains and losses on
the sale of debt and equity securities are included as a separate
component of noninterest income. Applicable income taxes, if
any, are included in income taxes. The basis of the securities
sold is determined by the specific identification method for each
security.
LOANS RECEIVABLE
Interest on substantially all loans receivable is accrued based
on the principal amount outstanding. Loan fees and costs
associated with the origination of loans are not considered to be
material and, therefore, are recorded as received and incurred,
respectively. Premiums and discounts on loans are amortized into
interest income using a method that approximates a level yield
over the contractual lives of the loans, adjusted for actual
prepayments.
The accrual of interest on impaired loans is discontinued when,
in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest
income is subsequently recognized only to the extent cash
payments are received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on
the Company's past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the
borrowers' ability to repay, the estimated value of any
underlying collateral, and current economic conditions. The
adequacy of the allowance for loan losses is periodically
reviewed and approved by the Board of Directors. However,
ultimate losses may differ from these estimates. Adjustments to
the allowance for loan losses are reported in earnings in the
periods in which they become known. It is Company policy to
charge off any loan or portion thereof when it is deemed
uncollectible in the ordinary course of business. Loan losses
and recoveries are charged or credited directly to the allowance.
PREMISES AND EQUIPMENT
Land is stated at cost. Bank premises, furniture, equipment and
leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization is
charged to operating expense and is computed by use of both
straight-line and accelerated methods over the estimated useful
lives of the assets. Maintenance and repairs are charged to
expense as incurred, while improvements are capitalized.
<PAGE>
INTANGIBLES
Intangibles consist of the excess of the purchase price paid over
the estimated fair value of the net assets acquired. Intangibles
are being amortized over their estimated life (15 years) using
the straight-line method. Amortization expense related to the
intangibles was approximately $597,000 for 1998 and $426,000 for
1997.
OTHER REAL ESTATE AND ASSETS OWNED
Other real estate and assets owned consists primarily of real
estate and other assets acquired through loan foreclosure. These
assets are carried at estimated fair value at the date of
foreclosure. Estimated fair value is based on independent
appraisals and other relevant factors. At the time of
acquisition, any excess of cost over the estimated fair value is
charged to the allowance for loan losses. Subsequent losses on
dispositions, declines in the estimated fair values and the net
operating income and expenses of such assets are charged to other
noninterest expense.
INCOME TAXES
The Company files a consolidated federal income tax return with
all of its subsidiaries. Separate state income tax returns are
filed for PFH and PFE.
Deferred tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are included in the consolidated financial
statements at currently enacted income tax rates applicable to
the period in which the deferred tax assets and liabilities are
expected to be realized or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
2. ACQUISITIONS:
On March 20, 1998, the Company purchased all of the common stock
of The First State Holding Company of Elkhart ("FSH") along with
its subsidiary People First Bank, Elkhart, Kansas ("PFE"). On
May 28, 1998, the Company purchased all of the common stock of
Home State Bank of Hobart ("HSB"). FSH and HSB results of
operations are included in the consolidated statement of income
beginning March 1, 1998 and May 1, 1998, respectively. Both
acquisitions were accounted for under the purchase method of
accounting using push down accounting treatment. The net
purchase prices of approximately $4,303,000 for PFE and
$4,433,000 for HSB were allocated to the net assets acquired
based upon their fair market values as of the acquisition dates
resulting in approximately $1,415,000 and $1,776,000 of
intangible assets for PFE and HSB, respectively. These
intangibles are being amortized on a straight-line basis over
fifteen-year lives. Total assets at the date of the acquisitions
and after allocation of the purchase price premiums totaled
approximately $42,230,000 for PFE and $40,217,000 for HSB. These
transactions did not have a material effect on the results of
operations of the Company in 1998.
As of December 31, 1998, the Company had entered into an
agreement to purchase the First State Bank of Hobart with assets
totaling approximately $36,128,000 for a net purchase price
totaling approximately $4,641,000. The acquisition was
consummated during the first quarter of 1999.
Also, as of December 31, 1998, the Company had entered into
agreements to purchase two other separate financial institutions
with combined assets totaling approximately $159,000,000. The
combined purchase price for the two institutions is approximately
$36,800,000. These acquisitions, <PAGE> which are subject to
regulatory and shareholder approval, are expected to be
consummated in the third quarter of 1999.
<PAGE>
3. CASH AND DUE FROM BANKS:
The Federal Reserve System requires the Bank to maintain certain
cumulative reserve balances based on deposits. These required
reserve balances amounted to approximately $1,472,000 at
December 31, 1998. These reserve balances are included in cash
and due from banks in the accompanying consolidated statements of
financial condition.
4. DEBT AND EQUITY SECURITIES:
Debt and equity securities have been classified in the
consolidated statements of financial condition according to
management's intent. The amortized cost of securities and their
estimated fair values at December 31 were as follows (in rounded
thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1998 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities:
Available-for-sale $34,542,000 $248,000 $(7,000) $34,783,000
Held-to-maturity 252,000 1,000 - 253,000
U.S. Government agencies and
other mortgage-backed securities:
Available-for-sale 30,123,000 113,000 (261,000) 29,975,000
Held-to-maturity 440,000 2,000 - 442,000
U.S. Government agency
collateralized mortgage
obligations:
Available-for-sale 12,466,000 89,000 - 12,555,000
Held-to-maturity 1,920,000 - (23,000) 1,897,000
Obligations of U.S.
Government and agency
securities:
Available-for-sale 13,567,000 37,000 - 13,604,000
Held-to-maturity 907,000 10,000 - 917,000
Obligations of state and
political subdivisions:
Available-for-sale 4,940,000 164,000 (4,000) 5,100,000
Held-to-maturity 2,856,000 21,000 (5,000) 2,872,000
Total available-
for-sale securities 95,638,000 651,000 (272,000) 96,017,000
Total held-to-
maturity securities 6,375,000 34,000 (28,000) 6,381,000
Equity securities 2,728,000 - - 2,728,000
Total debt and
equity securities $104,741,000 $685,000 $(300,000) $105,126,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury securities $29,705,000 $118,000 $(5,000) $29,818,000
U.S. Government agencies
and other
mortgage-backed
securities 25,061,000 89,000 (137,000) 25,013,000
U.S. Government agency
collateralized
mortgage obligations 22,445,000 130,000 (8,000) 22,567,000
Obligations of U.S. Government
and agency securities 9,765,000 24,000 (16,000) 9,773,000
Obligations of state
and political
subdivisions 5,686,000 101,000 (14,000) 5,773,000
Total available-
for-sale
securities 92,662,000 462,000 (180,000) 92,944,000
Equity securities 1,638,000 - - 1,638,000
Total debt and
equity
securities $ 94,300,000 $ 462,000 $(180,000) $94,582,000
</TABLE>
There were no sales of debt securities during 1998 or 1997.
The schedule of maturities of the debt securities at December 31,
1998, was as follows (in rounded thousands):
AMORTIZED ESTIMATED
COST FAIR VALUE
Due in one year or less:
Available-for-sale $39,584,000 $39,775,000
Held-to-maturity 989,000 994,000
Due after one year
through five years:
Available-for-sale 10,718,000 10,866,000
Held-to-maturity 2,186,000 2,208,000
Due after five years
through ten years:
Available-for-sale 2,320,000 2,417,000
Held-to-maturity 638,000 638,000
Due after ten years:
Available-for-sale 427,000 429,000
Held-to-maturity 202,000 202,000
Mortgage-backed securities,
not due at a single
maturity date:
Available-for-sale 42,589,000 42,530,000
Held-to-maturity 2,360,000 2,339,000
Total available-
for-sale securities 95,638,000 96,017,000
Total held-to-maturity
securities 6,375,000 6,381,000
<PAGE>
Total debt securities $102,013,000 $102,398,000
At December 31, 1998 and 1997, debt and equity securities with
carrying values of approximately $50,757,000 and $37,017,000,
respectively, were pledged to secure public deposits and for
other purposes as required or permitted by law.
5. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES:
The composition of the loans receivable portfolio at December 31
was as follows (in rounded thousands):
1998 1997
Real estate:
Commercial and
residential $ 83,328,000 $64,771,000
Farmland 28,210,000 20,394,000
Agriculture 88,748,000 83,326,000
Commercial and industrial 69,209,000 62,211,000
Consumer, net of unearned
interest 14,545,000 19,047,000
Other 903,000 619,000
Subtotal 284,943,000 250,368,000
Less- Allowance for
loan losses (5,097,000) (4,716,000)
Total loans
receivable, net $279,846,000 $245,652,000
A substantial amount of the Company's total loans receivable are
to borrowers operating in the agriculture sector. The loans are
typically secured by livestock, crops, land, and machinery and
equipment. The operating performance of these borrowers'
businesses and the value of related collateral are contingent
upon, among other things, commodity prices, crop and livestock
production volumes, farm legislation and other factors.
Significant changes in any of these factors can cause serious
deterioration in the credit quality in any one or more of these
types of loans. As changes in these factors are identified,
management adjusts the allowance for loan losses accordingly.
Changes in the allowance for loan losses for the years ended
December 31 were as follows (in rounded thousands):
1998 1997
Balance, beginning of
year $4,716,000 $5,312,000
Provision for loan
losses 736,000 1,476,000
Charge-offs (2,035,000) (2,654,000)
Less- Recoveries 960,000 582,000
Net charge-offs (1,075,000) (2,072,000)
Allowance acquired in
bank acquisitions 720,000 -
Balance, end of year $5,097,000 $4,716,000
Impaired loans totaled approximately $2,896,000 and $2,757,000 at
December 31, 1998 and 1997, respectively. The average of
impaired loans during 1998 and 1997 was approximately $2,249,000
and $4,069,000, respectively. The total allowance for loan
losses related to these loans was approximately $212,000 and
$494,000 at December 31, 1998 and 1997, respectively. Interest
income <PAGE> recognized from cash receipts collected on impaired
loans was not material for the years ended December 31, 1998 and
1997.
Loans receivable having carrying values of approximately $151,000
and $826,000 were transferred to other real estate and assets
owned in 1998 and 1997, respectively.
Loans to directors, officers and their affiliated companies
totaled approximately $600,000 and $386,000 at December 31, 1998
and 1997, respectively. In management's opinion, these loans
were made in the ordinary course of business on substantially the
same terms as those prevailing at the time for comparable
transactions with unrelated parties and do not involve more than
normal risks.
6. PREMISES AND EQUIPMENT:
The composition of premises and equipment at December 31 was as
follows (in rounded thousands):
Estimated
Useful
Life 1998 1997
Land - $875,000 $755,000
Premises and
improvements 10-40 years 10,248,000 9,057,000
Furniture, fixtures
and equipment 3-10 years 4,853,000 3,165,000
15,976,000 12,977,000
Less- Accumulated
depreciation and
amortization (2,119,000) (994,000)
Premises and equipment,
net $13,857,000 $11,983,000
Depreciation and amortization expense totaled approximately
$1,129,000 and $851,000 during 1998 and 1997, respectively.
