<PAGE> 1
THIS IS A CONFIRMING ELECTRONIC FILE COPY ORIGINALLY FILED ON FEBRUARY 7,1996
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1996
REGISTRATION NO. 333-00008
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
CITI-BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 6711 59-2298309
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
1211 NORTH BOULEVARD WEST
LEESBURG, FLORIDA 34738-5351
(904) 787-5111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
KENNETH W. MULLIS
CITI-BANCSHARES, INC.
1211 NORTH BOULEVARD WEST
LEESBURG, FLORIDA 34738-5351
(904) 787-5111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
RALPH F. MACDONALD, III C. DANIEL HICKS
ALSTON & BIRD HICKS & MACQUARRIE
1201 WEST PEACHTREE STREET 2303 SOUTHEAST 17TH STREET
ATLANTA, GEORGIA 30309-3424 OCALA, FLORIDA 34471
(404) 881-7582 (904) 351-3353
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER SHARE OFFERING PRICE (2) FEE (2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 425,000 shares * $ 4,234,000 $ 847
====================================================================================================
</TABLE>
- --------------------
* Not applicable.
(1) Represents the estimated number of shares of Common Stock, par value $.01
per share ("CBI Common Stock"), issuable by the Registrant upon
consummation of the merger of Citizens First Bancshares, Inc. ("CFB") with
and into Registrant.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(2) under the Securities Act of 1933, as amended, on the
book value of CBI Common Stock on September 30, 1995.
-----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
CITI-BANCSHARES, INC.
PART I
CROSS CONFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION CAPTION OF LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1 Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . Outside front cover page; facing page
2 Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . . . . . Available Information
3 Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information . . . . . . . . . . . . . . Summary; Risk Factors; The Merger
4 Terms of the Transaction . . . . . . . . . . . . . Summary; General Information; The Merger;
Certain Differences in the Rights of CBI and
CFB Shareholders; ANNEX A; ANNEX B
5 Pro Forma Financial Information . . . . . . . . . . Summary; Pro Forma Condensed Combined
Financial Data
6 Material Contacts with Company Being Acquired . . . Summary; The Merger; Certain Relationships and
Related Transactions of CFB; Other Matters
7 Additional Information Required for Reoffering
by Persons and Parties Deemed
to be Underwriters . . . . . . . . . . . . . . Not applicable
8 Interests of Named Experts and Counsel . . . . . . Not applicable
9 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not applicable
B. INFORMATION ABOUT THE REGISTRANT
10 Information with Respect to S-3 Registrants . . . . Not applicable
11 Incorporation of Certain Information
by Reference . . . . . . . . . . . . . . . . . Not applicable
12 Information with Respect to S-2 or S-3 Registrants Not applicable
13 Incorporation of Certain Information by Reference . Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
14 Information with Respect to Registrants Available Information; Summary; Risk
Other than S-2 or S-3 Registrants . . . . . . Factors; CBI's Management's Discussion &
Analysis of Financial Conditions and
Results of Operations; CBI Compensation of
Executive Officers; Description of CBI
Capital Stock; Supervision and Regulation;
CBI Business; Description of CBI Property;
Management of CBI; Ownership of CBI Common
Stock; Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15 Information with Respect to S-3 Companies . . . . . Not applicable
16 Information with Respect to S-3 or S-2 Companies . Not applicable
17 Information with Respect to Companies Other
than S-3 or S-2 Companies . . . . . . . . . . Available Information; Summary; CFB's
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business of CFB; Financial
Statements; Management of CFB; Ownership of
CFB Common Stock; Certain Relationships and
Related Transactions of CFB
D. VOTING AND MANAGEMENT INFORMATION
18 Information if Proxies, Consents or Authorizations are
to be Solicited . . . . . . . . . . . . . . . . . . Available Information; Summary; General
Information; The Merger; Ownership of CFB
Common Stock; Ownership of CBI Common
Stock; Management of CFB; Management of
CBI; CBI Compensation of Executive
Officers; Certain Relationships and Related
Party Transactions of CFB; Certain
Transactions and Business Relationships of
CBI; Other Matters; ANNEX B
19 Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer . . . . Not applicable
</TABLE>
<PAGE> 4
CITIZENS FIRST BANCSHARES, INC.
1601 S.W. College Road
Ocala, Florida 34478
____________, 1996
Dear Shareholder:
You are cordially invited to attend the special meeting of shareholders
("Special Meeting") of Citizens First Bancshares, Inc. ("CFB") to be held at
the main office of CFB, located at 1601 S.W. College Road, Ocala, Florida, at
___________, Eastern Time, on _____________, 1996.
At the Special Meeting, you will be asked to consider and vote upon the
approval of an Agreement and Plan of Merger dated as of October 19, 1995 (the
"Merger Agreement"), which provides for the merger (the "Merger") of CFB with
and into Citi-Bancshares, Inc. ("CBI"). If the proposed Merger is consummated,
each outstanding share of CFB common stock (excluding shares held by CFB or any
of its subsidiaries or by CBI or any of its subsidiaries, in each case other
than in a fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by shareholders who perfect their dissenters' rights)
will be converted into and exchanged solely for the right to receive that
number of shares of CBI common stock equal to 425,000 divided by the number of
shares of CFB common stock issued and outstanding on the effective date of the
Merger. The affirmative vote of the holders of a majority of the shares of CFB
common stock entitled to vote at the Special Meeting is required for approval
of the Merger Agreement.
Enclosed are the (i) Notice of Special Meeting, (ii) Proxy
Statement/Prospectus and (iii) a Proxy for the Special Meeting. The Proxy
Statement/Prospectus describes in more detail the Merger Agreement and the
proposed Merger, including a description of the conditions to consummation of
the Merger and the effects of the Merger on the rights of CFB shareholders, and
contains financial and other information about CFB.
Your Board of Directors has unanimously approved and adopted the Merger
Agreement and consummation of the transactions contemplated therein, and
unanimously recommends that you vote "FOR" approval of the Merger Agreement and
consummation of the transactions contemplated therein.
In view of the importance of the action to be taken, we urge you to
complete, sign and date the enclosed Proxy and to return it promptly in the
enclosed envelope, whether or not you plan to attend the Special Meeting (if
you attend the Special Meeting, you may vote in person, even if you previously
returned your Proxy).
We look forward to seeing you at the Special Meeting.
Sincerely,
TERRY E. TREXLER
Chairman of the Board
<PAGE> 5
CITIZENS FIRST BANCSHARES, INC.
1601 S.W. College Road
Ocala, Florida 34478
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT __________ ON _________, 1996
__________, 1996
To the Shareholders of Citizens First Bancshares, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders ("Special
Meeting") of Citizens First Bancshares, Inc. ("CFB") will be held at the main
office of CFB, located at 1601 S.W. College Road, Ocala, Florida, at _______,
Eastern Time, on ____________, _________, 1996, for the following purposes:
1. THE MERGER. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of October 19, 1995 (the "Merger
Agreement"), by and between CFB and Citi-Bancshares, Inc. ("CBI"), pursuant to
which, among other matters, CFB will merge with and into CBI (the "Merger") and
each outstanding share (other than shares held directly or indirectly by CBI or
CFB or as to which CFB shareholders have perfected their dissenters' rights) of
CFB common stock will be converted into and exchanged solely for the right to
receive that number of shares of CBI common stock equal to 425,000 divided by
the number of shares of CFB common stock issued and outstanding on the
effective date of the Merger, all as more fully described in the accompanying
Proxy Statement/Prospectus. A copy of the Merger Agreement is set forth in
ANNEX A to the accompanying Proxy Statement/Prospectus and is hereby
incorporated by reference herein.
2. OTHER BUSINESS. To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements of the Special
Meeting.
Only shareholders of record at the close of business on ____________, 1996,
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. Approval of the Merger Agreement and
the consummation of the transactions contemplated thereby requires the
affirmative vote of the holders of a majority of the shares of CFB common stock
entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS OF CFB UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
EACH SHAREHOLDER HAS THE RIGHT TO DISSENT FROM THE MERGER AGREEMENT AND
DEMAND PAYMENT OF THE FAIR VALUE OF HIS SHARES IF THE MERGER IS CONSUMMATED.
THE RIGHT OF ANY SHAREHOLDER TO RECEIVE SUCH PAYMENT IS CONTINGENT UPON STRICT
COMPLIANCE WITH THE REQUIREMENTS OF SECTION 607.1320 OF THE FLORIDA BUSINESS
CORPORATION ACT. THE FULL TEXT OF SECTION 607.1320 AND SECTIONS 607.1301 AND
607.1302 SETTING FORTH THE RIGHT TO DISSENT IS SET FORTH IN ANNEX B TO THE
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. FOR A
SUMMARY OF THE REQUIREMENTS OF SECTION 607.1320, SEE "THE MERGER--DISSENTERS'
RIGHTS" IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
________________________
Secretary
<PAGE> 6
PROSPECTUS PROXY STATEMENT
---------- ---------------
CITI-BANCSHARES, INC. CITIZENS FIRST BANCSHARES, INC.
425,000 SHARES OF COMMON STOCK SPECIAL MEETING OF SHAREHOLDERS
___________________________
This Proxy Statement/Prospectus is being furnished to holders of common
stock, $.10 par value ("CFB Common Stock"), of Citizens First Bancshares, Inc.,
a Florida corporation ("CFB"), in connection with the solicitation of proxies
by the CFB Board of Directors ("CFB Board") for use at the Special Meeting of
Shareholders to be held at _________, Eastern time, on _____________,
_________, 1996, at the main office of CFB, located at 1601 S.W. College Road,
Ocala, Florida, and at any adjournment or postponements thereof (the "Special
Meeting").
The purpose of the Special Meeting is to consider and vote upon, among
other things, a proposal to approve an Agreement and Plan of Merger, dated as
of October 19, 1995 (the "Merger Agreement"), by and between CFB and Citi-
Bancshares, Inc. ("CBI"), which provides for, among other things, the merger
(the "Merger") of CFB with and into CBI. See "SUMMARY," "THE MERGER" and ANNEX
A to this Proxy Statement/Prospectus.
Upon consummation of the Merger, each outstanding share of CFB Common Stock
(excluding shares held by CFB or any of its subsidiaries or by CBI or any of
its subsidiaries, in each case other than in a fiduciary capacity or as a
result of debts previously contracted, and excluding shares held by
shareholders who perfect their dissenters' rights) shall cease to be
outstanding and shall be converted into and exchanged solely for the right to
receive that number of shares of CBI common stock, $.01 par value, ("CBI Common
Stock") equal to 425,000 divided by the number of shares of CFB common stock
issued and outstanding on the effective date of the Merger (the "Exchange
Ratio"). Holders of CFB Common Stock who intend to dissent will lose their
dissenters' rights of appraisal if they vote for the Merger.
This Proxy Statement/Prospectus also constitutes a prospectus of CBI
relating to the approximately 425,000 shares of CBI Common Stock issuable to
CFB shareholders in the Merger. See "DESCRIPTION OF CBI CAPITAL STOCK" and
"CERTAIN DIFFERENCES IN THE RIGHTS OF CBI AND CFB SHAREHOLDERS." The CBI
Common Stock is currently traded in the over-the-counter market and is quoted
on The Nasdaq Stock Market's National Market. See "SUMMARY--Market Prices and
Dividends."
THE CBI COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" ON PAGE 15 HEREOF.
_____________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_____________
THE SHARES OF CBI COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
The date of this Proxy Statement/Prospectus is ___________________, 1996,
and it is first being mailed or otherwise delivered to CFB shareholders on or
about such date.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Special Meeting; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Market Prices and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Comparison of Certain Unaudited Per Share Data . . . . . . . . . . . . . . . . . 7
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Lack of Liquidity; Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 15
Integration of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Record Date, Solicitation, and Revocability of Proxies . . . . . . . . . . . . . 16
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Recommendation of CFB's Board of Directors . . . . . . . . . . . . . . . . . . . 17
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Distribution of CBI Certificates . . . . . . . . . . . . . . . . . . . . . . . . 22
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . 22
Management and Operations After the Merger . . . . . . . . . . . . . . . . . . . 24
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . 24
Conditions to Consummation . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Amendment, Waiver and Termination . . . . . . . . . . . . . . . . . . . . . . . 26
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . 26
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Resale of CBI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PRO FORMA CONDENSED COMBINED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . 30
CFB'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Deposits and Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . 39
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Balance Sheet Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Effects of Inflation and Changing Prices . . . . . . . . . . . . . . . . . . . . 45
Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Noninterest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Provision for Loan Losses, Net Charge-Offs and Allowance for Loan Losses . . . . 50
Allowance for Loan Losses and Risk Elements . . . . . . . . . . . . . . . . . . 52
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
- iii -
<PAGE> 8
<TABLE>
<S> <C>
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Effects of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . 55
BUSINESS OF CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Capital Stock Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Contingencies and Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . 56
Property Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
MANAGEMENT OF CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 58
OWNERSHIP OF CFB COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CFB . . . . . . . . . . . . . . . . . . . . 60
CBI'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Financial Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Deposits and Short-term Borrowings . . . . . . . . . . . . . . . . . . . . . . . 69
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Liquidity Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Effects of Inflation, Changing Prices, and Changing Interest Rates . . . . . . . 78
Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Noninterest Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Provision for Loan Losses, Net Charge-Offs and Allowance for Loan Losses . . . . 80
Allowance for Loan Losses and Risk Elements . . . . . . . . . . . . . . . . . . 82
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Effects of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . 86
Contingencies and Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . 86
FASB 107 Disclosures About Fair Value of Financial Instruments . . . . . . . . . 86
CBI BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
DESCRIPTION OF CBI PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
MANAGEMENT OF CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 92
OWNERSHIP OF CBI COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
CBI COMPENSATION OF EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
CBI Compensation Committee Interlocks and Insider Participation . . . . . . . . 99
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS OF CBI . . . . . . . . . . . . . . . . . . . 100
DESCRIPTION OF CBI CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
CERTAIN DIFFERENCES IN THE RIGHTS OF CBI AND CFB SHAREHOLDERS . . . . . . . . . . . . . . . . 101
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Support of Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Prompt Corrective Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
</TABLE>
- iv -
<PAGE> 9
<TABLE>
<S> <C>
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Safety and Soundness Standards . . . . . . . . . . . . . . . . . . . . . . . . . 108
Depositor Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
ANNEXES:
ANNEX A -- Agreement and Plan of Merger, dated as of October 19, 1995,
by and between CFB and CBI . . . . . . . . . . . . . . . . . . . . A-1
ANNEX B -- Excerpt from the Florida Business Corporation Act
Relating to Rights of Dissenting Shareholders . . . . . . . . . . . B-1
</TABLE>
- v -
<PAGE> 10
AVAILABLE INFORMATION
CBI is required to file reports and information pursuant the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act") with the Securities and Exchange Commission (the "Commission").
Such reports and other information filed by CBI with the Commission may be
inspected and copied at the principal office of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should be
available at the Commission's Regional Offices at 7 World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4, of which this Proxy
Statement/Prospectus is a part, and exhibits thereto (together with any
amendments thereto, the "Registration Statement"), which has been filed by CBI
with the Commission under the Securities Act of 1933, as amended, and the rules
and regulations thereunder (the "Securities Act"), certain portions of which
have been omitted pursuant to the rules and regulations of the Commission and
to which portions reference is hereby made for further information. Statements
contained in this Proxy Statement/Prospectus concerning the provisions of
certain documents filed as exhibits to the Registration Statement are
necessarily brief descriptions thereof, and are not necessarily complete, and
each such statement is qualified in its entirety by reference to the full text
of such document.
CFB is not subject to the Exchange Act and, accordingly, does not file
reports or other information with the Commission.
ALL INFORMATION CONTAINED HEREIN WITH RESPECT TO CBI AND ITS SUBSIDIARIES
HAS BEEN SUPPLIED BY CBI AND ALL INFORMATION WITH RESPECT TO CFB AND ITS
SUBSIDIARIES HAS BEEN SUPPLIED BY CFB.
_____________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY CBI OR CFB. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS
PROXY STATEMENT/PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CBI, CFB, OR ANY OF
THEIR RESPECTIVE SUBSIDIARIES SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE
SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS IN ANY JURISDICTION IN
WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION WITHIN SUCH
JURISDICTION.
Any statement contained herein or in any supplement hereto shall be deemed
to be modified or superseded for purposes of the Registration Statement and
this Proxy Statement/Prospectus to the extent that a statement contained
herein, in any supplement hereto or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement, this Proxy Statement/Prospectus, or any supplement
hereto.
- 1 -
<PAGE> 11
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. This summary is not intended to be a complete
description of the matters covered in this Proxy Statement/Prospectus and is
subject to and qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, including
the Appendices hereto. A copy of the Merger Agreement is set forth in ANNEX A
to this Proxy Statement/Prospectus and reference is made thereto for a complete
description of the terms of the Merger. Shareholders are urged to read
carefully the entire Proxy Statement/Prospectus, including the Annexes. As
used in this Proxy Statement/Prospectus, the terms "CBI" and "CFB" refer to
such corporations, respectively, and, except where the context otherwise
requires, their respective subsidiaries.
PARTIES TO THE MERGER
CBI and CFB are parties to the Merger Agreement. Each of such parties is
described below.
CBI
CBI is a Florida corporation that is registered with the Board of Governors
of the Federal Reserve System (the "Federal Reserve") as a "bank holding
company" under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Through its banking subsidiary, CBI provides a wide range of commercial
and retail banking services, trust services and various other financial
services in central Florida. Its principal subsidiary is Citizens National
Bank of Leesburg, N.A. ("CNBL"), a national banking association that is a
member of the FDIC. CNBL currently operates six full service banking offices
in Lake County, Florida, one in Sumter County, Florida, and one in Marion
County, Florida.
For the year ended December 31, 1994, and the nine months ended September
30, 1995, CBI reported net income of approximately $6.0 million and $4.8
million, respectively. As of September 30, 1995, CBI had total consolidated
assets of approximately $460.0 million and consolidated shareholders' equity of
approximately $43.1 million.
While the Merger is CBI's first acquisition, CBI will continue to evaluates
acquisition opportunities from time to time. As a result, acquisition
discussions and, in some cases, negotiations may take place. Future
acquisitions involving cash, debt or equity securities may arise. Acquisitions
may involve the payment of a premium over book and market values and,
therefore, some dilution of CBI's book value and/or net income per common share
may occur in connection with any such future acquisitions. See "PRO FORMA
CONDENSED COMBINED FINANCIAL DATA."
CBI's principal executive offices are located at 1211 North Boulevard West,
Leesburg, Florida 34748-5351, and its telephone number is (904) 787-5111. For
additional information regarding CBI and its business, see "AVAILABLE
INFORMATION," "--Selected Financial Data" and "SUPERVISION AND REGULATION."
CFB
CFB is a Florida corporation and a bank holding company registered with the
Federal Reserve under the BHC Act. CFB provides a range of commercial and
retail banking services in the communities it serves. Through its bank
subsidiary, Citizens First Bank of Ocala ("CFBO"), CFB currently operates three
full service banking offices located in Marion County, Florida. Pursuant to
the Merger Agreement, CFB will merge with and into CBI, which shall be the
surviving corporation. After consummation of the Merger, CFBO will be merged
into and with CNBL (the "Bank Merger" and collectively with the Merger, the
"Mergers").
For the year ended December 31, 1994, and the nine months ended September
30, 1995, CFB reported net income of approximately $284,000 and $418,000,
respectively. As of September 30, 1995, CFB had total consolidated assets of
approximately $39.8 million and consolidated shareholders' equity of
approximately $4.2 million.
- 2 -
<PAGE> 12
CFB's principal executive offices are located at 1601 S.W. College Road,
Ocala, Florida 34478, and its telephone number is (904) 732-2223. For
additional information regarding CFB and its business, see "--Selected Financial
Data," "CFB'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "BUSINESS OF CFB," "SUPERVISION AND REGULATION" and
"FINANCIAL STATEMENTS."
SPECIAL MEETING; RECORD DATE
The Special Meeting will be held at _____________, Eastern Time on
_____________, __________, 1996, at the main office of CFB, 1601 S.W. College
Road, Ocala, Florida 34478. At the Special Meeting, CFB's shareholders will
consider and vote upon approval of the Merger Agreement and the consummation of
the transactions contemplated therein, and transact such other business as may
properly come before the Special Meeting. The CFB Board has fixed the close of
business on _________, 1996, as the record date (the "Record Date") for
determining the CFB shareholders entitled to receive notice of and to vote at
the Special Meeting. As of the Record Date, there were 322,480 shares of CFB
Common Stock issued and outstanding and entitled to be voted at the Special
Meeting and such shares were held of record by ____ persons. For additional
information with respect to the Special Meeting, including the Record Date and
votes required for approval, see "GENERAL INFORMATION."
THE MERGER
General
The Merger Agreement provides that CFB shall merge with and into CBI.
Immediately after consummation of the Merger, CFBO will be merged into and with
CNBL. If the Merger Agreement is approved at the Special Meeting, all required
governmental and other consents and approvals are obtained and all of the other
conditions to the obligations of the parties to consummate the Merger are
either satisfied or waived (as permitted), the Merger will be consummated. A
copy of the Merger Agreement is set forth in ANNEX A to this Proxy
Statement/Prospectus. See "THE MERGER."
Exchange Ratio
The Merger Agreement provides that, at the Merger's effective time (the
"Effective Time"), each outstanding share of CFB Common Stock (excluding shares
held by CFB or any of its subsidiaries or by CBI or any of its subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted, and excluding shares held by shareholders who perfect their
dissenters' rights) shall cease to be outstanding and shall be converted into
and exchanged for the right to receive that number of shares of $.01 par value
CBI common stock ("CBI Common Stock") equal to 425,000 divided by the number of
shares of CFB Common Stock issued and outstanding on the effective date of the
Merger (the "Exchange Ratio"). See "THE MERGER--Exchange Ratio."
Vote Required
Approval of the Merger Agreement and consummation of the transactions
contemplated therein require the affirmative vote of the holders of a majority
(161,241 shares) of the outstanding shares of the CFB Common Stock entitled to
vote at the Special Meeting. As of the Record Date, CFB's directors, executive
officers and their affiliates and two additional shareholders, who held
approximately an aggregate of __________ shares, or ___%, of the outstanding
shares of CFB Common Stock entitled to vote at the Special Meeting, have agreed
to vote their shares of CFB Common Stock in favor of the Merger. As of the
Record Date, CBI held no shares of CFB Common Stock. See "GENERAL
INFORMATION--Vote Required."
CFB'S SHAREHOLDERS HAVE THE RIGHT TO DISSENT FROM APPROVAL OF THE MERGER
AGREEMENT AND OBTAIN PAYMENT FOR THE FAIR VALUE OF THEIR SHARES OF CFB COMMON
STOCK BY FOLLOWING THE PROCEDURES DESCRIBED IN SECTION 607.1301, ET
- 3 -
<PAGE> 13
SEQ. OF THE FLORIDA BUSINESS CORPORATION ACT ("FBCA"). SEE "THE
MERGER-DISSENTERS' RIGHTS." AND ANNEX B.
Recommendation of the CFB Board
The CFB Board believes that the Merger is in the best interests of CFB and
its shareholders, has unanimously approved the Merger Agreement and unanimously
recommends that the shareholders vote "FOR" approval of the Merger Agreement
and the consummation of the transactions contemplated therein. In deciding to
approve the Merger Agreement and the consummation of the transactions
contemplated therein, the CFB Board considered a number of factors, including
the financial condition, results of operations and future prospects of CFB and
CBI, and the compatibility of the operations of CFB and CBI. See "THE
MERGER--Reasons for the Merger."
Effective Time
If the Merger is approved by the requisite vote of the CFB shareholders,
all required governmental and other consents and approvals are obtained and the
other conditions to the obligations of the parties to consummate the Merger are
either satisfied or waived (as permitted), the Merger will be consummated at
the Effective Time, which will be the date and time that Articles of Merger,
reflecting the Merger, are filed with the Secretary of State of the State of
Florida. Assuming satisfaction of all conditions to consummation, the Merger
is expected to be made effective during the first quarter of 1996. CBI and CFB
each has the right, acting unilaterally, to terminate the Merger Agreement
should the Merger not be consummated by April 30, 1996. See "THE
MERGER--Effective Time" and "--Amendment, Waiver and Termination."
Delivery of CBI Certificates
Promptly after the Effective Time, an exchange agent designated by CBI will
mail each record holder of shares of CFB Common Stock outstanding at the
Effective Time, a transmittal letter (with instructions) to use in effecting
the surrender and cancellation of those certificates in exchange for CBI Common
Stock. CBI shall not be obligated to deliver certificates for CBI Common Stock
or any dividends payable thereon to which any former holder of CFB Common Stock
is entitled until such holder properly surrenders for exchange his certificates
formerly representing shares of CFB Common Stock. The certificate or
certificates so surrendered shall be duly endorsed as CBI may require. See "THE
MERGER--Distribution of CBI Certificates."
Certain Federal Income Tax Consequences
The Merger is intended to be a tax-free reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, no gain or loss should be recognized for federal income tax
purposes by CFB shareholders as a result of the Merger, except that gain or
loss will be recognized with respect to cash received by dissenters, if any, or
cash received in lieu of fractional shares. A condition to consummation of the
Merger is the receipt by each of CBI and CFB of an opinion of Alston & Bird,
special counsel to CBI, as to the qualification of the Merger as a tax-free
reorganization and certain other federal income tax consequences of the Merger
and related transactions. See "THE MERGER--Certain Federal Income Tax
Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER FACTORS, EACH HOLDER OF
CFB COMMON STOCK IS URGED TO CONSULT HIS OWN TAX ADVISORS TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO HIM OF THE MERGER (INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS).
- 4 -
<PAGE> 14
Interests of Certain Persons in the Merger
Certain members of CFB's management and the CFB Board have interests in the
Merger in addition to their interests as shareholders of CFB generally. These
include, among other things, provisions in the Merger Agreement relating to
eligibility for certain CBI employee benefits and membership on the Board of
Directors of CBI ("CBI Board") of Terry E. Trexler, the existing Chairman of
the CFB Board of Directors. As of December 1, 1995, Mr. Trexler owes an
aggregate of approximately $280,000 to CNBL. These loans were made on an
arms-length basis in the ordinary course of business and were made on the same
terms (including interest rates and collateral) as those prevailing at the time
for comparable transactions with other persons. Such loans do not involve more
than the normal risk of collectibility or represent other unfavorable features.
Mr. C. Daniel Hicks, a director of CFB, has provided legal services to CFB and
CFBO from time to time, including in connection with the Mergers, through Mr.
Hicks' law firm, Hicks & MacQuarrie. As of November 30, 1995, the directors and
officers of CFB beneficially owned no shares of CBI Common Stock. See "THE
MERGER--Management and Operations After the Merger" and "--Interests of Certain
Persons in the Merger."
Conditions to Consummation
Consummation of the Merger is subject to various conditions, including
among other matters; (i) approval of the Merger Agreement by the CFB's
shareholders; (ii) receipt of all governmental and other consents and approvals
necessary to permit consummation of the Merger, including that of the Board of
Governors of the Federal Reserve System (the "Federal Reserve"); (iii) receipt
by CBI and CFB of a letter from their independent auditors to the effect that
the Merger will qualify for pooling-of-interests accounting treatment; and (iv)
satisfaction of certain other usual conditions, including the receipt of the
tax opinion discussed above. See "THE MERGER--Conditions to Consummation" and
"--Amendment, Waiver and Termination."
Regulatory Approvals
The Merger is subject to the prior approval of the Federal Reserve. An
application has been filed with the Federal Reserve. The Bank Merger is
subject to the prior approval of the OCC. An application has been filed with
the OCC. See "THE MERGER--Regulatory Approvals."
Conduct of Business Pending the Merger
Each party has agreed in the Merger Agreement to, among other things,
operate its business only in the ordinary course and to take no action that
would adversely affect its ability to perform its covenants and agreements
under the Merger Agreement. In addition, CFB has agreed not to take certain
actions relating to the operation of CFB pending consummation of the Merger
without the prior written consent of CBI, except as otherwise permitted by the
Merger Agreement, including, among other things: (i) becoming responsible for
any obligation for borrowed money, except in the ordinary course of business
consistent with past practices; (ii) paying any dividends, repurchasing,
redeeming or otherwise acquiring or exchanging any shares of its capital stock,
or, subject to certain exceptions, issuing any additional shares of its capital
stock or giving any person the right to acquire any such shares, or issuing any
long-term debt; (iii) acquiring control over any other entity; (iv) subject to
certain exceptions, granting any increase in compensation or benefits, or
paying any bonus, to any of its directors, officers or employees; (v) modifying
or adopting any employee benefit plans, including any employment contract; or
(vi) modifying, amending or terminating any material contract. See "THE
MERGER--Conduct of Business Pending the Merger."
Termination
The Merger Agreement may be terminated and the Merger abandoned, at any
time prior to the Effective Time by mutual consent of the Board of Directors of
CFB and CBI. In addition, the Merger Agreement may be terminated and the Merger
abandoned, prior to the Effective Time by either CBI or CFB if (i) the other
party materially breaches and does not timely cure such breach of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement, (ii) any consent or approval of certain regulatory authorities is
- 5 -
<PAGE> 15
denied by final nonappealable action of such authority, (iii) any of the
conditions precedent to the obligations of the terminating party to consummate
the Merger cannot be satisfied or fulfilled by April 30, 1996, including the
failure of CFB's shareholders to approve the Merger Agreement and the
transactions contemplated thereby or (iv) the Merger has not been consummated
by April 30, 1996. In addition, the Merger Agreement may be terminated and the
Merger abandoned, prior to the Effective Time by the Board of Directors of CBI
if the CFB Board shall have failed to reaffirm, after CFB shall have received
any inquiry or proposal with respect to an "Acquisition Proposal" (as defined
below), its approval of the Merger and the transactions contemplated by the
Merger Agreement (to the exclusion of any other "Acquisition Proposal"), or
shall have resolved not to reaffirm the Merger. An "Acquisition Proposal"
means any tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or assets of, or other business combination
involving CFB or the acquisition of a substantial equity interest in, or a
substantial portion of the assets of, CFB. See "THE MERGER--Amendment, Waiver
and Termination".
Accounting Treatment
It is anticipated that the Merger will qualify for treatment as a
"pooling-of-interests" for financial reporting purposes. See "THE
MERGER--Accounting Treatment."
Resale of CBI Common Stock
The CBI Common Stock issued in connection with the Merger will be freely
transferable by the holders of such shares, except for those holders who may be
deemed to be "affiliates" (generally including directors, certain executive
officers and 10% or more shareholders) of CFB or CBI under applicable federal
securities laws. See "THE MERGER--Resale of CBI Common Stock."
Dissenters' Rights
Each holder of CFB Common Stock who dissents from the Merger is entitled to
the rights and remedies of dissenting shareholders set forth in Sections
607.1301 through 607.1320 of the FBCA, subject to compliance with the
procedures set forth therein. Among other things, a dissenting shareholder is
entitled to receive an amount in cash equal to the "fair value" of such
holder's shares. A copy of Sections 607.1301 through 607.1320 of the FBCA is
set forth in ANNEX B of this Proxy Statement/Prospectus and a summary thereof
is included under "THE MERGER--Dissenters' Rights." TO PERFECT DISSENTERS'
RIGHTS, A SHAREHOLDER MUST COMPLY WITH SECTION 607.1320 OF THE FBCA WHICH
REQUIRES, AMONG OTHER THINGS, THAT THE SHAREHOLDER GIVE CFB NOTICE OF SUCH
HOLDER'S INTENTION TO DISSENT FROM THE MERGER AGREEMENT PRIOR TO THE VOTE OF
THE SHAREHOLDERS OF CFB AT THE SPECIAL MEETING AND THAT SUCH SHAREHOLDER NOT
VOTE SUCH HOLDER'S SHARES IN FAVOR OF THE MERGER AGREEMENT. ANY CFB SHAREHOLDER
WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE INSTRUCTIONS AS TO THE MANNER
IN WHICH SUCH HOLDER'S SHARES ARE TO BE VOTED WILL BE DEEMED TO HAVE VOTED IN
FAVOR OF THE MERGER AGREEMENT AND THUS WILL NOT BE ENTITLED TO ASSERT
DISSENTERS' RIGHTS.
MARKET PRICES AND DIVIDENDS
CBI Common Stock is traded in the over-the-counter market and is quoted on
The Nasdaq Stock Market's National Market ("Nasdaq National Market"). The
following table sets forth the high and low sale prices per share of CBI Common
Stock on the Nasdaq National Market, and the dividends paid per share of CBI
Common Stock, with respect to each period subsequent to the listing of CFB
Common Stock on the Nasdaq National Market on March 1, 1994. Prior to March 1,
1994, there was no established public trading market for the CBI Common Stock
and no reliable information is available as to trades of such shares or the
prices at which such shares were traded prior to March 1, 1994. Based upon the
limited information available to it, CBI is aware of transactions which have
resulted in shares being traded between January 1, 1993, and February 28, 1994,
at prices ranging from a low of approximately $8.15 per share to a high of
approximately $13.38 per share.
- 6 -
<PAGE> 16
<TABLE>
<CAPTION>
Annual Dividends Declared
Sale Price Per Share of CBI Per Share of
Common Stock CBI Common Stock (1)
---------------- ---------------------
High Low
---- ---
<S> <C> <C> <C>
1994
- ----
First Quarter (beginning March 1, 1994) . . $14.00 $13.00 $ --
Second Quarter . . . . . . . . . . . . . . 14.50 13.50 --
Third Quarter . . . . . . . . . . . . . . . 16.50 15.00 --
Fourth Quarter . . . . . . . . . . . . . . 17.50 16.00 .35(2)
1995
- ----
First Quarter . . . . . . . . . . . . . . . 16.50 16.00 --
Second Quarter . . . . . . . . . . . . . . 18.00 15.25 --
Third Quarter . . . . . . . . . . . . . . . 19.75 19.00 --
Fourth Quarter (through November 30, 1995). 19.75 19.25 .44(3)
</TABLE>
(1) The CBI Board of Directors has amended its dividend policy to declare and
pay quarterly dividends in lieu of annual dividends, beginning in the
first quarter of 1996. The amount of any such future quarterly dividend,
if declared, cannot be determined at this time.
(2) CBI declared a $0.35 per share 1994 annual dividend in the fourth quarter
of 1994.
(3) CBI declared a $0.44 per share 1995 annual dividend in the fourth quarter
of 1995, payable on January 2, 1996.
On September 28, 1995, the last trading day prior to public announcement
that CBI and CFB had entered into a non-binding letter of intent to merge, the
last reported sale price per share of CBI Common Stock on the Nasdaq National
Market was $19.50, or equivalent pro forma per share of CFB Common Stock
pursuant to the Merger Agreement of $25.70. On October 26, 1995, the last day
prior to public announcement that CBI and CFB had executed the Merger
Agreement, the last reported sale price per share of CBI Common Stock on the
Nasdaq National Market was $19.25, or equivalent pro forma per share of CFB
Common Stock of $25.37. On __________, 1996, the last reported sale price per
share of CBI Common Stock on the Nasdaq National Market was $_____.
There is no established public trading market for the CFB Common Stock, and
no reliable information is available as to trades of such shares or the prices
at which such shares have traded. Based upon the limited information available
to it, CFB is aware of transactions which have resulted in shares being traded
since January 1, 1993, at prices ranging from a low of approximately $10 per
share to a high of approximately $13.44 per share for the most recent trade
prior to announcement of the Merger. To the knowledge of CFB the only trades
since the announcement of the Merger was effected at a price of $24.89. CFB
has not declared or paid any dividends on CFB Common Stock since January 1,
1992.
The foregoing information regarding CFB Common Stock is provided for
informational purposes only and due to the absence of an active market for
CFB's shares, should not be viewed as indicative of the actual or market value
of CFB Common Stock.
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following summary presents selected comparative unaudited per share
data for CBI and CFB on a historical basis, on a pro forma combined basis
assuming the Merger had been effective during the periods presented and on an
equivalent pro forma combined basis assuming the Merger had been effective
during the periods presented. The Merger is reflected under the
pooling-of-interests method of accounting and pro forma data is derived
accordingly. The information shown below should be read in conjunction with the
historical financial statements of CBI and CFB, including the respective notes
thereto, appearing elsewhere or incorporated by reference herein and with the
unaudited pro forma financial information including the notes thereto,
appearing
- 7 -
<PAGE> 17
elsewhere or incorporated by reference herein. See "AVAILABLE INFORMATION,"
"THE MERGER-Accounting Treatment," "PRO FORMA CONDENSED COMBINED FINANCIAL
DATA," and "FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED --------------------------------
SEPTEMBER 30, 1995 1994 1993 1992
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
CBI Historical $1.18 $1.48 $1.41 $1.22
CFB Historical 1.38 1.27 2.57 0.38
Pro Forma Combined (1) 1.16 1.41 1.41 1.17
Equivalent Pro Forma (2) 1.53 1.86 1.86 1.54
DIVIDENDS PER COMMON SHARE:
$ 0 $ 0.35 $0.31 $0.28
CBI Historical (3)
CFB Historical 0 0 0 0
Pro Forma Combined (4) 0 0.32 0.28 0.26
Equivalent Pro Forma (4) 0 0.42 0.37 0.34
SHAREHOLDERS' EQUITY (BOOK VALUE) SEPTEMBER 30, 1995 DECEMBER 31, 1994
PER COMMON SHARE: ------------------ -----------------
CBI Historical . . . . . . . . . . . . $ 10.64 $ 8.39
CFB Historical . . . . . . . . . . . . 13.12 13.18
Pro Forma Combined (5) . . . . . . . . 10.57 8.25
Equivalent Pro Forma (2) . . . . . . . 13.93 10.87
- -----------------------
</TABLE>
(1) Pro forma combined per CBI common share amounts represent the sum of pro
forma combined amounts for CBI and CFB, divided by pro forma combined
weighted average common shares outstanding.
(2) Equivalent pro forma combined amounts per CFB common share represent the
pro forma combined per CBI common share amounts, multiplied by the
Exchange Ratio of 1.318 shares of CBI Common Stock to be exchanged for
each share of CFB Common Stock (assuming 322,480 shares of CFB Common
stock outstanding as of the Effective Time and no CFB shareholder
exercises dissenters' appraisal rights).
(3) CBI currently pays annual cash dividends. The CBI Board of Directors
has amended its dividend policy to declare and pay quarterly dividends
in lieu of annual dividends, beginning in the first quarter of 1996.
The amount of any such future quarterly dividend, if declared, cannot be
determined at this time.
(4) Pro forma combined cash dividends paid per share of CBI Common Stock
represent historical dividends paid per share of CBI Common Stock. In
the fourth quarter of 1995, CBI declared a $0.44 1995 annual dividend,
payable on January 2, 1996. On an equivalent pro forma basis, such 1995
annual CBI dividend per CFB common share would be $0.54. Future CBI and
CFB dividends are dependent upon their respective earnings and financial
condition, capital adequacy, government regulations and policies and
other factors. See "THE MERGER--Conduct of Business Pending the Merger"
and "SUPERVISION AND REGULATION--Payment of Dividends."
(5) Pro forma combined amounts represent the sum of pro forma combined
amounts for CBI and CFB, divided by pro forma combined period-end common
shares outstanding.
- 8 -
<PAGE> 18
SELECTED FINANCIAL DATA
Set forth on the following pages are certain unaudited historical
consolidated selected financial data relating to CBI and CFB, including the
respective notes thereto. See "AVAILABLE INFORMATION" and "FINANCIAL
STATEMENTS."
SELECTED FINANCIAL DATA OF CBI
(HISTORICAL)
The following tables set forth selected historical consolidated financial
data of CBI for the periods and at the dates indicated. This information should
be read in conjunction with, and is qualified by, the more detailed
consolidated financial statements of CBI and the notes thereto, incorporated by
reference herein. The information at September 30, 1995 and 1994, and for the
nine months ended September 30, 1995 and 1994, is derived from the unaudited
consolidated financial statements of CBI and reflects all adjustments that, in
the opinion of CBI management are necessary for a fair and consistent
presentation of such data. The interim data at and for the nine months ended
September 30, 1995, is not necessarily indicative of the results of operations
which CBI may achieve for the entire year. The financial data for and at the
five years ended December 31, 1994, is derived from CBI's consolidated
financial statements and certain items have been rounded for presentation
purposes. See "AVAILABLE INFORMATION" and "FINANCIAL STATEMENTS."
- 9 -
<PAGE> 19
SELECTED FINANCIAL DATA OF CBI
(HISTORICAL)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- ---------
(in thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income . . . . . . . . . . $ 25,178 $ 21,812 $ 29,594 $ 27,499 $27,868 $ 28,206 $ 26,415
Interest expense . . . . . . . . . 12,184 9,037 12,455 11,786 13,517 16,623 16,221
-------- -------- -------- -------- ------- -------- --------
Net interest income . . . . . . . $ 12,994 $ 12,775 $ 17,139 $ 15,714 $14,351 $ 11,583 $ 10,194
Provision for loan losses . . . 255 523 600 1,075 1,400 1,005 876
-------- -------- -------- -------- ------- -------- --------
Net interest income after
provision . . . . . . . . . . . 12,739 12,252 16,539 14,639 12,951 10,578 9,318
Noninterest income . . . . . . . . 1,688 1,421 2,006 2,574 3,085 2,258 1,452
Noninterest expense . . . . . . . . (7,960) (7,644) (10,457) (9,897) (9,326) (5,254) (6,866)
-------- -------- -------- -------- ------- -------- --------
Pretax income . . . . . . . . . . . 6,467 6,009 8,082 7,315 6,710 4,582 3,904
Income tax provision . . . . . . . (1,699) (1,547) (2,083) (1,842) (1,777) (1,079) (887)
Cumulative effect of change in
accounting principle . . . . . . 0 0 0 255 0 0 0
-------- -------- -------- -------- ------- -------- --------
Net income . . . . . . . . . . . $ 4,768 $ 4,462 $ 6,005 $ 5,728 $ 4,933 $ 3,503 $ 3,017
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Loans, net of unearned income . . $217,728 $191,079 195,958 176,100 $158,704 $144,553 $121,158
Earning assets . . . . . . . . . . 431,619 397,519 402,505 383,735 354,783 322,938 278,567
Assets . . . . . . . . . . . . . . 459,891 422,424 432,888 410,905 377,247 346,679 201,230
Deposits . . . . . . . . . . . . . 404,222 380,763 388,567 364,275 342,864 309,583 271,975
Shareholders' equity . . . . . . . 43,100 36,467 33,976 36,794 28,784 24,986 22,037
Common shares outstanding . . . . . 4,052 4,048 4,048 4,050 4,053 4,072 4,109
AVERAGE BALANCE SHEET DATA:
Loans, net of unearned income . . . $209,058 $189,167 $186,768 $170,577 $154,347 $136,118 $121,763
Earning assets . . . . . . . . . . 428,225 403,223 400,345 368,847 342,403 305,846 281,986
Assets . . . . . . . . . . . . . . 449,133 416,666 422,465 390,596 363,507 322,438 299,449
Deposits . . . . . . . . . . . . . 398,239 386,812 383,416 357,093 333,747 295,931 269,103
Shareholders' equity . . . . . . . 40,115 36,631 35,155 30,925 26,817 23,082 21,034
Common shares outstanding . . . . . 4,052 4,048 4,048 4,050 4,053 4,072 4,109
PER COMMON SHARE DATA:
Income before cumulative effect
of change in accounting $ 1.18 $ 1.10 $ 1.48 $ 1.35 $ 1.22 $ .86 $ .73
principle . . . . . . . . . . .
Cumulative effect of change in
accounting principle . . . . . 0 0 0 .06 0 0 0
-------- -------- -------- -------- ------- -------- --------
Net income . . . . . . . . . . . 1.18 1.10 1.48 1.41 1.22 .86 .73
Cash dividends declared . . . . .00 .00 .35 .31 .28 .20 .175
Adjustment for FASB 115 . . . . .21 (1.18) (.94) .89 0 0 .00
Treasury Stock . . . . . . . . . .20 .20 .20 .20 .18 .18 .15
Shareholders' equity (book value) 10.64 9.01 8.39 9.08 7.10 6.14 5.36
PERFORMANCE RATIOS:
Return on average assets(1) . . 1.42% 1.43% 1.42% 1.47% 1.36% 1.09% 1.06%
Return on average equity(1) . . 15.85% 16.24% 17.08% 18.52% 18.40% 15.17% 14.60%
Net interest margin, taxable 4.38% 5.25% 4.64% 4.51% 4.51% 4.10% 4.16%
equivalent . . . . . . . . . . .
Equity to total assets . . . . . 9.37% 8.63% 8.73% 8.08% 7.63% 7.16% 7.27%
Dividend payout . . . . . . . . 0% 0% 23.65% 21.99% 22.95% 23.26% 23.97%
CAPITAL RATIOS: *
Tier 1 capital . . . . . . . . . 18.70% 16.75% 17.41% 16.38% 15.34% 14.16% N/A%
Total capital . . . . . . . . . 20.02% 18.09% 18.66% 17.61% 16.24% 15.11% N/A%
Leverage . . . . . . . . . . . . 9.37% 8.63% 8.73% 8.08% 7.63% 7.16% 7.27%
* CURRENT MINIMUM REGULATORY CAPITAL REQUIREMENTS
Tier 1 capital ratio 4.00%
Total capital ratio 8.00
Leverage ratio 3.00-5.00
</TABLE>
- --------------------------------------------
(1) Annualized for the nine month periods ended September 30, 1995 and 1994.
- 10 -
<PAGE> 20
SELECTED FINANCIAL DATA OF CFB
(HISTORICAL)
The following table sets forth selected historical consolidated financial
data of CFB for the periods and at the dates indicated. This information should
be read in conjunction with, and is qualified by, the more detailed
consolidated financial statements of CFB and the notes thereto, included
herein. The information at September 30, 1995 and 1994, and for the nine
months ended September 30, 1995 and 1994, is derived from the unaudited
consolidated financial statements of CFB and reflects all adjustments that, in
the opinion of CFB management are necessary for a fair and consistent
presentation of such data. The interim data at and for the nine months ended
September 30, 1995, is not necessarily indicative of the results of operations
which CFB may achieve for the entire year. The financial data for and at the
five years ended December 31, 1994, is derived from CFB's consolidated
financial statements and certain items have been rounded for presentation
purposes. See "FINANCIAL STATEMENTS" and "THE MERGER--Conduct of Business
Pending the Merger."
- 11 -
<PAGE> 21
SELECTED FINANCIAL DATA OF CFB
(HISTORICAL)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- -------------------------------------------------
1995(2) 1994(2) 1994 1993 1992 1991 1990
------- ------- -------- -------- -------- -------- --------
(in thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income . . . . . . . . $ 2,283 $ 1,455 $ 2,066 $ 1,756 $ 1,860 $ 2,099 $ 2,740
Interest expenses . . . . . . . 858 317 464 385 660 1,078 1,442
-------- -------- -------- -------- -------- -------- --------
Net interest income . . . . . . $ 1,425 $ 1,138 $ 1,602 $ 1,371 $ 1,200 $ 1,021 $ 1,298
Provision for loan losses . . . 0 0 0 21 50 0 165
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision . . . . . . . . . . . 1,425 1,138 1,602 1,350 1,150 1,021 1,133
Noninterest income . . . . . . . 438 354 491 540 548 610 501
Noninterest expense . . . . . . 1,243 1,260 1,670 1,624 1,612 1,818 18,079
-------- -------- -------- -------- -------- -------- --------
Pretax income . . . . . . . . . 620 232 423 266 86 (187) (175)
Income tax provision . . . . . . (209) (74) (139) (64) 0 0 0
Cumulative effect of change in
accounting principle . . . . 0 0 0 271 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . $ 411 $ 158 $ 284 $ 573 $ 86 $ (187) $ (145)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Loans, net of unearned income . $ 24,787 $ 21,710 $ 22,601 $ 16,220 $ 14,024 $ 10,993 $ 13,023
Earning assets . . . . . . . . . 35,327 26,263 27,617 21,188 22,425 22,153 23,489
Assets . . . . . . . . . . . . . 34,537 29,620 31,510 24,895 26,299 26,213 26,741
Deposits . . . . . . . . . . . . 35,039 25,771 24,232 21,912 24,084 24,588 24,887
Shareholders' equity . . . . . . 4,234 2,832 2,944 2,746 2,167 1,463 1,650
Common shares outstanding(1) . . 304 223 225 223 223 150 150
AVERAGE BALANCE SHEET DATA:
Loans, net of unearned income . $ 23,857 $ 18,137 $ 19,092 $ 14,963 $ 12,258 $ 11,244 $ 15,646
Earning assets . . . . . . . . . 34,107 23,655 24,666 21,929 22,189 22,676 26,422
Assets . . . . . . . . . . . . 37,457 24,154 28,173 23,188 25,623 26,020 30,063
Deposits . . . . . . . . . . . . 33,547 24,154 25,131 22,657 23,657 24,315 28,097
Shareholders' equity . . . . . . 3,628 2,764 2,804 2,457 1,736 1,571 1,789
Common shares outstanding(1) . . 323 327 327 310 188 150 130
PER COMMON SHARE DATA:
Income before cumulative effect
of change in accounting
principle . . . . . . . . . $ 1.27 $ .51 $ 87 $ 1.85 $ .46 $ (1.25) $ (1.17)
Cumulative effect of change in
accounting principle . . . . 0 0 0 1.66 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . 1.27 .51 .87 3.51 .46 (1.25) (1.17)
Cash dividends declared . . . . 0 0 0 0 0 0 0
Adjustment for FASB 115 . . . . (.04) (.20) (.24) 0 0 0 0
Shareholders' equity (book value)
end of period . . . . . . . . 13.11 8.66 9.00 8.84 11.53 9.75 11.00
PERFORMANCE RATIOS:
Return on average assets(2) . . 1.46% .78% 1.01% 2.27% .34% (.71%) (.65%)
Return on average equity(2) . . 15.10% 7.62% 10.13% 23.32% 4.95% (11.90%) (9.78%)
Net interest margin, taxable
equivalent . . . . . . . . . 5.58% 6.41% 6.49% 6.25% 5.41% (4.50%) (4.91%)
Equity to total assets . . . . . 10.71% 9.56% 9.34% 11.01% 8.24% 5.58% 6.17%
Dividend payout . . . . . . . . 0% 0% 0 0% 0% 0% 0%
CAPITAL RATIOS: *
Tier 1 capital . . . . . . . . . 15.46% 13.63% 13.58% 16.21% 14.84% 12.47% 11.96%
Total capital . . . . . . . . . 16.71% 14.89% 14.84% 17.48% 16.10% 14.00% 13.50%
Leverage . . . . . . . . . . . . 9.97% 9.64% 9.54% 10.15% 8.46% 5.79% 5.81%
* CURRENT MINIMUM REGULATORY CAPITAL REQUIREMENTS:
Tier 1 capital ratio 4.00%
Total capital ratio 8.00
Leverage ratio 3.00-5.00
</TABLE>
______________________________
(1) Common share data is calculated using the outstanding shares of common
stock as of each date plus (i) for 1992, 1993, 1994 and 1995 73,425 shares
for exercisable warrants issued in 1992; and (ii) for 1993, 1994 and 1995,
currently exercisable stock options for 30,000 shares, 27,600 shares and
18,000 shares, respectively.
(2) Annualized for the nine month periods ended September 30, 1995 and 1994.
- 12 -
<PAGE> 22
COMBINED SELECTED FINANCIAL DATA
(PRO FORMA)
The following table sets forth selected consolidated pro forma combined
financial data and ratios giving effect to the Merger on a pooling-of-interests
accounting basis at September 30, 1995 and 1994, and for the nine months ended
September 30, 1995 and 1994, and the five years in the period ended December
31, 1994, and should be read in conjunction with the audited consolidated
financial statements of CFB and CBI for the five years ended December 31, 1994,
and the unaudited financial statements of CFB and CBI for the nine months ended
September 30, 1995, and September 30, 1994, included and incorporated herein.
See "AVAILABLE INFORMATION", "THE MERGER--Conduct of Business Pending the
Merger" and "FINANCIAL STATEMENTS."
- 13 -
<PAGE> 23
COMBINED SELECTED CONSOLIDATED FINANCIAL DATA
(PRO FORMA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- --------- --------- --------- ---------
(in thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income . . . . . . . . . $ 27,461 $ 23,267 $ 31,660 $ 29,256 $ 29,728 $ 30,304 $ 29,155
Interest expense . . . . . . . . 13,042 9,354 12,919 12,171 14,177 17,701 17,663
Net interest income . . . . . . $ 14,419 $ 13,913 $ 18,741 $ 17,085 $ 15,551 $ 12,603 $ 11,492
Provision for loan losses . . . . 255 523 600 1,096 1,450 1,005 1,041
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision . . . . . . . . . . . 14,164 13,390 18,141 15,989 14,101 11,598 10,451
Noninterest income . . . . . . . 2,126 1,775 2,497 3,113 3,633 2,868 1,954
Noninterest expense . . . . . . . 9,203 8,924 12,127 11,521 10,938 10,072 8,675
-------- -------- -------- -------- -------- -------- --------
Pretax income . . . . . . . . . . 7,087 6,241 8,511 7,581 6,796 4,394 3,730
Income tax provision . . . . . . (1,908) (1,621) (2,222) (1,906) (1,777) (1,078) (888)
Cumulative effect of change in
accounting principle . . . . . 0 0 0 126 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . $ 5,179 $ 4,620 $ 6,289 $ 6,301 $ 5,019 $ 3,316 $ 2,842
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Loans, net of unearned income . . $242,515 $212,789 $218,559 $192,330 $172,728 $155,546 $134,181
Earning assets . . . . . . . . . 466,946 423,782 430,122 404,923 377,208 345,091 302,056
Assets . . . . . . . . . . . . . 499,428 452,044 464,338 430,803 403,546 372,292 327,971
Deposits . . . . . . . . . . . . 439,261 406,540 416,099 386,187 366,948 334,171 296,859
Shareholders' equity . . . . . . 47,334 39,299 36,920 39,534 30,951 26,449 23,687
Common shares outstanding(1) . . 4,477 4,473 4,473 4,475 4,478 4,497 4,534
AVERAGE BALANCE SHEET DATA:
Loans, net of unearned income . . $232.915 $207,304 $206,060 $170,577 $166,605 $147,362 $137,409
Earning assets . . . . . . . . . 462,331 426,878 425,011 390,776 364,592 328,522 308,408
Assets . . . . . . . . . . . . . 486,590 443,821 450,638 415,784 389,130 348,458 329,512
Deposits . . . . . . . . . . . . 431,786 410,966 408,553 379,750 357,404 320,246 297,202
Shareholders' equity . . . . . . 43,743 39,395 37,959 33,382 28,553 24,653 22,823
Common shares outstanding(1) . . 4,477 4,473 4,473 4,475 4,478 4,497 4,534
PER COMMON SHARE DATA(1):
Income before cumulative effect
of change in accounting
principle . . . . . . . . . . . 1.16 1.03 1.41 1.27 1.12 .74 .63
Cumulative effect of change in
accounting principle . . . . . 0 0 0 .14 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . . 1.16 1.03 1.41 1.41 1.12 .74 .63
Cash dividends declared . . . . . 0 0 .35 .31 .28 .19 .16
Adjustment for FASB 115 . . . . . .12 (.28) (.87) .80 0 0 0
Shareholders' equity (book value)
end of period . . . . . . . . $ 10.57 $ 8.79 $ 8.25 $ 8.83 $ 6.91 $ 5.88 $ 5.22
PERFORMANCE RATIOS:
Return on average assets(2) . . . 1.42% 1.39% 1.86% 2.02% 1.72% 1.27% 1.15%
Return on average equity(2) . . . 15.79% 15.66% 16.57% 18.88% 17.58% 13.45% 12.45%
Net interest margin, taxable
equivalent . . . . . . . . . . 4.42% 4.67% 4.74% 4.67% 4.56% 4.13% 4.16%
Equity to total assets . . . . . 9.48% 8.69% 7.95% 9.07% 7.67% 7.10% 7.22%
Dividend payout . . . . . . . . . 0% 0% 24.83% 21.99% 25.00% 25.68% 25.40%
CAPITAL RATIOS:
Tier 1 capital . . . . . . . . . 16.95% 15.48% 15.97% 15.32% 14.45% 13.51% N/A
Total capital . . . . . . . . . . 18.07% 16.67% 17.22% 16.55% 15.38% 14.49% N/A
Leverage . . . . . . . . . . . . 9.48% 8.69% 7.95% 9.18% 7.67% 7.10% 7.22%
</TABLE>
________________________
(1) Common Share Data is calculated using 4,047,643 shares currently
outstanding for CBI plus (i) 67,275 shares issuable pursuant to currently
exercisable stock options and (ii) the additional 425,000 shares to be
issued in conjunction with the Merger.
(2) Returns on assets and equity for the nine month periods are annualized.
- 14 -
<PAGE> 24
RISK FACTORS
In addition to the other information in this Proxy Statement/Prospectus,
the following risk factors should be considered carefully in evaluating the
Merger.
LACK OF LIQUIDITY; AFFILIATES
Shares of CBI Common Stock issued to "affiliates" (generally including,
without limitation, directors, certain executive officers, and beneficial
owners of 10% or more of CFB Common Stock) of CFB for purposes of Rule 145
under the Securities Act as of the date of the Special Meeting or for purposes
of applicable interpretations regarding pooling-of-interests accounting
treatment may not be resold by such affiliates except pursuant to an effective
registration statement under the Securities Act or other applicable exemption
from the registration requirements of the Securities Act and until such time as
financial results covering at least 30 days of combined operations of CBI and
CFB after the Merger have been published. See "SUMMARY--Market Prices and
Dividends" and "THE MERGER--Resale of CBI Common Stock."
INTEGRATION OF OPERATIONS
The success of the Merger will be determined by various factors, including
management's ability to successfully integrate the operations of CBI and CFB
and the financial performance of the companies' operations after the Merger.
Factors which will affect management's ability to successfully integrate the
combined operations of CBI and CFB include, without limitation, implementing
management and other systems, marketing an expanded line of products and
services throughout the organization and taking advantage of cost saving
opportunities, especially integration of data processing and other
administrative functions. Although expense reduction was not a primary reason
for the Merger, CBI and CFB presently anticipate that expenses associated with
the transaction will total approximately $250,000 to $300,000 and that the
Merger will result in cost savings in future years of approximately $325,000
annually due in large part to anticipated savings from moving CFB's data
processing from a third-party vendor to CBI's existing data processing systems,
more efficient combined marketing efforts and personnel organization, and
improved asset/liability management, centralized internal audit, compliance and
accounting functions and combined financial and regulatory reporting systems.
As with all estimates of the types indicated above, there are many factors,
such as changes in economic or competitive conditions, changes in legislation
or regulation or the failure of any of the underlying assumptions to be
correct, that are beyond CBI's and CFB's control. Because of these substantial
uncertainties, differences between these estimates and actual results are
likely.
GENERAL INFORMATION
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished by CFB to its
shareholders in connection with the solicitation of proxies by the CFB Board
from holders of the outstanding shares of CFB Common Stock for use at the
Special Meeting of the shareholders of CFB to be held at _________, Eastern
Time, on _______, ________, 1996, at the main office of CFB, 1601 S.W. College
Road, Ocala, Florida to consider and vote upon a proposal to approve the Merger
Agreement and consummation of the transactions contemplated therein and to
transact such other business as may properly come before the Special Meeting.
This document is also being furnished by CBI to CFB shareholders as a
prospectus in connection with the shares of CBI Common Stock issuable upon
consummation of the Merger.
The Merger Agreement provides that CFB will merge with and into CBI. At the
Effective Time, each share of issued and outstanding CFB Common Stock
(excluding shares held by CFB or any of its subsidiaries or by CBI or any of
its subsidiaries, in each case other than in a fiduciary capacity or as a
result of debts previously contracted,
- 15 -
<PAGE> 25
and excluding shares held by shareholders who perfect their dissenters' rights)
shall cease to be outstanding and shall be converted into and exchanged solely
for the right to receive that number of shares of CBI Common Stock equal to
425,000 divided by the number of shares of CFB Common Stock issued and
outstanding on the effective date of the Merger. See "THE MERGER--Exchange
Ratio."
If the Merger Agreement is approved at the Special Meeting, all required
governmental and other consents and approvals are obtained, and all of the
other conditions to the obligations of the parties to consummate the Merger are
either satisfied or waived (as permitted), the Merger will be consummated. See
"THE MERGER--Effective Time."
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES
The CFB Board has fixed the close of business on _______________, 1996, as
the Record Date for determining the CFB shareholders entitled to receive notice
of and to vote at the Special Meeting. Only holders of record of CFB Common
Stock as of the Record Date are entitled to notice of and to vote at the
Special Meeting. As of the Record Date, 322,480 shares of CFB Common Stock were
issued and outstanding and held by _____ holders of record. Holders of CFB
Common Stock are entitled to one vote for each share of CFB Common Stock held
of record as of the Record Date. The presence, in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of CFB
Common Stock entitled to vote at the Special Meeting is necessary to constitute
a quorum at the Special Meeting. Because the affirmative vote of a majority
(161,241 shares) of the outstanding shares of CFB Common Stock is required for
approval of the Merger, an abstention will have the effect of a vote against
the Merger. See "--Vote Required."
Proxies in the form enclosed are solicited by CFB's Board. Shares of CFB
Common Stock represented by properly executed proxies, if such proxies are
received in time and are not revoked, will be voted in accordance with the
instructions indicated on the proxies. If no instructions are indicated, such
proxies will be voted FOR approval of the Merger Agreement and consummation of
the transactions contemplated therein, and as determined by a majority of the
members of the CFB Board as to any other matter that may properly come before
the Special Meeting. Any holder of CFB Common Stock who returns a signed proxy,
but fails to provide instructions as to the manner in which such holder's
shares are to be voted will be deemed to have voted in favor of approval of the
Merger Agreement and consummation of the transactions contemplated therein, and
will not be entitled to assert dissenters' rights. See "THE MERGER--Dissenters'
Rights."
A CFB shareholder who has given a proxy may revoke it at any time prior to
its exercise at the Special Meeting, by (i) giving written notice of revocation
to the Secretary of CFB, (ii) properly submitting to CFB a duly executed proxy
bearing a later date or (iii) voting in person at the Special Meeting. All
written notices of revocation and other communications with respect to
revocation of proxies should be addressed to CFB as follows: Citizens First
Bancshares, Inc., 1601 S.W. College Road, Ocala, Florida 34478, Attention:
Corporate Secretary.
The expense of soliciting proxies for the Special Meeting will be paid for
by CFB, although CBI and CFB have agreed to each pay one-half of the cost of
preparing and mailing this Proxy Statement/Prospectus. In addition to the
solicitation of shareholders of record by mail, telephone or personal contact,
CFB will be contacting brokers, dealers, banks or voting trustees or their
nominees who can be identified as record holders of CFB Common Stock; such
holders, after inquiry by CFB, will provide information concerning quantity of
proxy and other materials needed to supply such materials to beneficial owners,
and CFB will reimburse them for the expense of mailing the proxy materials to
such persons.
VOTE REQUIRED
Approval of the Merger Agreement and consummation of the transactions
contemplated therein requires the affirmative vote of the holders of a majority
(161,241 shares) of the outstanding shares of CFB Common Stock entitled to vote
thereon at the Special Meeting. The Merger Agreement and the consummation of
the transactions contemplated therein do not require the approval of the
holders of CBI Common Stock.
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As of the Record Date, CFB directors and executive officers, and their
affiliates, held approximately ____________ shares or ___% of the outstanding
shares of CFB Common Stock entitled to vote at the Special Meeting. Such
persons have agreed to vote their shares of CFB Common Stock in favor of the
Merger. In addition, two additional shareholders who hold and aggregate of
42,872 shares of CFB Common Stock (13.29%) have agreed to vote their shares in
favor of the Merger. As of the Record Date, CBI and its directors and executive
officers held no shares of CFB Common Stock.
RECOMMENDATION OF CFB'S BOARD OF DIRECTORS
CFB's Board unanimously approved and adopted the Merger Agreement, and
believes that the Merger is in the best interests of CFB and its shareholders,
and unanimously recommends that CFB shareholders vote FOR approval of the
Merger Agreement and the consummation of the transactions contemplated therein.
See "THE MERGER--Reasons for the Merger, CFB."
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THE MERGER
The following information describes certain information pertaining to the
Merger. This description does not purport to be complete and is qualified in
its entirety by reference to the Appendices hereto, including the Merger
Agreement, a copy of which is set forth in ANNEX A to this Proxy
Statement/Prospectus and is incorporated herein by reference. All shareholders
are urged to read the Annexes hereto in their entirety.
GENERAL
The Merger Agreement provides that CFB shall merge with and into CBI, with
CBI as the continuing bank holding company. At the Effective Time of the
Merger, each share of issued and outstanding CFB Common Stock (excluding shares
held by CFB or any of its subsidiaries or by CBI or any of its subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted, and excluding shares held by shareholders who perfect their
dissenters' rights) shall cease to be outstanding and shall be converted into
and exchanged solely for the right to receive that number of shares of CBI
Common Stock equal to 425,000 divided by the number of shares of CFB Common
Stock issued and outstanding on the effective date of the Merger. If the Merger
Agreement is approved at the Special Meeting, all required governmental and
other consents and approvals are obtained, and all other conditions of the
obligations of the parties to consummate the Merger are either satisfied or
waived (to the extent permitted by law), the Merger will be consummated. A copy
of the Merger Agreement is set forth in ANNEX A of this Proxy
Statement/Prospectus. See "Exchange Ratio."
BACKGROUND OF THE MERGER
CBI's strategic plan provides for the expansion of the range of financial
services offered and geographic expansion both inside Lake County, Florida and
in other complementary markets. CBI's Board believes that such expansion will
enable CBI to diversify risk, enhance income, better serve customer needs
through a broader range of products and services and increase the long-term
value of CBI's Common Stock.
The Merger is CBI's first acquisition. CBI has previously relied on
internal growth. In the second quarter of 1994, CBI management identified CFB
as an attractive merger partner that would provide a strong base in the Ocala,
Marion County, Florida market and which would benefit from CBI's broader range
of products and services. In July 1994, CBI's Board first discussed a possible
combination of CBI and CFB and authorized Kenneth W. Mullis, President of CBI,
to initiate discussions with CFB. In October of 1994, Mr. Mullis notified Mr.
Sides that CBI was interested in discussing a combination with CFB at such time
that CFB desired such a discussion.
In April 1992, CFB offered up to $2,500,000 of units consisting of one
share of common stock of CFB and one warrant to purchase one share of common
stock at $10 per unit. CFB's long-term goal was to enhance the value of CFB
Common Stock for the benefit of its shareholders, to provide liquidity for
shareholders by developing a potentially broader market for CFB Common Stock,
and to provide capital to expand CFB's products and services to the community.
No shares of CFB Common Stock were traded in 1992, and 4,215 and 6,406 shares
were traded in 1993 and 1994, respectively. To further its goal of seeking to
develop a broader market and greater liquidity for CFB's shareholders, CFB
considered developing a dialogue regarding a combination with other independent
banks with similar interests.
During the first quarter of 1994, CFB held preliminary discussions with
several independent central Florida banks regarding the possible formation of a
multi-bank holding company. While these discussions continued, CFB also
considered a CBI proposal and a competing proposal from an out-of-state
regional bank holding company. On September 14, 1995, it was concluded that no
agreement on the formation of the multi-bank holding company was possible.
Between the first quarter of 1994 until the acceptance of CBI's offer, other
discussions were held between CFB and a large regional community bank, several
independent community banks, and a number of regional banks. However, until
an out-of-state regional bank made an offer on August 22, 1995, followed by
CBI's offer on September 14, 1995, CFB had not received an offer for the CFB
Board to evaluate. In light of these continuing discussions and the several
mergers that had been announced in the banking industry, CFB retained a
consultant who reported (i) during the first quarter, its estimate of CFB's
market place valuation based upon book value and
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<PAGE> 28
earnings and (ii) in September, 1995, its estimate of CFB's acquisition
valuation. The CFB Board considered these reports in evaluating the proposals
from CBI and the regional bank.
In response to expressions of interest by CBI, Terry E. Trexler, Chairman
of the CFB Board, contacted Kenneth Mullis, CBI's President, to arrange a
meeting. When Messrs. Trexler and Mullis met on July 27, 1995, Mr. Mullis
explained CBI's desire to enter into a business combination with CFB, with an
emphasis on broadening the services that the combined entity could offer to the
CFBO customers, while at the same time lowering costs and preserving the
community bank culture and identity. These discussions resulted in CBI's
stock-for-stock merger proposal of September 14, 1995, and CFB's acceptance of
the same. In the 60 days preceding CBI's offer, Mr. Trexler and other officers
and directors of CFB and Mr. Mullis of CBI met and talked on a number of
occasions and discussed the possibility of a combination with their respective
Boards of Directors, and in CBI's case, its Strategic Planning Committee.
CFB's Board of Directors and its Executive Committee met four times between
August 17 and September 14, 1995, to discuss possible combinations and updating
information on the progress of discussions with CBI and a regional bank.
Throughout this period it was deemed extremely important by CFB that any
potential merger partner continue to operate CFBO in a manner consistent with
CFB's local community service and autonomy.
On September 14, 1995, the CBI Strategic Planning Committee met and
unanimously recommended to the full CBI Board that it approve the Merger. The
CBI Board then met on October 19, 1995, with management, representatives of
Purvis, Gray and Company ("Purvis Gray"), CBI's independent auditors,
representatives of Alston & Bird, Atlanta, Georgia, CBI's special legal
counsel, and Carson-Medlin to review the results of management's due diligence
investigation of CFB, the terms of the Merger, including the proposed
definitive Merger Agreement and related documents, and the financial and
operational impact of the Merger. The CBI Board voted to approve and authorize
the execution of the Merger Agreement in substantially the form presented at
the October 19, 1995, Board meeting, by unanimous vote of those directors
present.
Between September 14, 1995, and October 19, 1995, CFB and CBI's agents
completed drafts of the definitive agreements and on October 19, 1995, the full
CFB Board met with representatives of Hicks & MacQuarrie, CFB's legal counsel.
Counsel reviewed with the CFB Board terms of the proposed Merger Agreement and
the CFB Board reviewed the financial and other terms of Merger. The CFB Board
then voted unanimously to approve and authorize the execution of the Merger
Agreement, in substantially the form presented at the October 19, 1995,
meeting.
Following the Board meetings on October 19, 1995, the final terms of the
Merger Agreement were fully negotiated, and the Merger Agreement was executed
by both parties on November 1, 1995.
REASONS FOR THE MERGER
CFB
In reaching its determination that the Merger and Merger Agreement are
fair, and in the best interests of, CFB and its shareholders, the CFB Board
consulted with its legal advisors, as well as with CFB management, compared the
proposed terms of the Merger to the prior financial evaluations and considered
a number of factors, including, without limitation, the following:
(i) Provide liquidity for shareholders. CFB Common Stock is not traded or
listed and there is not a broad market for the CFB Common Stock, while CBI
Common Stock is listed on the Nasdaq National Market and several market makers
regularly trade the CBI Common Stock.
(ii) Provide long-term shareholder value by merging with a larger
organization while maintaining the marketing and customer service advantages of
a local, community banking organization.
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(iii) To enhance CFB's range products and services to its community. By
merging with CBI, CFB will be able to provide additional products, particularly
loan products. CFB currently is limited by capital restraints to a loan limit
of less than $1 million.
(iv) Competitive Factors. CFB, my merging with CBI (a large community
bank), will be able to compete more readily with the regional banks for larger
dollar loans and more creative financing terms.
The foregoing discussion of the information and factors considered by the
CFB Board is not intended to be exhaustive, but is believed to include all
material factors considered by the CFB Board. In reaching its determination to
approve the Merger, the CFB Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. After deliberating with respect to the
Merger and the other transactions contemplated by the Merger Agreement, and
considering, among other things, the matters discussed above, the CFB Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby as being in the best interests of CFB and its shareholders.
THE CFB BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
CBI
In reaching its conclusion to approve the Merger, the CBI Board consulted
with CBI's senior management, as well as its financial and legal advisors, and
considered various factors, including the following:
(i) The effectiveness of the Merger as a method of implementing CBI's
strategy for long-term growth and enhanced shareholder value. This included (a)
potential increases in annual revenues estimated at approximately $300,000 to
$500,000 within the next five years from the sale of CBI products and services
(trust, credit cards, cash management, mortgages, indirect consumer lending,
debit cards and automated teller machines) to CFB customers, (b) the strong CFB
banking franchise with a retail and middle market focus in markets that are
complementary to CBI's existing banking franchise, that have experienced
significant growth in recent years, and that give CBI an strong presence in the
Ocala, Florida metropolitan area, (c) an organization with a similar philosophy
and approach to customer service, credit quality and community banking, (d) an
organization that in many respects is similar to CBI in banking philosophy,
strong capitalization and potential for future growth, that could be enhanced
through the Merger, and (e) opportunities to leverage certain technology over a
larger customer base and to realize other expense savings (including savings in
such areas as data processing, loan review, audit, investment compliance,
reporting, planning, asset/liability management and budgeting), presently
estimated at approximately $325,000 annually. As with all estimates of the
types indicated in (a) and (e) above, there are many factors, such as changes
in economic or competitive conditions, differences between the markets in which
CBI and CFB operate, changes in legislation, or regulation or the failure of
any of the underlying assumptions to be correct, that are beyond CBI's and
CFB's control. Because of these substantial uncertainties, differences between
these estimates and actual results are likely.
(ii) Certain financial information about the Merger, CBI and CFB. This
information included, but was not limited to, information with regard to
respective recent and historic stock trading of the two institutions and the
total number of shareholders following the transaction, valuation analyses, pro
forma analyses, comparative financial data, and comparable merger and
acquisition transactions as presented by CBI's financial advisor, independent
accountants and senior management. CBI senior management also commented on its
due diligence review. See "PRO FORMA CONDENSED COMBINED FINANCIAL DATA"
(iii) Certain non-financial terms and structure of the Merger, including
information about the terms of the Merger Agreement and the addition of one CFB
director to the CBI Board (see "--Management and Operations After the Merger").