7. DEPOSITS:
Included in time deposits at December 31, 1998 and 1997, are
approximately $41,309,000 and $34,434,000, respectively, in
denominations of $100,000 or more. At December 31, 1998, the
scheduled maturities of time deposits are as follows (in rounded
thousands):
1999 $173,079,000
2000 11,660,000
2001 4,062,000
2002 744,000
2003 and thereafter 326,000
$189,871,000
<PAGE>
8. NOTES PAYABLE:
The composition of notes payable at December 31 was as follows
(in rounded thousands):
1998 1997
Revolving line of credit, matures
October 17, 2006, bearing
interest at the annual rate
of 7.75% $8,900,000 $6,300,000
Federal Home Loan Bank of
Topeka advance, maturing
November 25, 2003,
bearing interest at
the annual rate
of 4.76% 10,000,000 -
Notes payable to
former shareholders - 925,000
$18,900,000 $7,225,000
The Company's revolving line of credit with another financial
institution is due on October 17, 2006. The line of credit has
interest payable quarterly beginning April 10, 1998, and
quarterly thereafter, based on a fixed interest rate of 7.75%.
On October 17, 2001, the rate will adjust to reflect any change
on that date of the five-year United States Treasury Note rate
plus 2.50% fixed for the remaining five-year term of the Note.
Semi-annual principal payments are required as follows: $500,000
on July 10, 1998 and January 10, 1999, $600,000 on July 10, 1999
and January 10, 2000, and $700,000 on each July 10 and January 10
until maturity of the Note on October 17, 2006. The total line
of credit is secured by the common stock of the subsidiaries of
the Company, PFB, FSH and PFE. The maximum amount available
under this line of credit as of December 31, 1998, was
$11,500,000.
The line of credit agreement contains certain restrictive
financial covenants and ratios including minimum net worth,
dividend restrictions, allowance for loan losses, capital ratios
and nonperforming asset ratios. As of December 31, 1998 and
1997, the Company was in compliance with all such ratios and
covenants.
9. EMPLOYEE BENEFIT PLANS:
The Company has a profit sharing plan (the "Plan") covering
substantially all full-time employees. Under the provisions of
the Plan, the Company contributes a 6% match annually of total
compensation paid to participants during the year. Approximately
$216,000 and $224,000 was contributed during 1998 and 1997,
respectively, and such amounts are included in salaries and
employee benefits in the accompanying consolidated statements of
income. In addition, the Company maintains a 401(k) plan for
employees whereby participants may make voluntary contributions,
within certain limitations.
10. INCOME TAXES:
Income taxes as of December 31 have been allocated as follows (in
rounded thousands):
1998 1997
Income from operations $2,701,000 $2,450,000
Stockholders' equity 37,000 (3,000)
$2,738,000 $2,447,000
<PAGE>
The income tax expense from operations for December 31 includes
the following components (in rounded thousands):
1998 1997
Current expense $2,585,000 $1,939,000
Deferred expense 116,000 511,000
$2,701,000 $2,450,000
At December 31 the deferred income tax liability consisted of the
following (in rounded thousands):
1998 1997
Deferred income tax assets:
Allowance for loan losses $649,000 $861,000
Federal and state net
operating loss carryforwards 198,000 321,000
Investment tax credit
carryforward - 121,000
Other, net 159,000 157,000
Total gross
deferred income tax
assets 1,006,000 1,460,000
Deferred income tax liabilities:
Book basis of premises
and equipment in excess of
tax basis 2,990,000 2,854,000
Accrual to cash basis conversion 60,000 120,000
Available-for-sale securities 144,000 107,000
Other, net 184,000 61,000
Total gross
deferred tax
liabilities 3,378,000 3,142,000
Net deferred income tax liability 2,372,000 1,682,000
Valuation allowance 95,000 357,000
Deferred income tax
liability, net $2,467,000 $2,039,000
A reconciliation of the provision for income taxes based on
statutory rates with effective rates follows (in rounded
thousands):
1998 1997
Income tax at statutory
rate (34%) $2,530,000 $ 2,175,000
State income tax,
net of federal benefit 272,000 236,000
Tax-exempt interest (148,000) (75,000)
Interest expense related to
funding tax-exempt assets 31,000 20,000
Nondeductible amortization of
goodwill 185,000 121,000
Change in valuation allowance (162,000) (129,000)
Other (7,000) 102,000
Total provision for
income taxes $2,701,000 $2,450,000
As of December 31, 1998, the Company had approximately $355,000
of federal net operating loss carryforwards and approximately
$1,830,000 of state net operating loss carryforwards which can be
used to offset future taxable income. The net operating loss
carryforwards expire between the years 1999 and 2012.
The valuation allowance at December 31, 1998, is attributable to
the net operating loss carryforwards which are subject to annual
limitations.
<PAGE>
The Company's federal income tax returns have been examined by
and settled with the Internal Revenue Service through 1996.
11. COMMITMENTS AND 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.
There were letters of credit and unfunded loan commitments
outstanding at December 31, 1998, of approximately $55,907,000.
Management does not anticipate any material losses as a result of
these commitments.
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
or future results of operations of the Company.
12. PREFERRED STOCK:
The preferred stock of 508,767 shares is nonvoting and has a par
value and liquidation preference of $.01 per share. Such shares
are subject to a restricted stock agreement, and are convertible
into Class A common stock on a share-for-share basis upon the
attainment of certain performance criteria.
At the date of issuance of the preferred stock, the Company
estimated the value of the shares of preferred stock expected to
be issued under the terms of the restricted loan agreement over
the amount received to be approximately $60,000. This amount is
being recognized as a component of salaries and employee benefits
over the expected vesting period. Approximately $19,000 and
$24,000 was amortized during 1998 and 1997, respectively, and is
included in salaries and benefits in the accompanying
consolidated statements of income with a corresponding amount
recorded in capital surplus in the accompanying consolidated
statements of stockholders' equity.
13. COMMON STOCK:
The Company has issued two classes of common stock to
stockholders; Class A and Class B common stock. With the
exception of the Class B common stock having no voting rights,
each class of common stock is identical. The Company is
restricted from issuing Class A common stock, with certain
exceptions, without the vote of a majority of the holders of the
issued and outstanding Class A common stock. During 1998, Class
A and Class B common stock were issued under the required terms.
14. REGULATORY MATTERS:
The Company 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
Company's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital
guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-consolidated statements of
financial condition items as calculated under regulatory
accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the
regulators regarding components, risk weightings and other
factors.
<PAGE>
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and
ratios (set forth in the following table) 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). Management believes, as of December 31,
1998, that the Company meets all capital adequacy requirements to
which it is subject.
As of December 31, 1998, the most recent notification from the
regulatory agencies categorized the Banks as well capitalized
under the regulatory framework for prompt correction action. To
be categorized as well capitalized the Banks must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or
events since that notification that management believes have
changed the Banks' category.
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES:
AMOUNT RATIO AMOUNT RATIO
(DOLLARS IN ROUNDED THOUSANDS)
As of December 31, 1998:
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted
Assets):
CountryBanc Holding
Company $32,114,000 10.70% $24,019,000 8%
First State
Holding Company 2,572,000 20.94% 983,000 8%
People First Bank 37,281,000 12.96% 23,012,000 8%
People First Bank,
Elkhart 3,262,000 26.56% 983,000 8%
Tier I Capital
(to Risk Weighted Assets):
CountryBanc Holding
Company 28,344,000 9.44% 12,010,000 4%
First State Holding
Company 2,418,000 19.69% 491,000 4%
People First Bank 33,669,000 11.70% 11,506,000 4%
People First Bank,
Elkhart 3,108,000 25.31% 491,000 4%
Tier I Capital
(to Average Assets):
CountryBanc Holding
Company 28,344,000 6.54% 17,347,000 4%
First State
Holding Company 2,418,000 6.79% 1,424,000 4%
People First Bank 33,669,000 8.47% 15,908,000 4%
People First Bank,
Elkhart 3,108,000 8.73% 1,424,000 4%
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS:
AMOUNT RATIO
(DOLLARS IN ROUNDED THOUSANDS)
<S> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted
Assets):
CountryBanc Holding
Company $N/A N/A
First State
Holding Company N/A N/A
People First Bank 28,765,000 10%
People First Bank,
Elkhart 1,228,000 10%
Tier I Capital
(to Risk Weighted Assets):
CountryBanc Holding
Company N/A N/A
First State Holding
Company N/A N/A
People First Bank 17,259,000 6%
People First Bank,
Elkhart 737,000 6%
Tier I Capital
(to Average Assets):
CountryBanc Holding
Company N/A N/A
First State
Holding Company N/A N/A
People First Bank 19,885,000 5%
People First Bank,
Elkhart 1,780,000 5%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES:
AMOUNT RATIO AMOUNT RATIO
(DOLLARS IN ROUNDED THOUSANDS)
<S> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets):
CountryBanc Holding
Company $28,402,000 10.56% $21,408,000 8%
P.N.B. Financial
Corporation 30,570,000 12.78% 19,141,000 8%
City National
Bancshares 4,001,000 13.44% 2,381,000 8%
People First Bank 27,880,000 11.66% 19,126,000 8%
City Bank of
Weatherford 4,592,000 15.43% 2,381,000 8%
Tier I Capital
(to Risk Weighted Assets):
CountryBanc Holding
Company 25,040,000 9.31% 10,704,000 4%
P.N.B. Financial
Corporation 27,560,000 11.52% 9,570,000 4%
City National
Bancshares 3,824,000 12.85% 1,190,000 4%
People First Bank 24,873,000 10.40% 9,563,000 4%
City Bank of
Weatherford 4,415,000 14.84% 1,190,000 4%
Tier I Capital
(to Average Assets):
CountryBanc Holding
Company 25,040,000 6.69% 14,893,000 4%
P.N.B. Financial
Corporation 27,560,000 8.80% 2,532,000 4%
City National
Bancshares 3,824,000 6.51% 2,350,000 4%
People First Bank 24,873,000 7.94% 12,525,000 4%
City Bank of
Weatherford 4,415,000 7.52% 2,350,000 4%
</TABLE>
Management intends to continue compliance
with all regulatory capital requirements.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS:
AMOUNT RATIO
(DOLLARS IN ROUNDED THOUSANDS)
<S> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk
Weighted Assets):
CountryBanc Holding
Company $N/A N/A
P.N.B. Financial
Corporation N/A N/A
City National
Bancshares N/A N/A
People First Bank 23,907,000 10%
City Bank of
Weatherford 2,976,000 10%
Tier I Capital
(to Risk
Weighted Assets):
CountryBanc Holding
Company N/A N/A
P.N.B. Financial
Corporation N/A N/A
City National
Bancshares N/A N/A
People First Bank 14,344,000 6%
City Bank of
Weatherford 1,786,000 6%
Tier I Capital
(to Average Assets):
CountryBanc Holding
Company N/A N/A
P.N.B. Financial
Corporation N/A N/A
City National
Bancshares N/A N/A
People First Bank 15,656,000 5%
City Bank of Weatherford 2,937,000 5%
</TABLE>
Management intends to continue compliance
with all regulatory capital requirements.