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<PAGE> 30
(iv) The likelihood that the Merger would be approved by the
appropriate regulatory authorities (see "--Regulatory Approvals").
The foregoing discussion of the information and factors considered by the
CBI Board is not intended to be exhaustive but is believed to include all
material factors considered by the CBI Board. In reaching its determination to
approve the Merger, the CBI Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to different factors. After deliberating with respect to the
Merger and the other transactions contemplated by the Merger Agreement, and
considering, among other things, the matters discussed above, the CBI Board
unanimously approved the Merger Agreement and the transactions contemplated
thereby as being in the best interests of CBI and its shareholders.
EXCHANGE RATIO
The Merger Agreement provides that, at the Effective Time, each issued and
outstanding share of CFB Common Stock (excluding shares held by CFB or any of
its subsidiaries or by CBI or any of its subsidiaries, in each case other than
in a fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by shareholders who perfect their dissenters' rights)
shall cease to be outstanding and shall be converted into and exchanged solely
for the right to receive that number of shares of CBI common stock equal to
425,000 divided by the number of shares of CFB common stock issued and
outstanding on the effective date of the Merger (1.318 shares of CBI Common
Stock per share of CFB Common Stock assuming 322,480 shares of CFB Common Stock
outstanding at closing).
Pursuant to the terms of the Merger Agreement, each holder of shares of CFB
Common Stock exchanged pursuant to the Merger, who would otherwise have been
entitled to receive a fraction of a share of CBI Common Stock shall receive, in
lieu thereof, cash (without interest) in an amount equal to such fractional
part of a share of CBI Common Stock multiplied by the market value of one share
of CBI Common Stock at the Effective Time. The market value of one share of
CBI Common Stock at the Effective Time shall be the last sale price of such
common stock on the Nasdaq National Market (as reported by The Wall Street
Journal or, if not reported thereby, any other authoritative source) on the
last trading day preceding the Effective Time. No such holder will be entitled
to dividends, voting rights, or any other rights as a shareholder in respect of
any fractional shares.
In the event CFB or CBI changes the number of shares of CFB Common Stock or
CBI Common Stock, or other common stock equivalents, on a fully diluted basis,
issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend or similar recapitalization with respect to such stock
and the record date therefore shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted.
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of CFB
shareholders, and all other required governmental and other consents and
approvals are received, and if the other conditions to the obligations of the
parties to consummate the Merger are satisfied or waived (as permitted), the
Merger will be consummated and effected on the date and at the time Articles of
Merger, reflecting the Merger, are filed with the Secretary of State of the
State of Florida (the "Effective Time"). Unless otherwise mutually agreed upon
in writing by the chief executive officers or chief financial officers of each
of CBI and CFB, CBI and CFB have agreed to use their reasonable efforts to
cause the Effective Time to occur on the last business day of the month in
which occurs the last to occur of (i) the effective date (including expiration
of any applicable waiting period) of the last required consent of any
regulatory authority having authority over and approving or exempting the
Merger and (ii) the date on which the shareholders of CFB approve the Merger
Agreement to the extent such approval is required by applicable law; or such
later date within 30 days thereof as may be specified by CBI. Assuming
satisfaction of all conditions to consummation of the Merger, the Merger is
expected to be made effective during the first quarter of 1996. Either CBI or
CFB may terminate the Merger Agreement if the Merger has not been consummated
by April 30, 1996. See "--Conditions to Consummation" and "--Amendment, Waiver
and Termination."
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DISTRIBUTION OF CBI CERTIFICATES
Promptly after the Effective Time, the exchange agent selected by CBI shall
mail appropriate transmittal materials to each record holder of CFB Common
Stock for use in effecting the surrender and cancellation of certificates
formerly representing shares of CFB Common Stock in exchange for certificates
for CBI Common Stock (which shall contain an affidavit and surety bond for any
lost or stolen stock certificates and which shall specify that delivery shall
be effected, and risk of loss and title to the certificates theretofore
representing shares of CFB Common Stock shall pass, only upon proper delivery
of such certificates to CBI by the former shareholders of CFB). CFB
SHAREHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY
RECEIVE SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS. After the Effective Time,
each holder of shares of CFB Common Stock issued and outstanding at the
Effective Time (other than shares as to which dissenters' rights have been
perfected) shall surrender the certificate or certificates representing such
shares to CBI, and the certificates thus surrendered will be canceled. Unless
otherwise designated by a CFB shareholder on the transmittal letter,
certificates representing shares of CBI Common Stock issued to CFB shareholders
in connection with the Merger will be issued and delivered to the tendering CFB
shareholder at the address on record with the CFB Common Stock transfer agent.
CBI shall not be obligated to deliver the consideration to which any former
holder of CFB Common Stock is entitled until such holder properly surrenders
his certificate or certificates formerly representing CFB Common Stock for
exchange. The certificate or certificates so surrendered shall be duly endorsed
as CBI may require. No party shall be liable to a holder of CFB Common Stock
for any property delivered in good faith to a public official pursuant to any
applicable abandoned property law.
After the Effective Time, holders of CFB certificates will have no rights
with respect to the shares of CFB Common Stock formerly represented thereby
other than the right to surrender such certificates and receive in exchange
therefor the shares of CBI Common Stock, if any, to which such holders are
entitled, as described above, or the right to perfect their dissenters' rights.
In addition, no dividend or other distribution payable to holders of record of
CBI Common Stock will be paid to the holder of any CFB certificates until such
holder properly surrenders such certificates for exchange as instructed.
Subject to applicable law, upon surrender of the CFB certificates, such holder
will receive the certificates representing the shares of CBI Common Stock
issuable upon the exchange or conversion of such shares of CFB Common Stock,
all withheld dividends or other distributions (without interest), and any
withheld fractional share cash payments (without interest) to which such
shareholder is entitled pursuant to the Merger Agreement.
If any certificate for CBI Common Stock is to be issued in a name other
than that in which the CFB certificate surrendered for exchange is issued, the
CFB certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, and the person requesting such exchange shall affix
any requisite stock transfer tax stamps to the certificates surrendered, shall
provide funds for their purchase, or shall establish to the exchange agent's
satisfaction that such taxes are not payable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax consequences of
the Merger. This discussion is based on the provisions of the Code, the United
States Department of the Treasury Regulations thereunder and rulings and court
decisions as of the date of this Proxy Statement/Prospectus, all of which are
subject to change, possibly with retroactive effect by legislation,
administrative action, or judicial decision. This discussion is general in
nature, and is not a complete description of all federal income tax
consequences, and does not consider the particular facts or circumstances of
any CFB shareholder (for example, as foreign persons, tax-exempt entities,
dealers in securities, insurance companies, and corporations, among others).
In addition, no information is provided with respect to the tax consequences of
the Merger under any applicable foreign, state or local laws. BECAUSE CERTAIN
TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH CFB SHAREHOLDER AND OTHER FACTORS, EACH HOLDER OF CFB
COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISORS TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER
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(INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS).
The Merger is intended to constitute a "reorganization" within the meaning
of section 368(a) of the Code, with CFB and CBI each intended to qualify as a
"party to the reorganization" under section 368(b) of the Code, in which case
the following tax consequences will generally result (subject to the
limitations and qualifications referred to herein):
(i) No gain or loss will be recognized for federal income tax purposes
by CFB shareholders upon the exchange of their shares of CFB Common
Stock solely for shares of CBI Common Stock.
(ii) The basis of the shares of CBI Common Stock to be received by CFB
shareholders will be the same as the basis of the shares of CFB
Common Stock surrendered in exchange therefor.
(iii) The holding period of the shares of CBI Common Stock to be received
by CFB shareholders will include the period during which the shares
of CFB Common Stock surrendered in exchange therefor had been held,
provided such shares were held by CFB shareholders as a capital
asset at the Effective Time.
(iv) Dissenting CFB shareholders who receive solely cash in exchange for
their stock will be treated as having received such payments as
distributions in redemption of their shares of such stock subject to
certain limitations. After such distribution, if a former CFB
shareholder neither owns CBI capital stock nor is deemed to own CBI
capital stock under constructive ownership rules, the redemption
will be for shares of CFB Common Stock. Accordingly, such
shareholder will recognize gain or loss measured by the difference
between the amount of cash received and such shareholder's adjusted
basis in stock surrendered. CFB shareholders electing to exercise
dissenters' rights should consult their own tax advisors as to the
tax treatment in their particular circumstances.
(v) The payment of cash in lieu of fractional shares of CBI Common Stock
will be treated as if the fractional shares were issued as part of
the exchange and then redeemed by CBI. These cash payments will be
treated as having been received as distributions in full payment in
exchange for the fractional shares of CBI Common Stock redeemed as
provided in Section 302(a) of the Code. Generally, any gain or loss
recognized upon such exchange will be capital gain or loss, provided
the fractional share would constitute a capital asset in the hands
of the exchanging CFB shareholder.
CBI and CFB have not requested and will not request, a ruling from the
Internal Revenue Service (the "Service") on any tax matter related to the
Merger. However, Alston & Bird, special tax counsel to CBI, will render an
opinion to CBI and CFB concerning certain federal income tax consequences of
the proposed Merger. It is such firm's opinion that, based on the assumption
the Merger is consummated in accordance with Florida law and in conformity with
the representations made by the management of CBI and CFB, the transaction will
constitute a "reorganization" within the meaning of section 368(a) of the Code
("Tax Opinion"). The Tax Opinion does not address any state, local, or other
tax consequences of the Merger. Unlike a ruling from the Service, the Tax
Opinion is not binding on the Service, and the Service could take a position
contrary to the Tax Opinion. In addition, the Tax Opinion will be subject to
certain assumptions and qualifications and will be based on the truth and
accuracy of certain representations made by the management of CFB and CBI, as
to, among other things, the fact that there is no plan or intention by any of
the shareholders of CFB who own one percent (1%) or more of the outstanding CFB
Common Stock, and to the best of the knowledge of the management of CFB, the
remaining CFB shareholders have no plan or intention, to sell, exchange, or
otherwise dispose of a number of shares of CBI Common Stock that they will
receive in the Merger that will reduce on the part of the CFB shareholders such
shareholders' ownership of CBI Common Stock to a number of shares having an
aggregate value as of the date of
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the Merger of less than fifty percent (50%) of the aggregate value of all of
the stock of CFB outstanding immediately prior to the Merger.
A successful IRS challenge to the "reorganization" status of the Merger
would result in a CFB shareholder recognizing gain or loss with respect to each
share of CFB Common Stock surrendered equal to the difference between the
shareholder's basis in such share and the fair market value, as of the
Effective Time of the Merger, of the CBI Common Stock received in exchange
therefor. In such event, a CFB shareholder's aggregate basis in the CBI Common
Stock received would equal its fair market value and his or her holding period
for such stock would begin the day after the Merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
CBI will be the surviving corporation resulting from the Merger. Following
consummation of the Merger, CFBO will be merged into and with CNBL, leaving
CNBL as the sole banking subsidiary of CBI. The officers of CBI in office
immediately prior to the Effective Time shall continue to serve as officers of
CBI after the Effective Time. Following consummation of the Merger, one of the
current CFB directors (who also serves on the CFBO Board of Directors) will be
elected to serve on the CBI and CNBL Board of Directors. See "--Interests of
Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of November 30, 1995, the directors and executive officers of CFB
beneficially owned no shares of CBI Common Stock. In addition, it is
anticipated that Mr. Trexler, a current CFB director, will be elected to the
CBI and CNBL Board. While CBI directors currently do not receive compensation
for attendance of meetings of the CBI Board of Directors actually attended,
directors who are not employees of CBI receive an annual retainer of $5,000.
CNBL directors who are not employees of CNBL currently receive $300 in cash for
every meeting of the CNBL Board of Directors actually attended, $100 for every
committee meeting actually attended and an annual retainer of $10,000. CBI
evaluates its compensation practices generally on an annual basis, and its
compensation to directors may change. In addition, Mr. C. Daniel Hicks, a
current director of CFB, is a partner in the law firm of Hicks & MacQuarrie.
Mr. Hicks has served as legal counsel to CFB in connection with the Merger and
in other matters. Other than as described herein, no director or executive
officer of CBI or CFB, and no associate of any such person, has any substantial
interest, direct or indirect, in the Merger, other than an interest arising
from the ownership of CFB Common Stock, in which case the director or officer
receives no extra or special benefit not shared on a pro rata basis by all
other holders of CFB Common Stock. In each case, the Board of Directors of
CFB either was aware of these factors or, with respect to interests that arose
subsequent to the Merger Agreement, was aware of their potential, and
considered them, among other matters, in approving the Merger Agreement and
the transactions contemplated thereby.
Director and Officer Insurance. The Merger Agreement provides that CFBO, at
its options, may seek to maintain CFB's existing directors' and officers'
liability insurance policy for a period of two years after the Effective Time
of the Merger, subject to certain cost limitations.
Post Acquisition Compensation and Benefits. The Merger Agreement provides
that, after the Effective Time, CBI will provide generally to officers and
employees of CFB and its subsidiaries, employee benefits under employee benefit
plans (other than stock options or other plans involving the potential issuance
of CBI Common Stock or cash bonuses), on terms and conditions that, when taken
as a whole, are substantially similar to those currently provided by CBI and
its subsidiaries to their similarly situated officers and employees. For
purposes of participation and vesting (but not benefit accrual) under such
employee benefit plans, service with CFB or its subsidiaries prior to the
Effective Time will be treated as service with CBI or its subsidiaries.
CBI and CFB offer a similar range of employee benefits, although
co-payments, deductibles, vesting periods and other terms do vary. Both CBI
and CFB maintain group health insurance, CBI offers dental coverage. CFB
maintains a Code Section 125 Cafeteria Plan. CFB and CBI each offer group term
life insurance. Both organizations have short-term sick leave and long-term
disability as well as vacation policies. CFB currently
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<PAGE> 34
matches 10% of the first 6% of the base salary contributed to the CFB 401(k)
Plan. CFB's contribution has ranged from .27% to .31% of total compensation.
Both CFB and CBI have stock option plans for key employees. Both companies
provide various forms of incentive cash compensation to their employees. CBI
currently provides a defined benefit pension plan and a deferred profit sharing
plan to CBI employees. This is a summary only and is not intended and should
not be viewed as complete as to all aspects of the parties' benefits. CBI
reviews its compensation systems on an annual basis, and its current plans
and programs are subject to change.
CBI Board Memberships. It is anticipated that following consummation of
the Merger, Mr. Terry E. Trexler, a current CFB director, will be elected to
serve on the CBI and CNBL Board.
CONDITIONS TO CONSUMMATION
The obligations of CFB and CBI to consummate the Merger are subject to the
satisfaction or waiver (to the extent permitted) of the following conditions:
(i) the Merger Agreement shall have been approved by the shareholders of CFB;
(ii) the required regulatory approvals described under "--REGULATORY APPROVALS"
shall have been received, and no such regulatory approval which is necessary to
consummate the transactions contemplated by the Merger Agreement shall be
conditioned or restricted in a manner (including requirements relating to the
raising of additional capital or the disposition of Assets) which in the
reasonable judgment of the Board of Directors of CBI would so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Merger Agreement that, had such condition or requirement
been known, such party would not, in its reasonable judgment, have entered into
the Merger Agreement; (iii) each party shall have received any required
consents of third parties; (iv) no court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law or order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes
illegal consummation of the transactions contemplated by the Merger Agreement;
(v) the Registration Statement of which this Proxy Statement/Prospectus is a
part shall have been declared effective by the Commission and shall not be
subject to a stop order or any threatened stop order, and the shares of CBI
Common Stock issuable in connection with the Merger shall have been qualified,
registered or otherwise approved for exchange under the securities laws of the
various states in which such qualification, registration or approval is
required; (vi) CBI and CFB shall have received an opinion of Alston & Bird as
to certain federal income tax matters (see "--Certain Federal Income Tax
Consequences"); (vi) CBI and CFB shall have received a letter from Purvis and
Gray, or such other independent auditors mutually acceptable to CBI and CFB, to
the effect that the Merger will qualify for pooling-of-interests accounting
treatment and that such firm is not aware of any matters relating to CFB which
would preclude the Merger from qualifying for pooling-of-interests accounting;
(viii) the other party's representations and warranties shall remain accurate,
and the other party shall have performed all of the agreements, covenants, acts
and undertakings to be performed by it pursuant to the Merger Agreement, and
shall have delivered certificates confirming satisfaction of the foregoing
requirements; (ix) each of the directors and officers of CFB and CFBO shall
have executed and delivered to CBI claims release letters releasing CFB, CFBO,
CBI, CNBL and their respective directors, officers, employees, agents,
representatives, affiliates and controlling persons from certain claims; (x)
CBI shall have received letters from each affiliate of CFB to the extent
necessary to assure (a) securities law compliance and (b) that the transactions
contemplated in the Merger Agreement will qualify for pooling-of-interests
accounting treatment; (xi) all options to purchase shares of CFB Common Stock
shall have been exercised in full; (xii) each party shall have received an
opinion of the other party's counsel, dated as of the closing date, as to
certain matters; and (xiii) CBI shall have received a letter from CFB's
independent auditors with respect to certain financial information regarding
CFB.
No assurances can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the appropriate
party. As of the date of this Proxy Statement/Prospectus, the parties know of
no reason to believe that any of the conditions set forth above will not be
satisfied.
The conditions to consummation of the Merger may be waived, in whole or in
part, to the extent permissible under applicable law, by the party for whose
benefit the condition has been imposed, without the approval of the CFB
shareholders. See "--Amendment, Waiver, and Termination."
- 25 -
<PAGE> 35
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Federal Reserve under
the BHC Act. CBI has filed all applications required to be filed with the
Federal Reserve in connection with the Merger. The Merger may not be
consummated until the 15th day after approval of the Merger by the Federal
Reserve, during which time the United States Department of Justice has the
opportunity to file an action seeking to enjoin consummation of the Merger on
antitrust grounds. An application has been filed with the Federal Reserve. No
regulatory approval which is necessary to consummate the transactions
contemplated by the Merger Agreement has been conditioned or restricted in a
manner (including requirements relating to the raising of additional capital or
the disposition of assets) which in the reasonable judgment of the Board of
Directors of CBI would so materially adversely impact the economic or business
benefits of the transactions contemplated by the Merger Agreement that, had
such condition or requirement been known, CBI would not, in its reasonable
judgment, have entered into the Merger Agreement.
The Bank Merger is subject to the prior approval of the OCC. An
application has been filed with the OCC.
AMENDMENT, WAIVER AND TERMINATION
To the extent permitted by Law, the Merger Agreement may be amended by a
subsequent writing signed by each of the parties upon the approval of their
respective Boards; provided, however, that after the Special Meeting, no
amendment may alter the manner or basis in which shares of CFB Common Stock
will be exchanged for CBI Common Stock without the requisite approval of the
holders of the issued and outstanding shares of CFB Common Stock entitled to
vote thereon.
Prior to or at the Effective Time, either CFB or CBI, acting through its
respective Boards, chief executive officer or other authorized officer, may
waive any default in the performance of any term of the Merger Agreement by the
other party, may waive or extend the time for the fulfillment by the other
party of any of its obligations under the Merger Agreement, and may waive any
of the conditions precedent to the Merger Agreement, except any condition that,
if not satisfied, would result in the violation of any law.
The Merger Agreement may be terminated, and the Merger abandoned, at any
time prior to the Effective Time by mutual consent of the Boards of CFB and
CBI. In addition, the Merger Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time by either CBI or CFB if (i) the other
party materially breaches and does not timely cure any representation,
warranty, covenant or other agreement contained in the Merger Agreement, (ii)
any consent or approval of certain regulatory authorities is denied by final
nonappealable action of such authority or (iii) the Merger has not been
consummated, or the conditions precedent to the obligations of such party to
consummate the Merger cannot be satisfied or fulfilled, by April 30, 1996.
In addition, the Merger Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time by CBI in the event that the Board of
Directors of CFB shall have failed to reaffirm, after CFB shall have received
an "Acquisition Proposal" (as defined below), its approval of the Merger and
the transactions contemplated by the Merger Agreement (to the exclusion of any
other Acquisition Proposal), or shall have resolved not to reaffirm the Merger.
An "Acquisition Proposal" means any tender offer or exchange offer or any
proposal for a merger, acquisition of all of the stock or assets of, or other
business combination involving CFB or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, CFB.
CONDUCT OF BUSINESS PENDING THE MERGER
CFB has agreed in the Merger Agreement, unless the prior consent of CBI is
obtained, and except as otherwise contemplated by the Merger Agreement, to
operate its business only in the ordinary course, to preserve its business
organizations and assets and to maintain its rights and franchises. Each of
CFB and CBI has agreed to take no action that would adversely affect either the
ability of either party to perform its covenants and agreements under the
Merger Agreement or the ability of either party to obtain any consents or
approvals pursuant to any contract, law, order or permit that are required for
the transactions contemplated by the Merger Agreement. CBI has agreed that,
prior to the Effective Time, it will continue to conduct its business and the
business of its subsidiaries in a
- 26 -
<PAGE> 36
manner designed in its reasonable judgment to enhance the long-term value of
the CBI Common Stock and the business prospects of CBI and will not amend its
Certificate of Incorporation or Bylaws in any manner adverse to the
shareholders of CFB. In addition, the Merger Agreement contains certain other
restrictions applicable to the conduct of the business of CFB prior to
consummation of the Merger, as described below.
CFB has agreed in the Merger Agreement not to take certain actions relating
to the operation of its business pending consummation of the Merger without the
prior approval of CBI. Those actions generally include, without limitation: (i)
amending its Articles of Incorporation ("Articles") or Bylaws; (ii) becoming
responsible for any obligation for borrowed money, except in the ordinary
course of the business of CFB's subsidiaries consistent with past practices;
(iii) acquiring or exchanging any shares of its capital stock or paying any
dividend or other distribution in respect of its capital stock; (iv) subject to
certain exceptions, issuing, selling or pledging additional shares of any CFB
capital stock, any rights to acquire any such stock or any security convertible
into such stock, except pursuant to the exercise of outstanding stock options;
(v) adjusting or reclassifying any of its capital stock; (vi) selling or
encumbering any CFB asset other than in the ordinary course of business for
reasonable and adequate consideration; (vii) subject to certain exceptions,
investing in or acquiring control over any other entity; (viii) granting any
increase in compensation or benefits to its employees or officers (except as
previously disclosed to CBI or as required by law), paying any bonus (except as
previously disclosed to CBI or in accordance with any existing program or
plan), entering into or amending any severance agreements with its officers or
granting any increase in compensation or other benefits to any of its directors
(except as previously disclosed to CBI); (ix) entering into or amending any
employment contract that it does not have the unconditional right to terminate
without certain liability, except as previously disclosed to CBI and except for
any amendment required by law; (x) adopting any new employee benefit plan or
program or materially changing any existing plan or program; (xi) making any
significant changes in accounting methods, except for any change required by
law; (xii) commencing any litigation other than in accordance with past
practice or settling any litigation for material money damages or restrictions
upon the operations of CFB or its affiliates; (xiii) materially amending or
terminating any material contracts; or (xiv) obtaining any advances or
otherwise borrowing any monies from, or become indebted to, the Federal Home
Loan Bank of Atlanta.
In addition, CFB has agreed not to solicit, directly or indirectly, any
Acquisition Proposal from any other person or entity. CFB also has agreed not
to negotiate with respect to any such proposal, to provide information to any
party making such a proposal or to enter into any agreement with respect to any
such proposal except in compliance with its legal obligations or the fiduciary
obligations of its Board of Directors. CFB has also agreed to use reasonable
efforts to cause its advisors and other representatives not to engage in any of
the foregoing activities.
EXPENSES AND FEES
The Merger Agreement provides that each party shall be responsible for its
own costs and expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by the Merger Agreement,
including filing, registration and application fees, printing fees and expenses
of its own financial or other consultants, investment bankers, accountants and
counsel; provided, that CFB and CBI shall each pay one-half of the filing fees
payable and printing costs incurred in connection with the Registration
Statement and this Proxy Statement/Prospectus.
ACCOUNTING TREATMENT
The Merger is anticipated to be accounted for as a pooling-of-interests.
Under this method of accounting, as of the Effective Time, the assets and
liabilities of CFB would be added to those of CBI at their recorded book values
and the shareholders' equity accounts of CBI and CFB would be combined on CBI's
consolidated balance sheet. The unaudited pro forma financial information
contained or incorporated by reference in this Proxy Statement/Prospectus has
been prepared using the pooling-of-interests accounting method to account for
the Merger. Consummation of the Merger is conditioned on, among other things,
receipt by CBI and CFB of a letter from Purvis and Gray or such other
independent auditor mutually acceptable to CBI and CFB to the effect that the
- 27 -
<PAGE> 37
Merger will qualify for pooling-of-interests accounting treatment. See
"SUMMARY" and "PRO FORMA CONDENSED COMBINED FINANCIAL DATA."
RESALE OF CBI COMMON STOCK
The shares of CBI Common Stock issued in connection with the Merger will be
freely transferable under the Securities Act, except for shares issued to any
shareholder who may be deemed to be an "affiliate" (generally including,
without limitation, directors, certain executive officers, and beneficial
owners of 10% or more of any class of capital stock) of CFB for purposes of
Rule 145 under the Securities Act as of the date of the Special Meeting or for
purposes of applicable interpretations regarding pooling-of-interests
accounting treatment. Such affiliates may not sell their shares of CBI Common
Stock acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act or other applicable exemption
from the registration requirements of the Securities Act and until such time as
financial results covering at least 30 days of combined operations of CBI and
CFB after the consummation of the Merger have been published. CBI may place
restrictive legends on certificates representing CBI Common Stock issued to all
persons who are deemed to be "affiliates" of CFB under Rule 145. In addition,
CFB has agreed to use its reasonable efforts to cause each person or entity
that is an "affiliate" to enter into a written agreement relating to such
restrictions on sale or other transfer. This Proxy Statement/Prospectus does
not cover any resales of CBI Common Stock received as a result of the Merger by
persons who may be deemed affiliates of CFB or CBI.
DISSENTERS' RIGHTS
Florida law provides that shareholders may dissent from and receive payment
for the fair value of their shares in the event of any plan of merger to which
the corporation is a party if the shareholder is entitled to vote on the
merger. Any shareholder (1) who files a written notice of intent to object to
the approval of a resolution proposing any plan of merger to which CBI is a
party, and (2) whose shares are not voted in favor of approval of the proposal
which has been adopted (a "dissenting shareholder"), has the right to demand in
writing from CBI, within ten (10) days after the date on which the vote was
taken, payment of the fair value of such shareholder's shares.
Within 10 days after the corporate action is effected, CBI must give
written notice to each dissenting shareholder who has made such demand and must
make a written offer to each dissenting shareholder to pay the fair value of
such shares (the "CBI Notice"). CBI will then pay to each dissenting
shareholder, upon surrender of the certificate(s) representing such shares,
the fair value thereof as of the day prior to the date on which the vote was
taken, excluding any appreciation or depreciation on anticipation of such
corporate action.
If within 30 days after the mailing of the CBI Notice the fair value of
such shares is agreed upon between any such dissenting shareholder and CBI,
payment therefor must be made within 90 days after the mailing of the CBI
Notice. If CBI and any dissenting shareholder are unable to agree on a fair
value within 30 days after the mailing of the CBI Notice, such shareholder must
make written demand on CBI within 60 days after the mailing of the CBI Notice.
Within 30 days after receipt of such written demand CBI must, or at its
election at any time within 60 days after the mailing of the CBI Notice may,
file an action in any court of competent jurisdiction in Lake County asking for
a judicial determination of the fair value of such shares. If CBI fails to do
so, any dissenting shareholder may institute the proceeding in CBI's name.
The court will direct payment of the value of the shares by CBI to the
dissenting shareholder, including interest from the date of the vote to the
date of the payment, upon the surrender of the certificates representing such
shares. CBI will bear the costs and attorney's fees of any such proceeding,
but all or part may be apportioned and assessed by the court against dissenting
shareholders if the court finds that the action of such shareholders, in
failing to accept an offer, was not in good faith.
Within 20 days after receiving the CBI Notice, a dissenting shareholder
must submit a notice of election stating the shareholder's name and address,
the number of shares as to which the dissent relates, demand for payment and
the certificate(s) to CBI for notation thereon that such demand has been made.
Failure to do so will, at the option of CBI, terminate such shareholder's
rights to receive payment.
- 28 -
<PAGE> 38
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF SECTIONS 607.1301
THROUGH 607.1320 OF THE FBCA IS NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH
PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SECTIONS,
WHICH ARE INCLUDED AS ANNEX B HEREOF.
Any dissenting CFB shareholder who perfects such holder's right to be paid
the value of such holder's shares will recognize taxable gain or loss upon
receipt of cash for such shares for federal income tax purposes. See "--Certain
Federal Income Tax Consequences."
- 29 -
<PAGE> 39
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following pro forma condensed combined balance sheet as of September
30, 1995, reflects the assumed consummation of the Merger accounted for under
the pooling-of-interests method as of that date. The following pro forma
condensed combined statements of operations for the nine months ended September
30, 1995, and for each year in the three years ended December 31, 1994, reflect
that CFB and CBI had been combined for each period presented on a
pooling-of-interests basis. See "THE MERGER--Accounting Treatment."
The pro forma financial data has been prepared by the managements of CBI
and CFB based upon the historical financial statements of CBI and CFB. These
pro forma statements may not be indicative of the results that actually would
have occurred if the transactions had been in effect on the dates indicated or
which may be obtained in the future.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements, including
the notes thereto of CBI and CFB, incorporated or included herein. See
"AVAILABLE INFORMATION" and "FINANCIAL STATEMENTS."
- 30 -
<PAGE> 40
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
CBI
AND CFB
Assets CBI CFB ADJUSTMENTS PRO FORMA
- ------ --------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and due from banks . . . . . . . . . . . . $ 14,370 $ 2,568 _ $ 16,938
Federal funds sold . . . . . . . . . . . . . . 7,754 1,656 _ 9,410
Due from banks (time) . . . . . . . . . . . . . 0 10 _ 10
Investment securities . . . . . . . . . . . . . _
Available for sale . . . . . . . . . . . . . 138,170 9,145 _ 147,315
Held to maturity . . . . . . . . . . . . . . 67,967 0 _ 67,967
Loans . . . . . . . . . . . . . . . . . . . . . 220,961 24,787 _ 245,748
less allowance for loan losses . . . . . . . (3,234) (403) _ (3,637)
Bank premises and equipment . . . . . . . . . . 6,880 1,402 _ 8,282
Goodwill . . . . . . . . . . . . . . . . . . . 0 0 _ 0
Other assets . . . . . . . . . . . . . . . . . 7,023 598 _ 7,621
--------- -------- ----------- --------
Total assets . . . . . . . . . . . . . . . . . $ 459,891 $ 39,763 _ $499,654
========= ======== =========== ========
Liabilities
- -----------
Deposits . . . . . . . . . . . . . . . . . . . $ 404,222 $ 35,042 _ $439,264
Federal funds purchased and securities _
sold under agreements to repurchase . . . . . 7,834 _ _ 7,834
Other liabilities . . . . . . . . . . . . . . . 4,734 513 _ 5,247
--------- -------- ----------- --------
Total liabilities . . . . . . . . . . . . . . 416,790 35,555 _ 452,345
Shareholders' equity
- --------------------
Common stock . . . . . . . . . . . . . . . . . 42 30 (26)(1) 46
Surplus . . . . . . . . . . . . . . . . . . . . 11,208 3,818 _ 15,026
Retained earnings . . . . . . . . . . . . . . . 32,107 372 26 32,505
Unrealized depreciation on securities
available for sale . . . . . . . . . . . . . 536 (12) _ 524
Treasury stock . . . . . . . . . . . . . . . . (792) 0 _ (792)
--------- -------- ----------- --------
Total shareholders' equity . . . . . . . . . 43,101 4,208 0 47,309
--------- -------- ----------- --------
Total liabilities and shareholders' equity . . $ 459,891 $ 39,763 _ $499,654
========= ======== =========== ========
</TABLE>
- ---------------------------
(1) To reflect 425,000 shares of CBI Common Stock issued for all of the
outstanding shares of CFB Common Stock.
- 31 -
<PAGE> 41
PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
CBI AND CFB
CBI CFB ADJUSTMENTS PRO FORMA
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . $ 25,178 $ 2,283 _ $ 27,461
Interest expense . . . . . . . . . . . . . . . 12,184 858 _ 13,042
Net interest income . . . . . . . . . . . . . . 12,994 1,425 _ 14,419
Provision for loan loss . . . . . . . . . . . . 255 0 _ 255
--------- -------- --------
Net interest after provision for loan loss . . 12,739 1,425 _ 14,164
Noninterest income . . . . . . . . . . . . . . 1,685 438 _ 2,123
Noninterest expense . . . . . . . . . . . . . . 7,957 1,243 _ 9,200
--------- -------- --------
Income before income taxes . . . . . . . . . . 6,467 620 _ 7,087
Income tax provision . . . . . . . . . . . . . 1,699 209 _ 1,908
--------- -------- --------
Net income . . . . . . . . . . . . . . . . . . $ 4,768 $ 411 _ $ 5,179
========= ======== ========
Primary earnings per share . . . . . . . . . . $ 1.18 $ 1.16
Fully diluted earnings per share . . . . . . . 1.18 1.16
Average shares outstanding - Primary . . . . . 4,048 4,473
Average shares outstanding - Fully diluted . . 4,057 4,477
</TABLE>
- 32 -
<PAGE> 42
PRO FORMA CONDENSED STATEMENT OF INCOME
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1994
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
CBI CFB ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . $ 21,812 $ 1,455 _ $ 23,267
Interest expense . . . . . . . . . . . . . . . 9,037 317 _ 9,354
Net interest income . . . . . . . . . . . . . . 12,775 1,138 _ 13,913
Provision for loan loss . . . . . . . . . . . . 523 0 _ 523
--------- -------- ----------- ---------
Net interest after provision for loan loss . . 12,252 354 _ 13,390
Noninterest income . . . . . . . . . . . . . . 1,471 1,138 _ 1,775
Noninterest expense . . . . . . . . . . . . . . 7,664 1,260 _ 8,924
--------- -------- ----------- ---------
Income before income taxes . . . . . . . . . . 6,009 232 _ 6,241
Income tax provision . . . . . . . . . . . . . (1,547) (74) _ 1,621
--------- -------- ----------- ---------
Net income . . . . . . . . . . . . . . . . . . $ 4,462 $ 158 - $ 4,620
========= ======== =========== =========
Primary earnings per share . . . . . . . . . . $ 1.10 $ 1.03
Fully diluted earnings per share . . . . . . . 1.10 1.03
Average shares outstanding - Primary . . . . . 4,048 4,473
Average shares outstanding - Fully diluted . . 4,048 4,473
</TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
CBI CFB ADJUSTMENTS PRO FORMA
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . $ 29,594 $ 2,066 _ $ 31,660
Interest expense . . . . . . . . . . . . . . . 12,455 464 _ 12,919
Net interest income . . . . . . . . . . . . . . 17,139 1,602 _ 18,741
Provision for loan loss . . . . . . . . . . . . 600 0 _ 600
--------- -------- ----------- ---------
Net interest after provision for loan loss . . 16,539 1,602 _ 18,141
Noninterest income . . . . . . . . . . . . . . 2,005 491 _ 2,496
Noninterest expense . . . . . . . . . . . . . . 10,457 1,670 _ 12,127
--------- -------- ----------- ---------
Income before income taxes . . . . . . . . . . 8,087 423 _ 8,510
Income tax provision . . . . . . . . . . . . . 2,082 139 _ 2,221
--------- -------- ----------- ---------
Net income . . . . . . . . . . . . . . . . . . $ 6,005 $ 284 _ $ 6,289
========= ======== =========== =========
Primary earnings per share . . . . . . . . . . $ 1.48 $ 1.41
Fully diluted earnings per share . . . . . . . 1.48 1.41
Average shares outstanding - Primary . . . . . 4,048 4,473
Average shares outstanding - Fully diluted . . 4,048 4,473
</TABLE>
- 33 -
<PAGE> 43
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
CBI CFB ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . $ 27,499 $ 1,756 _ $ 29,255
Interest expense . . . . . . . . . . . . . . . 11,786 385 _ 12,171
Net interest income . . . . . . . . . . . . . . 15,713 1,371 _ 17,084
Provision for loan loss . . . . . . . . . . . . 1,075 21 _ 1,096
---------- -------- ---------
Net interest after provision for loan loss . . 14,638 1,350 _ 15,988
Noninterest income . . . . . . . . . . . . . . 2,574 540 _ 3,114
Noninterest expense . . . . . . . . . . . . . . 9,897 1,624 _ 11,521
---------- -------- ---------
Income before income taxes . . . . . . . . . . 7,315 266 _ 7,581
Income tax provision . . . . . . . . . . . . . 1,842 64 _ 1,906
Net income before cumulative effect
of change in accounting principle . . . . 5,473 202 _ 5,675
Cumulative effect of change in
accounting principle . . . . . . . . . . . 255 371 _ 626
---------- -------- ----------- ---------
Net income . . . . . . . . . . . . . . . . . . $ 5,728 $ 573 _ $ 6,301
========== ======== =========== =========
Primary earnings per share . . . . . . . . . . $ 1.41 $ 1.41
Fully diluted earnings per share . . . . . . . 1.41 1.41
Average shares outstanding - Primary . . . . . 4,050 4,475
Average shares outstanding - Fully diluted . . 4,050 4,475
</TABLE>
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1992
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
CBI CFB ADJUSTMENTS PRO FORMA
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . $ 27,868 $ 1,860 _ $ 29,728
Interest expense . . . . . . . . . . . . . . . 13,517 660 _ 14,177
Net interest income . . . . . . . . . . . . . . 14,351 1,200 _ 15,551
Provision for loan loss . . . . . . . . . . . . 1,400 50 _ 1,450
---------- -------- ---------
Net interest after provision for loan loss . . 12,951 1,150 _ 14,101
Noninterest income . . . . . . . . . . . . . . 3,085 548 _ 3,633
Noninterest expense . . . . . . . . . . . . . . 9,326 1,612 _ 10,938
---------- -------- ---------
Income before income taxes . . . . . . . . . . 6,710 86 _ 6,796
Income tax provision . . . . . . . . . . . . . 1,777 0 _ 1,777
---------- -------- ----------- ---------
Net income . . . . . . . . . . . . . . . . . . $ 4,933 $ 86 _ $ 5,019
========== ======== =========== =========
Primary earnings per share . . . . . . . . . . $ 1.22 $ 1.12
Fully diluted earnings per share . . . . . . . 1.22 1.12
Average shares outstanding - Primary . . . . . 4,053 4,478
Average shares outstanding - Fully diluted . . 4,053 4,478
</TABLE>
- 34 -
<PAGE> 44
CFB'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is designed to provide a better
understanding of various factors related to the financial condition and results
of operations of CFB during the past three years, and the nine-month periods
ended September 30, 1994 and 1995. This discussion and analysis is intended to
supplement and highlight information contained in the accompanying consolidated
financial statements and the selected financial data presented elsewhere.