<PAGE>
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures about Fair Value of Financial Instruments", requires
that the Company disclose estimated fair values for its financial
instruments.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amounts for cash and cash equivalents, including
federal funds sold, are considered reasonable estimates of fair
value.
INTEREST-BEARING DEPOSITS WITH OTHER BANKS
The carrying amount for interest-bearing deposits with other
banks is considered a reasonable estimate of fair value.
DEBT AND EQUITY SECURITIES
The fair values of debt and equity securities are based on quoted
market prices or dealer quotations, if available. The estimated
fair value of certain state and municipal obligations is not
readily available through market sources. Fair value estimates
for these instruments are based on dealer quoted market prices.
LOANS RECEIVABLE
Fair values are estimated for portfolios of loans receivable with
similar characteristics. Loans are segregated by type, and then
further segregated into fixed and adjustable rate components, and
by performing and nonperforming categories.
The fair value of loans is estimated by discounting scheduled
cash flows through the estimated maturity using the current rates
at which similar loans could be made to borrowers with similar
credit ratings and for similar maturities.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE
The carrying amounts for accrued interest receivable and accrued
interest payable are considered reasonable estimates of fair
value.
DEPOSITS
The fair value of demand deposits, savings and interest-bearing
demand deposits is the amount payable on demand at each reporting
date. The fair value of time deposits is based on the discounted
value of contractual cash flows. The discount rate is estimated
using the rates offered for deposits of similar remaining
maturities as of each valuation date.
FEDERAL FUNDS PURCHASED
The carrying amount for federal funds purchased approximates fair
value due to the short maturity of these instruments.
<PAGE>
NOTES PAYABLE
Interest rates currently available to the Company for debt
instruments of similar terms and remaining maturities are used to
estimate the fair value of notes payable at each reporting date.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreement and the present
creditworthiness of the counterparties. The fair value of
letters of credit is based on fees currently charged to enter
into similar agreements. The fees associated with the
commitments and letters of credit currently outstanding reflect a
reasonable estimate of fair value.
The estimated fair values of the Company's financial instruments
at December 31 were as follows (in rounded thousands):
<TABLE>
<CAPTION>
1998
CARRYING ESTIMATED
AMOUNT FAIR VALUE
<S> <C> <C>
Financial assets:
Cash and
cash equivalents $22,098,000 $22,098,000
Interest-bearing
deposits with other
banks 7,413,000 7,413,000
Debt and equity securities 105,120,000 105,126,000
Loans receivable, net 279,846,000 279,599,000
Accrued interest
receivable 5,934,000 5,934,000
Total financial assets $420,411,000 $420,170,000
Financial liabilities:
Total deposits $382,735,000 $383,444,000
Federal funds purchased - -
Notes payable 18,900,000 18,900,000
Accrued interest payable 1,550,000 1,550,000
Total financial
liabilities $403,185,000 $403,894,000
</TABLE>
<TABLE>
1997
CARRYING ESTIMATED
AMOUNT FAIR VALUE
<S> <C> <C>
Financial assets:
Cash and
cash equivalents $22,552,000 $22,552,000
Interest-bearing
deposits with other
banks - -
Debt and equity securities 94,582,000 94,582,000
Loans receivable, net 245,653,000 245,332,000
Accrued interest
receivable 5,247,000 5,247,000
Total financial assets $368,034,000 $367,713,000
Financial liabilities:
Total deposits $330,401,000 $330,772,000
Federal funds purchased 13,000,000 13,000,000
Notes payable 7,225,000 7,225,000
Accrued interest payable 1,086,000 1,086,000
Total financial
liabilities $351,712,000 $352,083,000
</TABLE>
LIMITATIONS
No ready market exists for a significant portion of the Company's
financial instruments. It is necessary to estimate the fair
value of these financial instruments based on a number of
subjective factors, including expected future loss experience,
risk characteristics and economic performance. Because of the
significant amount of judgment involved in the estimation of the
accompanying fair value information, the amounts disclosed cannot
be determined with precision.
The fair value of a given financial instrument may change
substantially over time as a result of, among other things,
changes in scheduled or forecasted cash flows, movement of
current interest rates, and changes in management's estimates of
the related credit risk or operational costs. Consequently,
significant revisions to fair value estimates may occur during
future periods. Management believes it has taken reasonable
efforts to ensure that fair value estimates presented are
accurate. However, adjustments to fair value estimates may occur
in the future and actual amounts realized from financial
instruments may differ significantly from the amounts presented
herein.
<PAGE>
The fair values presented apply only to financial instruments
and, as such, do not include such items as fixed assets, other
real estate and assets owned, other assets and liabilities, as
well as other intangibles which have resulted from business
transactions. As a result, the aggregation of the fair value
estimates presented herein do not represent, and should not be
construed to represent, the underlying value of the Company.
16. ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board ("FASB") has issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement is required to be adopted by the
Company in 2000. Management does not anticipate that adoption of
this statement will have a significant impact on the consolidated
financial position or the future results of operations of the
Company.
<PAGE>
Schedule 1
Page 1 of 2
COUNTRYBANC HOLDING COMPANY
CONSOLIDATING STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CONSOLI-
FIRST STATE DATIONS
COUNTRYBANC PEOPLE HOLDING AND CONSOLIDATED
ASSETS HOLDING CO. FIRST BANK COMPANY ELIMINATIONS BALANCE
<S> <C> <C> <C> <C> <C>
Cash and due
from banks $ 372,767 $ 15,785,168 $ 2,079,851 $ (389,820) $17,847,966
Federal funds
sold - - 4,250,000 - 4,250,000
Total cash
and cash
equivalents 372,767 15,785,168 6,329,851 (389,820) 22,097,966
Interest-bearing
deposits with
other banks - 99,000 7,314,011 - 7,413,011
Debt and equity
securities:
Available-for-sale - 87,666,289 8,350,628 - 96,016,917
Held-to-maturity - 3,147,643 3,227,020 - 6,374,663
Equity 86,154 2,515,332 126,450 - 2,727,936
Total debt
and equity
securities 86,154 93,329,264 11,704,098 - 105,119,516
Loans receivable,
net - 271,263,329 8,582,249 - 279,845,578
Premises and
equipment, net 34,768 13,423,298 398,766 - 13,856,832
Intangibles, net 419,392 6,931,788 1,336,009 - 8,687,189
Accrued interest
receivable - 5,522,178 412,014 - 5,934,192
Other real estate
and assets
owned, net - 186,501 - - 186,501
Investment in
subsidiaries 45,345,063 - - (45,345,063) -
Other assets 535,022 453,355 128,877 (168,028) 949,226
Total assets $46,793,166 $406,993,881 $36,205,875 $(45,902,911) $444,090,011
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Demand $ - $ 47,472,003 $ 4,068,672 $(389,820) $ 51,150,855
Savings, money
market and NOW - 129,634,449 12,078,411 - 141,712,860
Time - 174,802,952 15,068,231 - 189,871,183
Total deposits - 351,909,404 31,215,314 (389,820) 382,734,898
Notes payable 8,900,000 10,000,000 - - 18,900,000
Deferred income
tax liability - 2,338,529 200,244 (71,649) 2,467,124
Accrued interest
payable and
other 456,250 1,906,098 285,104 (96,379) 2,551,073
Total
liabilities 9,356,250 366,154,031 31,700,662 (557,848) 406,653,095
Minority interest - - 754,718 (754,718) -
Stockholders'
equity 37,436,916 40,839,850 3,750,495 (44,590,345) 37,436,916
Total
liabilities
and
stockholders'
equity $46,793,166 $406,993,881 $36,205,875 $(45,902,911) $444,090,011
</TABLE>
The accompanying notes are an integral part
of this consolidating financial statement.
<PAGE>
Schedule 1
Page 2 of 2
COUNTRYBANC HOLDING COMPANY
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIRST STATE
COUNTRYBANC PEOPLE HOLDING
HOLDING CO. FIRST BANK COMPANY
<S> <C> <C> <C>
Interest and dividend income:
Loans, including fees $ - $ 26,037,272 $ 619,821
Debt securities
available-for-sale - 5,583,189 433,484
Debt securities held-to-maturity - 127,175 123,110
Interest-bearing deposits with
other banks - 3,971 843,981
Federal funds sold and other - 698,330 111,300
Dividends from subsidiaries
and other 4,005,096 128,551 4,215
Total interest and dividend
income 4,005,096 32,578,488 2,135,911
Interest expense:
Deposits - 13,548,326 1,154,754
Notes payable 702,830 46,311 -
Other borrowed funds - 484,209 11,693
Total interest
expense 702,830 14,078,846 1,166,447
Net interest and
dividend income
(expense) 3,302,266 18,499,642 969,464
Provision for loan
losses - 718,000 18,000
Net interest and
dividend income
(expense) after
provision for
loan losses 3,302,266 17,781,642 951,464
Noninterest income:
Service charges
on deposit
accounts - 1,769,823 109,987
Equity in
earnings of
PFB 1,561,692 - -
Equity in earnings
of FSH 190,586 - -
Equity in earnings
of PFE 39,126 - -
Other - 551,252 15,120
Total noninterest
income 1,791,404 2,321,075 125,107
Noninterest expense:
Salaries and employee
benefits 427,206 6,532,417 375,322
Depreciation and
amortization 73,606 1,574,953 110,436
Professional and
other services 282,429 301,317 37,440
Supplies and postage 13,645 502,873 17,995
Occupancy expenses 42,345 380,524 18,420
Advertising and
business
development - 336,236 13,176
Data processing - 268,602 69,514
Equipment
maintenance 1,868 286,901 12,264
Telephone 11,833 229,052 12,277
Deposit insurance
assessments and
examination fees - 124,184 7,495
Other 114,723 829,707 31,152
Total noninterest
expense 967,655 11,366,766 705,491
Income before
income
tax expense
(benefit) and
minority
interest 4,126,015 8,735,951 371,080
Income tax expense
(benefit) (614,901) 3,174,259 141,368
Income before
minority
interest 4,740,916 5,561,692 229,712
Minority
interest - - 39,126
Net income $4,740,916 $ 5,561,692 $190,586
</TABLE>
The accompanying notes are an integral part of this
consolidating financial statement.
<TABLE>
<CAPTION>
CONSOLIDATIONS
AND CONSOLIDATED
ELIMINATIONS BALANCE
<S> <C> <C>
Interest and dividend income:
Loans, including fees $ - $ 26,657,093
Debt securities
available-for-sale - 6,016,673
Debt securities held-to-maturity - 250,285
Interest-bearing deposits
with other banks - 847,952
Federal funds sold and other (344,781) 464,849
Dividends from subsidiaries and
other (4,000,000) 137,862
Total interest and dividend income (4,344,781) 34,374,714
Interest expense:
Deposits - 14,703,080
Notes payable 749,141
Other borrowed funds (344,781) 151,121
Total interest expense (344,781) 15,603,342
Net interest and dividend
income (expense) (4,000,000) 18,771,372
Provision for loan losses - 736,000
Net interest and
dividend income
(expense) after
provision for
loan losses (4,000,000) 18,035,372
Noninterest income:
Service charges on deposit
accounts - 1,879,810
Equity in earnings of PFB (1,561,692) -
Equity in earnings of FSH (190,586) -
Equity in earnings of PFE (39,126) -
Other - 566,372
Total noninterest
income (1,791,404) 2,446,182
Noninterest expense:
Salaries and employee
benefits - 7,334,945
Depreciation and
amortization - 1,758,995
Professional and
other services - 621,186
Supplies and postage - 534,513
Occupancy expenses - 441,289
Advertising and business
development - 349,412
Data processing - 338,116
Equipment maintenance - 301,033
Telephone - 253,162
Deposit insurance
assessments and
examination fees - 131,679
Other - 975,582
Total noninterest
expense - 13,039,912
Income before income tax
expense (benefit) and
minority interest (5,791,404) 7,441,642
Income tax expense (benefit) - 2,700,726
Income before minority interest (5,791,404) 4,740,916
Minority interest (39,126) -
Net income $(5,752,278) $4,740,916
</TABLE>
The accompanying notes are an integral part
of this consolidating financial statement.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
CountryBanc Holding Company:
We have audited the accompanying consolidated statements of
financial condition of CountryBanc Holding Company (an Oklahoma
corporation) and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These
consolidated financial statements and the supplementary
consolidating information referred to below are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements and supplementary consolidating information based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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 CountryBanc Holding Company and subsidiaries as of December
31, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The
consolidating information included in Schedule I is presented for
purposes of additional analysis of the consolidated financial
statements rather than to present the financial position and
results of operations of the individual companies. This
information has been subjected to the auditing procedures applied
in our audit of the consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to
the consolidated financial statements taken as a whole.
Oklahoma City, Oklahoma,
February 13, 1998
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
Cash and due from banks $22,551,612 $14,424,005
Federal funds sold - 23,600,000
Total cash and
cash equivalents 22,551,612 38,024,005
Debt and equity securities:
Available-for-sale 92,944,487 76,523,162
Equity 1,637,632 802,286
Total debt and
equity securities 94,582,119 77,325,448
Loans receivable, net of
allowance for loan
losses of $4,715,647
in 1997 and $5,312,255
in 1996 245,652,487 240,942,243
Premises and equipment, net 11,982,860 12,450,681
Intangibles, net 6,094,072 6,090,507
Accrued interest receivable 5,247,424 4,973,817
Other real estate and
assets owned, net 708,679 700,654
Other assets 506,116 1,012,674
Total assets $387,325,369 $381,520,029
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $110,879,560 $99,823,800
Savings, money market
and NOW 48,359,895 66,185,984
Time 171,161,251 175,547,732
Total deposits 330,400,706 341,557,516
Federal funds purchased 13,000,000 -
Notes payable 7,225,000 7,100,000
Deferred income tax liability 2,039,245 1,739,154
Accrued interest payable
and other 3,351,827 1,968,790
Total liabilities 356,016,778 352,365,460
Minority interest 784,570 2,438,377
Stockholders' equity:
Preferred stock,
$.01 par value,
1,500,000 shares
authorized; 508,767
shares issued
and outstanding 5,088 5,088
Common stock - Class A,
$.01 par value,
4,250,000 shares
authorized; 943,707
shares issued and
outstanding 9,437 9,437
Common stock - Class B,
$.01 par value,
4,250,000 shares
authorized; 177,120
shares issued and
outstanding 1,771 1,771
Capital surplus 26,552,870 26,528,940
Retained earnings
(deficit) 3,779,835 (9,054)
Unrealized appreciation
on available-for-sale
securities, net of
tax of $107,270 in
1997 and $110,329
in 1996 175,020 180,010
Total stockholders'
equity 30,524,021 26,716,192
Total liabilities
and stockholders'
equity $387,325,369 $381,520,029
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Interest and dividend income:
Loans, including fees $23,932,351 $5,883,077
Debt securities
available-for-sale 5,511,740 1,160,886
Federal funds sold
and other 836,708 346,222
Total interest and
dividend income 30,280,799 7,390,185
Interest expense:
Deposits 12,978,834 3,308,650
Notes payable 580,949 116,164
Other borrowed funds 89,037 28,602
Total interest
expense 13,648,820 3,453,416
Net interest
and dividend
income 16,631,979 3,936,769
Provision for loan losses 1,476,000 1,196,381
Net interest
income after
provision for
loan losses 15,155,979 2,740,388
Noninterest income:
Service charges on
deposit accounts 1,928,106 674,930
Trust fees 34,461 19,262
Other 601,180 134,425
Total noninterest
income 2,563,747 828,617
Noninterest expense:
Salaries and employee
benefits 6,320,786 1,557,383
Depreciation and
amortization 1,276,667 315,098
Supplies and postage 635,218 172,198
Professional and
other services 622,030 731,012
Occupancy expenses 363,730 185,871
Equipment maintenance 317,139 91,406
Advertising and
business development 306,722 38,273
Data processing 272,699 57,082
Deposit insurance
assessments and
examination fees 177,284 45,148
Other 1,029,994 319,949
Total noninterest
expense 11,322,269 3,513,420
Income before
income tax expense
and minority
interest 6,397,457 55,585
Income tax expense 2,449,882 35,315
Income before
minority interest 3,947,575 20,270
Minority interest 158,686 27,963
Net income (loss) $3,788,889 $(7,693)
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Net income $ 3,788,889 $ (7,693)
Unrealized holding gains
(losses) arising during the
period, net of tax (4,990) 180,010
Total comprehensive
income $3,783,899 $172,317
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED COMMON COMMON CAPITAL
STOCK STOCK STOCK SURPLUS
<S> <C> <C> <C> <C>
BALANCE,
December 31, 1995 $5,088 $100 $ - $ -
Purchase and cancellation
of Class A common stock
- (100) - -
Issuance of Class A
common stock,
net of issue costs - 9,437 - 22,336,634
Issuance of Class B
common stock,
net of issue costs - - 1,771 4,192,306
Net loss - - - -
Net change in unrealized
gain on available-for-sale
securities, net of tax of
$110,329 - - - -
BALANCE,
December 31, 1996 5,088 9,437 1,771 26,528,940
Amortization of
employee stock
awards - - - 23,930
Net income - - - -
Net change in
unrealized gain on
available-for-sale
securities, net of
tax of ($3,059) - - - -
BALANCE,
December 31, 1997 $5,088 $9,437 $1,771 $26,552,870
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
<CAPTION>
Net
Unrealized
Retained Investment Total
Earnings Security Stockholders'
(Deficit) Gains Equity
<S> <C> <C> <C>
BALANCE,
December 31, 1995 $(1,361) $ - $3,827
Purchase and cancellation
of Class A common stock
- - (100)
Issuance of Class A
common stock,
net of issue costs - - 22,346,071
Issuance of Class B
common stock,
net of issue costs - - 4,194,077
Net loss (7,693) - (7,693)
Net change in unrealized
gain on available-for-sale
securities, net of tax of
$110,329 - 180,010 180,010
BALANCE,
December 31, 1996 (9,054) 180,010 26,716,192
Amortization of
employee stock
awards - - 23,930
Net income 3,788,889 - 3,788,889
Net change in
unrealized gain on
available-for-sale
securities, net of
tax of ($3,059) - (4,990) (4,990)
BALANCE,
December 31, 1997 $3,779,835 $175,020 $30,524,021
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $3,788,889 $(7,693)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities-
Provision for loan losses 1,476,000 1,196,381
Depreciation and amortization 1,276,667 315,098
Deferred income tax provision (benefit) 511,001 (255,394)
Amortization of employee stock awards 23,930 -
Net amortization of
available-for-sale securities 104,161 31,293
Increase (decrease) in accrued
interest payable and other
liabilities 1,254,038 (483,642)
(Increase) decrease in accrued
interest receivable (273,607) 434,813
Decrease (increase) in other assets 506,558 (251,929)
Stock dividends received (26,400) -
Net cash provided by
operating activities 8,641,237 978,927
Cash flows from investing activities:
Proceeds from maturities and pay-downs
on debt and equity securities-
Available-for-sale 62,760,256 22,997,382
Held-to-maturity - 4,508,000
Equity 86,154 -
Purchases of debt and equity securities-
Available-for-sale (79,310,622) (23,019,409)
Equity (895,100) -
Net increase in loans (7,030,968) (10,635,523)
Capital expenditures (586,741) (19,116)
Proceeds from sale of premises and
equipment 21,325 36,750
Proceeds from sales of other
real estate and assets owned 836,699 14,815
Cash received net of consideration
paid in bank acquisition - 7,175,923
Net cash provided by
(used in) investing activities (24,118,997) 1,058,822
Cash flows from financing activities:
Net change in deposits (11,156,810) 10,525,061
Increase in federal funds
purchased 13,000,000 -
Proceeds from issuance of
common stock - 18,635,000
Proceeds (payments) on from
borrowings on long-term debt (800,000) 7,100,000
Cash paid for purchase of
minority interest (1,037,823) (277,632)
Net cash provided by
financing activities 5,367 35,982,429
Net change in cash and cash equivalents (15,472,393) 38,020,178
Cash and cash equivalents at
beginning of year 38,024,005 3,827
Cash and cash equivalents
at end of year $22,551,612 $38,024,005
Cash paid for taxes $709,000 $148,000
Cash paid for interest $13,149,415 $3,390,000
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
COUNTRYBANC HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES:
NATURE OF BUSINESS
CountryBanc Holding Company ("CBH") (an Oklahoma corporation) was
formed in April 1995 for the purpose of acquiring financial
institutions throughout Oklahoma. In October 1996, CBH acquired
a 96.74% interest in P.N.B. Financial Corporation and its
subsidiaries ("PNB"), and a 75% interest in City National
Bancshares of Weatherford, Inc. and its subsidiary ("CNB")
(collectively referred to as the "Company") effective September
30, 1996 (the "Effective Date"). On June 30, 1997, the minority
interest in CNB was purchased.