SUMMARY
Net income for 1994 was $284,000, a 50% decrease from CFB's net income of
$573,000 in 1993. During 1993, CFB had income from the cumulative effect on
prior years of changing method of accounting for income taxes of $371,000.
This was the result of applying statement No. 109 (FASB 109) of the Financial
Accounting Standards Board Accounting for Income Taxes. Income before this
cumulative effect was $202,000 for 1993; therefore, 1994 income before the
cumulative effect was an increase of $82,000 or 40.3%. Net income for 1993 was
$487,000 higher than 1992. Income in 1993 before the cumulative effect was
$116,000 higher than that in 1992 or 134.9%. The first nine months of 1995
reflect net income of $411,000, 160.1% more than the $158,000 earned for the
first nine months of 1994. CFB's earnings continue to be aided by improved
asset quality, high net interest margin and a reduction in operating assets.
FINANCIAL CONDITION
Earning Assets
Average earning assets in 1994 increased 12.48% over 1993, primarily due to
an increase in average loans outstanding. In 1994 and 1993, average earning
assets were 87.63% and 87.06% of average assets. The earning asset mix changed
slightly during 1994 with loans at 77.40%, investment securities at 19.62%, and
other earning assets at 2.98%. In 1993, loans were 68.23%, investment
securities were 26.26% and the other earning assets were 5.51%. The mix of
earning assets is monitored closely in order to anticipate interest rate
movements and take advantage of better interest rate spreads and, therefore,
optimize the return on earning assets.
Loan Portfolio
Average net loans increased 27.59% in 1994, with much of the growth
occurring in the real estate and installment loan categories. Total net loans
outstanding increased 15.40% from year-end 1992 to 1993 to $15,834,000. The
loan growth for 1994 was primarily funded through deposit growth and
prepayments from the investment portfolio. Residential mortgage loans
increased 39.1% or $2,845,000, and commercial mortgage loans increased
$1,796,000 or 57.5%. Consumer installment loans increased $2,197,000 or 62.4%
from year-end 1993 to year-end 1994. Commercial, financial, and agricultural
loans, which were 14.31% of total loans in 1993 decreased $445,000 in 1994 to
$1.878 million or 8.3% of total loans at year-end 1994. For the first nine
months of 1995, CFB's total loan portfolio increased $2,186,000 or 9.7%. The
commercial real estate category reflected the largest increase.
Commercial loans contain both unsecured and secured credits that include,
but are not limited to, the following types of collateral: equipment,
fixtures, inventory, and accounts receivable. Residential real estate and
commercial real estate are primarily secured by first mortgages. The consumer
loan category represents all types of consumer installment loans, both secured
and unsecured. Loans are subject to CFBO's loan policy as approved by its
Board of Directors. Exceptions to that policy are permitted, but only with
proper prior approval from the Board. Generally, loans secured by real estate
with improvements are limited to an 80% loan-to-value ratio. However, more
stringent levels are enforced for unimproved land with plans for development,
where the current loan-to-value ratio is 75%. Unimproved or raw land with no
development plans is limited to a loan-to-value ratio of 65%. First and
second lien positions are considered in the aggregate when determining
loan-to-value ratios.
- 35 -
<PAGE> 45
Automobile loans are made up to the total purchase price for new vehicles but
are limited to the NADA loan value for used vehicles. Loans secured with
specialized equipment and machinery are usually limited to 75% of the value of
the collateral.
As of December 31, 1994, fixed rate loans totaled $10,401,000 with $462,000
maturing in less than three months and $646,000 maturing in three months to one
year. Those maturing in the one to five year category total $8,423,000. Fixed
rate loans with a maturity in excess of five years were $870,000. As of
December 31, 1994, floating rate loans repricing quarterly or more frequently
totaled $10,674,000. Management reviews and asset/liability gap monthly and
adjusts the interest rate sensitivity strategy accordingly. See "Interest Rate
Sensitivity."
CFB participates as intermediary for the secondary market underwriting of
residential loans. The secondary market mortgage company would underwrite the
credit and CFB would not book the loans, but would close the loan with the
secondary market mortgage company funding the loan.
Participation loans purchased are subject to CFBO's underwriting criteria
as described in the lending policy. Presently, there is not a policy that
would preclude CFB from selling any loan from the loan portfolio.
As defined by Florida Banking Code, CFBO's legal lending limit is any
amount up to, but no more than 25% of its capital, surplus, and undivided
profits. As of September 30, 1995, CFBO had a legal lending limit of
approximately 1,057,000.
As indicated below, CFB's loan portfolio continues to reflect the diversity
of the markets served by CFBO. The condition of the economy in the State of
Florida, Marion County is further reflected in the loan portfolio mix. Real
estate construction loans decreased in the late 1980's and early 1990's due to
recessionary pressures, then increased as the demand for new construction rose
early in the ensuing economic recovery. Beginning in 1993, the economy
improved and the demand for construction loans gained momentum and continued
into 1994. CFB's real estate construction lending is nearly equally divided
between commercial and to one-to-four residential properties. With fewer
attractive lending opportunities in the commercial lending arena, other lending
opportunities were sought, which further contributed to the increase in the
real estate category within the portfolio.
CFB has not invested in loans to finance leveraged buy-out ("LBO")
transactions as defined by the Federal Reserve and other regulatory agencies.
Loans made by CFB for recapitalization or acquisitions (including acquisitions
by management or employees) which result in a material change in the borrower's
financial structure to a highly leveraged condition are considered LBO loans.
CFB had no foreign loans or loans to lesser developed countries as of December
31, 1994, or September 30, 1995.
- 36 -
<PAGE> 46
The table below shows the classifications of loans by major category at
December 31, 1994, and December 31, 1993.
LOAN PORTFOLIO
YEARS ENDED DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
--------------------- ---------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural . $ 1,878 8.30% $ 2,323 14.31%
Real estate mortgage:
Residential . . . . . . . . . . . . . . 10,116 44.70% 7,271 44.78%
Commercial . . . . . . . . . . . . . . 4,920 21.74% 3,124 19.24%
Consumers:
Installments . . . . . . . . . . . . . 5,717 25.26% 3,520 21.67%
------- ------- ------- -------
Total . . . . . . . . . . . . . . . . . . 22,631 100.00% 16,238 100.00%
Less:
Unearned income . . . . . . . . . . . . (31) (17)
Allowance for loan losses . . . . . . . (410) (387)
------- -------
Total loans . . . . . . . . . . . . . . . $22,190 $15,834
======= =======
</TABLE>
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
AS OF DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
RATE STRUCTURE FOR LOANS
MATURING OVER ONE YEAR
-----------------------------
ONE YEAR OVER PREDETERMINED FLOATING OR
ONE YEAR TO FIVE INTEREST ADJUSTABLE
OR LESS FIVE YEARS YEARS RATE RATE TOTAL
------- ---------- ----- ------------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . . . . $ 3,376 $ 869 $ 22 $ 891 $ 0 $ 4,267
Real estate . . . . . . . . . . 7,146 3,958 558 3,537 979 11,662
Consumer . . . . . . . . . . . 1,260 4,446 966 4,865 547 6,672
----------- -------- -------- ---------- ------- ----------
Total . . . . . . . . . . . . . $ 11,782 $ 9,273 $ 1,546 $ 9,293 $ 1,526 $ 22,601
=========== ======== ======== ========== ======= ==========
</TABLE>
INVESTMENT PORTFOLIO
The composition of CFB's investment securities portfolio reflects CFB's
investment strategy of obtaining portfolio yields consistent with risk and
liquidity considerations. The primary objectives of CFB's investment strategy
are to maintain an appropriate level of liquidity and provide a tool to assist
in controlling CFB's interest rate position while at the same time producing
adequate levels of interest income. For securities classified as investment
securities, management intends to maintain both a "Held to Maturity" portfolio
and an "Available for Sale" portfolio. The mix between the two portfolios
provides flexibility in managing CFB's investment portfolio. Management of the
maturity of the portfolio is necessary to provide liquidity and control
interest rate risk.
- 37 -
<PAGE> 47
Effective December 31, 1994, CFB adopted the investment categorization and
carrying value rules as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115 (FASB 115), Accounting for
Certain Investments in Debt and Equity Securities. Under FASB 115, CFB
classifies its investment securities as either available-for-sale or
held-to-maturity or trading. Held-to-maturity investments are carried at
amortized cost. Securities available-for-sale and trading are carried at
market value. At December 31, 1994, Federal Reserve and Federal Home Loan Bank
stock were classified as held-to-maturity while all other securities were
classified as available-for-sale. For December 31, 1993, investment debt
securities were carried at amortized cost.
Average investment securities decreased $920,000 or 15.98% during 1994.
Year-end investment securities decreased $144,000 or 2.78% from 1993 to 1994.
During 1994 and 1993, there were no sales of investment securities. At year
end 1994 gross unrealized gains in the available-for-sale portfolio amounted to
$0 and unrealized losses amounted to $129,000. At the same time, there were no
gross unrealized gains or losses in the held-to-maturity portfolio. In the
1994 held-to-maturity category, amortized cost approximated market value.
Generally, the values in the investment portfolio will decline as market rates
increase. The reverse will occur when market rates decrease causing the values
in the investment portfolio to increase. Management expects market rates to
decline over the next 12 months, thereby resulting in an improvement in the
unrealized value of the investment portfolio.
The following table sets forth the carrying value of the investment
securities portfolio at the end of each of the previous two years.
INVESTMENT PORTFOLIO
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
------------ --------
<S> <C> <C>
U.S. Treasury securities . . . . . . . . . . . . . . . . $ 1,965 $ 2,519
U.S. Agency obligations . . . . . . . . . . . . . . . . . 2,409 1,997
Mortgage-backed securities . . . . . . . . . . . . . . . 479 569
Other securities . . . . . . . . . . . . . . . . . . . . 170 82
--------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,023 $ 5,167
========= ========
</TABLE>
The maturities and weighted-average yields of the investment securities
portfolio at the end of 1994 are presented in the following table using
primarily the stated maturities excluding the effects of prepayments. The
yield data is determined using the amortized cost of the securities. As of
December 31, 1994, 87.2% of the total carrying value of $5,023,000 of the
investment portfolio is comprised of U.S. Treasury and Agency obligations
compared to 87.4% at December 31, 1993. In addition, 9.5% of the total
investment securities are represented by mortgage-backed securities compared to
11.0% at December 31, 1993.
- 38 -
<PAGE> 48
INVESTMENT PORTFOLIO MATURITY SCHEDULE
AS OF DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
AFTER ONE YEAR BUT AFTER FIVE YEARS BUT
WITHIN ONE YEAR WITHIN FIVE YEARS BUT WITHIN TEN YEARS AFTER TEN YEARS
--------------- ----------------- -------------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL
------ ----- ------ ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 1,965 3.84% -- -- -- -- -- -- $ 965
securities
Federal agency -- -- $ 2,409 4.55% -- -- -- -- 2,409
Mortgage-backed -- -- -- -- -- -- $ 479 6.33% 479
securities
Other -- -- -- -- -- -- 170 -- 170
-------- -------- ---- ----- -------
Total $ 1,965 -- $ 2,409 -- $ 0 -- $ 649 -- $ 5,023
======== ======== ==== ===== =======
</TABLE>
The average balance of interest-earning deposits held with other banks
remained constant from 1993 through 1994 at $1,200. This represented less than
1% of earning assets.
DEPOSITS AND SHORT-TERM BORROWINGS
The portion of average liabilities represented by interest-bearing
liabilities, the primary source of funding for CFB, increased $2,614,000 or
19.0% in 1994. Continued enhancement of existing products, introduction of new
products, and CFB's continuing emphasis of superior customer service
contributed to this increase. It is CFB's intent to expand its consumer
deposit base in order to continue to fund asset growth through growth in both
demand deposits and consumer savings accounts. Increases in average
interest-bearing demand deposits plus savings balances reflected this funding
approach with a $2,104,000 or 26.19% increase in 1994. Falling interest rates,
which continued into the first quarter of 1994, resulted in customers
maintaining higher noninterest-bearing demand deposit balances. Throughout
this period, CFB was able to attract customers to lower cost deposit products.
As interest rates increased during 1994, consumers sought higher rates in time
deposits and higher yielding deposit accounts. Average noninterest-bearing
liabilities, which include noninterest-bearing demand deposits decreased by
$24,000 during 1994, representing a decrease of 0.3%. This trend continued
through the first nine months of 1995. During the nine months ended September
30, 1995, total deposits increased $7,800,000 while time deposits increased
$10,170,000. This growth in time deposits was the direct result of aggressive
marketing and higher rates offered by CFBO.
Average balances for interest-bearing transaction accounts increased
$2,614,000 or 19.0% in 1994. Average certificates of deposit less than
$100,000 increased $65,000 or 1.5% in 1994. Savings deposits and
interest-bearing demand deposits accounted for 62.1% of total average
interest-bearing liabilities during 1994. For 1993, these relatively low-cost
deposits equaled 58.6% of total average interest-bearing liabilities. As
market interest rates increased during 1994, CFB increased its deposit interest
rates to attract additional deposits that were used to fund loan growth. Total
average time deposits, including certificates of deposit over $100,000, were
$6,048,000 during 1994 with the large certificates of deposit representing
10.2% of the total average interest-bearing liabilities, up from 10.0% in 1993.
The maturities of certificates of deposit of $100,000 or more and other time
deposits issued by CFB as of December 31, 1994, are summarized in the
following table:
- 39 -
<PAGE> 49
MATURITIES OF TIME DEPOSITS
AS OF DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
OVER THREE OVER SIX MONTHS
THREE MONTHS MONTHS LESS LESS THAN OVER
OR LESS THAN SIX ONE YEAR ONE YEAR TOTAL
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Certificates of deposit over
$100,000 . . . . . . . . . . . . $ 511 $ 400 $ 1,459 $ 300 $ 2,670
Other time deposits . . . . . . . . 1,207 677 1,620 2,367 5,871
------------ ---------- ------------ -------- ---------
Total . . . . . . . . . . . . . . . $ 1,718 $ 1,077 $ 3,079 $ 2,667 $ 8,541
============ ========== ============ ======== =========
</TABLE>
Borrowed funds consist of short-term borrowings, primarily federal funds
purchased. At the close of 1994 and 1993, CFB had $1,240,000 and $180,000 in
federal funds purchased, respectively.
CAPITAL RESOURCES
Shareholders' equity increased to $2,944,000 at the end of 1994, compared
with $2,740,000 at the end of 1993, primarily due to current year earnings.
Excluding unrealized securities losses, shareholders' equity would have
increased in 1994 to $3,024,000. At September 30, 1995, CFB's shareholders'
equity was $4,234,000, an increase of $1,290,000 from December 31, 1994, of
which $811,000 represented new capital. The September 30, 1995, shareholders'
equity amount includes unrealized securities losses of $12,000. Excluding
these losses, shareholders' equity would have increased to $4,246,000.
No cash dividends have been paid on CFB's common stock. As of December 31,
1994, and September 30, 1995, CFB owned no shares of treasury stock.
A strong capital position promotes depositor and investor confidence and
provides a solid foundation for profitability and enhances the future growth of
the organization. CFB's capital significantly exceeds all minimum regulatory
capital requirements.
Average shareholders' equity as a percentage of total average assets is one
measure used to determine capital strength. The ratio of average shareholders'
equity to average assets for 1994 was 10.0% compared to 9.8% in 1993. The
increase in the ratio is the result of a slight increase in shareholders'
equity and an increase in average assets.
RETURN ON EQUITY AND ASSETS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Return on average assets:
Before cumulative change in accounting principle . . . . . . . 1.01% 0.80%
Change in accounting principle . . . . . . . . . . . . . . . . .00% 1.47%
------ ------
Net of change in accounting principle . . . . . . . . . . . . 1.01% 2.27%
------ ------
Return on average equity (including FAS 115 adjustment):
Before cumulative change in accounting principle . . . . . . . 10.13% 8.22%
Change in accounting principle . . . . . . . . . . . . . . . . .00% 15.10%
------ ------
Net of change in accounting principle . . . . . . . . . . . . 10.13% 23.32%
------ ------
Return on average equity (excluding FAS 115 adjustment):
Before cumulative change in accounting principle . . . . . . . 9.96% 8.22%
Change in accounting principle . . . . . . . . . . . . . . . . .00% 15.10%
------ ------
Net change in accounting principle . . . . . . . . . . . . . . 9.96% 23.32%
------ ------
Tier 1 capital to average assets (leverage ratio) . . . . . . . . 10.45% 10.88%
------ ------
</TABLE>
- 40 -
<PAGE> 50
The various federal bank regulators, including the Federal Reserve, have
established risk-based requirements for assessing bank holding company and bank
capital adequacy. These standards define "capital" for regulatory purposes and
establish minimum capital standards in relation to assets and off-balance sheet
exposures, as adjusted for credit risks. Capital is grouped into two tiers.
For bank holding companies, Tier 1 or "core" capital consists of common
shareholders' equity, perpetual preferred stock (subject to certain
limitations) and minority interests in the common equity account of
consolidated subsidiaries, reduced by goodwill and certain investments in other
corporations ("Tier 1 Capital"). Tier 2 Capital consists of Tier 1 Capital, as
well as the allowance for possible loan losses (subject to certain
limitations), and certain subordinated debt "hybrid capital instruments,"
subordinated and perpetual debt and intermediate term and other preferred stock
("Tier 2 Capital").
At December 31, 1994, a risk-based capital measure and a minimum ratio
standard was fully phased-in with a minimum total capital ratio of 8.00% and
Tier 1 Capital equal to a least 50% of total capital. The Federal Reserve also
has a minimum leverage ratio of Tier 1 Capital to total assets of 3% to 5%.
The Federal Reserve has emphasized that the foregoing standards are
supervisory minimums and that an institution would be permitted to maintain
such minimum levels of capital only if it were rated a composite "one" under
the regulatory rating systems for bank holding companies and banks. All other
bank holding companies are required to maintain a leverage ratio of 3% plus at
least 1% to 2% of additional capital. These rules further provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, within significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluation proposal for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 Capital, less all intangibles, to total average assets.
The percentage ratios for CFB, as calculated under the guidelines, were 9.54%
and 10.15% for Tier 1 and Tier 2, respectively, at year end 1994. The
regulatory capital ratios of CFB currently exceed the minimum ratios of 3% to
5% leverage capital, 6% Tier 1 and 8% Tier 2 required in 1994 by the Federal
Reserve for bank holding companies. The Federal Reserve has not advised CFB of
any specific minimum leverage ratio applicable to it.
The following table sets forth the regulatory capital calculations of CFB
and its subsidiary on consolidated basis as of December 31, 1994 and 1993,
calculated in accordance with the applicable requirements of the Federal
Reserve in effect on such dates:
RISK BASED CAPITAL CALCULATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1994 1993
------------------------- ---------------------
<S> <C> <C> <C> <C>
Shareholders' equity . . . . . . . . . . . . . . . . . . $ 2,896 $ 2,734
Regulatory capital
Tier 1 risk based:
Actual . . . . . . . . . . . . . . . . . . . . . . . . 3,025 9.54% 2,734 10.15%
Minimum required . . . . . . . . . . . . . . . . . . . 1,902 6.00% 1,616 6.00%
------------- ----- ------------ -----
Excess above minimum . . . . . . . . . . . . . . . . . 1,123 3.54% 1,118 4.15%
============= ===== ============ =====
Total risk based:
Actual . . . . . . . . . . . . . . . . . . . . . . . . 3,305 14.89% 2,946 17.53%
Minimum required . . . . . . . . . . . . . . . . . . . 1,778 8.00% 1,008 6.00%
------------- ----- ------------ -----
Excess above minimum . . . . . . . . . . . . . . . . . 1,527 6.87% 1,938 11.53%
============= ===== ============ =====
Average assets (based on quarter ended December 31) . . . $ 31,700 $ 26,930
Total assets at year-end . . . . . . . . . . . . . . . . 31,676 25,087
</TABLE>
- 41 -
<PAGE> 51
BALANCE SHEET MANAGEMENT
Liquidity Management
Liquidity is the ability of a company to convert its assets into cash or
cash equivalents in a given time frame without significant loss. CFB's
liquidity management involves maintaining its ability to meet the day-to-day
cash requirements of its customers, whether they are depositors wishing to
withdraw funds or borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for CFB to meet the needs of its customer base, but
to maintain an appropriate balance between interest-sensitive assets and
interest-sensitive liabilities so that CFB can profitably deploy its assets.
In a banking environment, both assets and liabilities are considered sources of
liquidity funding and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
loan principal repayments and maturities of investment securities. Real estate
loan payments are becoming an increasingly important source of liquidity for
CFB as this portion of the loan portfolio continues to grow. Real estate and
commercial, financial and agricultural loans that mature in one year or less
amounted to 10,522,000 or 46.5% of the total loan portfolio at December 31,
1994. Investment securities maturing in the same time frame totaled $1,965,000
or 39.1% of the investment securities portfolio at year-end. Additional
sources of liquidity are federal funds sold and principal payments on
mortgage-backed securities held in the investment portfolio.
The liability portion of the balance sheet provides liquidity through
various customers' interest-bearing and noninterest-bearing accounts. These
sources of liquidity are short-term in nature and are used as necessary to fund
asset growth and meet short-term liquidity needs. At year-end 1994, CFB had
$800,000 in unsecured and $1,500,000 in secured federal funds purchased lines
available.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a function of the repricing characteristics of
CFB's portfolio of assets and liabilities over various time frames.
Interest-bearing assets and liabilities are subject to change in interest rates
either at replacement, repricing, or maturity during their respective lives.
Interest rate sensitivity management focuses on the maturity structure of
assets and liabilities and their repricing during periods of change in market
interest rates. Effective interest rate sensitivity management seeks to manage
changes in interest rates within an acceptable time frame, thereby managing the
effect of interest rate movements on net interest income. Interest rate
sensitivity is measured as the difference between the volumes of assets and
liabilities that are subject to repricing at various time horizons. The
differences are known as interest rate sensitivity gaps: less than one month,
one to three months, four to 12 months, one to five years, over five years and
on a cumulative basis. The following table shows interest sensitivity gaps for
these different intervals as of December 31, 1994 and 1993.
- 42 -
<PAGE> 52
INTEREST RATE SENSITIVITY ANALYSIS (1)
AS OF DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
1994
Earning assets:
Loans (2) . . . . . . . . . . . . . . . $ 8,129 $ 6,266 $ 7,189 $1,010 $ 22,594
Investment securities (3) . . . . . . . 144 4,223 487 169 5,023
Total earning assets . . . . . . . . . . . 8,273 10,489 7,676 1,179 27,617
------- ------- ------- ------ --------
Interest-bearing demand deposits . . . . . 7,760 0 0 0 7,760
Savings accounts . . . . . . . . . . . . . 2,758 0 0 0 2,758
Time deposits . . . . . . . . . . . . . . . 1,918 4,156 2,465 0 8,539
Federal funds purchased . . . . . . . . . . 1,240 0 0 0 1,240
------- ------- ------- ------ --------
Total interest-bearing liabilities . . . . 13,676 4,156 2,465 0 20,297
------- ------- ------- ------ --------
Interest sensitivity gap . . . . . . . . . (5,403) 6,333 5,211 1,179 7,320
Cumulative interest sensitivity gap/total
earnings assets . . . . . . . . . . . . (5,403) 930 6,141 7,320
Cumulative gap to earning assets (%) . . . (19.6%) 3.4% 22.2% 26.5%
Earning assets to interest-bearing
liabilities . . . . . . . . . . . . . . 60.5% 252.4% 311.4%
1993
Earning assets:
Loans (2) . . . . . . . . . . . . . . . 7,267 4,262 4,207 465 16,201
Investment securities (3) . . . . . . . 2,166 895 2,000 106 5,167
Total earning assets . . . . . . . . . . . 9,433 5,157 6,207 571 21,368
------- ------- ------- ------ --------
Interest-bearing demand deposits . . . . . 5,539 0 0 0 5,539
Savings accounts . . . . . . . . . . . . . 2,707 0 0 0 2,707
Time deposits . . . . . . . . . . . . . . . 1,738 2,328 931 0 4,997
Federal funds purchased . . . . . . . . . . 180 0 0 0 180
------- ------- ------- ------ --------
Total interest-bearing liabilities . . . . 10,164 2,328 931 0 13,423
------- ------- ------- ------ --------
Interest sensitivity gap . . . . . . . . . (731) 2,829 5,276 571 7,945
Cumulative interest sensitivity gap/total
earning assets . . . . . . . . . . . . . (731) 2,098 7,374 7,945
Cumulative gap to earning assets (%) . . . (2.6%) 7.6% 26.7% 28.8%
Earning assets to interest-bearing . . . . 92.8% 221.5% 666.7%
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due
to repayment assumptions.
(2) Net of unearned discount and nonaccural loans.
(3) Investment securities are stated at amortized cost.
- 43 -
<PAGE> 53
<TABLE>
<S> <C> <C>
liabilities . . . . . . . . . . . . . . 92.8%
221.5% 666.7%
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due
to repayment assumptions. (2) Net of unearned discount and nonaccrual loans.
(3) Investment securities are stated at amortized cost.
- 43 -
<PAGE> 54
As seen in the preceding table, for the one year period, 87.8% of
interest-bearing liabilities will reprice compared to 67.9% of all
interest-bearing assets. Changes in the mix of earning assets or supporting
liabilities can either increase or decrease the net interest margin without
affecting interest rate sensitivity. In addition, the interest rate spread
between an asset and its supporting liability can vary significantly while the
timing of repricing for both the asset and the liability remains the same, thus
impacting net interest income. This is referred to as basis risk, and,
generally relates to the possibility that the repricing characteristics of
short-term assets tied to CFB's prime lending rate are different from those of
short-term funding sources such as certificates of deposit and interest-bearing
deposits.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets which are not reflected in the interest sensitivity
analysis report, and changes in the mix of assets and liabilities. Prepayments
and such other changes may have significant effects on CFB's net interest
margin. Rates on assets and liabilities may not move completely in tandem.
Because of these factors, static modeling of the interest sensitivity gap
reports may not provide a complete assessment of CFB's exposure to changes in
interest rates. Management utilizes computerized interest rate simulation
analysis performed by a consultant bank to determine CFB's interest rate
sensitivity.
The above table indicates that CFB had a positive gap position based upon
contractual maturities and prepayment assumptions for the next twelve months
with a positive interest rate sensitivity gap as a percent of total earning
assets of 3.4%. This means that CFB's liabilities reprice more slowly than its
assets. An asset sensitive company will benefit from a rising interest rate
environment as the yields on earning assets rise faster than costs of interest-
bearing liabilities. Conversely, a liability sensitive company will generally
benefit from a falling interest rate environment as the cost of
interest-bearing liabilities fall faster than the yields on interest-bearing
assets. CFB's asset-liability committee evaluates economic conditions, the
pattern of market interest rates and other economic data to determine the
appropriate mix and repricing characteristics of assets and liabilities
required to produce an optimal net interest margin.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the principal component of a financial institution's
income stream and represents the difference or spread between interest
generated from earning assets and the interest expense paid on deposits and
other borrowed funds. Fluctuations in interest rates as well as volume and mix
changes in earning assets and interest-bearing liabilities can materially
affect net interest income. Since CFB had no tax-exempt income during 1994 or
1993, taxable equivalent basis ("TEB") does not differ from the amounts shown
in the financial statements.
Net interest income for 1994 increased $231,202 or 16.9% over 1993. Net
interest income for 1993 increased $171,000 or 14.3% over 1992. Increased
volumes of earning assets in 1994 were substantially responsible for the
increase net interest income in 1994, as the interest spread for CFB increased
only slightly. This moderate change in the spread was caused by two
situations. The first was CFB's strategy of protecting its deposit base when
other financial institutions in its local market sought to increase their
deposits by raising rates. The second situation was the increased volume of
prepayments from the mortgage-backed securities in the investment portfolio
being reinvested at lower interest rates. The "Rate Volume Variance Analysis"
table which follows, details the changes in interest income, interest expense
and net interest income due to changes in volumes and rates. Net interest
income for the first nine months of 1995 reflects improvement over the same
period in 1994. Through September 30, 1995, net interest income was
$1,425,000, 25.2% higher than the $1,138,000 for the nine months ended
September 30, 1994.
Interest income increased $310,000 or 17.6% in 1994. In comparison,
interest income decreased in 1993 from 1992 by $104,000 or 5.6%. The increase
in interest income in 1994 resulted from a 12.5% increase in the volume of
average earning assets and a 37 basis point increase in the average interest
rate of earning assets. Much of the volume increase was in the loan portfolio,
which grew $6,380,000 (39.3%) in 1994. This growth was accompanied
- 44 -
<PAGE> 55
by a 20 basis point increase in the average interest rate earned on these
loans. Investment securities decreased $920,000, while at the same time the
average interest rate earned on investment securities fell 135 basis points.
During 1994, the average amount of federal funds sold to other banks decreased
$472,000 or 39.1%, and the average yield rose by 165 basis points.
Total interest expense increased by $78,000 or 20.3% in 1994 due to an
increase in average interest-bearing liabilities of $2,614,000 (19.0%) and a 2
basis point increase in the average rate paid on interest-bearing liabilities.
As of December 31, 1994, there was $1,240,000 in other borrowed federal funds.
Total interest expense for 1993 decreased $275,000 from 1992, a 41.7% decrease.
For the nine-month period ending September 30, 1995, total interest expense
increased $541,000 from the same period in 1994 and totaled $858,000.
The trend in net interest income is commonly evaluated in terms of average
rates using the net interest margin and the interest rate spread. The net
interest margin, or the net yield on earning assets is computed by dividing
fully taxable equivalent net interest income by average earning assets. This
ratio represents the difference between the average yield returned on average
earning assets and the average rate paid for all funds used to support those
earning assets, including both interest-bearing and noninterest-bearing sources
of funds. The net interest margin increased in 1994 by 25 basis points to
6.50%. The net cost of funds, defined as interest expense divided by average
earning assets, increased slightly by 11 basis points to 1.87% in 1994. The
rate paid on interest-bearing liabilities rose 2 basis points above 1993
levels.
The interest rate spread measures the difference between the average yield
on earning assets and the average rate paid on interest-bearing sources of
funds. The interest rate spread eliminates the effects of noninterest-bearing
funds and gives a direct perspective on the effect of market interest rate
movements. During recent years, the net interest margins and interest rate
spreads have been under pressure to maintain historical levels, due in part to
tax laws that discouraged investment in tax-exempt instruments. Other factors,
such as economic slowdowns, competition for funds with nonbank institutions,
nonbank competition for loans and changing regulatory supervision for some
financial intermediaries, further contributed to the pressure on margins. The
pressure was not unique to CFB and was experienced by the banking industry
generally. As a result of changes in the overall asset and liability mix,
combined with the heightened competition in CFB's local market for deposits
previously mentioned, CFB's interest rate spread slightly increased 30 basis
points from 5.2% in 1993 to 5.5% in 1994.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the costs of funds and operating overhead,
and to the extent loans and other assets bear variable rates, the yields on
such assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to the
same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates. From the beginning of
1994 through the first quarter of 1995, the Federal Reserve has increased
interest rates 300 basis points in an effort to curb inflation through monetary
policy. In addition, inflation affects financial institutions' increased cost
of goods and services purchased, the cost of salaries and benefits, occupancy
expense, and similar items. Inflation and related increases in interest rates
generally decrease the market value of investments and loans held and may
adversely affect liquidity, earnings, and shareholders' equity. Mortgage
originations and refinancings tend to slow as interest rates increase, and
generally reduce earnings from such activities. Changes in interest rates also
affect the mix and types of deposits and assets sought by customers. In the
summer of 1995, the Federal Reserve reduced rates by 50 basis points as
inflation fears subsided. See "SUPERVISION AND REGULATION -- Fiscal and
Monetary Policy."
- 45 -
<PAGE> 56
RATE VOLUME VARIANCE ANALYSIS
TAXABLE EQUIVALENT BASIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
AVERAGE VOLUME CHANGE IN VOLUME AVERAGE RATE INCOME/EXPENSE
-------------------------- ----------------- ----------------------- --------------------
1994 1993 1992 1994-93 1993-92 1994 1993 1992 1994 1993 1992
---- ---- ---- ------- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
interest . . . . . $19,092 $14,963 $12,258 $4,129 $2,705 9.62% 9.42% 10.01% $1,836 $1,409 $1,227
------- ------- ------- ------ ------ ------ ------ ------
Investment securities:
Taxable . . . . . . . 4,839 5,759 8,366 (920) (2,607) 4.05% 5.40% 6.87% 196 311 575
Tax-exempt . . . . .
------- ------- ------- ------ ------ ------ ------ ------
Total . . . . . . . . . 4,839 5,759 8,366 (920) (2,607) 4.05% 5.40% 6.87% 196 311 575
------- ------- ------- ------ ------ ------ ------ ------
Federal funds sold . . 735 1,207 1,565 (472) (358) 4.63% 2.98% 3.71% 34 36 58
Interest-bearing due from
banks . . . . . . . . 1 1 1 0 0
------- ------- ------- ------ ------ ------ ------ ------
Total earning assets . 24,667 21,930 22,190 2,737 (260) 8.38% 8.01% 8.38% 2,066 1,756 1,860
======= ======= ======= ====== ====== ====== ====== ======
Interest-bearing liabilities:
Demand . . . . . . . 7,215 5,352 5,402 1,863 (50) 2.16% 2.09% 2.62% 156 112 141
Savings . . . . . . . 2,924 2,683 2,729 241 (46) 2.19% 2.20% 2.75% 64 59 75
Time deposits less than
$100,000 . . . . . 4,379 4,314 6,439 65 (2,125) 3.77% 3.80% 5.40% 165 164 348
Certificates of deposits
greater than
$100,000 . . . . . 1,669 1,373 1,876 296 (503) 4.25% 3.64% 4.90% 71 50 92
Federal funds
purchased . . . . . 149 0 122 149 (122) 4.70% 3.28% 7 0 4
------- ------- ------- ------ ------ ------ ------ ------
Total interest-bearing
liabilities . . . . . 16,336 13,722 16,568 2,614 (2,846) 2.83% 2.81% 3.98% 463 385 660
======= ======= ======= ====== ====== ====== ====== ======
Net interest income/net
interest spread . . . 8,331 8,208 5,622 123 2,586 5.54% 5.20% 4.40% 1,603 1,371 1,200
======= ======= ======= ====== ====== ====== ====== ======
Net yield on earning
assets . . . . . . . . 6.50% 6.25% 5.41%
Net cost of funds . . . 1.87% 1.76% 2.97%
</TABLE>
[Table continued on next page]
- 46 -
<PAGE> 57
RATE VOLUME VARIANCE ANALYSIS (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
VARIANCE ATTRIBUTED TO
INCOME/EXPENSE ----------------------
VARIANCE 1994 1993
------------------- -------------------------------------------------------------
1994-93 1993-92 VOLUME RATE MIX VOLUME RATE MIX
------- ------- ------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of
unearned interest . $ 427 $ 182 $ 389 $ 38 $427 $ 271 $ (89) $ 182
----- ------ ----- ----- ---- ----- ----- -----
Investment securities:
Taxable . . . . . (115) (264) (50) (65) (115) (179) (85) (264)
Tax-exempt . . . .