The acquisitions of PNB and CNB were accounted for under the
purchase method of accounting. The purchase price paid for the
initial interests in PNB and CNB of approximately $35,865,000
consisted of 375,427 shares of Class A common stock and cash of
approximately $25,222,000 and was allocated to the net assets
acquired based upon their estimated fair values as of the
Effective Date. The excess of the purchase price over the
estimated fair value of the net assets acquired approximated
$6,194,000 at the Effective Date. The accompanying consolidated
statements of income includes only the income and expenses of PNB
and CNB since the Effective Date. The effect of the purchase of
minority interest at CNB resulted in an increase in intangibles
totaling approximately $309,000.
Information from the unaudited consolidated statements of
financial condition of PNB and CNB at the date of acquisition is
summarized as follows (in rounded thousands):
Cash and cash equivalents $33,619,000
Investment securities 81,412,000
Loans receivable, net 232,282,000
Other assets 15,100,000
Total assets $362,413,000
Deposits $329,966,000
Other liabilities 5,038,000
Stockholders' equity 27,409,000
Total liabilities $362,413,000
The Company provides a full range of banking services to
individual and corporate customers primarily in Kingfisher,
Hennessey, Enid, El Reno, Guymon, Geary, Helena, Wakita,
Marshall, Weatherford, Cordell and Corn, Oklahoma, including the
contiguous counties thereof. The Company is subject to
competition from other financial service companies and financial
institutions. The Company is also subject to the regulations of
certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of CBH and PNB and its wholly owned subsidiaries, The
Peoples National Bank & Trust of Kingfisher ("Peoples") and First
Bank of Hennessey ("First Bank"), as well as CNB and its wholly
owned subsidiary City Bank of Weatherford ("City") (collectively
referred to as the "Banks") for 1996. During 1997, Peoples and
First Bank were merged under the name of People First Bank
("PFB"). Intercompany transactions and balances have been
eliminated in consolidation.
<PAGE>
Certain reclassifications have been made to the 1996 balances to
provide consistent financial statement classifications in the
periods presented herein. Such reclassifications had no effect
on net income or total assets.
USE OF ESTIMATES
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make use of certain estimates and assumptions. Those
estimates and assumptions relate primarily to the determination
of the allowance for loan losses, the valuation of other real
estate and assets owned, income tax expense and the fair value of
financial instruments. Actual results could differ from those
estimates. The accounting policies for these items and other
significant accounting policies are presented below.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the consolidated statements of
cash flows, cash and cash equivalents are defined as those
amounts included in the consolidated statements of financial
condition as cash and due from banks and federal funds sold.
DEBT AND EQUITY SECURITIES
Debt securities and equity securities which have a readily
determinable fair value, that management intends to use as part
of its asset/liability management strategy or that may be sold in
response to changes in interest rates or prepayment risk are
classified as available-for-sale and are carried at estimated
fair value with unrealized gains and losses reported as a
separate component of stockholders' equity, net of income taxes.
Debt securities that management has the ability and intent to
hold to maturity are classified as held-to-maturity and are
carried at cost, adjusted for amortization of premiums and
accretion of discounts. Amortization of premiums and accretion
of discounts are recognized in interest income using a method
that approximates the effective interest method over the period
to maturity. Equity securities which do not have a readily
determinable fair value are carried at cost. Gains and losses on
the sale of debt and equity securities are included as a separate
component of noninterest income. Applicable income taxes, if
any, are included in income taxes. The basis of the securities
sold is determined by the specific identification method for each
security.
LOANS RECEIVABLE
Interest on substantially all loans receivable is accrued based
on the principal amount outstanding. Loan fees and costs
associated with the origination of loans are not considered to be
material and, therefore, are recorded as received and incurred,
respectively. Premiums and discounts on loans are amortized into
interest income using a method that approximates a level yield
over the contractual lives of the loans, adjusted for actual
prepayments.
The accrual of interest on impaired loans is discontinued when,
in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest
income is subsequently recognized only to the extent cash
payments are received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on
the Company's past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions. The
adequacy of the allowance for loan losses is periodically
reviewed and approved by the Board of Directors. However,
ultimate losses may differ from these estimates. Adjustments to
the allowance for loan losses are reported in earnings in the
periods in which they become known. It is Company policy to
charge off any loan <PAGE>or portion thereof when it is deemed
uncollectible in the ordinary course of business. Loan losses
and recoveries are charged or credited directly to the allowance.
PREMISES AND EQUIPMENT
Land is stated at cost. Bank premises, furniture, equipment and
leasehold improvements are stated at cost, less accumulated
depreciation. Depreciation is charged to operating expense and
is computed by use of both straight-line and accelerated methods
over the estimated useful lives of the assets. Maintenance and
repairs are charged to expense as incurred, while improvements
are capitalized.
INTANGIBLES
Intangibles consist of the excess of the purchase price paid over
the estimated fair value of the net assets acquired. Intangibles
are being amortized over their estimated life (15 years) using
the straight-line method. Amortization expense related to the
intangibles was approximately $426,000 for 1997 and $103,000 for
1996.
OTHER REAL ESTATE AND ASSETS OWNED
Other real estate and assets owned consists primarily of real
estate and other assets acquired through loan foreclosure. These
assets are carried at estimated fair value at the date of
foreclosure. Estimated fair value is based on independent
appraisals and other relevant factors. At the time of
acquisition, any excess of cost over the estimated fair value is
charged to the allowance for loan losses. Subsequent losses on
dispositions, declines in the estimated fair values and the net
operating income and expenses of such assets are charged to other
noninterest expense as incurred.
INCOME TAXES
For 1996 and through June 30, 1997, the Company and PNB filed a
consolidated Federal and state income tax return, while CNB filed
a separate, stand alone Federal and state income tax return.
Beginning July 1, 1997, as a result of the purchase of the
minority interest in CNB, the Company files a consolidated
Federal and state income tax return with all of its subsidiaries.
Deferred tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are included in the consolidated financial
statements at currently enacted income tax rates applicable to
the period in which the deferred tax assets and liabilities are
expected to be realized or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
<PAGE>
2. DEBT AND EQUITY SECURITIES:
Debt and equity securities have been classified in the
consolidated statements of financial condition according to
management's intent. The amortized cost of securities and their
estimated fair values at December 31 are as follows (in rounded
thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury securities $29,705,000 $118,000 $(5,000) $29,818,000
U.S. Government agencies
and other
mortgage-backed
securities 25,061,000 89,000 (137,000) 25,013,000
U.S. Government agency
collateralized mortgage
obligations 22,445,000 130,000 (8,000) 22,567,000
Obligations of U.S.
Government and
agencies securities 9,765,000 24,000 (16,000) 9,773,000
Obligations of
state and political
subdivisions 5,686,000 101,000 (14,000) 5,773,000
Total available-for-sale
securities 9 2,662,000 462,000 (180,000) 92,944,000
Equity securities 1,638,000 - - 1,638,000
Total debt and
equity securities $94,300,000 $462,000 $(180,000) $94,582,000
1996
Available-for-sale securities:
U.S. Treasury securities $40,952,000 $270,000 $(30,000) $41,192,000
U.S. Government
agencies and other
mortgage-backed
securities 2,431,000 34,000 (5,000) 2,460,000
U.S. Government agency
collateralized mortgage
obligations 24,228,000 - (16,000) 24,212,000
Obligations of
U.S. Government and
agencies securities 5,167,000 14,000 (9,000) 5,172,000
Obligations of state
and political
subdivisions 3,455,000 37,000 (5,000) 3,487,000
Total available-for-sale
securities 76,233,000 355,000 (65,000) 76,523,000
Equity securities 802,000 - - 802,000
Total debt and
equity securities $77,035,000 $355,000 $(65,000) $77,325,000
</TABLE>
There were no sales of debt or equity securities during 1997 or
1996.
<PAGE>
The schedule of maturities of the available-for-sale securities
at December 31, 1997, was as follows (in rounded thousands):
Amortized Estimated
Cost Fair Value
Due in one year or less $39,111,000 $39,217,000
Due after one year through
five years 43,546,000 43,676,000
Due after five years
through ten years 7,597,000 7,664,000
Due after ten years 2,408,000 2,387,000
Total available-for-sale $92,662,000 $92,944,000
For purposes of the maturity table, mortgage-backed securities
and collateralized mortgage obligations, which are not due at a
single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of
underlying collateral. The mortgage-backed securities and
collateralized mortgage obligations may mature earlier than their
weighted-average contractual maturities because of principal
prepayments.
At December 31, 1997 and 1996, debt and equity securities with
carrying values of approximately $37,017,000 and $38,897,000,
respectively, were pledged to secure public deposits and for
other purposes as required or permitted by law.
3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES:
The composition of the loans receivable portfolio at December 31
was as follows (in rounded thousands):
1997 1996
Real estate:
Commercial and residential $64,771,000 $64,268,000
Farmland 20,394,000 18,058,000
Agriculture 83,326,000 78,016,000
Commercial and industrial 62,211,000 61,809,000
Consumer, net of unearned
interest 19,047,000 22,887,000
Other 619,000 1,216,000
Subtotal 250,368,000 246,254,000
Less- Allowance for
loan losses (4,716,000) (5,312,000)
Total loans
receivable, net $245,652,000 $240,942,000
A substantial amount of the Company's total loans receivable are
to borrowers operating in the agriculture sector. The loans are
typically secured by livestock, crops, land, and machinery and
equipment. The operating performance of these borrowers'
businesses and the value of related collateral are contingent
upon, among other things, commodity prices, crop and livestock
production volumes, farm legislation and other factors.
Significant changes in any of these factors can cause serious
deterioration in the credit quality in any one or more of these
types of loans. As changes in these factors are identified,
management adjusts the allowance for loan losses accordingly.
<PAGE>
Changes in the allowance for loan losses for the years ended
December 31 were as follows (in rounded thousands):
1997 1996
Balance, beginning of year $5,312,000 $ -
Provision for loan losses 1,476,000 1,196,000
Charge-offs (2,654,000) (787,000)
Less- Recoveries 582,000 384,000
Net charge-offs (2,072,000) (403,000)
Allowance acquired in
bank acquisitions - 4,519,000
Balance, end of year $4,716,000 $5,312,000
Impaired loans totaled approximately $2,757,000 and $4,036,000 at
December 31, 1997 and 1996, respectively. The average recorded
investment in impaired loans during 1997 and 1996 was
approximately $4,069,000 and $5,256,000, respectively. The total
allowance for loan losses related to these loans was
approximately $494,000 and $831,000 at December 31, 1997 and
1996, respectively. Interest income recognized from cash receipts
collected on impaired loans was not material for the years ended
December 31, 1997 and 1996.
Loans receivable having carrying values of approximately $826,000
and $417,000 were transferred to other real estate and assets
owned in 1997 and 1996, respectively.
Loans to directors, officers, employees and their affiliated
companies totaled approximately $2,733,000 and $2,288,000 at
December 31, 1997 and 1996, respectively. In management's
opinion, these loans were made in the ordinary course of business
on substantially the same terms as those prevailing at the time
for comparable transactions with unrelated parties and do not
involve more than normal risks.
4. PREMISES AND EQUIPMENT:
The composition of premises and equipment at December 31 was as
follows (in rounded thousands):
Estimated
Useful
Life 1997 1996
Land - $627,000 $627,000
Premises and
improvements 10-40 years 9,185,000 9,108,000
Furniture, fixtures
and equipment 5-10 years 3,165,000 2,928,000
12,977,000 12,663,000
Less- Accumulated
depreciation (994,000) (212,000)
Premises and equipment,
net $11,983,000 $12,451,000
Depreciation expense totaled approximately $851,000 and $212,000
during 1997 and 1996, respectively.
5. DEPOSITS:
Included in time deposits at December 31, 1997 and 1996, are
approximately $34,434,000 and $33,269,000, respectively, in
denominations of $100,000 or more. At December 31, 1997, the
scheduled maturities of time deposits are as follows (in rounded
thousands):
<PAGE>
1998 $149,214,000
1999 18,133,000
2000 2,167,000
2001 and thereafter 1,647,000
$171,161,000
6. NOTES PAYABLE:
The Company has an $8 million revolving line of credit with
another financial institution which is due on October 17, 2006,
bearing interest at the annual rate of 7.75%, with an outstanding
balance of approximately $6,300,000 at December 31, 1997.
Advances automatically convert into term loans at the financial
institution's reference rate (7.75% at December 31, 1997).
Semi-annual principal payments of $400,000 on the total
outstanding balance are required. The total line of credit is
secured by the common stock of PNB and CNB, as well as other
subsidiary banks subsequently acquired.
The line of credit agreement contains certain restrictive
financial covenants and ratios including minimum net worth,
dividend restrictions, allowance for loan losses, capital ratios
and nonperforming asset ratios. As of December 31, 1997 and
1996, the Company was in compliance with all such ratios and
covenants.
Also included in notes payable at December 31, 1997 was an amount
totaling approximately $925,000, payable to a former minority
shareholder of CNB. This payable arose in connection with the
purchase of the minority interest of CNB. This note payable plus
accrued interest was paid in January 1998.
7. EMPLOYEE BENEFIT PLANS:
The Company has a profit sharing plan (the "Plan") covering
substantially all full-time employees. Under the provisions of
the Plan, the Company contributes a 6% match annually of total
compensation paid to participants during the year. Approximately
$224,000 and $185,000 was contributed during 1997 and 1996,
respectively, and such amounts are included in salaries and
employee benefits in the accompanying consolidated statements of
income. In addition, the Company maintains a 401(k) plan for
employees whereby participants may make voluntary contributions,
within certain limitations.
8. INCOME TAXES:
Income taxes as of December 31 have been allocated as follows (in
rounded thousands):
1997 1996
Income from operations $2,450,000 $35,000
Stockholders' equity 107,000 110,000
$2,557,000 $145,000
<PAGE>
The income tax expense from operations for December 31 includes
the following components (in rounded thousands):
1997 1996
Current expense $1,939,000 $290,000
Deferred expense (benefit) 511,000 (255,000)
$2,450,000 $35,000
At December 31 the deferred income tax liability consisted of the
following (in rounded thousands):
1997 1996
Deferred income tax assets:
Allowance for loan losses $861,000 $1,109,000
Net operating loss carryforward 321,000 678,000
Investment tax credit carryforward 121,000 121,000
Tax basis of investment
securities in excess of
book basis - 24,000
Other, net 157,000 132,000
Total gross deferred
income tax assets 1,460,000 2,064,000
Deferred income tax liabilities:
Book basis of premises and
equipment in excess of tax basis 2,854,000 2,966,000
Accrual to cash basis conversion 120,000 241,000
Available-for-sale securities 107,000 110,000
Other, net 61,000 -
Total gross deferred
tax liabilities 3,142,000 3,317,000
Net deferred income tax liability 1,682,000 1,253,000
Valuation allowance 357,000 486,000
Deferred income tax
liability, net $2,039,000 $1,739,000
A reconciliation of the provision for income taxes based on
statutory rates with effective rates follows (in rounded
thousands):
1997 1996
Income tax at statutory
rate (34%) $2,175,000 $19,000
State income tax 236,000 -
Tax-exempt interest (75,000) (18,000)
Interest expense related to
funding tax-exempt assets 20,000 3,000
Nondeductible amortization of goodwill 121,000 39,000
Other (27,000) (8,000)
Total provision for
income taxes $2,450,000 $35,000
As of December 31, 1997, the Company had approximately $680,000
of Federal net operating loss carryforwards and approximately
$2,234,000 of state net operating loss carryforwards which can be
used to offset future taxable income. The net operating loss
carryforwards expire between the years 2002 and 2009. The
Company also has approximately $121,000 of investment tax credits
which expire in 2000.
The valuation allowance at December 31, 1997 is attributable to
the net operating loss carryforwards which are subject to annual
limitations and the investment tax credit which cannot be
utilized until the net operating loss carryforwards are fully
utilized.
<PAGE>
9. COMMITMENTS AND 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.
There were letters of credit and unfunded loan commitments
outstanding at December 31, 1997, of approximately $2,150,000.
Management does not anticipate any material losses as a result of
these commitments.
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
or future results of operations of the Company.
The Company, along with other financial institutions, will face
potentially serious issues associated with the inability of
existing data processing hardware and software to appropriately
recognize calendar dates beginning in the year 2000 ("Year
2000"). Many computer programs that can only distinguish the
final two digits of the year entered may read entries for the
year 2000 as the year 1900 and compute payment, interest or
delinquency based on the wrong date or are expected to be unable
to compute payment, interest or delinquency amounts. During
1997, the Company undertook the process of identifying the many
software applications and hardware devices expected to be
impacted by this issue.
The Company purchased its principal data processing activities
from third party vendors, and all significant software
application systems are also purchased from third parties. These
systems include its core loan and deposit systems. The Company's
management believes that its vendors are actively addressing the
problems associated with Year 2000. The Company's Year 2000
action plan includes obtaining positive confirmation from these
vendors that their systems are Year 2000 compliant and to test
that compliance beginning in 1998 with completion expected prior
to December 31, 1999. Management of the Company expects that
efforts on the part of current employees will be required to
continue to monitor Year 2000 activities, but does not anticipate
a significant increase in staff to address Year 2000 issues. The
management of the Company also does not expect the costs of
addressing and correcting, if necessary, Year 2000 issues in a
timely manner will have a material impact on the Company's
consolidated financial position or its results of operations.
10. PREFERRED STOCK:
In December 1995, the Company issued 508,676 shares of preferred
stock, special series (the "Special Preferred") to certain
officers, directors and one outside consultant.
The Special Preferred stock is nonvoting and has a par value and
liquidation preference of $.01 per share. Such shares are
subject to a restricted stock agreement, and are convertible into
Class A common stock on a share-for-share basis upon the
attainment of certain performance criteria.
At the date of issuance of the Special Preferred stock, the
Company estimated the value of the shares of Special Preferred
stock expected to be issued under the terms of the restricted
loan agreement over the amount received to be approximately
$60,000. This amount is being recognized as a component of
salaries and benefits over the expected vesting period.
Approximately $24,000 was amortized during 1997 and is included
in salaries and benefits in the accompanying consolidated
statements of income with a corresponding amount recorded in
additional paid in capital in the accompanying consolidated
statements of stockholders' equity. No amount was amortized
during 1996 as the amount was not significant.
11. COMMON STOCK:
The Company has issued two classes of common stock to
shareholders; Class A and Class B common stock. With the
exception of the Class B common stock having no voting rights,
each class of common stock is identical. The Company is
restricted from issuing Class A common stock, with certain
exceptions, without the vote of a majority of the holders of the
issued and outstanding Class A common stock.
<PAGE>
12. REGULATORY MATTERS:
The Company 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
Company's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital
guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-consolidated statements of
financial condition items as calculated under regulatory
accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the
regulators regarding components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and
ratios (set forth in the following table) 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). Management believes, as of December 31,
1997, that the Company meets all capital adequacy requirements to
which it is subject.
As of December 31, 1997, the most recent notification from the
regulatory agencies categorized the Banks as well capitalized
under the regulatory framework for prompt correction action. To
be categorized as well capitalized the Banks must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or
events since that notification that management believes have
changed the Banks' category.