Total . . . . . . . . (115) (264) (50) (65) (115) (179) (85) (264)
----- ------ ----- ----- ---- ----- ----- -----
Federal funds sold. . (2) (22) (14) 12 (2) (13) (9) (22)
Interest-bearing
due from banks. . . -- -- -- -- -- -- -- --
----- ------ ----- ----- ---- ----- ----- -----
Total earning
assets . . . . . . 310 $ (104) $ 325 $ (15) $310 $ 78 $(182) $(104)
===== ====== ===== ===== ==== ===== ===== =====
Interest-bearing
deposits:
Demand . . . . . . $ 44 $ (29) $ 39 $ 5 $ 44 $ (1) $ (28) $ (29)
Savings . . . . . 5 (16) 5 0 5 (1) (15) (16)
Time deposits less
than $100,000 . . 1 (184) 2 (1) 1 (115) (69) (184)
Certificates of
deposit greater
than $100,000 . . 21 (42) 11 10 21 (25) (17) (42)
Federal funds
purchased . . . . 7 (4) 0 7 7 (4) 0 (4)
----- ------ ----- ----- ---- ----- ----- -----
Total interest-
bearing deposits. . $ 78 $ (275) $ 58 $ 20 $ 78 $(146) $(129) $(275)
----- ------ ----- ----- ---- ----- ----- -----
Net interest income/
net interest
spread . . . . . . $ 232 $ 171 $ 268 $ (36) $232 $ 224 $ (53) $ 171
===== ====== ===== ===== ==== ===== ===== =====
</TABLE>
- 47 -
<PAGE> 58
CONSOLIDATED AVERAGE BALANCES,
INTEREST INCOME/EXPENSE AND YIELD/RATES
(Dollars in Thousands)
TAXABLE EQUIVALENT YIELD BASIS
<TABLE>
<CAPTION>
1994 1993 ONE YEAR
-------------------------------------------------------- AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ GROWTH
BALANCE EXPENSE RATE BALANCE EXPENSE RATE RATE
------- ------- ---- ------- ------- ---- ----
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings assets:
Loans, net of unearned
interest . . . . . . . . . $19,092 $1,836 9.62% $14,963 $1,409 9.42% 27.59%
------- ------ ----- ------- ------ ----- ------
Investment securities:
Taxable . . . . . . . . . 4,839 196 4.04% $ 5,759 311 5.40% (15.97)%
Tax-exempt . . . . . . . . 0 0 0 0 0 0 0
------- ------ ----- ------- ------ ----- ------
Total . . . . . . . . . . . . 4,839 196 4.04% 5,759 311 5.40 (15.97)%
Federal funds sold . . . . . 735 34 4.63% 1,207 36 2.98% (39.11)%
Interest-bearing due from
banks . . . . . . . . . . . 1 1 .00%
------- ------ ----- ------- ------ ----- ------
Total earning assets . . . . $24,667 $2,066 8.37% $21,930 $1,756 8.01% 12.48%
------- ------ ----- ------- ------ ----- -----
Allowance for loan losses . . (399) (354) 12.71%
Cash and due from banks . . . 2,334 2,219 5.18%
Other assets . . . . . . . . 1,571 1,393 12.78%
------- ------- ------
Total assets . . . . . . . . $28,173 $25,188 11.85%
======= ======= ======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits:
Demand . . . . . . . . . . $ 7,215 $ 156 2.16% $ 5,352 $ 112 2.09% 34.81%
Savings . . . . . . . . . 2,924 64 2.19% 2,683 59 2.20% (8.98)%
Time deposits less than
$100,000 . . . . . . . . 4,379 165 3.77% 4,314 164 3.80% 1.51%
Certificates of deposit more
than $100,000 . . . . . 1,669 71 4.25% 1,373 50 3.64% 21.56%
Federal funds purchased . 149 7 4.70% 0 0 0% 100.00%
------- ------ ----- ------- ------ ----- ------
Total interest-bearing
liabilities . . . . . . . . 16,336 463 2.83% 13,722 385 2.81% 19.05%
------- ------ ----- ------- ------ ----- ------
Net interest spread . . . . . $1,603 5.54% $1,371 5.21%
====== ===== ====== =====
Noninterest-bearing deposits 8,950 8,933 .19%
Accrued expenses and other
liabilities . . . . . . . 83 76 9.21%
Shareholders' equity . . . . 2,804 2,457 14.12%
------- ------- ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY . . . $28,173 $25,188 11.85%
======= ======= ======
Net yield on earning assets . 6.50% 6.25%
===== =====
</TABLE>
CFB had no tax-exempt income during 1994 or 1993 and, therefore, had no
adjustment for tax equivalent yields.
- 48 -
<PAGE> 59
NONINTEREST INCOME
Noninterest income consists of revenues generated from fee-based services
and commissions, and gains or losses recognized from the sale of investment
portfolio securities. Total noninterest income for 1994 decreased $49,000 or
9.07% compared to 1993. Noninterest income for 1993 decreased $8,000 or 1.46%.
In 1992, CFBO began the practice of pricing consumer installment loan service
charges as part of the interest rate charged and not charging a service charge.
This had the effect of causing interest income on loans to rise, but loan
service charge income to decrease. For the first nine months of 1995, total
noninterest income increased $81,000 from the same period in 1994.
NONINTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
% CHANGE %CHANGE
1994 1993 1992 1994-93 1993-92
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Service charges on deposits . . . . . . . . . . . . . . . $ 386 $ 430 $ 434 (10.23%) (.92%)
Net securities gains realized . . . . . . . . . . . . . . 0 0 11 .00% 100.00%
Other income . . . . . . . . . . . . . . . . . . . . . . 105 110 103 (4.55%) 6.80%
------ ------ ----- ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 491 $ 540 $ 548 (9.07%) (1.46%)
====== ====== ===== ====== ======
</TABLE>
Fee income from service charges on deposit accounts decreased slightly by
$44,000 (or 10.2%) in 1994 and decreased $4,000 or 0.09% in 1993 from 1992.
The decrease in 1994 resulted from a trend to higher quality demand accounts
that incurred fewer NSF charges. Emphasis on checking account services,
appropriate pricing for transaction deposit accounts, and fee collection
practices for other deposit services will be important factors to increasing
service charge income for future years. The first nine months of 1995 shows an
increase of $60,000 or 21.9% in deposit service charges as compared to the same
period in 1994.
Various recurring noninterest other income items include travelers check
fees, safe deposit box fees, and origination fees on mortgage loans.
NONINTEREST EXPENSE
Noninterest expense for 1994 increased $47,000 or 2.9% following an
increase of $11,000 or 0.7% in 1993. Total salaries and other personnel
expenses decreased $9,000 or 1.1% from 1993 to a total of $805,000 at year-end
1994. For the prior year, salaries and benefits increased $50,000 or 6.5%. As
of September 30, 1995, total salary and personnel expense increased $31,000 or
5.1% over the same period in 1994.
Occupancy and equipment expenses decreased by $1,000 or 0.5% in 1994.
These expenses also decreased in 1993 by $22,000 from 1992 or 10.7%. This same
trend continues but has slowed in 1995 with a decrease during the first nine
months of 1995 over 1994 of $8,000 or 3.98%.
- 49 -
<PAGE> 60
Data processing costs have increased for the three years from 1992 to 1994,
from $64,000 to $133,000. At September 30, 1995, data processing costs have
increased 18.5% or $17,000 over the same period of the prior year. This is the
result of CFB's subsidiary making the decision in December 1994, to shift proof
operation responsibility from CFBO to its data processor. While data
processing costs have increased, related personnel, supplies and equipment
costs have decreased by comparable amounts.
NONINTEREST EXPENSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
% CHANGE %CHANGE
1994 1993 1992 1994-93 1993-92
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Salaries and benefits . . . . . . . . . . . . . . . . . . . . . $ 805 $ 814 $ 764 (1.11%) (6.54%)
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . 183 184 206 (.54%) (10.68%)
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . 53 57 53 (7.02%) 7.55%
Data processing . . . . . . . . . . . . . . . . . . . . . . . . 133 83 64 60.24% 29.69%
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 485 525 2.27% (7.62%)
------ ------ ------ ----- ------
Total $1,670 $1,623 $1,612 2.90% 0.68%
====== ====== ====== ===== ======
</TABLE>
All other noninterest expenses, excluding data processing and FDIC
insurance costs increased by $11,000 or 2.27% in 1994, compared to a decrease
of $40,000 or 7.62% in 1993. Other expenses include professional services
expenses, bank travel and entertainment expenses, telephone, supplies, and
postage expense. FDIC insurance premiums are scheduled to decrease in the
second half of 1995. See "--FDIC Insurance Assessments" and "SUPERVISION AND
REGULATION."
PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the expense of providing an allowance or
reserve for anticipated future losses on loans. The amount of the provision
for each period is dependent upon many factors including loan growth, net
charge-offs, changes in the composition of the loan portfolio, delinquencies,
management's assessment of loan portfolio quality, the value of collateral and
general economic factors.
The economic outlook for CFB's markets in the state of Florida continues to
be cautious in the midst of a general rising of the economy overall. Real
estate values are showing a general improvement in CFB's markets. The economic
recovery has had a stabilizing effect on the level of net charge-offs and
delinquencies through September 30, 1995.
Because of the economic recovery, there has been a strengthening effect on
property values. There is a lower probability for further write-downs,
charge-offs and the transfer of currently performing loans to a nonaccrual
status in the real estate and commercial loan categories. The mix of loans in
the commercial real estate construction and development portfolios are
distributed among office buildings, retail stores, apartment buildings and
health care facilities. CFBO's lending review area monitors large real estate
credits on a continuing basis.
During recent years, CFB has strengthened its review process of the larger
loans in its portfolio and has imposed stricter underwriting standards to
better manage the effect of economic cycles in credit quality.
Loan review procedures, including such techniques as loan grading, are
constantly utilized by CFB's outside loan review function in order to identify
potential problem loans. Loans that are graded as "impaired," as defined by
FASB 114 and FASB 118, are immediately classified as nonaccrual loans.
Automated loan reports are prepared and used in conjunction with the
identification and monitoring of such loans on a monthly basis. Managements'
involvement continues throughout the process and includes participation in the
work-out process and recovery activity. These formalized procedures are
monitored internally by loan review on a continual basis. Such review
procedures are quantified in periodic reports to senior management and are used
in determining whether such loans represent potential losses to CFB. A
determination of a potential loss will result in a charge to the provision for
loan losses,
- 50 -
<PAGE> 61
thereby increasing the allowance for loan losses available for the
potential risk. Management monitors the entire loan portfolio in an attempt to
identify problem loans so that risks in the portfolio can be timely identified
and an appropriate allowance maintained. See "--Nonperforming Assets."
The following table sets forth information with respect to CFB's loans, net
of unearned income, and the allowance for loan losses for the previous two
years ended December 1994 and 1993 and for September 30, 1995.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------
1995 1994 1993
------------- ---- ----
<S> <C> <C> <C>
Loans, net of unearned income:
Average outstanding during the period . . . . . . . . . . . . . . . . $23,858 $19,091 $14,962
Allowance for loan losses: ------- ------- -------
Balance at beginning of period . . . . . . . . . . . . . . . . . . . 410 387 303
------- ------- -------
Charge-offs:
Commercial, financial and agricultural . . . . . . . . . . . . . . .
Real estate mortgage
Consumer installment . . . . . . . . . . . . . . . . . . . . . . . . . 30 17 14
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (17) (14)
------- ------- -------
Recoveries:
Commercial, financial and agricultural . . . . . . . . . . . . . . . 2 6 32
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer installment . . . . . . . . . . . . . . . . . . . . . . . . . 21 34 45
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 40 77
------- ------- -------
Net charge-offs (recoveries) . . . . . . . . . . . . . . . . . . . . . 7 (23) (63)
------- ------- -------
Provision charged to income . . . . . . . . . . . . . . . . . . . . . . 0 0 21
------- ------- -------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . $ 403 $ 410 $ 387
======= ======= =======
Daily average loans outstanding . . . . . . . . . . . . . . . . . . . . $23,751 $19,092 $14,963
Net charge-offs (recoveries) to average loans outstanding . . . . . . . .03% (.12%) (.42%)
Allowance for loan losses to average loans outstanding . . . . . . . . 1.69% 2.15% 2.59%
</TABLE>
Management considers changes in the size and character of the loan
portfolio, changes in nonperforming and past due loans, historical loan loss
experience, the existing risk of individual loans, concentrations of loans to
specific borrowers or industries and existing and prospective economic
conditions when determining the adequacy of the loan loss reserve.
As of September 30, 1995, the allowance for loan losses decreased $7,000 or
1.70% since year-end 1994 and represented 1.69% of average outstanding loans.
The allowance for loan losses increased 23,000 in 1994, and at year-end was at
2.15% of average outstanding loans compared to 2.59% at December 31, 1993.
As of December 31, 1994, management determined that approximately 19.42% of
the allowance for loan losses was related to consumer loans, 34.59% was related
to commercial loans, and 45.99% was related to real estate loans.
- 51 -
<PAGE> 62
ALLOCATION OF LOAN LOSS RESERVE
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 % TOTAL 1993% TOTAL
---- ------- ----- -----
<S> <C> <C> <C> <C>
Commercial, financial and agricultural . . . . . . . . . . $ 142 34.59% $ 151 39.05%
Real estate . . . . . . . . . . . . . . . . . . . . . . . . 189 45.99% 170 43.95%
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . 79 19.42% 66 17.00%
------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 410 100.00% $ 387 100.00%
====== ====== ====== ======
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
Interest on loans is normally accrued from the date an advance is made.
The performance of loans other than real estate and installment loans is
evaluated primarily on the basis of a review of each customer relationship over
a period of time and the judgment of lending officers as to the inability of
borrowers to meet the repayment terms of the loans. If there is reasonable
doubt as to the repayment of a loan in accordance with the agreed terms and the
loan is judged to be impaired with respect to its collectibility, the loan is
placed on a nonaccrual basis pending the sale of any collateral or a
determination as to whether sources of repayment exists. This action may be
taken even though the financial condition of the borrower or the collateral may
be sufficient ultimately to reduce or satisfy the obligation. When a loan is
placed on a nonaccrual basis, all payments are applied to reduce principal to
the extent necessary to eliminate doubt as to the repayment of the loan. Any
interest income on a nonaccrual loan is recognized only on a cash basis after
the principal owed has been repaid. See "--Nonperforming Assets."
Lending officers are responsible for the administration of each particular
loan. Senior management is informed of the status of delinquent and "watch" or
problem loans on a monthly basis.
Senior management reviews the allowance for loan losses monthly and makes
recommendations to the CFB Board as to loan charge-offs on a quarterly basis.
CFB's policy is generally to discontinue the accrual of interest on loans when
payment of principal and interest is 90 days or more in arrears and the loans
are otherwise considered noncollectible.
As of September 30, 1995 and 1994, loans accounted for on a nonaccrual
basis were approximately $260,000 and $10,000, respectively, or 1.05% and .046%
of total loans net of unearned income. CFBO had no loans 90 days or more past
due and still accruing at September 30, 1995 and 1994.
The allowance for loan losses represents management's assessment of the
risk associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the
adequacy of the allowance for loan losses and the appropriate provision
required to maintain a level considered adequate to absorb anticipated loan
losses. In assessing the adequacy of the allowance, management reviews the
size, quality and risk of loans in the portfolio. Management also considers
such factors as CFB's loan loss experience, the amount of past due and
nonperforming loans, specific known risk, the status and amount of
nonperforming assets, underlying collateral values securing loans, current and
anticipated economic condition and other factors which affect the allowance for
potential credit losses.
While it is CFB's policy to charge off in the current period the loans in
which a loss is considered probable, there are additional risks of future
losses which cannot be quantified precisely or attributed to
particular loans or classes of loans. Because these risks include the state of
the economy, management's judgments as to the adequacy of the allowance is
necessarily approximate and imprecise.
In assessing the adequacy of the allowance, management relies predominantly
on its ongoing review of the loan portfolio, which is undertaken both to
ascertain whether there are probable losses which must be charged off and to
assess the risk characteristics of the portfolio in the aggregate. This review
takes into consideration the judgments of the lending officers, senior
management and those of bank regulatory agencies that review the loan portfolio
as part of CFB's examination process. A specific percentage is allocated to
each loan category, with
- 52 -
<PAGE> 63
additional amounts being added for individual problem loans considered
to have specific loss potential. While all information available is used by
management to recognize losses in the loan portfolio, there can be no assurances
that future additions to the allowance will not be necessary. CFB's loan
committee reviews the assessments of management in determining the adequacy of
the allowance for loan losses.
CFB's allowance for loan losses is also subject to regulatory examinations
and determinations as to adequacy, which may take into account such factors as
the methodology used to calculate the allowance for loan loss reserves and size
of the loan loss reserve in comparison to a group of peer banks identified by
the regulators. During its routine examinations of CFBO, the Florida
Department of Banking has, from time to time, required additions to banks'
provisions for loan losses and allowances for loan losses as the regulators'
credit evaluations and allowance for loan loss methodology have differed from
those of the management of such banks. During the last several years, several
large bank holding companies, located in various portions of the Untied States,
have substantially increased their provisions and reserves for loan losses
following regulatory examinations. Such regulatory examinations have focused
on loan quality, particularly that of real estate loans. CFB attempts to
reduce the risks of real estate lending through maximum loan-to-value
requirements as well as systematic cash flow and initial customer credit
history analyses. See "SUPERVISION AND REGULATION."
Management believes that the $403,000 in allowances at September 30, 1995,
or 1.69% of total outstanding loans, net of unearned income, was adequate to
absorb known risks in the portfolio. No assurance can be given, however, that
adverse economic circumstances will not result in increased losses in the loan
portfolio.
NONPERFORMING ASSETS
CFB has policies, procedures and underwriting guidelines intended to assist
in maintaining the overall quality of its loan portfolio. CFB monitors its
delinquency levels for any adverse trends. Nonperforming assets consist of
loans on nonaccrual status, loans that have been renegotiated at more favorable
terms than those for similar credits, real estate and other assets acquired in
partial or full satisfaction of loan obligations and loans that are past due 90
days or more. CFB's policy generally is to place a loan on nonaccrual status
when it is contractually past due 90 days or more as to payment of principal or
interest. A loan may be placed on nonaccrual status at an earlier date when
concerns exist as to the ultimate collections of principal or interest. At the
time a loan is placed on nonaccrual status, interest previously accrued, but
not collected, is reversed and charged against current earnings. Loans that
are contractually past due 90 days or more which are well secured or guaranteed
by financially responsible third parties and are in the process of collection
generally are not placed on nonaccrual status.
Nonperforming assets include nonperforming loans and foreclosed real estate
held for sale. Nonperforming loans include loans classified as nonaccrual or
renegotiated. The table of Nonperforming Assets below shows the amount of
interest foregone from loans place on nonaccrual. For 1994, the amount of
interest foregone was $512 compared to $24,322 for 1993. No interest was
recognized on nonperforming loans while classified as nonperforming.
Nonperforming assets at September 30, 1995, were $260,000, an increase of
$250,000, or 96.2%, from September 30, 1994. At September 30, 1995 and 1994,
all nonperforming assets were nonperforming loans. Nonperforming assets at
December 31, 1994, were $7,000, a decrease of $192,000, or 96.4% from year-end
1993. There were no properties held as other real estate at year-end 1994 or
1993.
During the past few years, the Southeastern region of the country began
experiencing a general improvement in the real estate loan market. In view of
these market conditions, management has closely monitored and will continue to
monitor CFB's real estate and commercial loan portfolio during 1995.
Particular attention will be focused on those credits targeted by the loan
monitoring and review process. Management's continued emphasis is on
maintaining a lower level of nonperforming assets and returning the current
nonperforming assets to an earning status.
- 53 -
<PAGE> 64
As of September 30, 1995, nonperforming assets were 1.03% of loans
outstanding plus foreclosed real estate held for sale compared to 0.05% for
September 30, 1994. Nonaccrual loans were 1.03% of loans outstanding at
September 30, 1995, compared to the previous level of 0.05% for period ending
September 30, 1994.
At December 31, 1994, nonperforming assets were 0.03% of loans outstanding
plus foreclosed real estate held for sale compared to 1.23% for year-end 1993.
Nonaccrual loans were 0.03% of loans outstanding at year-end 1994 compared to
the previous year-end level of 1.23%
As of September 30, 1995, $258,000 of nonaccrual loans or 99.92% of total
nonaccrual loans were secured. There were no commitments to lend any
additional funds on nonaccrual loans at September 30, 1995.
At December 31, 1994, all nonaccrual loans were unsecured. There were no
commitments to lend any additional funds on nonaccrual loans at December 31,
1994.
Other foreclosed or repossessed assets taken in consideration of loan
amounts due CFB, which consists primarily of repossessed automobiles, are
classified in other assets and as of September 30, 1995, and account for less
than .09% of total assets. At year-end 1994, these assets accounted for less
than 0.06% of total assets.
Statement of Financial Accounting Standard No. 114, Accounting by Creditors
for Impairment of a Loan ("SFAS No. 114"), is effective for fiscal years
beginning after December 15, 1994. SFAS No. 114 addresses the accounting by
creditors for impairment of certain loans and requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or at the loans' observable market price or
the fair value of the collateral if the loan is collateral dependent. On
October 3, 1994, the Financial Accounting Standards Board issued Financial
Accounting Statement No. 118, Accounting by Credits for Impairment of a
Loan-Income Recognition and Disclosure ("SFAS No. 118"), which amends SFAS No.
114. Under SFAS No. 118, creditors are permitted to use existing methods for
recognizing interest income on impaired loans. SFAS No. 118 requires that any
entity disclose its policy for recognizing interest income on impaired loans,
including how cash receipts are recorded. The provision of SFAS No. 118 are
effective concurrent with the effective date of SFAS No. 114. The adoption of
SFAS No. 114 has not had a material effect on CFB's financial condition or
results of operations.
The following table summarizes CFB's nonperforming assets for each of the
last two years.
NONPERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------
1994 1993 1995 1994
---------------------------------------------------
<S> <C> <C> <C> <C>
Loans, net unrealized income . . . . . . . . . . . . . . . . $ 22,601 $ 16,220 $ 24,787 $ 21,710
============ ============ =========== ===========
Loans on nonaccrual . . . . . . . . . . . . . . . . . . . . . $ 7 $ 199 $ 260 $ 10
Renegotiated loans . . . . . . . . . . . . . . . . . . . . .
------------ ------------ ----------- -----------
Total nonperforming assets . . . . . . . . . . . . . . . . . 7 199 260 10
Other real estate . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0
------------ ------------ ----------- -----------
Total nonperforming assets . . . . . . . . . . . . . . . . . $ 7 $ 199 $ 260 $ 10
============ ============ =========== ===========
Loans 90 days or more past due and still accruing . . . . . . 0 0 0
Total nonperforming loans as a percentage of total loans . . 0.03% 1.23% 1.05% 0.05%
Total nonperforming assets as a percentage of total loans
and OREO . . . . . . . . . . . . . . . . . . . . . . . . . 0.03% 1.23% 1.05% 0.05%
Loans 90 days past due as a percentage of total loans . . . . .00% .00% .00% .00%
</TABLE>
- 54 -
<PAGE> 65
DETAILS OF NONACCRUAL LOANS
AS OF DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<S> <C> <C>
1994 1993
------ --------
Principal balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7 $ 199
Interest that would have been recorded under original terms . . . . . . . . . . . 1 24
Interest actually recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
</TABLE>
FDIC INSURANCE ASSESSMENTS
CFB, through its subsidiary, a Bank Insurance Fund ("BIF") member, is
subject to FDIC deposit insurance assessments. In September 1992, the FDIC
adopted a risk-based premium schedule which increased the assessment rates for
depository institutions. Under that schedule, which took effect for the
assessment period that began January 1, 1993, the premiums initially ranged
from $.23 to $.31 for every $100 of deposits of three capital groups - well
capitalized, adequately capitalized or under capitalized - and further assigned
each BIF member to one of three subgroups within a capital group, on the basis
of supervisory evaluations by the institutions primary federal and, if
applicable, state regulators and other information relevant to the
institution's financial condition and the risk posed to the applicable
insurance fund. The actual assessment rate applicable to a particular
institution, therefore, depended in part upon the risk assessment
classification so assigned to the institutions by the FDIC. The FDIC recently
voted to reduce deposit insurance premiums for well capitalized banks from
$0.23 per $100 to $0.04 per $100 on deposits. Congress is considering various
new legislative proposals to address the undercapitalization of the FDIC's
Savings Associations Insurance Fund ("SAIF"), which could increase premiums
payable by commercial banks to the FDIC. During the years ended December 31,
1994, and December 31, 1993, CFB paid $53,000 and $57,000, respectively, in BIF
deposit insurance premiums.
INCOME TAXES
Income tax expense increased $75,000 or 116.5% for 1994. The effective tax
rate as a percentage of pretax income was 33% and 24% in 1994 and 1993,
respectively. These rates are lower than the statutory federal tax rate of 34%
primarily due to the effects of surtax exemptions on lower levels of taxable
income. The first nine months of 1995 have resulted in income tax expense of
$209,000, as compared to $74,000 for the same period in 1994. The effective
tax rate for the first nine months of 1995 was 33% compared to 31% for the
first nine months of 1994.
EFFECTS OF ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement No. 119,
Disclosure About Derivative Financial Instruments and Fair Value of Financial
Statement. The statement requires additional financial disclosure for
derivative financial instruments. The disclosures describe the instruments
purposes and their financial statement presentation. Since the requirements of
the statement are disclosure related in nature, and CFB's exposure to
derivative financial instruments is small, the impact of CFB's financial
statements is not considered to be material.
The Financial Accounting Standards Board issued in December 1991, Statement
No. 107, Disclosures About Fair Value of Financial Instruments. The statement
requires disclosure of the fair values of financial instruments, both assets
and liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value. The statement
also requires disclosure of descriptive information pertinent to estimating the
fair values of the financial instruments. The statement is effective for
financial statements issued for fiscal years ending after December 15, 1995,
for entities with less than $150 million in total assets on the issuance date
of the statement. Since the requirements of the statement are disclosure
related in nature, the impact of CFB's financial statements is not considered
to be material.
- 55 -
<PAGE> 66
In April 1995, the Financial Accounting Standards Board has issued
Statement No. 121, Accounting For the Impairment of Long-Lived Assets and For
Long-Lived Assets to be Disposed. The statement requires an impairment loss to
be recognized when the aggregate of estimated future cash inflows to be
generated by an asset are less than the asset's carrying value. The statement
is effective for years beginning after December 15, 1995. Management has not
determined the effect of this statement on future financial statements, but
anticipates it to be immaterial.
BUSINESS OF CFB
CFB is a Florida corporation and a bank holding company registered under
the BHC Act. See "SUPERVISION AND REGULATION." CFB provides a wide range of
commercial and retail banking services through its bank subsidiary, CFBO. CFBO
is a state member bank and conducts a general commercial banking business from
three offices in Ocala, Florida, in Marion County, Florida, and surrounding
areas, emphasizing the banking needs of individuals and small to medium-sized
business and professional concerns in its primary service area.
CFBO offers the full range of deposit services that are typically available
in most banks and savings associations, including checking accounts, NOW
accounts, savings accounts and other time deposits of various types ranging
from daily money market deposit accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to CFBO's
principal market area at rates competitive to those offered in the area. All
deposit accounts are insured by the FDIC up to the maximum amount ($100,000 per
depositor, subject to aggregation rules). CFBO solicits these accounts from
individuals, businesses, associations, organizations and governmental
authorities.
CFBO offers a full range of short- to medium-term commercial, personal and
mortgage loans, with business lending constituting its primary focus.
Commercial loans include both secured and unsecured loans (including loans
partially guaranteed by the Small Business Administration) for working capital
(including inventory and receivables), business expansion (including
acquisition of real estate and improvements) and purchases of equipment and
machinery. Personal (or consumer) loans include secured and unsecured loans
for financing automobiles, home improvements, education and personal
investments. CFBO also offers mortgage loans secured by personal residences.
Other services include safe deposit boxes, travelers checks, direct deposit
of payroll and Social Security checks and automatic draft payments for various
accounts. CFBO is a member of the Honor network of automated teller machines
that may be used by bank customers in major cities throughout Florida and the
United States, as well as in various cities worldwide.
CAPITAL STOCK CHANGES
During the nine months ended September 30, 1995, CFB received new capital
of $811,000. The capital received came from the exercise of 9,600 stock
options under an existing employee stock option plan at the exercise price of
$10.05 per common share and the exercise of 71,455 stock warrants at the
warrant exercise price of $10.00. The total number of new shares resulting
from the above transactions was 81,055. The total number of CFB shares
outstanding at September 30, 1995 was 304,480.
At the end of 1994, employee stock options outstanding totaled 27,600. As
mentioned above, during 1995 one party exercised 9,600 options leaving 18,000
options unexercised at September 30, 1995, all of which are fully vested. The
owners of the remaining 18,000 options have signed a stock option holder
agreement agreeing to exercise their options prior to the Effective Time.
CONTINGENCIES AND LEGAL MATTERS
CFB is not a party to, nor is any of its property the subject of, any
material pending legal proceedings, other than ordinary routine proceedings
incidental to the business of banking. CFBO is involved in legal proceedings
primarily involving the recovery of loans previously charged-off or adequately
provided for in the allowance for
- 56 -
<PAGE> 67
loan losses. After a review of all litigation with CFB's legal counsel,
CFB's management believes that the resolution of these matters will not have a
material effect on CFB's or CFBO's financial position. CFB is involved in a
lawsuit filed by another banking corporation who contends that they, instead of
CFB, hold first lien position on certain real property. The Attorney's Title
Insurance Fund, Inc. ("ATIF") is vigorously defending CFB's claim to first lien
position and CFB believes that ATIF will indemnify and make whole CFB pursuant
to the title policy provided by ATIF. Absent any defense to coverage under the
exclusion provisions of the title policy, CFB believes that ATIF will be
obligated to reimburse (up to $240,000 the maximum amount of insurance coverage
under the policy) CFB for losses it incurs as a result of the litigation
together with attorneys fees and other costs as provided by terms of the policy.
PROPERTY TRANSACTIONS
CFB has taken steps to close its College Road branch office in January
1996, to complete construction on a new main office and to demolish the current
main office during January 1996. CFB has contracted to sell the lot adjacent
to the main office for a purchase price of $300,000 on or before January 15,
1996, resulting in a profit to CFB. The cost of construction of the new main
office is approximately $1,300,000. The demolition of the current main office
will result in an accounting write-down. The cumulative effect of the sale of
the adjacent lot at a profit and the demolition and resultant accounting
write-down on the current main office is expected to be a net positive gain to
CFB.
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<PAGE> 68
MANAGEMENT OF CFB
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding directors and
officers of CFB.
<TABLE>
<CAPTION>
AGE AS OF
SEPTEMBER 30,
NAME 1995 POSITIONS
---- ---------------- ---------
<S> <C> <C>
Terry E. Trexler (1) . . . . 56 Chairman of the CFB and CFBO Boards
H. Reid Sides, Jr (2). . . . 45 President and Chief Executive Officer of CFBO;
President and Director of CFB
Richard P. Jones (3) . . . . 31 Vice President CFBO
Carol S. Reynolds (4). . . . 47 Vice President and Cashier of CFBO
C. Daniel Hicks (5) . . . . . 48 Director of CFB and CFBO
Clarence W. Hicks (6) . . . . 78 Director of CFB and CFBO
Braxton Jones (7) 51 Director of CFB and CFBO
Thomas W. Trexler (8) . . . . 32 Director of CFB and CFBO
Aleene K. Mackenzie (9) . . . 74 Director of CFB and CFBO
Marjorie Renfroe (10) . . . . 61 Director of CFB and CFBO
John C. Wulbern (11) . . . . 59 Director of CFB and CFBO
- ----------------------------
(1) Terry E. Trexler is the President and Chairman of Nobility Homes, Inc.
in Ocala, Florida
(2) H. Reid Sides, Jr. is the President and CEO of Citizens First Bank of
Ocala, and the President of Citizens First Bancshares, Inc.
(3) Richard P. Jones is employed on a full-time basis by CFBO.
(4) Carol S. Reynolds is employed by CFBO on a full-time basis.
(5) C. Daniel Hicks is a partner in the law firm of Hicks & MacQuarrie,
P.A., Ocala, Florida.
(6) Clarence W. Hicks is retired.
(7) Braxton Jones is the owner of H.H.&J. Foods, Inc. in Ocala, Florida
and a partner in J & R Recreational, Inc. in Ocala, Florida.
(8) Thomas W. Trexler is the Executive Vice President, Chief Financial
Officer and Director of Nobility Homes, Inc. in Ocala, Florida.
(9) Aleene K. Mackenzie is the owner of Kidd Associates Realtors in North
Carolina.
(10) Marjorie Renfroe is a jury clerk for Marion County.
(11) John C. Wulbern is the President of Independent Bankers' Bank in
Orlando, Florida.
</TABLE>
- 58 -
<PAGE> 69
OWNERSHIP OF CFB COMMON STOCK
As of September 30, 1995, CFB's records indicated the following number of
shares were beneficially owned by (i) all persons who own beneficially 5% or
more of the CFB Common Stock, (ii) each person who is a director or an
executive officer of CFB and (iii) all directors and executive officers as a
group and the following number of shares of CBI Common Stock will be
beneficially owned by such persons as of the effective time of the Merger.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP PERCENT OF
AMOUNT AND NATURE OF CBI COMMON STOCK CLASS TO BE
OF BENEFICIAL OWNERSHIP OWNED AS OF OUTSTANDING AT
NAME OF OF CFB COMMON STOCK PERCENT THE EFFECTIVE TIME THE EFFECTIVE
BENEFICIAL OWNER (NUMBER OF SHARES)(1) OF CLASS (%)(2) (NUMBER OF SHARES) TIME (%)(3)
- ---------------- ------------------ ------------ ------------------ --------
<S> <C> <C> <C> <C>
Clarence W. Hicks (4) 16,578 5.14 21,850 *
C. Daniel Hicks 12,580 3.90 16,580 *
V. Braxton Jones (5) 19,223 5.96 25,336 *
Aleene MacKenzie 6,480 2.01 8,541 *
Marjorie Renfroe 8,406 2.61 11,079 *
H. Reid Sides, Jr (6) 22,674 7.03 29,884 *
Tom Trexler 7,717 2.39 10,171 *
Terry E. Trexler (7) 50,000 15.50 65,900 1.47
John C. Wulbern (8) 29,600 9.18 39,013 *
Richard P. Jones (9) 2,120 * 2,794 *
Carol S. Reynolds (10) 1,020 * 1,344 *
Robert L. Feldman (11) 21,200 6.57 27,942 *
Hilmer C. Schmidt (12) 21,672 6.72 28,564 *
*
Directors and executive
officers as a group
(11 persons) . . . . . . . . . . 176,398 54.70 233,492 5.19
</TABLE>
______________________________
* Less than 1%.
(1) Information relating to beneficial ownership of Common Stock by
directors is based upon information furnished by each person using
"beneficial ownership" concepts set forth in rules of the Securities
and Exchange Commission under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Under such rules, a person is deemed
to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or direct the voting
of such security, or "investment power," which includes the power
to dispose of or to direct the disposition of such security. The
person is also deemed to be a beneficial owner of any security of which
that person has a right to acquire beneficial ownership within 60
days. Under such rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed
to be a beneficial owner of securities as to which he or she may
disclaim any beneficial ownership. Accordingly, nominees are named
as beneficial owners of shares as to which they may disclaim any
beneficial interest. Except as indicated in other notes to this
table describing special relationships with other persons and
specifying shared voting or investment power, directors possess sole
voting and investment power with respect to all shares of Common Stock
set forth opposite their names.
(2) Based on 322,480 shares of CFB Common Stock which includes shares
outstanding as of September 30, 1995, and all shares subject to
options on September 30, 1995.
(3) Based on 4,472,643 shares of CBI Common Stock outstanding as of the
Effective Time of the Merger.
(4) Mr. Hicks address is 707 S.E. 24th Terrace, Ocala, Florida 34471.
(5) Mr. Jones address is 1243 S.E. 9th Avenue, Ocala, Florida 34471.
- 59 -
<PAGE> 70
(6) Includes options to purchase 12,000 shares of CFB Common Stock that
will be exercised prior to the Effective Time. Mr. Sides address is
1618 S.E. 20 Terrace, Ocala, Florida 34471.
(7) Mr. Trexler's address is c/o Nobility Homes, Inc., 3741 S.W. Seventh
St., Ocala, Florida 34478
(8) Mr. Wulbern's address is 1720 S.E. 11th Street, Ocala, Florida 34471.
(9) Includes options to purchase 2,000 shares of CFB Common Stock that
will be exercised prior to the Effective Time.
(10) Includes options to purchase 1,000 shares of CFB Common Stock that
will be exercised prior to the Effective Time.
(11) Mr. Feldman's address is 13301 S. Hwy. 475, Ocala, Florida 34480.
(12) Mr. Schmidt's address is Route 6, P.O. Box 64914, Brenhan, Texas
37833.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF CFB
CFB follows a policy of offering mortgage loans on personal residences and
personal consumer loans to its directors and employees. The rate has generally
been at or above market rate. These loans are made in the ordinary course of
business on substantially the same terms and collateral, and generally do not
involve more than the normal risks of collectibility or present unfavorable
features. Other loans are made to officers, directors, and employees on the
same terms as made to the general public.
- 60 -
<PAGE> 71
CBI'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is designed to provide a better
understanding of various factors related to the financial condition and results
of operations of CBI during the past three years, and the six-month periods
ended September 30, 1994 and 1995. This discussion and analysis is intended to
supplement and highlight information contained in the accompanying consolidated
financial statements and the selected financial data presented elsewhere in
this Proxy Statement/Prospectus.
SUMMARY
Net income for 1994 was $6,005,000, a 4.8 percent increase from CBI's net
income of $5,728,000 in 1993. Net income for 1993 was 16.1 percent higher than
1992 net income of $4,933,000. Net income per common share for 1994, 1993 and
1992 was $1.48, $1.41 and $1.22, respectively. The changes in net income per
common share for 1994 and 1993 were approximately 4.96 percent higher and 15.6
percent higher, respectively.
The increase in 1994 net income resulted primarily from improved asset
quality, historically high net interest margins, good overhead control and
strong investment yields.
The first nine months of 1995 reflect net income of $4,768,000, 6.86
percent more than the $4,462,000 earned for the first nine months of 1994.
Thus far in 1995, CBI's earnings continue to be aided by improved asset
quality, high net interest margins, good overhead control and strong investment
yields.
FINANCIAL CONDITION
Earning Assets
Average earning assets in 1994 increased $31,498,000 or 8.5 percent
compared to prior year as a result of increased loans and investment securities
with the increase in deposits during 1994. Average loan balances have
increased $16,391,000 or 9.6 percent from the prior year to $186,968,000, while
average investment securities increased $20,721,000 or 11.1 percent to
$207,425,000. The earning asset mix changed slightly during 1994 with loans at
46.70 percent, investment securities at 51.81 percent, and other earning assets
at 1.49 percent. In 1993, loans were 46.25 percent, investment securities were
50.62 percent, and the other earning assets were 3.13 percent. From 1993 to
1994, loan yields increased 36 basis points, investment security yields
declined 57 basis points, resulting in a yield decline of 3 basis points from
7.78 percent in 1993 to 7.75 percent in 1994. During 1994, CNBL changed its
prime rate five times from 6 percent to 8.5 percent. CNBL did not change its
prime rate during 1993. Through September 30, 1995, there were two changes in
CNBL's prime rate. CNBL monitors the mix of earning assets in order to
anticipate interest rate movements and take advantage of better interest rate
spreads facilitating optimization of return on earning assets.
- 61 -
<PAGE> 72
CONDENSED INCOME STATEMENT
AS A PERCENT OF AVERAGE ASSETS
(Tax Equivalent Basis)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net interest income . . . . . . . . . . . . . . . . . . 4.39% 4.33% 4.25%
Provision for loan losses. . . . . . . . . . . . . . . . (.14) (.28) (.39)
Noninterest income:. . . . . . . . . . . . . . . . . . .
Investment securities gains (losses) . . . . . . . . . (.04) .11 .31
Service charges on deposit accounts. . . . . . . . . . .26 .30 .31
Other income . . . . . . . . . . . . . . . . . . . . . .26 .25 .24
Noninterest expenses . . . . . . . . . . . . . . . . . . (2.48) (2.53) (2.57)
----- ----- -----
Income before income taxes . . . . . . . . . . . . . . . 2.25 2.18 2.15
Provision for income taxes, including tax
equivalent adjustment. . . . . . . . . . . . . . . . . (.83) (.78) (.79)
Cumulative effect of change in method of
accounting for income taxes. . . . . . . . . . . . . . .00 .07 .00
----- ----- -----
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . 1.42% 1.47% 1.36%
===== ===== =====
</TABLE>
CHANGES IN AVERAGE EARNING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
------------------- -------------------
1994 vs. 1993 1993 vs. 1992
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Investment securities:
Taxable . . . . . . . . . . . . . . . . . $ 8,889 5.8% $ 3,447 2.3%
Nontaxable . . . . . . . . . . . . . . . 11,822 36.4 4,680 16.8
Federal funds sold and other
short-term investments . . . . . . . . . (5,614) (48.5) 2,087 22.0
Loans, net . . . . . . . . . . . . . . . . . 16,391 9.6 16,230 10.5
----------- --------- ------------ ----
TOTAL . . . . . . . . . . . . . . . . . . $ 31,498 $ 8.5% $ 26,444 7.7%
=========== ========= ============ ====
</TABLE>
LOAN PORTFOLIO
CBI makes substantially all of its loans to customers located within the
three counties of Lake, Sumter and Marion. It has no foreign loans or highly
leveraged transaction (HLT) loans.
The increases in CBI's loan balances in 1994 are attributable to good
growth in residential and commercial real estate loans. CBI also sold
$2,018,000 in fixed rate mortgage loans in the secondary market in 1994.
At December 31, 1994, CBI's portfolio of mortgage loan balances secured by
residential properties amounted to $105,975,000 or 53.3 percent of total loans.
Loans secured by commercial real estate totaled $59,684,000 or 30.0 percent of
total loans. Most of the commercial real estate loans were made to local
businesses and professionals secured by owner-occupied properties. Loans and
commitments for 1-4 family residential properties and commercial real estate
are generally secured with first mortgages on property, with the loan to fair
market value of the property not exceeding 80 percent on the date the loan is
made.
Between December 31, 1993, and December 31, 1994, residential real estate
mortgage loans increased $14,010,000 or 15.2 percent and commercial real estate
mortgage loans increased $4,844,000 or 8.8 percent.
Installment loans at December 31, 1994 showed a slight increase of $220,000
from year end 1993, excluding installment real estate loans. CBI's home equity
line portfolio and consumer loan ARM's (included in real estate loans above)
increased at year end by $1,132,000 and $640,000, respectively.
- 62 -
<PAGE> 73
CBI believes that the local demand for residential real estate mortgages
and service industry related loan demand will continue to be strong. This
assumption is based on the continued migration of retirees moving to this
market area to live.
CBI's market is primarily a residential area with relatively little
commercial activity other than professional retail and service businesses
serving local residents. Therefore, real estate mortgage lending (particularly
residential properties) is expected to remain an important segment of CBI's
lending activities. Exposure to market interest rate volatility, with respect
to mortgage loans, is managed by attempting to match maturities and repricing
opportunities for assets against liabilities, when possible. At December 31,
1994, approximately $73,673,000 or 44.6 percent of CBI's total real estate
loans were adjustable rate 15-to 30-year residential mortgage loans (ARMs) that
reprice based upon the one-year constant maturity United States Treasury Index
plus a margin. Generally, the ARMs' interest rate adjustments are limited to
two percent per annum and six percent over the life of the loan. Such ARMs may
be originated at rates greater than the index rate, but below the total of the
index rate and the margin for an initial period ending on the first adjustment
date. All such loans are generally made to borrowers upon terms and conditions
that would make such loans eligible for resale, after seasoning, under Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC) guidelines. ARM borrowers are qualified based upon the initial ARM
loan interest rate plus 125 basis points and upon various debt service ratios
of the borrower, including a total debt service ratio of not more than 36
percent of total income.
Commercial lending activities are directed principally towards businesses
whose demand for funds are within CBI's lending limits, such as small-to
medium-sized professional firms, retail and wholesale outlets, and light
industrial and manufacturing concerns. Most of such loans are secured by real
estate used by such businesses, although certain lines are unsecured.
CBI makes a variety of consumer loans, including installment loans, loans
for automobiles, boats, home improvements and other personal, family and
household purposes, and indirect loans through dealers to finance automobiles.
Most consumer loans are secured. CBI has engaged in lending to automobile
purchasers through dealers. CBI's indirect automobile lending risks have been
reduced through screening and monitoring of a small number of dealers with whom
CBI does business. CNBL also had approximately $1,438,000 of unsecured credit
card loans at December 31, 1994.
Second mortgage loans and home equity lines also are extended by CBI. No
negative amortization loans or lines are offered at the present time. Terms of
second mortgage loans include fixed rates for up to 10 years on smaller loans
of $25,000 or less. Such loans are sometimes made for larger amounts, with a
fixed rate, but with a balloon payment upon maturity not to exceed five years.
CBI offers variable-rate second mortgage loans with terms of up to 15 years.
Loan- to-value ratios for these loans generally do not exceed 80 percent of
appraised value. Home equity lines are offered on a variable rate basis only
and the maximum loan-to-value ratio for such loans is normally 80 percent of
the appraised value when the loan is extended.
CBI has commitments to make loans (excluding unused home equity and credit
card lines) of $28,728,000 at December 31, 1994, as compared to $23,701,000 at
December 31, 1993. CBI attempts to reduce its exposure to the risk of the
local real estate market by making commercial real estate loans primarily on
owner-occupied properties. CBI presently has 30.0 percent of its total loans
in commercial real estate. The remainder of the real estate loan portfolio is
residential mortgages to individuals, and home equity loans, which CBI
considers less susceptible to adverse effects from a downturn in the real
estate market, especially given the area's large percentage of retired persons.
CBI's historical charge-off rates for real estate loans have been relatively
low, with net charge-offs of 0.02 percent for the year ended December 31, 1994,
as compared to 0.07 percent for the year ended December 31, 1993.
- 63 -
<PAGE> 74
The table set forth below shows the classifications of loans by major
category at the indicated dates.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
YEARS ENDED DECEMBER 31,
(Dollars in Thousands)
1994 1993 1992
---------------------------------------------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . . . . . $ 13,457 6.73% $ 13,153 7.31% 14,132 8.73%
Real estate mortgage: 166,039 83.03 146,152 81.26 127,194 78.62
Consumers installments . . . . 20,480 10.24 20,561 11.43 20,461 12.65
--------- --------- -------- -------- -------- ------
Total . . . . . . . . . . . . . 199,976 100.00% 179,866 100.00% 161,787 100.00%
Less:
Unearned income . . . . . . . (1,024) (1,266) (1,397)
Allowance for loan losses . . (2,994) (2,490) (1,687)
--------- -------- --------
Total $ 195,958 $176,110 $158,703
======== ========
</TABLE>
<TABLE>
<CAPTION>
1991 1990
----------------------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ --------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . . . . . $ 18,630 12.62% $ 17,118 13.86%
Real estate mortgage: 110,182 74.63 91,237 73.86
Consumers installments . . . . 18,822 12.75 15,175 12.28
-------- ------- -------- ------
Total . . . . . . . . . . . . . 147,634 100.00% 123,530 100.00%
Less:
Unearned income . . . . . . . (1,411) (960)
Allowance for loan losses . . (1,671) (1,412)
-------- --------
Total $144,552 $121,158
======== ========
</TABLE>
- 64 -
<PAGE> 75
SELECTED LOAN MATURITY AND INTEREST RATE SENSITIVITY
AS OF DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
RATE STRUCTURE FOR LOANS
MATURING OVER ONE YEAR
------------------------------------
ONE YEAR ONE YEAR OVER PREDETERMINED FLOATING OR
OR TO FIVE FIVE INTEREST ADJUSTABLE
LESS YEARS YEARS RATE RATE TOTAL
---- ----- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural . $ 10,392 $ 3,029 $ 26 $ 13,445 $ 2 $ 13,447
Real estate . . . . . . 130,589 23,379 11,319 165,264 23 165,287
Consumer . . . . . . . 7,786 11,545 887 20,168 50 20,218
-------- -------- -------- -------- -------- --------
TOTAL . . . . . . . . . $148,767 $ 37,953 $ 12,232 $198,877 $ 75 $198,952
======== ======== ======== ======== ======== ========
</TABLE>
INVESTMENT PORTFOLIO
The composition of CBI's investment securities portfolio reflects CBI's
investment strategy of obtaining portfolio yields consistent with risk and
liquidity considerations. The primary objectives of CBI's investment strategy
are to maintain an appropriate level of liquidity and provide a tool to assist
in controlling CBI's interest rate position while at the same time producing
adequate levels of interest income. For securities classified as investment
securities, management intends to maintain both a "Held to Maturity" portfolio
and an "Available for Sale" portfolio. The mix between the two portfolios
provides flexibility in managing CBI's investment portfolio. Management of the
maturity of the portfolio is necessary to provide liquidity and control
interest rate risk.
Effective December 31, 1993, CBI adopted the investment categorization and
carrying value rules as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115 (FASB 115), Accounting for
Certain Investments in Debt and Equity Securities. Under FASB 115, CBI
classifies it investment securities as either available-for-sale or
held-to-maturity or trading. Held-to-maturity investments are carried at
amortized cost. Securities available-for-sale and trading are carried at
market value. For December 31, 1992, investment debt securities were carried
at amortized cost.
CBI has no securities classified as trading and currently has no plans to
hold or acquire any securities for trading. The majority of securities
classified as held-to-maturity (71.76 percent) are obligations of state and
political subdivisions and are held for their after-tax yield. Other
securities are classified as held-to-maturity based on an individual analysis.
All other securities are classified as available-for-sale and represent 66.02%
of the total carrying value.
Average outstanding investment securities during 1994 increased by
$20,721,000 from $186,704,000 to $207,425,000. The increase in average
outstanding investment securities is related to an increase in deposits. The
investment of these proceeds into investment securities was done after
considering future projected liquidity needs and then current economic
conditions. U.S. Treasury and Government agency securities with maturities
from two to ten years were emphasized with the intent to hold these securities
as available-for-sale. Also, CBI continued to reduce its position in
mortgage-backed securities due to perceived market price sensitivity. CBI
primarily increased its held-to-maturity securities in tax-exempt securities to
maximize long-term tax-equivalent yields. The changes made to the investment
securities portfolio decreased the average yield from 8.23 percent to 7.66
percent. This was primarily due to maturities, calls and prepayments of high
yield securities coupled with lower yield reinvestment opportunities.
The above-described transactions changed the composition of the investment
securities portfolio during 1994. At December 31, 1994, 48.0 percent of the
total carrying value of the $206,547,000 of the investment portfolio is
comprised of U.S. Treasury and Government agency securities. This compares to
45.4 percent at December 31, 1993, and 38.0 percent at December 31, 1992. In
addition, 22.2 percent of total investment securities are represented by
mortgage-backed securities compared to 26.7 percent at December 31, 1993, and
35.9 percent at December 31, 1992.
- 65 -
<PAGE> 76
The unrealized net depreciation of the portfolio at December 31, 1994, and
1993, was $8,666,000 and $8,804,000, respectively. This represents 4.1 percent
of amortized cost and 4.2 percent of carrying value as compared unrealized net
appreciation of 4.3 percent at December 31, 1993. For investment securities
available-for-sale, the largest segment of unrealized loss at December 31,
1994, is represented by U.S. Treasury and Government agency securities ($3.8
million or 1.8 percent of the carrying value of the entire portfolio). For
investment securities held-to-maturity, the largest segment of unrealized loss
at December 31, 1994, is represented by obligations of state and political
subdivisions ($1.9 million or .9 percent of the carrying value of the entire
portfolio).
The following table sets forth the carrying value of the investment
securities portfolio at the end of each of the previous two years.
INVESTMENT PORTFOLIO
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR END DECEMBER 31,
-------------------------
1994 1993
---- ----
<S> <C> <C>
U.S. Treasury securities . . . . . . . . . . . . . . . . . . $ 37,199 $ 44,390
U.S. Agency obligations . . . . . . . . . . . . . . . . . . . 61,974 49,328
Mortgage-backed securities . . . . . . . . . . . . . . . . . 45,779 55,096
Other securities . . . . . . . . . . . . . . . . . . . . . . 61,595 57,713
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 206,547 $ 206,527
========= =========
</TABLE>
The maturities, amortized cost, market values, and weighted-average yields
of the investment securities portfolio at the end of 1994 are presented in the
following table using primarily the stated maturities excluding the effects of
prepayments. The yield data is determined using the amortized cost of the
securities. As of December 31, 1994, no issuer of investment securities held
by CBI represented 10% or more of CBI shareholders' equity.
- 66 -
<PAGE> 77
INVESTMENT SECURITIES
YIELD, MATURITY AND MARKET VALUE
(Dollar in thousands)
<TABLE>
<CAPTION>
U.S. Treasury Mortgage-Backed Securities Mortgage-Backed Securities
and U.S. Government Agencies (Fixed) (Adjustable)
----------------------------- ---------------------------- --------------------------
Carrying
Value Market Weighted Carrying Market Weighted Carrying Market Weighted
December 31, 1994 Balance Value Yield Value Value Yield Value Value Yield
- ----------------- ----------------------------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity
Within one year . . $ 3,028 $ 3,028 8.21% $11,384 $11,384 8.36% $ 473 $ 487 7.30%
One to five years. . 62,216 61,868 6.44 2,824 2,824 7.75 3,454 3,386 6.62
Five to ten years. . 31,188 31,036 6.88 22,410 22,338 6.64 1,630 1,576 6.90
Over ten years and
equity securities . 2,741 2,675 7.74 0 0 0.00 3,604 3,609 5.27
------- ------- ------- ------- ------- -------
TOTAL VALUE. . $99,173 $98,607 6.46% $36,618 $36,546 7.23 $ 9,161 $ 9,058 6.13%
======= ======= ======= ======= ======= =======
December 31, 1994
TOTAL VALUE. . $93,717 $93,718 6.68% $43,960 $43,966 7.48% $11,013 $11,413 5.70%
======= ======= ======= ======= ======= =======
</TABLE>
(1) On a tax-equivalent basis
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
---------------------------------------------------------- ---------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized
December 31, 1994 Cost Gains Losses Value Cost Gains
- ----------------- ----------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
and U.S.
Government
Agencies $ 91,685 $265 $4,015 $ 87,935 $11,238 $ 0
Mortgage-backed
securities
Fixed . . . 36,448 105 1,830 34,723 1,893 0
Adjustable . . 3,374 0 441 2,933 6,230 19
Obligations of
state
and political
subdivisions . 5,863 80 47 5,896 50,365 795
Other
securities. . . 4,990 31 147 4,874 460 0
-------- ---- ------ -------- ------- ----
TOTAL . . . $142,360 $481 $6,480 $136,361 $70,186 $814
======== ==== ====== ======== ======= ====
</TABLE>
<TABLE>
<CAPTION>
Securities Held to Maturity Grand Totals
--------------------------- -------------------------------------------------------
Average
Gross Total Total Years
Unrealized Market Carrying Market to
December 31, 1994 Losses Value Value Value Maturity
- ----------------- ----------------- -------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury
and U.S.
Government
Agencies . . . $ 566 $10,672 $ 99,173 $ 98,607 4.83
Mortgage-backed
securities
Fixed . . . 70 1,823 36,618 36,546 3.91
Adjustable . . 124 6,125 9,161 9,058 8.43
Obligations of
state
and political
subdivisions . 2,721 48,439 56,261 54,335 10.36
Other
securities . . 0 460 5,334 5,334 2.44
------ ------- -------- -------- -----
TOTAL . . . $3,481 $67,519 $206,547 $203,880 6.23
====== ======= ======== ======== =====
</TABLE>
- 67 -
<PAGE> 78
<TABLE>
<CAPTION>
Obligations of States and
Political Subdivisions Other Total
------------------------------ ------------------------------ -----------------------------
Carrying Market Weighted Carrying Market Weighted Carrying Market Weighted
December 31, 1994 Value Value Yield(1) Value Value Yield Value Value Yield
------------------------------ ------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity $ 2,228 $ 2,250 8.76% $ 0 $ 0 .00% $ 17,113 $ 17,149 8.32%
Within one year 3,578 3,647 7.36 4,874 4,874 7.15 76,946 76,599 7.13
One to five years 8,200 8,260 6.18 0 0 .00 63,428 63,210 6.66
Five to ten years 42,255 40,178 6.24 460 460 .00 49,060 46,920 5.27
--------- -------- ------- ------- -------- ---------
Over ten years
and equity
securities $ 56,261 $ 54,335 6.40% $ 5,334 $ 5,334 7.15% $206,547 $ 203,880 7.01%
========= ======== ======= ======= ======== =========
TOTAL VALUE
December 31, 1994
TOTAL VALUE $ 49,968 $ 52,836 6.75% $ 7,779 $ 7,779 7.49% $206,527 $ 209,712 6.92%
========= ======== ======= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity Grand Totals
----------------------------------------- ---------------------------------------- ---------------------------
Average
Gross Gross Gross Gross Total Total Years
December 31, Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Carrying Market to
1993 Cost Gains Losses Value Cost Gains Losses Value Value Value Maturity
----------------------------------------- ---------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
and U.S.
Government
Agencies $ 88,228 $3,538 $ 68 $ 91,698 $ 2,019 $ 3 $ 2 $ 2,020 $ 93,717 $ 93,718 4.14
Mortgage-backed
securities
Fixed 41,896 1,401 45 43,252 708 6 0 714 43,960 43,966 5.73
Adjustable 4,972 1 11 4,962 6,141 310 0 65,451 11,103 11,413 7.97
Obligations of
state and
political
subdivisions 6,348 493 0 6,841 431,287 2,925 57 45,995 49,968 52,836 10.25
Other
securities 6,975 310 0 7,285 494 0 0 494 7,779 7,779 3.13
-------- ------ ---- -------- -------- ------ ----- ------- -------- --------
TOTAL $148,419 $5,743 $124 $154,038 $ 52,489 $3,244 $ 59 $55,674 $206,547 $203,880 6.12
======== ====== ==== ======== ======== ====== ===== ======= ======== ========
</TABLE>
- 68 -
<PAGE> 79
DEPOSITS AND SHORT-TERM BORROWINGS
Total deposits increased $24,592,000 or 6.75 percent to $388,867,000 at
December 31, 1994, compared to December 31, 1993. Management's decision to
reduce its interest rates relative to the local market, impacted deposit growth
in 1994. Even so, according to the Florida Bankers' Association's Deposit
Share Report as of September 30, 1994, CBI increased its market share of total
IPC deposits in Lake County from 17.82 percent on December 31, 1993 to 18.22
percent on September 30, 1994. CBI's market share of total IPC deposits in
Lake County, Florida on December 31, 1992, was 16.98%.
Time deposits increased $24,237,000 or 14.75 percent to $188,558,000 at
December 31, 1994. Jumbo CDs increased $3,051,000 or 12.63 percent to
$27,214,000.
Savings deposits (including money market deposit accounts) totaled
$11,648,000 at December 31, 1994, $5,193,000 or 4.44 percent less than at
December 31, 1993. An increase of $3,790,000 or 12.33 percent to $34,540,000
occurred in noninterest-bearing demand deposits from December 31, 1993 to
December 31, 1994. Interest-bearing demand and NOW accounts increased
$1,758,000 or 3.36 percent to $54,122,000.
Average noninterest-bearing demand deposits comprised 8.54 percent of
average deposits for the year ended December 31, 1994, compared to 7.87 percent
and 7.87 percent for the years ended December 31, 1993, and 1992, respectively.
Total deposits grew $21,410,000 or 6.24 percent to $364,275,000 at December
31, 1993, compared to December 31, 1992. Time deposits increased $6,878,000 or
4.37 percent to $164,320,000 at December 31, 1993. Included in this increase
was an increase in jumbo CDs of $3,051,000 or 23.14 percent to $24,163,000.
Savings deposits totaled $116,841,000 at December 31, 1993, $3,440,000 or
3.03 percent higher than at December 31, 1992. Noninterest-bearing demand
deposits increased $2,993,000 or 10.78 percent to $30,749,000 at December 31,
1993. Interest-bearing demand and NOW accounts increased $8,100,000 or 18.30
percent to $52,364,000 at December 31, 1993.
The above trend continued through the first nine months of 1995. During
the nine months ended September 30, 1995, total deposits increased $23,453,000
over the nine months ended September 30, 1994, or 6.16 percent. For the same
period, time deposits increased $42,641,000 or 23.1 percent. However, for the
period ended September 30, 1995, savings deposits totaled $90,387,000, a
decrease of $22,710,000 or 20.1 percent over the nine months ended September
30, 1994.
MATURITY OF CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1994 % of Total 1993 % of Total
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Maturity Group:
Under 3 months . . . . . . . . . . . . . $ 7,609 28.0% $ 6,993 28.9%
3 to 6 months . . . . . . . . . . . . . . 2,954 10.9 3,461 14.2
6 to 12 months . . . . . . . . . . . . . 5,067 18.6 4,286 17.7
Over 12 months . . . . . . . . . . . . . 11,584 42.5 9,423 39.2
----------- ------------ ------------ -----
TOTAL . . . . . . . . . . . . . . . . . . $ 27,214 100.0% $ 24,163 100.0%
=========== ============ ============ =====
</TABLE>
Borrowed funds consist of short-term borrowings, primarily federal funds
purchased and securities sold under agreement to repurchase. CBI enters into
agreements to repurchase securities sold to customers. The securities sold are
United States Treasury and agency securities which are included in the
investment portfolio and are held in safekeeping by other large financial
institutions. The repurchase agreements outstanding at December 31, 1994 are
one day agreements which are automatically renewable unless the customer
notifies CNBL. The interest rate on such agreements varies between 1.80% and
5.75%. At the close of 1994 and 1993, CBI had $2,587,000 and $5,491,000 in
securities sold under agreements to repurchase, respectively.
- 69 -
<PAGE> 80
Federal funds purchased mature within one to four days from the transaction
date. At the close of 1994 and 1993, CBI had $3,046,000 and $0 in federal
funds purchased, respectively.
CAPITAL RESOURCES
CBI's capital decreased by $2,818,000 at December 31, 1994 compared to year
end 1993. Of this net decrease, $7,406,000 was attributable to the change in
the adjustment to the unrealized (losses)/gains on certain securities required
by Statement No. 115 of the Financial Accounting Standards Board, Accounting
for Certain Investments in Debt and Equity Securities (see discussion of FASB
No. 115 in the section on investment securities following and notes 1 and 2 to
the consolidated statements included). This reduction was partially offset by
net income of $6,005,000 less dividends declared totaling $1,417,000.
CBI's ratio of stockholders' equity to period end assets was 7.85 percent
after the adjustment for FASB No. 115 and 8.66 percent excluding assets and
capital attributed to FASB No. 115. The 7.85 percent at December 31, 1994 (net
of FASB No. 115) compares to the year end 1993 ratio of 8.95 percent and the
year end 1992 ratio of 7.63 percent.
Book value per common share outstanding was $8.39 per share with the
adjustment for FASB No. 115 and $9.34 net of FASB No. 115 adjustment at
December 31, 1994. Again, this compares to the book value per share at year
end 1993 of $9.09 and $7.10 per share at December 31, 1992. For the nine
months ended September 30, 1995, book value per common share outstanding was
$10.65 with the adjustment for FASB No. 115 and $10.52 net of the FASB No. 115
adjustment compared to $9.01 book value per common share outstanding with the
adjustment for FASB No. 115 at September 30, 1994 and $9.31 net of FASB No. 115
adjustment.
Average shareholders' equity as a percentage of total average assets is one
measure used to determine capital strength. The ratio of average shareholders'
equity to average assets for 1994 was 8.32 percent compared to 7.92 percent in
1993. The increase in the ratio is the result of a slight increase in average
assets of 8.15 percent.
RETURN ON EQUITY AND ASSETS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Return on average assets:
Before cumulative change in accounting principle . . . . . . . 1.42% 1.40%
Change in accounting principle . . . . . . . . . . . . . . . . .00% .07%
----- -----
Net of change in accounting principle . . . . . . . . . . . . 1.42% 1.47%
----- -----
Return on average equity (including FAS 115 adjustment):
Before cumulative change in accounting principle . . . . . . . 17.07% 17.70%
Change in accounting principle . . . . . . . . . . . . . . . . .00% .82%
----- -----
Net of change in accounting principle . . . . . . . . . . . . 17.07% 18.52%
----- -----
Return on average equity (excluding FAS 115 adjustment):
Before cumulative change in accounting principle . . . . . . . 17.08% 17.01%
Change in accounting principle . . . . . . . . . . . . . . . . .00% .82%
----- -----
Net change in accounting principle . . . . . . . . . . . . . . 17.08% 17.83%
----- -----
Tier 1 capital to average assets (leverage ratio) . . . . . . . . 8.95% 8.50%
</TABLE>
The various federal bank regulators, including the Federal Reserve, have
established risk-based requirements for assessing bank holding company and bank
capital adequacy. These standards define "capital" for regulatory purposes and
establish minimum capital standards in relation to assets and off-balance sheet
exposures, as adjusted for credit risks. Capital is grouped into two tiers. For
bank holding companies, Tier 1 or "core" capital consists of common
shareholders' equity, perpetual preferred stock (subject to certain limitations)
and minority interests in the common equity account of consolidated
subsidiaries, reduced by goodwill and certain investments in other corporations
("Tier 1 Capital"). Tier 2 Capital consists of Tier 1 Capital, as well as the
allowance for possible loan
- 70 -
<PAGE> 81
losses (subject to certain limitations), and certain subordinated debt
"hybrid capital instruments," subordinated and perpetual debt and intermediate
term and other preferred stock ("Tier 2 Capital").
At December 31, 1994, a risk-based capital measure and a minimum ratio
standard was fully phased-in with a minimum total capital ratio of 8.00 percent
and Tier 1 Capital equal to at least 50 percent of total capital. The Federal
Reserve also has a minimum leverage ratio of Tier 1 Capital to total assets of
3 percent to 5 percent.
The Federal Reserve has emphasized that the foregoing standards are
supervisory minimums and that an institution would be permitted to maintain
such minimum levels of capital only if it were rated a composite "one" under
the regulatory rating systems for bank holding companies and banks. All other
bank holding companies are required to maintain a leverage ratio of 3 percent
plus at least 1 percent to 2 percent of additional capital. These rules
further provide that banking organizations experiencing internal growth or
making acquisitions will be expected to maintain capital positions
substantially above the minimum supervisory levels and comparable to peer group
averages, within significant reliance on intangible assets. The Federal
Reserve continues to consider a "tangible Tier 1 leverage ratio" in evaluation
proposal for expansion or new activities. The percentage ratios for CBI, as
calculated under the guidelines, were 17.41 percent and 18.66 percent for Tier
1 and Tier 2, respectively, at year end 1994. The regulatory capital ratios of
CBI currently exceed the minimum ratios of 3 percent to 5 percent leverage
capital, 6 percent Tier 1 and 8 percent Tier 2 required in 1994 by the Federal
Reserve for bank holding companies. The Federal Reserve has not advised CBI of
any specific minimum leverage ratio applicable to it.
The following table sets forth the regulatory capital calculations of CBI
and its subsidiary on consolidated basis as of December 31, 1994 and 1993,
calculated in accordance with the applicable requirements of the Federal
Reserve in effect on such dates:
RISK BASED CAPITAL CALCULATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1994 % 1993 %
-------------------- --------------------
<S> <C> <C> <C> <C>
Shareholders' equity . . . . . . . . . $ 33,976 $ 36,794
Regulatory capital
Tier 1 risk based:
Actual . . . . . . . . . . . . . . 33,797 17.41% 33,208 16.38%
Minimum required . . . . . . . . . 13,026 6.00% 12,164 6.00%
-------- ----- -------- -----
Excess above minimum . . . . . . . 24,771 11.41% 21,044 10.38%
======== ===== ======== =====
Total risk based:
Actual . . . . . . . . . . . . . . 40,514 18.66% 35,698 17.61%
Minimum required . . . . . . . . . 17,369 8 .00% 16,217 8.00%
-------- ----- -------- -----
Excess above minimum . . . . . . . 23,145 10.66% 19,481 9.61%
======== ===== ======== =====
Average assets . . . . . . . . . . . . $422,465 $390,596
======== ========
Total assets . . . . . . . . . . . . . 432,828 410,908
======== ========
</TABLE>
BALANCE SHEET MANAGEMENT
Liquidity Management
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses CBI's
ability to meet deposit withdrawals either on demand or at contractual maturity
and to make new loans and investments as opportunities arise.
- 71 -
<PAGE> 82
Contractual maturities for assets and liabilities are reviewed to meet
current and future liquidity requirements. Sources of liquidity, both
anticipated and unanticipated, are maintained through a portfolio of
high-quality marketable assets, such as residential mortgage loans, investment
securities, and federal funds sold. CBI has access to federal funds lines of
credit and is able to provide short-term financing of its activities by
selling, under agreement to repurchase, U.S. Treasury and Government agency
securities (including certain mortgage-backed securities) not pledged to secure
public deposits or trust funds. At December 31, 1994, CBI had available
federal funds lines of credit of $4,454,000. At December 31, 1994, CBI had
$140,850,000 U.S. Treasury and Government agency securities not pledged and
available for sale under repurchase agreements. At December 31, 1993, the
amount of securities available and unpledged was $142,892,000.
Liquidity, as measured in the form of cash and cash equivalents, totaled
$14,322,000 at December 31, 1994. At December 31, 1993, cash and cash
equivalents totaled $15,266,000. Cash and cash equivalents vary with seasonal
deposit movements and are generally higher in the winter than in the summer,
and vary with the level of principal repayments occurring in CBI's investment
securities portfolio and loan portfolio.
As is typical of financial institutions, cash flows from investing
(primarily in loans and securities) and from financing (primarily through
deposit generation and short-term borrowings) are greatly in excess of cash
flows from operations. In 1994, the cash flow from operations of $7,074,000
was 19.84 percent higher than during the same period of 1993. Cash flows from
investing and financial activities reflect the increase in securities, loans
and deposit balances experienced in 1994. In 1993, cash flows from operations
of $5,903,000 were 5.05 percent higher than in 1992.
Interest Rate Sensitivity
Interest rate movements and deregulation of interest rates have made
managing CBI's interest rate sensitivity increasingly important. CBI's
Assets/Liability Management Committee is responsible for managing CBI's
exposure to changes in market interest rates. This committee attempts to
maintain stable net interest margins by generally matching the volume of assets
and liabilities maturing, or subject to repricing, and by adjusting rates to
market conditions and changing interest rates.
Interest rate exposure is managed by monitoring the relationship between
earning assets and interest-bearing liabilities, focusing primarily on those
that are rate-sensitive. Rate-sensitive assets and liabilities are those that
reprice at market interest rates within a relatively short period, defined here
as one year or less. The difference between rate-sensitive assets and
rate-sensitive liabilities represents CBI's interest sensitivity gap, which may
be either positive (assets exceed liabilities) or negative (liabilities exceed
assets).
On December 31, 1994, CBI has a negative gap position based on contractual
maturities and prepayment assumptions for the next twelve months with a
negative interest rate sensitivity gap as a percent of total earning assets of
0.9 percent. This means that CBI's assets reprice more slowly than its
deposits. In a declining interest rate environment, the cost of CBI's deposits
and other liabilities may be expected to fall faster than the interest received
on its earning assets, thus increasing the net interest spread. If interest
rates generally increase, the negative gap means that the interest received on
earning assets may be expected to increase more slowly than the interest paid
on CBI's liabilities, therefore decreasing the net interest spread.
CBI's asset liability committee has made hypothetical projections in an
effort to estimate a worst case impact (using the scenario depicted in footnote
no. 4 of the table below) on CNBL's Net Interest Margin should prime interest
rates increase significantly (2 percent) and immediately. Although management
feels that this scenario is highly unlikely based on current and long-range
economic projections, an immediate increase in interest rates of 2 percent
would negatively impact Net Interest Margins by 23 basis points (23
one-hundredths of one percent). Management monitors the gap position on an
ongoing basis to keep interest rate risk within levels acceptable to CBI.