<PAGE>
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES:
AMOUNT RATIO AMOUNT RATIO
(DOLLARS IN ROUNDED THOUSANDS)
As of December 31, 1997:
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets):
CBH $28,402,000 10.56% $21,408,000 8%
PNB $30,570,000 12.78% 19,141,000 8%
PFB 27,880,000 11.66% 19,126,000 8%
CNB 4,001,000 13.44% 2,381,000 8%
City 4,592,000 15.43% 2,381,000 8%
Tier I Capital
(to Risk Weighted Assets):
CBH 25,040,000 9.31% 10,704,000 4%
PNB 27,560,000 11.52% 9,570,000 4%
PFB 24,873,000 10.40% 9,563,000 4%
CNB 3,824,000 12.85% 1,190,000 4%
City 4,415,000 14.84% 1,190,000 4%
Tier I Capital
(to Average Assets):
CBH 25,040,000 6.69% 14,893,000 4%
PNB 27,560,000 8.80% 12,532,000 4%
PFB 24,873,000 7.94% 12,525,000 4%
CNB 3,824,000 6.51% 2,350,000 4%
City 4,415,000 7.52% 2,350,000 4%
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS:
AMOUNT RATIO
(DOLLARS IN ROUNDED THOUSANDS)
<S> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets):
CBH $ N/A N/A
PNB N/A N/A
PFB 23,907,000 10%
CNB N/A N/A
City 2,976,000 10%
Tier I Capital
(to Risk Weighted Assets):
CBH N/A N/A
PNB N/A N/A
PFB 14,344,000 6%
CNB N/A N/A
City 1,786,000 6%
Tier I Capital
(to Average Assets):
CBH N/A N/A
PNB N/A N/A
PFB 15,656,000 5%
CNB N/A N/A
City 2,937,000 5%
</TABLE>
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES:
AMOUNT RATIO AMOUNT RATIO
(DOLLARS IN ROUNDED THOUSANDS)
As of December 31, 1996:
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets):
CBH $26,019,000 9.9% $21,024,000 8.0%
PNB 27,816,000 12.0% 18,537,000 8.0%
Peoples 13,724,000 13.3% 8,247,000 8.0%
First Bank 13,850,000 10.8% 10,286,000 8.0%
CNB 4,614,000 16.5% 2,217,000 8.0%
City 4,583,000 16.7% 2,217,000 8.0%
Tier I Capital
(to Risk Weighted Assets):
CBH 22,737,000 8.7% 10,512,000 4.0%
PNB 24,893,000 10.7% 9,268,000 4.0%
Peoples 12,430,000 12.1% 4,123,000 4.0%
First Bank 12,220,000 9.5% 5,143,000 4.0%
CNB 4,460,000 16.1% 1,109,000 4.0%
City 4,429,000 16.0% 1,109,000 4.0%
Tier I Capital
(to Average Assets):
CBH 22,737,000 6.2% 14,653,000 4.0%
PNB 24,893,000 8.0% 12,429,000 4.0%
Peoples 12,430,000 8.6% 5,814,000 4.0%
First Bank 12,220,000 7.4% 6,610,000 4.0%
CNB 4,460,000 8.2% 2,175,000 4.0%
City 4,429,000 8.1% 2,175,000 4.0%
</TABLE>
Management intends to continue compliance with
all regulatory capital requirements.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS:
AMOUNT RATIO
(DOLLARS IN ROUNDED THOUSANDS)
<S> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets):
CBH $ N/A N/A
PNB N/A N/A
Peoples 10,308,000 10.0%
First Bank 12,858,000 10.0%
CNB N/A N/A
City 2,772,000 10.0%
Tier I Capital
(to Risk Weighted Assets):
CBH N/A N/A
PNB N/A N/A
Peoples 6,185,000 6.0%
First Bank 7,715,000 6.0%
CNB N/A N/A
City 1,663,000 6.0%
Tier I Capital
(to Average Assets):
CBH N/A N/A
PNB N/A N/A
Peoples 7,268,000 5.0%
First Bank 8,262,000 5.0%
CNB N/A N/A
City 2,719,000 5.0%
</TABLE>
Management intends to continue compliance with
all regulatory capital requirements.
<PAGE>
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures about Fair Value of Financial Instruments" requires
that the Company disclose estimated fair values for its financial
instruments.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amounts for cash and cash equivalents, including
federal funds sold, are considered reasonable estimates of fair
value.
DEBT AND EQUITY SECURITIES
The fair values of debt and equity securities are based on quoted
market prices or dealer quotations, if available. The fair value
of certain state and municipal obligations is not readily
available through market sources. Fair value estimates for these
instruments are based on dealer quoted market prices.
LOANS RECEIVABLE
Fair values are estimated for portfolios of loans with similar
characteristics. Loans are segregated by type, and then further
segregated into fixed and adjustable rate components, and by
performing and nonperforming categories.
The fair value of loans is estimated by discounting scheduled
cash flows through the estimated maturity using the current rates
at which similar loans could be made to borrowers with similar
credit ratings and for similar maturities.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE
The carrying amount for accrued interest receivable and accrued
interest payable are considered reasonable estimates of fair
value.
DEPOSITS
The fair value of demand deposits, savings and interest-bearing
demand deposits is the amount payable on demand at each reporting
date. The fair value of time deposits is based on the discounted
value of contractual cash flows. The discount rate is estimated
using the rates offered for deposits of similar remaining
maturities as of each valuation date.
FEDERAL FUNDS PURCHASED
The carrying amount for federal funds purchased approximates fair
value due to the short maturity of these instruments.
NOTES PAYABLE
Interest rates currently available to the Company for debt
instruments of similar terms and remaining maturities are used to
estimate the fair value of notes payable at each reporting date.
<PAGE>
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreement and the present
creditworthiness of the counterparties. The fair value of
letters of credit is based on fees currently charged to enter
into similar agreements. The fees associated with the
commitments and letters of credit currently outstanding reflect a
reasonable estimate of fair value.
The estimated fair values of the Company's financial instruments
at December 31 were as follows (in rounded thousands):
<TABLE>
<CAPTION>
1997
CARRYING ESTIMATED
AMOUNT FAIR VALUE
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 22,552,000 $ 22,552,000
Debt and equity securities 94,582,000 94,582,000
Loans receivable, net 245,653,000 245,332,000
Accrued interest receivable 5,247,000 5,247,000
Total financial assets $368,034,000 $367,713,000
Financial liabilities:
Total deposits 330,401,000 $330,772,000
Federal funds purchased 13,000,000 13,000,000
Notes payable 7,225,000 7,225,000
Accrued interest payable 1,086,000 1,086,000
Total financial
liabilities $351,712,000 $352,083,000
</TABLE>
<TABLE>
<CAPTION>
1996
CARRYING ESTIMATED
AMOUNT FAIR VALUE
<S> <C> <C>
Financial assets:
Cash and cash equivalents $38,024,000 $38,024,000
Debt and equity securities 77,325,000 77,325,000
Loans receivable, net 240,942,000 240,594,000
Accrued interest receivable 4,974,000 4,974,000
Total financial assets $361,265,000 $360,917,000
Financial liabilities:
Total deposits $341,558,000 $342,008,000
Federal funds purchased - -
Notes payable 7,100,000 7,100,000
Accrued interest payable 1,167,000 1,167,000
Total financial liabilities $349,825,000 $350,275,000
</TABLE>
LIMITATIONS
No ready market exists for a significant portion of the Company's
financial instruments. It is necessary to estimate the fair
value of these financial instruments based on a number of
subjective factors, including expected future loss experience,
risk characteristics and economic performance. Because of the
significant amount of judgment involved in the estimation of the
accompanying fair value information, the amounts disclosed cannot
be determined with precision.
The fair value of a given financial instrument may change
substantially over time as a result of, among other things,
changes in scheduled or forecasted cash flows, movement of
current interest rates, and changes in management's estimates of
the related credit risk or operational costs. Consequently,
significant revisions to fair value estimates may occur during
future periods. Management believes it has taken reasonable
efforts to ensure that fair value estimates presented are
accurate. However, adjustments to fair value estimates may occur
in the future and actual amounts realized from financial
instruments may differ significantly from the amounts presented
herein.
The fair values presented apply only to financial instruments
and, as such, do not include such items as fixed assets, other
real estate and assets owned, other assets and liabilities, as
well as other intangibles which have resulted from business
transactions. As a result, the aggregation of the fair value
estimates presented herein do not represent, and should not be
construed to represent, the underlying value of the Company.
<PAGE>
14. ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income." This statement is required to
be adopted by the Company in 1998. While this new standard
imposes additional reporting requirements on the Company,
management does not anticipate that this statement will have a
significant impact on the consolidated financial position or the
future results of operations of the Company.
15. SUBSEQUENT EVENTS:
As of December 31, 1997, the Company had entered into agreements
to purchase the First State Bank of Elkhart in Elkhart, Kansas
("FSB") with assets totaling approximately $44,000,000 and Home
State Bank of Hobart in Hobart, Oklahoma ("HSB") with assets
totaling approximately $41,000,000. The FSB acquisition was
consummated in the first quarter of 1998. The HSB acquisition is
expected to be consummated in the second quarter of 1998. The
purchase price for FSB and HSB is approximately $4,214,000 and
$4,330,000, respectively.
<PAGE>
COUNTRYBANC HOLDING COMPANY
CONSOLIDATING STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
Schedule 1
Page 1 of 2
<TABLE>
<CAPTION>
CONSOLI-
P.N.B. CITY DATIONS
COUNTRYBANC FINANCIAL NATIONAL AND CONSOLIDATED
ASSETS HOLDING CO. CORP. BANCSHARES ELIMINATIONS BALANCE
<S> <C> <C> <C> <C> <C>
Cash and due
from banks $ 13,240 $19,679,767 $2,919,143 $ (60,538) $22,551,612
Federal funds
sold - - 7,775,000 (7,775,000) -
Total cash
and cash
equivalents 13,240 19,679,767 10,694,143 (7,835,538) 22,551,612
Debt and equity
securities:
Available-for-sale - 70,004,017 22,940,470 - 92,944,487
Equity - 1,162,232 475,400 - 1,637,632
Total debt
and equity
securities - 71,166,249 23,415,870 - 94,582,119
Loans receivable,
net - 222,209,270 23,443,217 - 245,652,487
Premises and
equipment, net 33,268 10,248,823 1,700,769 - 11,982,860
Intangibles, net 452,136 4,420,591 1,221,345 - 6,094,072
Accrued interest
receivable - 4,588,212 659,212 - 5,247,424
Other real estate
and assets
owned, net - 708,679 - - 708,679
Investment in
subsidiaries 36,416,217 - - (36,416,217) -
Other assets 227,626 334,503 48,018 (104,031) 506,116
Total assets $37,142,487 $333,356,094 $61,182,574 $(44,355,786) $387,325,369
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits:
Demand $ - $93,077,643 $17,862,455 $(60,538) $110,879,560
Savings, money
market
and NOW - 43,546,853 4,813,042 - 48,359,895
Time - 139,602,414 31,558,837 - 171,161,251
Total deposits - 276,226,910 54,234,334 (60,538) 330,400,706
Federal funds
purchased - 20,775,000 - (7,775,000) 13,000,000
Deferred income
tax liability (9,743) 1,539,950 509,038 - 2,039,245
Notes payable 6,300,000 - 925,000 - 7,225,000
Accrued interest
payable and
other liabilities 328,209 2,703,634 424,014 (104,030) 3,351,827
Total
liabilities 6,618,466 301,245,494 56,092,386 (7,939,568) 356,016,778
Minority interest - - - 784,570 784,570
Stockholders'
equity 30,524,021 32,110,600 5,090,188 (37,200,788) 30,524,021
Total liabilities
and
stockholders'
equity $37,142,487 $333,356,094 $61,182,574 $(44,355,786) $387,325,369
</TABLE>
The accompanying notes are an integral part of
this consolidating financial statement.