- 72 -
<PAGE> 83
INTEREST RATE SENSITIVITY ANALYSIS (1)
AS OF DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
1994
Earning assets:
Loans (2) . . . . . . . . . . . . . . . $ 59,179 $ 85,743 $ 41,798 $ 12,232 $ 198,952
Investment securities (3) . . . . . . . 6,411 20,823 66,427 118,885 212,547
Federal funds sold and other short-term
investments . . . . . . . . . . . . . 0 0 0 0 0
-------- -------- -------- -------- ---------
Total earning assets (2) . . . . . . . . . 65,590 106,566 108,225 131,117 411,498
-------- -------- -------- -------- ---------
Savings deposits(4) . . . . . . . . . . . . 59,150 0 0 106,620 165,770
Certificates of deposits . . . . . . . . . 40,688 70,224 74,950 2,696 188,558
Federal funds purchased and other short-term
borrowings . . . . . . . . . . . . . . 6,533 0 0 0 5,633
-------- -------- -------- -------- ---------
Total interest-bearing liabilities . . . . 105,471 70,224 74,950 109,316 359,961
-------- -------- -------- -------- ---------
Interest sensitivity gap . . . . . . . . . (39,881) 36,341 33,275 21,801 359,961
Cumulative interest sensitivity gap . . . . (39,881) (3,539) 29,736 51,537
Cumulative gap to earning assets (%) . . . (9.7%) 0.9% 7.2% 12.5%
Earning assets to interest-bearing
liabilities . . . . . . . . . . . . . . 62.2% 151.8% 144.4% 119.9%
1993
Earning assets:
Loans (2) . . . . . . . . . . . . . . . 53,405 83,373 34,850 6,160 177,788
Investment securities (3) . . . . . . . 8,881 25,158 60,456 106,413 200,908
Federal funds sold and other short-term
investments . . . . . . . . . . . . . 1,098 0 0 0 0
-------- -------- -------- -------- ---------
Total earning assets(2) . . . . . . . . . . 63,384 108,531 95,306 112,573 379,794
-------- -------- -------- -------- ---------
Savings deposits (4) . . . . . . . . . . . 67,055 0 0 104,539 171,594
Certificates of deposits . . . . . . . . . 37,517 62,779 61,790 2,396 164,502
Federal funds purchased and other short-term
borrowings . . . . . . . . . . . . . . 5,497 0 0 0 5,497
-------- -------- -------- -------- ---------
Total interest-bearing liabilities . . . . 110,069 62,779 61,790 106,935 341,593
-------- -------- -------- -------- ---------
Interest sensitivity gap . . . . . . . . . (46,685) 45,732 33,516 5,638 38,201
Cumulative interest sensitivity gap/total
earning assets . . . . . . . . . . . . . (46,685) (953) 32,563 38,201
Cumulative gap to earning assets (%) . . . (12.3%) (0.3%) 8.6% 10.1%
Earning assets to interest-bearing
liabilities . . . . . . . . . . . . . . 57.6% 172.8% 154.2 105.3%
- -----------------------------
(1) The repricing dates may differ from maturity dates for certain assets due to repayment assumptions.
(2) Excludes nonaccrual loans.
(3) Investment securities are stated at amortized cost.
(4) This category is comprised of NOW, savings and money market accounts. Savings and NOW accounts are included in
the over 5 years category. If these accounts (totaling $104,539) were deemed to be repriceable in the "0-3
months," the interest sensitivity gap and cumulative gap would be ($151,224,000) indicating (39.9 percent) of
total earnings and 29.5 percent of earnings assets to interest-bearing liabilities for the 0-3 months category.
</TABLE>
- 73 -
<PAGE> 84
As seen in the preceding table, for the one-year period ended December 31,
1994, 48.8 percent of interest-bearing liabilities will reprice compared to
41.8 percent of all interest-bearing assets. Changes in the mix of earning
assets or supporting liabilities can either increase or decrease the net
interest margin without affecting interest rate sensitivity. In addition, the
interest rate spread between an asset and its supporting liability can vary
significantly while the timing of repricing for both the asset and the
liability remains the same, thus impacting net interest income. This is
referred to as basis risk, and, generally relates to the possibility that the
repricing characteristics of short-term assets tied to CBI's prime lending rate
are different from those of short-term funding sources such as certificates of
deposit and interest-bearing deposits.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets which are not reflected in the interest sensitivity
analysis report, and changes in the mix of assets and liabilities. Prepayments
and such other changes may have significant effects on CBI's net interest
margin. Rates on assets and liabilities may not move completely in tandem.
Because of these factors, static modeling of the interest sensitivity gap
reports may not provide a complete assessment of CBI's exposure to changes in
interest rates. Management utilizes computerized interest rate simulation
analysis to determine CBI's interest rate sensitivity.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, on a fully tax equivalent basis (TEB), totaled
$18,560,000, $16,896,000 and $15,450,000 for 1994, 1993 and 1992, respectively.
Net interest income for 1994 increased 9.85 percent from 1993. The spread
earned on increased deposits was relatively stable during 1994. The average
cost of interest-bearing liabilities decreased slightly from 3.58 percent
during 1993 to 3.55 percent during 1994, while the average yield on earning
assets decreased from 7.78 percent during 1993 to 7.75 percent during 1994.
The decreases in average interest costs and yields on earning assets, coupled
with increased noninterest-bearing deposits and shareholders' equity resulted
in a slight increase in the net interest income/yield on average earning assets
from 4.58 percent in 1993 to 4.64 percent during 1994. Net interest income for
the first nine months of 1995 reflects improvement over the same period in
1994. Through September 30, 1995, net interest income on a nontax equivalent
basis was $12,994,000 or 1.7 percent higher than the $12,775,000 for the nine
months ended September 30, 1994.
As a percent of average earning assets, net interest margin (TEB) was 4.64
percent in the fourth quarter, compared to 4.61 percent in the third quarter,
4.82 percent in the second quarter and 4.47 percent for the first quarter of
1994 and 4.60 percent for the fourth quarter in 1993.
For the years ended December 31, 1994 and 1993, the table below discloses
the increases and decreases in net interest income attributable to changes in
the volume and rates of individual earning assets and interest-bearing
liabilities. The balances of nonaccruing loans are included in average loans
outstanding.
- 74 -
<PAGE> 85
RATE VOLUME VARIANCE ANALYSIS
TAXABLE EQUIVALENT BASIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
AVERAGE VOLUME CHANGE IN VOLUME
----------------------------------- ----------------------
1994 1993 1992 1994-93 1993-92
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
interest . . . . . . . $ 186,968 $ 170,577 $ 154,347 $ 16,391 $ 16,230
---------- ---------- ----------- ---------- ----------
Investment securities:
Taxable . . . . . . . . 163,089 154,190 150,743 8,899 3,447
Tax-exempt . . . . . . 44,336 32,514 27,834 11,822 4,680
---------- ---------- ----------- ---------- ----------
Total . . . . . . . . . . 207,425 186,704 178,577 20,721 8,127
---------- ---------- ----------- ---------- ----------
Federal funds sold . . . 5,952 11,566 9,479 (5,614) 2,087
Total earning assets . . 400,345 368,847 342,403 31,498 26,444
========== ========== =========== ========== ==========
Interest-bearing
liabilities:
Demand . . . . . . . . 55,069 49,083 42,798 5,986 6,285
Savings . . . . . . . . 114,558 114,330 105,406 228 8,924
Time deposits . . . . . 176,704 162,056 156,700 14,648 5,356
Federal funds purchased. 4,360 3,531 4,855 829 (1,324)
---------- ---------- ----------- ---------- ----------
Total interest-bearing
liabilities . . . . . 350,691 329,000 309,759 21,691 19,241
========== ========== =========== ========== ==========
Net interest income/net
interest spread . . . . 49,664 57,847 32,644 9,807 7,204
========== ========== =========== ========== ==========
Net yield on earning
assets . . . . . . . .
Net cost of funds . . . .
AVERAGE RATE INCOME/EXPENSE
-------------------------- ---------------------------
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of unearned
interest . . . . . . . 7.96% 7.60% 8.25% $14,892 $ 12,969 $ 12,731
------- --------- ---------
Investment securities:
Taxable . . . . . . . . 7.71 7.18 8.42 11,705 11,866 12,688
Tax-exempt . . . . . . . 9.43 10.70 11.60 4,180 3,480 3,228
------- --------- ---------
Total . . . . . . . . . . 7.66 8.23 8.91 15,885 15,366 15,916
------- --------- ---------
Federal funds sold . . . 4.00 3.00 3.38 238 347 320
------- --------- ---------
Total earning assets . . 7.75 7.78 8.46 31,015 28,682 28,967
======= ========= =========
Interest-bearing
liabilities:
Demand . . . . . . . . 2.01 2.14 2.14 1,108 1,052 1,167
Savings . . . . . . . . 2.56 2.68 3.49 2,927 3,069 3,683
Time deposits . . . . . 4.68 4.67 5.43 8,268 7,574 8,516
Federal funds purchased. 3.49 2.58 3.11 152 91 151
------- --------- ---------
Total interest-bearing
liabilities . . . . . 3.55 3.58 4.36 12,455 11,786 13,517
======= ========= =========
Net interest income/net
interest spread . . . . 4.20 4.20 4.10 18,560 16,896 2,399
======= ========= =========
Net yield on earning
assets . . . . . . . . 4.64 4.58 4.51
Net cost of funds . . . . 3.11 3.20 3.95
</TABLE>
75
<PAGE> 86
RATE VOLUME VARIANCE ANALYSIS (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
VARIANCE ATTRIBUTED TO
INCOME/EXPENSE ----------------------
VARIANCE 1994 1993
--------------------- ---------------------------------------------------------------------
1994-93 1993-92 VOLUME RATE MIX VOLUME RATE MIX
--------- --------- -------- ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans, net of
unearned interest . . $ 1,923 $ 238 $ 1,246 $ 677 $ 1,923 $ 1,339 $ (1,101) $ 238
-------- ------- -------- ------ -------- -------- ---------- -------
Investment securities:
Taxable . . . . . . (181) (802) 686 (867) (181) 290 (1,092) (802)
Tax-exempt . . . . . 700 252 1,265 (565) 700 543 (291) 252
-------- ------- -------- ------ -------- -------- ---------- -------
Total . . . . . . . . . 519 (550) 1,951 (1,432) 519 833 (1,383) 550
Federal funds sold. . . (109) 27 (168) 59 (109) 71 (44) 27
Total earning
assets . . . . . . . 2,333 $ (285) $ 3,029 $ (696) $ 2,333 $ 2,243 $ (2,528) $ (285)
======== ======= ======== ====== ======== ======== ========== =======
Interest-bearing
deposits:
Demand . . . . . . . $ 56 $ (115) $ 128 $ (72) $ 56 $ 172 $ (287) $ (115)
Savings . . . . . . (142) (614) (6) 136 (142) 311 (925) (614)
Time deposits . . . . 694 (942) 684 10 694 291 (1,233) (942)
Federal funds
purchased . . . . . 61 (60) 21 40 61 (41) (19) (60)
-------- ------- -------- ------ -------- -------- ---------- -------
Total interest-
bearing deposits. . . $ 669 $(1,731) $ 827 $ (158) $ 669 $ 733 $ (2,464) $(1,731)
-------- ------- -------- ------ -------- -------- ---------- -------
Net interest income/
net interest spread . $ 1,664 $(1,446) $ 2,202 $ (538) $ 1,664 $ 1,510 $ (64) $ 1,446
======== ======= ======== ====== ======== ======== ========== =======
</TABLE>
- 76 -
<PAGE> 87
CONSOLIDATED AVERAGE BALANCES,
INTEREST INCOME/EXPENSE AND YIELD/RATES
(Dollars in Thousands)
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD BASIS
1994 1993 1993-1994
---------------------------------- ---------------------------------- AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ GROWTH
BALANCE EXPENSE RATE BALANCE EXPENSE RATE RATE
---------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings assets:
Investment securities:
Taxable . . . . . . . . . $ 163,089 $ 11,705 7.18% $ 154,190 $ 11,886 7.71% 5.78%
Tax-exempt . . . . . . . . 44,336 4,180 9.43 32,514 3,480 10.70 36.36
---------- ---------- ---------- ---------
Total Investment
Securities . . . . . . 207,425 15,885 7.66 186,704 15,366 8.23 11.10
Federal funds sold and other
short-term investments . 5,592 238 4.00% 11,566 347 3.00 (48.54)
Loans, net(2) . . . . . . . . 186,968 14,892 7.96 170,577 12,969 7.60 9.61
---------- ---------- ---------- ---------
Total earning assets . . . . $ 400,345 $ 31,015 7.75 $ 368,847 $ 28,682 7.78% 8.54
Allowance for loan losses . . (2,749) (2,118) 30.00
Cash and due from banks . . . 11,254 10,760 4.59
Bank premises and equipment . 6,990 6,889
Other assets . . . . . . . . 6,625 6,218 6.55
---------- ----------
Total assets . . . . . . . . $ 422,465 $ 390,596 8.16
========== ========== ======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Demand . . . . . . . . . . $ 55,059 $ 1,108 2.01% $ 49,083 $ 1,052 2.14% 12.20%
Savings and money market . 114,558 2,927 2.56 114,330 3,069 2.68 0.20
Time deposits . . . . . . 176,704 8,268 4.68 162,056 7,574 4.67 9.04
Federal funds purchased and
securities sold under
agreement to repurchase . 4,360 152 3.49 3,351 91 2.58 23.48
---------- ---------- ---------- ----------
Total interest-bearing
liabilities . . . . . . $ 350,681 12,455 3.55 $ 329,000 11,786 3.58 6.59
Demand Deposits:
Noninterest-bearing
deposits . . . . . . . . $ 32,735 $ 28,093 16.52
Other liabilities . . . . . . 3,894 2,578 51.05
---------- ----------
Total Liabilities . . . . 387,310 359,671 7.68
Shareholders' equity . . . . 35,155 30,925 13.68
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY . . . $ 422,465 $ 390,596 8.16
========== ========== ======
Interest Expense as % of
carrying assets . . . . . . 3.11 $ 16,896 3.20
Net interest income/yield
on earning assets . . . . . $ 18,560 4.64 4.58
- -----------------------------
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans have been included in interest on loans.
</TABLE>
- 77 -
<PAGE> 88
Like earning asset yields, the interest rates paid on interest-bearing
liabilities declined. The 3 basis point decline from 3.58 percent in 1993 to
3.55 percent in 1994 was primarily a result of increasing banking liquidity
allowing rates to fall. The average balance for interest-bearing liabilities
increased $21,681,000 or 6.6 percent to $350,681,000 in 1994 compared to 1993.
The following table shows the components comprising this increase.
CHANGES IN AVERAGE INTEREST-BEARING LIABILITIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
1994 VS. 1993 1993 VS. 1992
--------------------- --------------------
<S> <C> <C> <C>
Interest-bearing demand . . . . . . . . . . . . $ 5,976 12.2% $ 6,285 14.7%
Savings and money market . . . . . . . . . . . . 228 .2 8,924 8.5
Time deposits . . . . . . . . . . . . . . . . . 14,648 9.0 5,356 3.4
Securities sold under agreements to repurchase . 829 23.5 (1,324) (27.2)
------- --------
TOTAL . . . . . . . . . . . . . . . . . . . . . $21,681 6.6% $ 19,241 6.2%
======= ========
</TABLE>
Net interest income (TEB) totaled $16,896,000 for 1993, an increase of
$1,446,000 or 9.36 percent from the prior year. Net interest income (TEB) as a
percent of average earning assets was 4.58 percent compared to 4.51 percent for
1992. The increase in this ratio during 1993 can be attributed to a decrease
in rate paid on interest-bearing liabilities that exceeded the decrease in the
yield on earning assets.
Yields on earning assets declined in 1993 as a result of lower interest
rates generally. The yield on earning assets declined 68 basis points from
8.46 percent to 7.78 percent for the year 1993 compared to 1992. Approximately
$26,444,000 of earning assets were acquired primarily with cash received from
increased deposits. The decline in yields on average earning assets was offset
by a 78 basis point decrease in interest rates paid on average interest-bearing
liabilities from 4.36 percent in 1992 to 3.58 percent in 1993. Reduced loan
demand and declining market interest rates permitted bank management to
decrease the rates offered on demand accounts, savings, and money market
accounts. Rates paid for time deposits declined 76 basis points during 1993.
Average time deposits increased 3.42 percent to $162,056,000.
EFFECTS OF INFLATION, CHANGING PRICES, AND CHANGING INTEREST RATES
The financial statements presented herein were prepared in accordance with
generally accepted accounting principles and do not attempt to consider changes
in the relative value of money due to inflation over a period of time.
Inflation generally increases the costs of funds and operating overhead,
and to the extent loans and other assets bear variable rates, the yields on
such assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to the
same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates. From the beginning of
1994 through the first quarter of 1995, the Federal Reserve has increased
interest rates 300 basis points in an effort to curb inflation through monetary
policy. In addition, inflation affects financial institutions' increased cost
of goods and services purchased, the cost of salaries and benefits, occupancy
expense, and similar items. Inflation and related increases in interest rates
generally decrease the market value of investments and loans held and may
adversely affect liquidity, earnings, and shareholders' equity. Mortgage
origination and refinancings tend to slow as interest rates increase, and
generally reduce earnings from such activities. Changes in interest rates also
affect the mix and types of deposits and assets sought by customers. In the
summer of 1995, the Federal Reserve reduced rates by 50 basis points as
inflation fears subsided.
Changing property values, in an economy that is still struggling towards
recovery could have a negative impact on the value of real estate owned by CBI
acquired through foreclosure as well as real estate securing CBI's
- 78 -
<PAGE> 89
loans. Accordingly, management conducts an ongoing review of the property owned
through foreclosure and the property values securing delinquent loans and will
write down or reserve for marginal equity positions as deemed necessary.
NONINTEREST INCOME
Noninterest income consists of revenues generated from fee-based services
and commissions, and gains or losses recognized from the sale of investment
portfolio securities. Total noninterest income for 1994 decreased $568,000 or
22.1 percent compared to 1993. Noninterest income for 1993 decreased $512,000
or 16.6 percent from 1992. For the first nine months of 1995, total
noninterest income increased $267,000 or 18.8 percent from the same period in
1994.
The table below shows CBI's noninterest income for the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED % CHANGE
------------------------------------ ------------------
1994 1993 1992 94/93 93/92
------------------------------------ ------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts . . . $ 1,107 $ 1,162 $ 1,111 (4.73%) 4.59%
Trust income . . . . . . . . . . . . . . 716 588 449 21.77% 30.96%
Other income . . . . . . . . . . . . . . 350 378 408 (7.41%) (7.35%)
Investment securities gain (loss) . . . . (168) 445 1,117 (137.75%) (60.20%)
-------- -------- -------- ------- ------
TOTAL . . . . . . . . . . . . . . . . . . $ 2,005 $ 2,573 $ 3,085 (22.08%) (16.60%)
======== ======== ======== ======= ======
</TABLE>
Fee income from service charges on deposit accounts decreased slightly by
$55,000 (or 4.7 percent) in 1994 from 1993 and increased $51,000 or 4.6 percent
in 1993 from 1992. The decrease in 1994 resulted from a trend to higher
quality demand accounts that incurred fewer NSF charges. Emphasis on checking
account services, appropriate pricing for transaction deposit accounts, and fee
collection practices for other deposit services will be important factors to
increasing service charge income for future years. The first nine months of
1995 shows an increase of $4,000 or 0.5 percent in deposit service charges as
compared to the same period in 1994.
Noninterest income, excluding securities gains, increased as a result of
increased income from trust income, partially offset by decreased service
charges on deposit accounts and decreased fee income from secondary market
mortgages. These changes resulted from increased trust volume and increased
pricing and certain trust services partially offset by decreased service charge
and fee volume of activity.
Securities transactions resulted in losses of $168,000 for the year ended
December 31, 1994, compared to gains of $445,000 in 1993, or a total change of
$613,000. Securities gains in 1992 were $1,117,000.
For the year ended December 31, 1992, noninterest income increased due to
service charges on deposit accounts, primarily the result of repricing certain
services, increased trust volume and increased gains from securities sales.
Various recurring noninterest other income items include travelers check fees,
safe deposit box fees, and origination fees on mortgage loans.
- 79 -
<PAGE> 90
NONINTEREST EXPENSES
The table below shows CBI's noninterest expenses for the years indicated.
NONINTEREST EXPENSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED % CHANGE
---------------------------------------------------------------
1994 1993 1992 94/93 93/92
--------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits . . . . . . . . $ 5,342 $ 5,045 $ 4,550 5.9% 10.9%
Occupancy expense . . . . . . . . . . . . . . . 1,078 1,166 1,062 (7.5) 9.8
Equipment expense . . . . . . . . . . . . . . . 911 756 774 20.5 (2.3)
Stationery and supplies . . . . . . . . . . . . 356 273 294 30.4 (7.1)
Advertising . . . . . . . . . . . . . . . . . . 285 275 219 3.6 25.6
Insurance, including regulatory assessments . . 891 836 786 6.6 6.4
Postage . . . . . . . . . . . . . . . . . . . . 195 170 163 14.7 4.3
Taxes (other than payroll, real estate and
income taxes) . . . . . . . . . . . . . . 205 206 206 (0.5) 0.0
Directors' fees . . . . . . . . . . . . . . . . 265 266 233 (0.4) 14.2
Trust Department expense . . . . . . . . . . . 136 118 104 15.3 13.5
Other expense . . . . . . . . . . . . . . . . . 793 786 935 0.9 (15.9)
-------- -------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . $ 10,457 $ 9,897 $ 9,326 5.7% 6.1%
======== ======== =========
</TABLE>
Noninterest expenses increased in 1994 by $560,000 or 5.66 percent over
1993. This increase was primarily the result of an increase in salaries and
employee benefits from $5,045,000 in 1993 to $5,342,000 in 1994, or 5.89
percent. Salaries and employee benefits increased due to general salary
increases, increased profit sharing payments that are related to bank
performance and the related payroll taxes. Noninterest expenses totaled
$9,326,000 in 1992. As of September 30, 1995, total salary and employee
benefits increased $306,000 or 7.7 percent over the same period in 1994.
Occupancy expense decreased by $88,000 in 1994 compared to 1993, or 7.55
percent. This increase is primarily due to expenses incurred in 1993 related
to opening the Wildwood branch that did not recur in 1994. For the first nine
months of 1995, occupancy expenses increased $53,000 or 6.6 percent over the
same period in 1994.
FDIC deposit insurance premiums increased $55,000 or 7.07 percent in 1994
as a result of the increase in deposits. Since 1989, the annual premium rate
has increased from .09 percent of total deposits to .23 percent of total
deposits. The rate assessed on deposits will range from .23 percent to .29
percent, depending on the capital adequacy and examination ratings imposed by
governing bank regulatory authorities on individual financial institutions.
Management anticipates that the rate its subsidiary bank will be assessed will
be among the lowest based on these guidelines.
The increase in noninterest expenses in 1993 was attributable in part to a
10.88 percent growth in salaries and employee benefits, staffing additions for
a new branch opened in 1993, general salary increase, increased profit sharing
payments that are related to bank performance and related increases in payroll
taxes.
Occupancy and equipment expense increases in 1993 from 1992 were, in large
part, related to the opening of the branch in Wildwood.
FDIC deposit insurance premiums increased $65,000 or 9.15 percent in 1993
from 1992 due to increased deposit balances. Other noninterest expenses
decreased $150,000 or 16.03 percent in 1993 from 1992, primarily as a result of
decreased legal fees and provisions for claims against CNBL's Trust Department
totaling $178,000 in 1992 that did not recur in 1993.
- 80 -
<PAGE> 91
PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES
Net charge-offs for 1994 declined $176,000 or 64.7 percent to $96,000. The
significant decline in net charge-offs and delinquencies in 1994 resulted in a
$475,000 or 44.2 percent decline in the 1994 provision for loan losses when
compared to 1993. See "--Nonperforming Assets" and "--Allowance for Loan
Losses."
CBI's internal loan monitoring systems provide detailed monthly analysis of
delinquencies, nonperforming assets, and potential problem loans, which are
reviewed regularly by the Board of Directors.
Management determined the provision for loan losses which is charged to
operations by constantly analyzing and monitoring delinquencies, nonperforming
loans and the level of outstanding balances for each loan category, as well as
the amount of net charge-offs, and by estimating losses inherent in its
portfolio. While CBI's policies and procedures used to estimate the monthly
provisions for loan losses charged to operations are considered adequate by
management and are reviewed from time to time by the Office of the Comptroller
of the Currency (OCC), there exist factors beyond the control of CBI, such as
general economic conditions both locally and nationally, which make
management's judgment as to the adequacy of the provision necessarily
approximate. Based on current available information, management expects the
provision for loan losses to be proportionately lower in 1995 based on current
asset quality ratios.
For the year ended December 31, 1993, the provision for loan losses was
$1,075,000 compared to $1,400,000 for 1992. The 1993 reduction in the
provision resulted from a decline in net charge-offs and delinquencies from the
higher levels encountered in 1992 and 1991.
The following table provides certain information concerning CBI's
allowances for loan losses for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
SEPTEMBER 30, 1995 1994 1993 1992 1991 1990
-------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses beginning balance $ 2,994 $ 2,490 $ 1,687 $ 1,671 $ 1,412 $ 1,514
---------- ---------- --------- -------- -------- --------
Provision for loan loss expense 255 600 1,075 1,400 1,004 876
---------- ---------- --------- -------- -------- --------
Gross loan charge-offs:
Commercial, financial and agricultural 0 55 0 545 254 335
Installment 69 78 60 97 138 488
Real estate 4 78 321 790 456 197
---------- ---------- --------- -------- -------- --------
TOTAL CHARGE-OFFS (73) (211) (381) (1,932) (848) (1,020)
---------- ---------- --------- -------- -------- --------
Recoveries:
Commercial, financial and agricultural 22 59 33 0 2 0
Installment 20 8 54 34 44 41
Real estate 16 48 22 14 57 1
----------- ---------- --------- -------- -------- --------
TOTAL RECOVERIES 58 115 109 48 103 42
----------- ---------- --------- -------- -------- --------
ENDING BALANCE $ 3,234 $ 2,994 $ 2,490 1,687 1,671 1,412
=========== ========== ========= ======== ======== ========
Daily average loans outstanding* $ 209,058 $ 186,968 $ 170,577 $154,347 $136,118 $113,619
Allowance for loan losses to average
loans outstanding 1.55% 1.60% 1.46% 1.09% 1.23% 1.24%
Ratio of net charge-offs to average
loans outstanding .007% 0.05% 0.16% 0.90% 0.55% 0.86%
</TABLE>
* Net of unearned income
The allowance for loan losses was $2,994,000 at December 31, 1994, $504,000
higher than one year earlier. The ratio of the allowance for loan losses to
total loans outstanding (net of unearned income) was 1.51 percent at December
31, 1994, 1.39 percent at December 31, 1993, and 1.05 percent at December 31,
1992. The allowance for loan losses as a percent of nonaccrual loans was
595.23 percent at December 31, 1994, 305.99 percent at December 31, 1993, and
65.62 percent at December 31, 1992. During 1994, substantial improvement over
the prior year performance occurred in all significant measures of loan
quality. There were no accruing loans past due
- 81 -
<PAGE> 92
90 days or more at December 31, 1994 or 1993. The allowance for loan losses
was $3,234,000 at September 30, 1995, $296,000 higher than September 30,
1994. At September 30, 1995, the allowance for loan losses was 1.46 percent of
total loans outstanding.
During 1994, CBI experienced net charge-offs of $96,000, compared to
$272,000 one year earlier, a 64.71 percent reduction. Net charge-offs for 1992
were $1,384,000. Net charge-offs as a percent of average loans outstanding
were 0.05 percent for 1994, the lowest percentage CBI has reported since 1988.
Net installment loan losses were $70,000 in 1994, compared to $6,000 in 1993,
and $63,000 in 1992. Commercial, financial and agricultural losses were
($4,000) (net recovery), ($33,000) (net recovery) and $545,000 (net loss),
respectively, for the same periods. Real estate loan net charge-offs were
$30,000 in 1994, $299,000 in 1993 and $776,000 in 1992.
The following table summarizes CBI's allocation of the allowance for loan
losses to each type of loan and information regarding the composition of the
loan portfolio at the dates indicated.
ALLOCATION OF LOAN LOSS RESERVE
AS OF DECEMBER 31
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991
---- ---- ---- ----
AMOUNT % OF AMOUNT % OF AMOUNT % OF AMOUNT % OF
------ ---- ------ ---- ------ ---- ------ ----
TOTAL TOTAL TOTAL TOTAL
----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 683 6.8% $ 258 7.4% $ 268 8.8% $ 234 12.8%
Real estate 2,201 83.1 1,897 81.4 1,214 78.9 1,253 75.0
Consumer 110 10.1 335 11.2 205 12.3 184 12.2
------- ----- ------- ----- ------- ----- ------- -----
TOTAL $ 2,994 100.0% 2,490 100.0% 1,687 100.0% 1,671 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, CBI's loan loss experience, the
amount of past due and nonperforming loans, current and anticipated economic
conditions, and the values of certain loan collateral, and other assets. The
size of the allowance also reflects the large amount of permanent residential
loans held by CBI whose historical charge-offs and delinquencies have been very
satisfactory.
It is CBI's policy to charge off loans in the current period in which a
loss is considered probable. There are always risks of future losses which
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because these risks include the state of economy as well as conditions
affecting individual borrowers, management's judgment of the allowance is
necessarily approximate. It is also subject to regulatory examinations and
determinations as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance for loan losses and the size of the
allowance for loan losses in comparison to peer group companies identified by
the regulatory agencies.
In assessing the adequacy of the allowance, management relies predominantly
on its ongoing review of the loan portfolio, which is undertaken both to
ascertain whether there are probable losses which must be charged off and to
assess the risk characteristics of the portfolio in the aggregate. This review
considers the judgment of management, and also those of bank regulatory
agencies that review the loan portfolio as part of their regular examination
process. An examination by the OCC during the year revealed no major
differences in judgments or methodology related to the allowance for loan
losses.
On December 31, 1993, the allowance for loan losses was $2,490,000,
$803,000 higher than on December 31, 1992. The ratio of the allowance for loan
losses to net loans outstanding was 1.39 percent at December 31, 1993, compared
to 1.05 percent at December 31, 1992.
- 82 -
<PAGE> 93
For 1993, CBI had net charge-offs of $272,000 compared to $1,384,000 for
the same period in 1992. Total commercial, financial and agricultural loan net
(recoveries) were ($33,000) for 1993 versus $545,000 for the comparable period
in 1992. Total real estate net charge-offs were $299,000 in 1993 and $776,000
in 1992.
In assessing the adequacy of the allowance, management relies predominantly
on its ongoing review of the loan portfolio, which is undertaken both to
ascertain whether there are probably losses which must be charged off and to
assess the risk characteristics of the portfolio in the aggregate. This review
takes into consideration the judgments of the lending officers, senior
management and those the bank regulatory agencies that review the loan
portfolio as part of CBI's examination process. A specific percentage is
allocated to each loan category, with additional amounts being added for
individual problem loans considered to have specific loss potential. While all
information available is used by management to recognize losses in the loan
portfolio, there can be no assurances that future additions to the allowance
will not be necessary. CBI's loan committee reviews the assessments of
management in determining the adequacy of the allowance for loan losses.
CBI's allowance for loan losses is also subject to regulatory examinations
and determinations as to adequacy, which may take into account such factors as
the methodology used to calculate the allowance for loan loss reserves and size
of the loan loss reserve in comparison to a group of peer banks identified by
the regulators. During its routine examinations of CNBL, the Office of the
Comptroller of the Currency has, from time to time, required additions to
CNBLs' provisions for loan losses and allowances for loan losses as the
regulators' credit evaluations and allowance for loan loss methodology have
differed from those of the management of CNBL. During the last several years,
several large bank holding companies, located in various portions of the United
States, have substantially increased their provisions and reserves for loan
losses following regulatory examinations. Such regulatory examinations have
focused on loan quality, particularly that of real estate loans. CBI attempts
to reduce the risks of real estate lending through maximum loan-to-value
requirements as well as systematic cash flow and initial customer credit
history analyses. See "SUPERVISION AND REGULATION."
Management believes that the $3,234,000 in allowances at September 30,
1995, or 1.46 percent of total outstanding loans, net of unearned income, was
adequate to absorb known risks in the portfolio. No assurance can be given,
however, that adverse economic circumstances will not result in increased
losses in the loan portfolio.
NONPERFORMING ASSETS
CBI has policies, procedures and underwriting guidelines intended to
assist in maintaining the overall quality of its loan portfolio. CBI monitors
its delinquency levels for any adverse trends. Nonperforming assets consist of
loans on nonaccrual status, loans that have been renegotiated at more favorable
terms than those for similar credits, real estate and other assets acquired in
partial or full satisfaction of loan obligations and loans that are past due 90
days or more. CBI's policy generally is to place a loan on nonaccrual status
when it is contractually past due 90 days or more as to payment of principal or
interest. A loan may be placed on nonaccrual status at an earlier date when
concerns exist as to the ultimate collections of principal or interest. At the
time a loan is placed on nonaccrual status, interest previously accrued, but not
collected, is reversed and charged against current earnings. Loans that are
contractually past due 90 days or more which are well secured or guaranteed by
financially responsible third parties and are in the process of collection
generally are not placed on nonaccrual status.
Nonperforming assets include nonperforming loans and foreclosed real estate
held for sale. Nonperforming loans include loans classified as nonaccrual or
renegotiated. The table of Nonperforming Assets below shows the amount of
interest foregone from loans placed on nonaccrual. For 1994, the amount of
interest foregone was $579 compared to $45,705 for 1993. No interest was
recognized on nonperforming loans while classified as nonperforming.
Nonperforming assets at September 30, 1995, were $1,240,000, a decrease of
$338,000, or 21.4 percent, from September 30, 1994.
- 83 -
<PAGE> 94
During the past few years, the Southeastern region of the country began
experiencing a general improvement in the real estate loan market. In view of
these market conditions, management has closely monitored and will continue to
monitor CBI's real estate and commercial loan portfolio during 1995.
Particular attention will be focused on those credits targeted by the loan
monitoring and review process. Management's continued emphasis is on
maintaining a lower level of nonperforming assets and returning the current
nonperforming assets to an earning status.
Other foreclosed or repossessed assets taken in consideration of loan
amounts due CBI, which consists primarily of repossessed automobiles, are
classified in other assets and as of September 30, 1995 account for less than
0.02 percent of total assets. At year-end 1994, these assets accounted for
less than 0.01 percent of total assets.
Statement of Financial Accounting Standard No. 114, Accounting by Creditors
for Impairment of a Loan ("SFAS No. 114"), is effective for fiscal years
beginning after December 15, 1994. SFAS No. 114 addresses the accounting by
creditors for impairment of certain loans and requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or at the loans' observable market price or
the fair value of the collateral if the loan is collateral dependent. On
October 3, 1994, the Financial Accounting Standards Board issued Financial
Accounting Statement No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure ("SFAS No. 118"), which amends SFAS No.
114. Under SFAS NO. 118, creditors are permitted to use existing methods for
recognizing interest income on impaired loans. SFAS No. 118 requires that any
entity disclose its policy for recognizing interest income in impaired loans,
including how cash receipts are recorded. The provisions of SFAS No. 118 are
effective concurrent with the effective date of SFAS No. 114. The adoption of
SFAS No. 114 has not had a material effect on CBI's financial condition or
results of operations.
As of September 30, 1995, nonperforming assets were .56 percent of loans
outstanding plus foreclosed real estate held for sale compared to .81 percent
for September 30, 1994. Nonaccrual loans were .28 percent of loans outstanding
at September 30, 1995, compared to the previous level of .38 percent for period
ending September 30, 1994.
At December 31, 1994, nonperforming assets were .60 percent of loans
outstanding plus foreclosed real estate held for sale compared to 1.60 percent
for year-end 1993. Nonaccrual loans were .25 percent of loans outstanding at
year-end 1994 compared to the previous year-end level of .45 percent.
The following table summarizes nonperforming loans and other real estate
owned at the dates indicated.
NONPERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------- ---------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans (1) . . . . . . . . . . $ 621 $ 612 $ 503 $ 812 $ 4,092 $ 1,631 $ 1,873
Renegotiated loans . . . . . . . . . . . 0 0 0 0 0 0 0
Other real estate owned . . . . . . . . . 619 966 687 2,046 1,521 1,179 684
-------- -------- -------- -------- -------- -------- --------
TOTAL NONPERFORMING ASSETS . . . . . . . $ 1,240 $ 1,578 $ 1,190 $ 2,858 5,613 2,810 2,557
======== ======== ======== ======== ======== ======== ========
Amount of loans outstanding at end
of year (2) . . . . . . . . . . . . . . $220,962 $194,017 $198,952 $178,600 $160,391 $146,223 $122,570
Total nonperforming loans as a
percentage of total loans . . . . . . . 28% .32% 0.25% 0.45% 2.55% 1.12% 1.53%
Ratio of total nonperforming assets to
loans outstanding and other real
estate owned at end of period . . . . . 56% 0.81% 0.60% 1.60% 3.50% 1.92% 2.09%
Ratio of total nonperforming assets to
total average assets . . . . . . . . . 28% .38% 0.28% 0.73% 1.54% 0.87% 0.90%
Accruing loans past due 90 days or more . 0 0 0 0 0 0 0
</TABLE>
(1) Interest income that could have been recorded during December 1994 and
1993 related to nonaccrual loans was $579 and $812, respectively, none
of which was included in interest income or net income. All
nonaccrual loans were secured.
(2) Net of unearned income.
- 84 -
<PAGE> 95
Nonperforming assets (other real estate owned and nonaccrual loans) at
December 31, 1994 were $1,190,000, a decrease of $1,668,000 or 58.36 percent
from December 31, 1993. At December 31, 1994, CBI's ratio of nonperforming
assets to loans outstanding plus other real estate owned was 0.60 percent,
compared to 1.60 percent at December 31, 1993. The decrease in nonperforming
assets from December 31, 1993 to December 31, 1994 included decreases in other
real estate owned of $1,359,000 and decreased nonaccrual loans of $309,000.