<PAGE> Schedule 1
Page 2 of 2
COUNTRYBANC HOLDING COMPANY
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CITY
COUNTRYBANC P.N.B. NATIONAL
HOLDING CO. FINANCIAL CORP. BANCSHARES
<S> <C> <C> <C>
Interest income:
Loans, including fees $ - $21,708,437 $2,223,914
Debt securities
available-for-sale - 3,812,105 1,699,635
Federal funds sold
and other - 618,143 218,565
Total interest income - 26,138,685 4,142,114
Interest expense:
Deposits - 10,955,383 2,023,451
Notes payable 548,307 - 32,642
Other borrowed funds - 89,037 -
Total interest
expense 548,307 11,044,420 2,056,093
Net interest
income (expense) (548,307) 15,094,265 2,086,021
Provision for loan
losses - 1,440,000 36,000
Net interest income (expense)
after provision for
loan losses (548,307) 13,654,265 2,050,021
Noninterest income:
Service charges on
deposit accounts - 1,571,826 356,280
Trust fees - 34,461 -
Equity in earnings of
PNB 2,613,285 - -
Equity in earnings of
CNB 527,722 - -
Dividends 1,399,245 - -
Other - 538,531 62,649
Total noninterest
income 4,540,252 2,144,818 418,929
Noninterest expense:
Salaries and employee
benefits 261,946 5,235,962 822,878
Depreciation and
amortization 67,496 979,802 152,017
Supplies and postage 14,372 543,097 77,749
Professional and
other services 201,560 395,765 24,705
Occupancy expenses 18,107 305,237 40,386
Equipment maintenance - 274,259 42,880
Advertising and
business development 4,308 257,762 44,652
Data processing - 140,787 131,912
Deposit insurance
assessments and
examination fees - 159,406 17,878
Other 67,244 852,983 109,767
Total noninterest
expense 635,033 9,145,060 1,464,824
Income before income
tax expense
(benefit) and
minority interest 3,356,912 6,654,023 1,004,126
Income tax
Expense (benefit) (431,977) 2,533,594 364,902
Income before
minority interest 3,788,889 4,120,429 639,224
Minority interest - - -
Net income $3,788,889 $4,120,429 $639,224
</TABLE>
The accompanying notes are an integral part of
this consolidating financial statement.
<TABLE>
<CAPTION>
CONSOLIDATIONS
AND CONSOLIDATED
ELIMINATIONS BALANCE
<S> <C> <C>
Interest income:
Loans, including fees $ - $23,932,351
Debt securities
available-for-sale - 5,511,740
Federal funds sold
and other - 836,708
Total interest
income - 30,280,799
Interest expense:
Deposits - 12,978,834
Notes payable - 580,949
Other borrowed funds - 89,037
Total interest
expense - 13,648,820
Net interest
income (expense) - 16,631,979
Provision for loan
losses - 1,476,000
Net interest income (expense)
after provision for
loan losses - 15,155,979
Noninterest income:
Service charges on
deposit accounts - 1,928,106
Trust fees - 34,461
Equity in earnings of
PNB (2,613,285) -
Equity in earnings of
CNB (527,722) -
Dividends (1,399,245) -
Other - 601,180
Total noninterest
income (4,540,252) 2,563,747
Noninterest expense:
Salaries and employee
benefits - 6,320,786
Depreciation and
amortization 77,352 1,276,667
Supplies and postage - 635,218
Professional and
other services - 622,030
Occupancy expenses - 363,730
Equipment maintenance - 317,139
Advertising and
business development - 306,722
Data processing - 272,699
Deposit insurance
assessments and
examination fees - 177,284
Other - 1,029,994
Total noninterest
expense 77,352 11,322,269
Income before income
tax expense
(benefit) and
minority interest (4,617,604) 6,397,457
Income tax
expense (benefit) (16,637) 2,449,882
Income before
minority interest (4,600,967) 3,947,575
Minority interest 158,686 158,686
Net income $(4,759,653) $3,788,889
</TABLE>
The accompanying notes are an integral part of this
consolidating financial statement.
<PAGE>
COUNTRYBANC HOLDING COMPANY
Consolidated Statements of Financial Condition - Unaudited
September 30, 1999 and 1998
Assets 1999 1998
Cash and due from banks $ 10,175,158 $ 13,205,488
Federal funds sold and interest
bearing deposits 2,000,000 -
Total cash and cash
equivalents 12,175,158 13,205,488
Interest-bearing deposits
with other banks 2,667,015 10,286,002
Debt and equity securities:
Available-for-sale 95,733,850 102,091,363
Held-to-maturity 8,322,799 6,940,756
Equity 3,040,742 2,830,886
Total debt and equity
securities 107,097,391 111,863,005
Loans receivable, net allowance
for loan losses of $4,944,965
in 1999 and $5,123,530 in 1998 295,194,165 264,950,741
Premises and equipment, net 14,036,175 13,827,206
Intangibles, net of accumulated
amortization of $603,093 in 1999
and $458,006 in 1998 9,956,115 8,850,284
Accrued interest receivable 6,510,680 6,404,227
Other real estate and assets
owned, net 410,031 186,501
Other assets 1,017,977 909,334
Total assets $ 449,064,707 $ 430,482,788
Liabilities and Stockholders' Equity
Deposits:
Demand $ 48,500,565 $ 45,095,372
Savings, money market & NOW 149,713,160 135,278,482
Time 190,354,908 198,150,102
Total deposits 388,568,633 378,523,956
Federal funds purchased - 740,000
Notes payable 15,090,000 9,700,000
Deferred income tax liability 1,638,542 2,306,223
Accrued interest and
other liabilities 3,583,745 2,881,395
Total liabilities 408,880,920 394,151,574
Minority interest - -
Stockholders' equity:
Preferred stock, $.01 par value;
1,5000,000 shares authorized,
508,767 shares issued and
outstanding 5,088 5,088
Common stock, Class A, $.01 par
value, 4,250,000 shares authorized;
1,006,002 shares issued and
outstanding 10,060 10,060
Common stock, Class B, $.01 par
value, 4,250,000 shares authorized;
201,920 shares issued and
outstanding 2,019 2,019
Capital surplus 28,678,844 28,659,700
Retained earnings 12,350,970 7,339,937
Unrealized gains (losses) on
available-for-sale securities (863,194) 314,410
Total stockholders' equity 40,183,787 36,331,214
Total liabilities and
stockholders' equity $ 449,064,707 $ 430,482,788
<PAGE>
COUNTRYBANC HOLDING COMPANY
Consolidated Statements of Income - Unaudited
For the Nine Months Ended September 30, 1999 and 1998
1999 1998
Interest income
Loans, including fees $ 21,697,455 $ 20,118,497
Debt securities
available-for-sale 4,184,337 4,555,516
Debt securities
held-to-maturity 293,004 161,129
Interest-bearing deposits
with other banks 214,713 513,132
Federal funds sold and other 315,742 396,401
Dividends 135,323 97,236
Total interest and dividend income 26,840,574 25,841,911
Interest expense:
Deposits 10,826,731 11,120,419
Notes payable 434,301 510,716
Other borrowed funds 468,414 140,966
Total interest expense 11,729,446 11,772,101
Net interest income and
dividend income 15,111,128 14,069,810
Provisions for loan losses 588,000 714,000
Net interest income
after provision 14,523,128 13,355,810
Noninterest income:
Service charges on deposit
accounts 1,962,890 1,388,721
Other 550,927 415,929
Total non-interest income 2,513,817 1,804,650
Non-interest expense:
Salaries and employee benefits 6,104,994 5,344,485
Depreciation and amortization 1,687,823 1,271,533
Professional & other services 455,779 489,786
Supplies and postage 404,265 401,327
Occupancy expense 351,022 322,900
Advertising & business development 275,275 252,618
Data processing 235,787 153,241
Equipment maintenance 295,710 253,383
Telephone 173,836 184,993
Deposit insurance assessments
and examination fees 101,670 95,678
Other 704,673 782,012
Total non-interest expense 10,790,834 9,551,956
Income before income taxes
and minority interest 6,246,111 5,608,504
Income tax expense 2,415,892 2,048,401
Net income before minority
interest 3,830,219 3,560,103
Minority interest - -
Net income $ 3,830,219 $ 3,560,103
<PAGE>
COUNTRYBANC HOLDING COMPANY
Consolidated Statements of Comprehensive Income-Unaudited
For the Nine Months Ended September 30, 1999 and 1998
1999 1998
Net income $ 3,830,219 $ 3,560,103
Unrealized holding gains
(losses) arising during the
period, net of tax (1,097,706) 139,390
Total comprehensive income $ 2,732,513 $ 3,699,493
<PAGE>
COUNTRYBANC HOLDING COMPANY
Consolidated Statements of Cash Flows - Unaudited
For the Nine Months Ended September 30, 1999 and 1998
1999 1998
Cash provided (absorbed) by
operating activities:
Net income $ 3,830,219 $ 3,560,103
Adjustments to reconcile net
income to net cash provided
by operating activities -
Provisions for loan losses 588,000 714,000
Depreciation & amortization 1,687,823 1,271,533
Deferred income tax provision (238,462) (94,195)
Amortization of employee
stock awards 14,358 14,358
Gain on sale of assets (60,800) (3,840)
Net amortization of debt securities:
Available-for-sale 147,700 175,556
Held-to-maturity 30,123 17,898
Stock dividends received (45,600) (12,800)
Decrease in accrued
interest receivable 197,003 61,204
Increase in other
assets (67,920) (375,319)
Increase (decrease) in accrued
interest, taxes and other
liabilities 798,140 1,098,452
Net cash provided by
operating activities 6,880,584 4,230,046
Cash provided (absorbed) by investing activities:
Proceeds from sales of
equity securities 236,554 31,950
Proceeds from maturities and
paydowns of debt and equity
securities -
Available-for-sale 47,397,395 39,729,933
Held-to-maturity 1,605,640 1,286,308
Purchases of investment
securities -
Available-for-sale (48,180,289) (27,673,746)
Held-to-maturity (2,880,000) (1,994,688)
Equity (317,300) (999,800)
Proceeds from maturities of
interest-bearing deposits with
other banks 4,745,996 8,383,267
Decrease in loans, net 10,076,705 9,811,975
Capital expenditures (701,786) (1,228,945)
Proceeds from sales of
premises and equipment 25,652 16,253
Proceeds from the sale of other
real estate and assets owned 85,573 526,018
Cash paid (net of consideration
received)in bank acquisitions 262,457 (6,792,147)
Net cash provided (absorbed) by
investing activities 12,356,597 21,096,378
Cash provided (absorbed) by financing activities:
Net change in deposits (23,959,989) (26,196,321)
Increase (decrease) in
federal funds purchased - (12,260,000)
Proceeds from issuance of
common stock - 2,093,343
Payments on borrowings (5,300,000) (5,025,000)
Proceeds from borrowings 1,000,000 7,500,000
Purchase of minority interest - (784,570)
Net cash provided (absorbed)by
investing activities (29,159,989) (34,672,548)
Net change in cash
and cash equivalents (9,922,808) (9,346,124)
Cash and cash equivalents at
beginning of year 22,097,966 22,551,612
Cash and cash equivalents at
end of year $ 12,175,158 $ 13,205,488
Cash paid for income taxes $ 2,280,833 $ 3,835,509
Cash paid for interest $ 11,860,244 $ 11,297,342
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
of our reports dated April 2, 1999 and February 13, 1998, included
in this Form 8-K and to the incorporation by reference in
Gold Banc Corporation Inc.'s previously filed Registration
Statement File No. 333-65539.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
November 18, 1999
<PAGE>