For the first nine months of 1995, nonperforming assets were $1,240,000, a
decrease of $338,000 or 21.4 percent from the same period in 1994. At
September 30, 1995, CBI's ratio of nonperforming assets to loans outstanding
plus other real estate owned was 0.56 percent compared to 0.81 percent at
September 30, 1994.
Nonperforming assets are subject to changes in the economy, both nationally
and locally, changes in monetary and fiscal policies, and changes in conditions
affecting various borrowers from CBI's subsidiary bank. No assurance can be
given that nonperforming assets will not in fact increase or otherwise change.
A similar judgmental process is involved in the methodology used to estimate
and establish CBI's allowance for loan losses.
At December 31, 1992, nonaccrual loans included one real estate loan of
$2,500,000 that was required to be included in nonaccrual loans by the OCC due
to weak financial statements of the borrower. The loan was written down to the
appraised value of the underlying real estate, was current and payments were
made in accordance with the terms of the loan agreement. During 1993, this
loan was removed from nonaccrual with the agreement of the OCC due to continued
satisfactory performance as per the terms of the loan. This loan performed
satisfactorily in 1994 and continued to perform satisfactorily through the
first nine months of 1995.
Nonperforming assets at December 31, 1993 were $2,858,000, a decrease of
$2,755,000 or 49.08 percent from December 31, 1992. At December 31, 1993,
CBI's ratio of nonperforming assets to loans outstanding plus other real estate
owned was 1.60 percent, compared to 3.50 percent at December 31, 1992. The
decrease in nonperforming assets from December 31, 1992 to December 31, 1993
included increases in other real estate owned of $525,000 and offset by
decreases in nonaccrual loans of $3,280,000. The decrease in nonaccrual loans
was substantially due to the upgrading of one large real estate loan classified
as nonaccrual at the direction of the OCC in 1992, as previously discussed.
DETAILS OF NONACCRUAL LOANS
AT DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Principal balance . . . . . . . . . . . . . . . . . . . . . . . . $ 503 $ 812
Interest that would have been recorded under original terms . . . 1 46
Interest actually recorded . . . . . . . . . . . . . . . . . . . 0 0
</TABLE>
INCOME TAXES
Income taxes for the year 1994 were $2,082,000 or 13.03 percent above the
$1,842,000 for 1993 which was 3.66 percent above the $1,777,000 in 1992. The
effective rate in 1994 was 25.75 percent and was 25.18 percent in 1993, and was
26.48 in 1992. The decrease in rate reflects the increased amount of
tax-exempt interest income in 1994 and 1993 compared to 1992. The first nine
months of 1995 have resulted in income tax expense of $1,699,000 as compared to
$1,547,000 for the same period in 1994. The effective tax rate for the first
nine months of 1995 was 26.3 percent compared to 25.7 percent for the first
nine months of 1994.
FDIC INSURANCE ASSESSMENTS
CBI, through its subsidiary, a Bank Insurance Fund ("BIF") member, is
subject to FDIC deposit insurance assessments. In September 1992, the FDIC
adopted a risk-based premium schedule which increased the assessment rates for
depository institutions. Under that schedule, which took effect for the
assessment period that began January 1, 1993, the premiums initially ranged
from $.23 to $.31 for every $100 of deposits of three capital
- 85 -
<PAGE> 96
groups - well capitalized, adequately capitalized or under capitalized - and
further assigned each BIF member to one of three subgroups within a capital
group, on the basis of supervisory evaluations by the institutions primary
federal and, if applicable, state regulators and other information relevant to
the institution's financial condition and the risk posed to the applicable
insurance fund. The actual assessment rate applicable to a particular
institution, therefore, depended in part upon the risk assessment
classification so assigned to the institutions by the FDIC. The FDIC recently
voted to reduce deposit insurance premiums for well capitalized banks from
$0.23 per $100 to $0.04 per $100 on deposits. Congress is considering various
new legislative proposals to address the undercapitalization of the FDIC's
Savings Associations Insurance Fund ("SAIF"), which could increase premiums
payable by commercial banks to the FDIC. During the years ended December 31,
1994, and December 31, 1993, CFI paid $833,133 and $778,338, respectively, in
BIF deposit insurance premiums.
EFFECTS OF ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement No. 119,
Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments. The statement requires additional financial disclosure for
derivative financial instruments. The disclosures describe the instruments
purposes and their financial statement presentation. Since the requirements of
the statement are disclosure related in nature, and CFI's exposure to
derivative financial instruments is small, the impact of CFI's financial
statements is not considered to be material.
The Financial Accounting Standards Board issued in December 1991, Statement
No. 107, Disclosures About Fair Value of Financial Instruments. The statement
requires disclosure of the fair values of financial instruments, both assets
and liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value. The statement
also requires disclosure of descriptive information pertinent to estimating the
fair values of the financial instruments. The statement is effective for
financial statements issued for fiscal years ending after December 15, 1995,
for entities with less than $150 million in total assets on the issuance date
of the statement. Disclosures about Fair Value of Financial Instruments are
included in the audited financial statements and are incorporated herein by
reference.
In April 1995, the Financial Accounting Standards Board has issued
Statement No. 121, Accounting For the Impairment of Long-Lived Assets and For
Long-Lived Assets to be Disposed. The statement requires an impairment loss to
be recognized when the aggregate of estimated future cash inflows to be
generated by an asset are less than the asset's carrying value. The statement
is effective for years beginning after December 15, 1995. Management has not
determined the effect of this statement on future financial statements, but
anticipates it to be immaterial.
In October, 1995, the Financial Accounting Standards Board has issued
Statement No. 123 accounting for stock-based compensation. The statement
requires that transactions with other than employees in which goods or services
are acquired by issuing equity instruments are accounted for using the value of
the instrument issued. This Statement also requires that stock based employee
compensation arrangements be accounted for either by applying the value method
or the intrinsic value method in Opinion 25 of the Accounting Principles Board
(which allows for disclosure only, rather than recognition of certain employee
compensation arrangements). This Statement applies to transactions entered
into after October 15, 1995. Management has not determined the effect of this
Statement on future financial statements, but anticipates it to be immaterial.
CONTINGENCIES AND LEGAL MATTERS
CBI is not a party to, nor is any of its property the subject of, any
material pending legal proceedings, other than ordinary routine proceedings
incidental to the business of banking. CNBL is involved in legal proceedings
primarily involving the recovery of loans previously charged-off or adequately
provided for in the allowance for loan losses. After a review of all
litigation with CBI's legal counsel, CBI's management believes that the
resolution of these matters will not have a material effect on CBI's or CNBL's
financial position. A lawsuit filed against CBI involving CNBL's Trust
Department was settled in 1993 and all expenses related thereto were accrued in
1992.
- 86 -
<PAGE> 97
Two other suits involving the Trust Department were settled in 1992, resulting
in increased legal fees and other expense in 1992 that did not recur in 1993.
Accordingly, these expenses decreased significantly in 1993.
FASB 107 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
CBI has calculated and reported the fair value of its financial instruments
in accordance with the Statement of Financial Accounting Standards No. 107.
While market value information has been reported for its investment securities
portfolio in prior years based on quoted market prices, this statement also
requires the estimating of fair values for financial instruments with no quoted
market prices. For most instruments with no quoted market values, there are a
variety of judgments which must be approved with a wide variation in reported
results. Management has followed the requirements of the statement and used an
acceptable method to estimate fair value for these instruments. However,
various other values could result if different assumptions were used.
Therefore, management believes it is not relevant and potentially misleading to
compare the amount of appreciation or depreciation of financial instruments
with no quoted values to any other financial institution. Disclosures about
Fair Value of Financial Instruments are included in the audited financial
statements and are incorporated herein by reference.
Although the statement does not prohibit estimating and reporting the fair
value of deposits, management has elected not to estimate a value for its core
deposit portfolio because of reliability and comparability issues.
- 87 -
<PAGE> 98
SELECTED QUARTERLY INFORMATION
Quarterly Consolidated Income Statement (1)
<TABLE>
<CAPTION>
(Dollars in thousands except
per share data) 1994 Quarters 1993 Quarters
--------------------------------------- ------------------------------------
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income:
Interest income . . . . $ 8,182 $ 7,862 $ 7,744 $ 7,228 $ 7,244 $ 7,211 $ 7,225 $ 7,002
Interest expense . . . (3,418) (3,215) (2,959) (2,863) (2,878) (2,949) (2,963) (2,995)
------- ------- ------- ------- ------- ------- ------- -------
Net interest income . . 4,764 4,647 4,785 4,365 4,366 4,262 4,262 4,007
------- ------- ------- ------- ------- ------- ------- -------
Provision for loan losses . (77) (201) (172) (150) (400) (225) (225) (225)
------- ------- ------- ------- ------- ------- ------- -------
Noninterest income:
Service charges on deposit
accounts . . . . . . 272 282 269 284 297 299 274 292
Trust income . . . . . 177 174 156 209 158 143 145 142
Other income . . . . . 100 88 68 95 100 90 94 94
Investment securities
gains (losses). . . . (44) 0 (178) 54 55 111 59 220
------- ------- ------- ------- ------- ------- ------- -------
Total noninterest
income . . . . . . . . 505 544 315 642 610 643 572 748
------- ------- ------- ------- ------- ------- ------- -------
Noninterest expenses:
Salaries and employee
benefits . . . . . . 1,348 1,334 1,342 1,318 1,251 1,227 1,264 1,303
Occupancy expense . . . 312 269 184 313 325 271 255 315
Equipment expense . . . 229 220 252 210 181 191 200 184
Stationery and supplies 121 72 98 65 102 54 57 60
Advertising . . . . . . 97 60 66 62 81 61 68 65
Insurance, including
regulatory
assessments . . . . . 228 228 218 217 206 214 206 205
Postage . . . . . . . . 47 48 51 49 41 42 40 47
Taxes (2) . . . . . . . 51 18 70 66 49 56 52 49
Directors' fees . . . . 63 66 69 67 66 65 66 69
Trust department
expense . . . . . . . 31 44 26 35 28 36 27 27
Other expense . . . . . 220 177 117 279 215 167 154 255
------- ------- ------- ------- ------- ------- ------- -------
Total noninterest expenses (2,747) (2,536) (2,493) (2,681) (2,545) (2,384) (2,389) (2.579)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 2,445 2,454 2,435 2,176 2,031 2,296 2,220 1,951
Provision for income taxes (901) (904) (896) (803) (739) (839) (815) (632)
------- ------- ------- ------- ------- ------- ------- -------
Net income before cumulative
effect of a change in
accounting principle . . 1,544 1,550 1,539 1,373 1,292 1,457 1,405 1,319
Cumulative effect on prior
years (to December 31,
1992) of changing
method of account for
income taxes . . . . . 0 0 0 0 0 0 0 255
------- ------- ------- ------- ------- ------- ------- -------
Net income . . . . . . . . $ 1,544 $ 1,550 $ 1,539 $ 1,373 $ 1,292 $ 1,457 $ 1,405 $ 1,574
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- 88 -
<PAGE> 99
<TABLE>
<CAPTION>
(Dollars in thousands except
per share data) 1994 Quarters 1993 Quarters
-------------------------------------- -------------------------------------
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income before
cumulative effect of a
change in accounting
principle . . . . . . . 38 .38 .38 .34 .32 .36 .35 .32
Cumulative effect on prior
years (to December 31,
1992) of changing
method of accounting
for income taxes) . . 0 0 0 .06 0 0 0 .06
------- ------ ------ ------- ------ ------ ------ ------
Net income . . . . . . . .38 .38 .38 0 .32 .36 .35 .38
Cash dividends declared
on common stock . . . $ .35 $ .00 $ .00 $ .00 $ .31 $ .00 $ .00 $ .00
Market price of common stock
at end of period . . . . . $ 16.00 $15.25 $14.00 $12.875 $12.00 $11.13 $ 9.75 $ 9.00
</TABLE>
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Taxes other than payroll, real estate and income taxes.
- 89 -
<PAGE> 100
CBI BUSINESS
CBI is a Florida corporation that is registered with the Board of Governors
of the Federal Reserve System (the "Federal Reserve") as a "bank holding
company" under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Through its banking subsidiary, CBI provides a wide range of commercial
and retail banking services, trust services and various other financial
services in central Florida. Its principal subsidiary is Citizens National
Bank of Leesburg, N.A. ("CNBL"), a national banking association that is a
member of the FDIC. CNBL currently operates six full service banking offices
in Lake County, Florida, one in Sumter County, Florida, and one in Marion
County, Florida. An application is currently in process to open a full service
branch in Ocala, Marion County, Florida. The application was filed with the
Office of the Comptroller of the Currency on November 15, 1995. The applied
branch site is located at 1515 East Silver Springs Boulevard, Suite E-1. This
branch application is a separate undertaking from the proposed merger with CFB.
For the year ended December 31, 1994, and the nine months ended September
30, 1995, CBI reported net income of approximately $6.0 million and $4.8
million, respectively. As of September 30, 1995, CBI had total consolidated
assets of approximately $460.0 million and consolidated shareholders' equity of
approximately $43.1 million.
While the Merger is CBI's first acquisition, CBI will continue to evaluates
acquisition opportunities from time to time. As a result, acquisition
discussions and, in some cases, negotiations may take place. Future
acquisitions involving cash, debt or equity securities may arise. Acquisitions
may involve the payment of a premium over book and market values and,
therefore, some dilution of CBI's book value and/or net income per common share
may occur in connection with any such future acquisitions. See "PRO FORMA
CONDENSED COMBINED FINANCIAL DATA."
CBI's principal executive offices are located at 1211 North Boulevard West,
Leesburg, Florida 34748-5351, and its telephone number is (904) 787-5111. For
additional information regarding CBI and its business, see "AVAILABLE
INFORMATION," "--Selected Financial Data" and "SUPERVISION AND REGULATION."
- 90 -
<PAGE> 101
DESCRIPTION OF CBI PROPERTY
The main office of CNBL is located in an approximately 26,400 square foot
building owned by CNBL located at 1211 North Boulevard West, Leesburg, Florida.
The building is a two-story modern building, having six drive-in windows and
two walk-up banking windows. Across the street is a 1,000 square foot building
which accommodates eight drive-ins, one of which is an ATM, and one walk-up
window. CBI maintains its operations, including all executive offices and
loans and trust facilities, in an adjacent three-story building of
approximately 43,600 square feet, which is connected to CNBL's main office
building by a walk through at the second story level.
As of December 1, 1995, the net carrying value of all offices was
approximately $4,853,000. CNBL's branch offices are described as follows:
Fruitland Park Branch, located at the corner of U. S. 27, 441 and Palm
Street, Fruitland Park, Florida, consists of a one story building with
approximately 3,000 square feet. Four drive-in windows are at this location,
one of which is an ATM.
Lake Square Mall Branch, located at 7000 South U. S. Highway 441, is a one
story building with approximately 3,600 square feet located on a land lease.
Six drive-in windows are at this location, one of which is an ATM.
The Villages Branch, located at North U. S. Highway 441, Lady Lake,
Florida, is a one story building with approximately 5,000 square feet. Six
drive-in windows are at this location, one of which is an ATM.
Eustis Branch, located at 200 Orange Avenue, Eustis, Florida, is a leased
building with approximately 2,600 square feet. There is one drive-in window,
and one walk-up ATM at this location.
Tavares Branch, located at 359 East Burleigh Boulevard, Tavares, Florida,
is a leased building with approximately 1,250 square feet. There are no
drive-in windows at this location, however, there is one free standing ATM
located in the front parking lot.
Wildwood Branch, located at 300 South Main Street, Wildwood, Florida, is a
one story building with 6,298 square feet. There are four drive-in windows,
and one walk-up ATM at this location.
Ocala Branch - Applications Pending, located at 1515 East Silver Springs
Boulevard, Suite E-170, is an office located in a strip shopping complex with
1,000 square feet and is currently serving as a loan production office. There
will be one lobby teller station pending approval of the application.
- 91 -
<PAGE> 102
MANAGEMENT OF CBI
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding directors and
officers of CBI.
<TABLE>
<CAPTION>
AGE AS OF
SEPTEMBER 30,
NAME 1995 POSITIONS
---- ---------------- ---------
<S> <C> <C>
Clifton L. Bridges, M.D. (1) 51 Chairman of the Board of Directors
Kenneth W. Mullis (2) 52 Director and President and Chief Executive Officer
Michael T. Killingsworth 38 Senior Vice President, Chief Financial Officer and
Secretary of CBI
Bobby A. Sullivan (3) 60 Director
Frank S. Bouis (4) 69 Director
Douglas W. Braun (5) 46 Director
W. Thomas Brooks (6) 46 Director
Thomas N. Grizzard (7) 56 Director
W.F. Herlong, Jr. (8) 62 Director
Wendell F. Husebo (9) 68 Director
Walter S. McLin (10) 60 Director
Linda Spradlin (11) 57 Director
Ferrell D. Young, D.V.M. (12) 54 Director
</TABLE>
- --------------------------
(1) Dr. Bridges is a facial plastic surgeon and is President of Bridges, Hardy
& Milstead, M.D., P.A.
(2) Mr. Mullis has served as President and Chief Executive Officer of CBI and
CNBL since 1990.
(3) Mr. Sullivan has notified CFB that he will retire from CBI and resign from
all of his offices with CBI, other than in the capacity as director, on or
about December 31, 1995.
(4) Mr. Bouis is a citrus farmer, an agricultural engineer/international
consultant and real estate developer. He is the President of Florida Fruit
Company, Florida Fruit Harvesters, Inc., Montverde Groves, Inc. and Knight
Grove, Inc.
(5) Mr. Braun has been President of Besco Electric Supply Co. since 1983, an
electrical wholesale business located in Leesburg, Florida.
(6) Mr. Brooks is a certified public accountant and is President of Brooks,
Wiley, Young, Padgett & Kleiser, P.A. He is a director of Foliage Design
Systems Franchise Company, Boys and Girls Club of Lake County and Leesburg High
School Foundation.
(7) Mr. Grizzard is a Realtor and is President of Tom Grizzard, Inc., a realty
company located in Leesburg, Florida. Mr. Grizzard is a Trustee of the Beverly
Grizzard Residual Trust. He manages Leesburg Lake Shore Mobile Home Park and
is a developer of Beverly Harbors Condominiums.
(8) Mr. Herlong is an investor in stocks, bonds and real estate. Formerly, he
was Vice President of CNBL in Marketing & Business Development. Mr. Herlong is
a limited partner in A.S. Herlong Ltd., a real estate holding company located
in Leesburg, Florida, and is a travel consultant for AAA Auto Club South.
(9) Mr. Husebo is Chairman of Husebo Advertising/Public Relations, Inc., in
Leesburg, Florida, a regional agency he organized in 1962. He has been active
in business, civic and church activities in Leesburg since 1951.
- 92 -
<PAGE> 103
(10) Mr. McLin is an attorney-at-law and has practiced in Lake
County, Florida since 1962. He is President of McLin, Burnsed,
Morrison, Johnson & Robuck, P.A. He currently serves as a member of
the Board of Directors of Blue Cross and Blue Shield of Florida, Inc.
and Florida Combined Life Insurance Company, Inc.
(11) Mrs. Spradlin is President of Fox Fire Farms, Inc., a horse farm
located in Leesburg, Florida. She is a Trustee of Poinsettia Land
Trust, a real estate holding company.
(12) Dr. Young is a veterinarian. He is owner and practitioner of Northgate
Animal Hospital d/b/a Ferrell D. Young, D.V.M., P.A., Leesburg, Florida
and Animal Clinic of Lady Lake, Florida. He has been in practice for
26 years. He is a member of FVMA, AVMA, and is Secretary/Treasurer of
Lake County Veterinary Emergency Clinic.
(13) Mr. Killingsworth was Vice President and Cashier Southeastern Bank,
Darien, Georgia until February 28, 1995, at which time he joined CBI.
- 93 -
<PAGE> 104
OWNERSHIP OF CBI COMMON STOCK
As of September 30, 1995, CBI's records indicated the following number of
shares were beneficially owned by (i) all persons who own beneficially 5% or
more of the CBI Common Stock, (ii) each person who is a director or an
executive officer of CBI and (iii) all directors and executive officers as a
group
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP PERCENT OF CBI COMMON STOCK
NAME OF OF CBI COMMON STOCK PERCENT TO BE OUTSTANDING AT
BENEFICIAL OWNER (NUMBER OF SHARES) OF CLASS (%)(1) THE EFFECTIVE TIME (%)(2)
---------------- ------------------ --------------- -------------------------
<S> <C> <C> <C>
Clifton L. Bridges, M.D. 146,767 3.6 3.3
Kenneth W. Mullis 22,493 * *
Bobby A. Sullivan 11,156 * *
Frank S. Bouis 132,480 3.3 3.0
Douglas W. Braun 68,471 1.7 1.5
W. Thomas Brooks 26,837 * *
Thomas N. Grizzard 20,197 * *
W.F. Herlong, Jr. 31,880 * *
Wendell F. Husebo 67,649 1.7 1.5
Walter S. McLin 65,622 1.6 1.5
Linda Spradlin 185,949 4.6 4.2
Ferrell D. Young, D.V.M. 48,576 1.2 1.1
Directors and executive 827,077 20.4 18.5
officers as a group
(12 persons)(3)
</TABLE>
- ------------------------------
* Less than 1%.
(1) Based on 4,047,643 shares of CBI Common Stock outstanding as of
September 30, 1995.
(2) Based on 4,472,643 shares of CBI Common Stock outstanding as of the
Effective Time of the Merger.
(3) The percentage of CBI Common Stock that will be owned by CBI directors
at the Effective Time does not include 65,900 shares of CBI Common
Stock that Terry E. Trexler will receive at the Merger. Mr. Trexler
is expected to be elected to the CBI Board of Directors following the
Effective Time.
(4) Information relating to beneficial ownership of Common Stock by
directors is based upon information furnished by each person using
"beneficial ownership" concepts set forth in rules of the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Under such rules, a person is deemed to
be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or direct the voting
of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. The person
is also deemed to be a beneficial owner of any security of which that
person has a right to acquire beneficial ownership within 60 days.
Under such rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed to
be a beneficial owner of securities as to which he or she may disclaim
any beneficial ownership. Accordingly, nominees are named as
beneficial owners of shares as to which they may disclaim any
beneficial interest. Except as indicated in other notes to this table
describing special relationships with other persons and specifying
shared voting or investment power, directors possess sole voting and
investment power with respect to all shares of Common Stock set forth
opposite their names.
- 94 -
<PAGE> 105
(5) Includes 1,341 shares held by Dr. Bridges' individual retirement
account and 52,14__ shares (over which Dr. Bridges exercises shared
voting and investment control) held jointly with his wife, Glenda J.
Bridges. Also includes 936 shares (over which Dr. Bridges exercises
no voting or investment control) held by his wife's individual
retirement account, 14,576 shares (over which Dr. Bridges exercises no
voting or investment control owner jointly by Dr. Bridges' wife and
her mother, 4,167 shares held by Dr. Bridges as custodian for his
minor children, and 69,800 shares held by the Bridges, Hardy &
Milstead, M.D., P.A., Money Purchase Pension Plan Trust, as to which
shares Dr. Bridges disclaims beneficial ownership.
(6) Includes 14,396 shares held by the Estate of Mr. Bouis' mother and
25,189 shares held by Florida Fruit Company.
(7) Includes 200 shares (over which Mr. Braun exercises shared voting and
investment control) held by Mr. Braun jointly with his wife. Also
includes 14,550 shares held by Besco Electric Supply, Inc. and 51,444
shares held by the Besco Electric Supply, Inc. Pension Plan, as to
which shares Mr. Braun disclaims beneficial ownership.
(8) Includes 2,973 shares held by Mr. Brooks' individual retirement
account and 21,464 shares (over which Mr. Brooks exercises shared
voting and investment control) held jointly with his wife, Ann H.
Brooks. Also includes 200 shares held by Mr. Brooks as custodian for
his minor daughter, Amy Elizabeth Brooks, and 200 shares (over which
Mr. Brooks exercises no voting or investment control) owned directly
by Mr. Brooks' son, Brian Chase Brooks, as to which shares Mr. Brooks
disclaims beneficial ownership.
(9) Includes 2,840 shares held by Mr. Grizzard's individual retirement
account and 6,429 shares held in trust for Mr. Grizzard (over which
Mr. Grizzard exercises sole voting and investment control). Also
includes 1,350 shares (over which Mr. Grizzard exercises no voting or
investment control) held by Mr. Grizzard's wife's individual
retirement account, 6,429 shares held in trust for Mr. Grizzard's
wife, Linda K. Grizzard (over which Mr. Grizzard exercises no voting
and investment control) and 3,149 shares (over which Mr. Grizzard
exercises shared voting and investment control) held by Mr. Grizzard
and his sister, Sally G. Spence Reeves, as Trustees of the Beverly
Grizzard Residuary Trust, as to which shares Mr. Grizzard disclaims
beneficial ownership.
(10) Includes 300 shares held by Mr. Herlong as Trustee of the Louise B.
Herlong Trust (Mr. Herlong's mother) and 300 shares held by Mr.
Herlong as Trustee of the W. Fred Herlong Trust (Mr. Herlong's
father), as to all of which shares Mr. Herlong disclaims beneficial
ownership.
(11) Includes 315 shares held by Mr. Husebo in trust for his minor
granddaughters, 7,761 shares held by Husebo Advertising/Public
Relations, Inc., and 27,668 shares held by the Husebo
Advertising/Public Relations, Inc. Profit Sharing Plan, as to all of
which shares Mr. Husebo disclaims beneficial ownership.
(12) Includes 19,869 shares held by Mr. McLin's individual retirement
account. Also includes 19,578 shares (over which Mr. McLin exercises
no voting or investment control) held by Mr. McLin's wife, Gwen F.
McLin, and 1,800 shares held in Mrs. McLin's individual retirement
account, as to which shares Mr. McLin disclaims beneficial ownership.
(13) Includes 10,000 shares (over which Mr. Mullis exercises shared voting
and investment control) owned jointly with his wife, Linda L. Mullis,
and 9,605 shares owned by Mr. Mullis' individual retirement account.
Does not include 11,025 shares subject to options granted to Mr.
Mullis by CBI pursuant to his employment, which options are not
exercisable within 60 days.
(14) Includes 162,135 shares held in two trusts for Mrs. Spradlin's mother,
Margaret W. Smith, of which Mrs. Spradlin serves as trustee, 6,440
shares held in trust for Mrs. Spradlin's son, Michael William
Spradlin, of which Mrs. Spradlin serves as trustee, 1,766 shares held
in two trusts for Mrs. Spradlin's grandchildren, Brittany Lyne
Spradlin and Kyle William Spradlin, of which Mrs. Spradlin serves as
trustee, 4,075 shares
- 95 -
<PAGE> 106
held in trust for Mrs. Spradlin's niece, Elizabeth Jackson, of which
Mrs. Spradlin serves as trustee, and 4,473 shares held in five trusts
for Mrs. Spradlin's grand nephews and grand niece, Aaron Loesch,
Daniel Roe, Michael Roe, Samuel Roe and Anna Jackson, of which Mrs.
Spradlin serves as trustee, as to all of which shares Mrs. Spradlin
disclaims beneficial ownership.
(15) Includes 1,975 shares held by Mr. Sullivan's individual retirement
account. Also includes 84 shares (over which Mr. Sullivan exercises
shared voting and investment control) owned jointly with Mr.
Sullivan's son, Keith A. Sullivan, 624 shares (over which Mr. Sullivan
exercises shared voting and investment control) owned jointly with Mr.
Sullivan's son, Scott J. Sullivan, and 1,974 shares (over which Mr.
Sullivan exercises no voting or investment control) owned by Mr.
Sullivan's wife's individual retirement account, as to which shares
Mr. Sullivan disclaims beneficial ownership.
(16) Includes 3,015 shares held by Dr. Young's individual retirement
account. Also includes 9,999 shares held in three trusts for Dr.
Young's children, Ferrell Durham Young, Jr., Lisa Marie Young, and
Beau Hartman Young, of which Dr. Young serves as trustee.
- 96 -
<PAGE> 107
CBI COMPENSATION OF EXECUTIVE OFFICERS
Under rules established by the Securities and Exchange Commission, the CBI
is required to provide certain data and information in regard to the
compensation and benefits provided to its chief executive officer and other
executive officers, including the executive officers with compensation in
excess of $100,000 (collectively, the President/Chief Executive Officer and the
Chief Financial Officer/Chief Operations Officer of CBI are referred to as the
"named executive officers"). The disclosure requirements for the named
executive officers include the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting these individuals. The Compensation Committee has prepared
the following report for inclusion in this Proxy Statement/Prospectus in
response to such requirements.
The following table sets forth certain elements of compensation of the
named executive officers of CBI or CNBL for the periods indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------
(a) (b) (c) (d) (e) (i)
Name Other Annual All Other
and Compensation Compensation
Principal Position Year Salary ($) Bonus ($) ($) (1) ($)
------------------ ---- ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Kenneth W. Mullis 1994 $147,700 $60,000 N/A $19,364 (2)
----
President and Chief 1993 $140,000 $50,000 N/A $13,665
Executive Officer ----
of CBI and CNBL
1992 $120,000 $36,000 N/A $11,942
----
Bobby A. Sullivan 1994 $110,000 $30,000 N/A $15,299 (2)
----
Senior Operations 1993 $105,000 $25,000 N/A $10,506
Officer, Chief ----
Financial Officer
and Secretary of 1992 $ 95,000 $20,000 N/A $ 9,454
CBI; SeniorVice ----
President and
Cashier of CNBL
</TABLE>
- --------------------------------
(1) CNBL furnishes automobiles to and pays club membership dues for certain of
its officers. However, the aggregate amount of personal benefits does not
exceed $10,000 for any one person.
(2) Includes contributions by CBI to the Profit Sharing Plan on behalf of the
named executive officers in the following amounts for 1994: Mr. Mullis --
$18,373, and Mr. Sullivan -- $13,684. Also includes insurance premiums paid by
CBI on term life insurance over $50,000 covering the named executive officers
in the following amounts for 1993: Mr. Mullis -- $991, and Mr. Sullivan --
$1,615.
- 97 -
<PAGE> 108
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
No Options or SARs were granted during 1994 to the named executive
officers, and neither of the named executive officers exercised options or SARs
during 1994. This table indicates the number of shares covered by both
exercisable and non-exercisable options as of December 31, 1994. Also reported
are the values for "in-the-money" options, which represent the positive spread
between the exercise price of any such existing options and the year-end price
of CBI's Common Stock.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS/SARS AT FY-
UNDERLYING UNEXERCISED END ($)
SHARES OPTIONS/SARS AT FY-END (#)
ACQUIRED ON VALUE REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
---- ------------ --- ----------------- -----------------
<S> <C> <C> <C> <C>
Kenneth W. Mullis 0 N/A Options: Options:
0(E) N/A(E)
11,025(U)(1) $112,786(U)
SARs: SARs:
0(E) N/A(E)
0(U) N/A(U)
Bobby A. Sullivan 0 N/A Options: Options:
0(E) N/A (E)
0(U) N/A (U)
SARs: SARs:
0(E) N/A (E)
0(U) N/A (U)
</TABLE>
- -------------------------
(1) In connection with his employment with CBI on July 9, 1990, Mr. Mullis was
granted a stock option (without tandem SARs) to purchase 10,000 shares of
Common Stock of CBI. Adjustments to such option due to stock dividends
declared and paid since that time have increased the option to cover 11,025
shares. Such option becomes exercisable upon the earlier to occur of (i) July
9, 2000 if Mr. Mullis is then still employed by CBI or CNBL, (ii) Mr. Mullis'
death while he is still so employed, or (iii) a sale, merger, stock exchange or
similar disposition of at least 51% of the outstanding stock of CBI during such
time as Mr. Mullis is employed by CBI or CNBL (a "Change in Control"). The
option expires upon the earlier to occur of (w) Mr. Mullis' termination of
employment prior to July 9, 2000 (other than by reason of death or a Change in
Control), (x) July 9, 2005, (y) 180 days after Mr. Mullis' death, or (z) 90
days following notice to Mr. Mullis of a Change in Control.
PENSION PLAN
CNBL maintains a noncontributory, tax-qualified defined benefit pension
plan (the "Pension Plan") for the benefit of eligible employees of CNBL. The
Pension Plan provides for the payment of fixed annual benefits upon an
employee's normal retirement at age 65. Benefits may also be paid upon early
retirement prior to the normal retirement age as further described below.
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<PAGE> 109
The following table sets forth, in straight life annuity amounts, the
estimated annual benefits payable upon retirement to persons in the specified
compensation and years-of-service classifications under the present provisions
of the Pension Plan. The Pension Plan amounts are not offset by Social
Security benefits.
<TABLE>
<CAPTION>
YEARS OF SERVICE (1)
COVERED ---------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 15,000 $ 4,500 $ 6,000 $ 7,500 $ 9,000 $ 9,000
$ 25,000 7,500 10,000 12,500 15,000 15,000
$ 35,000 10,500 14,000 17,500 21,000 21,000
$ 50,000 15,000 20,000 25,000 30,000 30,000
$ 75,000 22,500 30,000 37,500 45,000 45,000
$ 100,000 30,000 40,000 50,000 60,000 60,000
$ 125,000 37,500 50,000 62,500 75,000 75,000
$ 150,000 45,000 60,000 75,000 90,000 90,000
</TABLE>
(1) Assumes retirement at age 65 in 1994 with the number of credited years of
service shown in the table. The maximum compensation recognizable in accordance
with Code Section 401(a)(17)(B) for plan years beginning January 1, 1994 is
$150,000. In addition, the maximum annual benefit payable under the Pension
Plan pursuant to Code Section 415 is $118,800.
All employees become eligible to participate in the Pension Plan upon the
date of employment with CNBL. During 1994, annual benefits under the Pension
Plan were based upon the employee's years of service (up to a maximum of 30
years) and final average compensation. "Final average compensation" for this
purpose means the average annual salary for the five consecutive years of the
last ten years of employment in which a participant had the highest salary.
Under the Pension Plan's present provisions, the normal retirement benefit
at age 65 is equal to 2% of a participant's final average compensation times
years of service, up to a maximum of 30 years. The normal retirement benefit
is reduced by 1/15 for each of the first five years and 1/30th for each of the
next five years by which the date that the payments commence precedes the
participant's normal retirement date. Benefits are distributed at retirement,
death or termination of employment in the form of a joint and survivor annuity,
installment payments, lump sum payment, or alternate form of annuity as elected
by the participant (with the consent of the spouse). Benefits under the
Pension Plan become fully vested at the earlier of normal retirement age (age
65) or the completion of five years of service.
With reference to the above Summary Compensation Table, the 1994 covered
compensation of the named executive officers for purposes of the Pension Plan
included the cash amounts included in the 1994 Salary column of the Summary
Compensation Table. The 1994 covered compensation of each of the named
executive officers for purposes of the Pension Plan is as follows: Mr. Mullis
- -- $147,700, and Mr. Sullivan --$110,000. The estimated credited years of
service of each of the named executive officers as of December 31, 1994 is as
follows: Mr. Mullis -- 5 years, and Mr. Sullivan -- 30 years.
CBI COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1994 were Walter S. McLin,
Frank S. Bouis, W. Thomas Brooks, Thomas N. Grizzard and Hugh A. Bryson. Mr.
Bryson retired from the CBI Board of Directors in 1995.
- 99 -
<PAGE> 110
Walter S. McLin, a director of CBI and CNBL and Chairman of the
Compensation Committee, is the President and a principal shareholder of McLin,
Burnsed, Morrison, Johnson & Robuck, P.A. ("McLin, Burnsed"), a law firm
located in Leesburg, Florida. McLin, Burnsed, as general counsel to CBI,
performed various legal services for CBI and CNBL during the fiscal year ended
December 31, 1994, and received approximately $60,839 for such services. This
excludes fees paid by Bank customers in transactions in which McLin, Burnsed
represented CNBL. In addition, the McLin, Burnsed firm obtained a recovery of
$46,375 in 1994 for legal fees incurred in prior years.
Douglas W. Braun, a director of CBI and CNBL, is the President of Besco
Electric Supply Co., an electrical wholesale business located in Leesburg,
Florida. CNBL purchased from Besco Electric Supply Co. various supplies
totaling $2,146 during the fiscal year ending December 31, 1994.
Wendell F. Husebo, a director of CBI and CNBL and Chairman of CNBL's Trust
Committee, is the Chairman and a principal shareholder of Husebo
Advertising/Public Relations, Inc. ("Husebo Advertising"), an advertising firm
located in Leesburg, Florida. Husebo Advertising performed various advertising
services for CBI and CNBL during the fiscal year ended December 31, 1994, and
received approximately $322,429 for such services, which included actual costs
of advertising by television, radio, newspaper, billboard and specialty items.
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS OF CBI
Several of CBIs' directors, officers and their affiliates, including
corporations and firms of which they are officers or in which they and/or their
families have an ownership interest, are customers of CBI and CNBL. These
persons, corporations, and firms have had transactions in the ordinary course
of business with CBI and CNBL, including borrowings of material amounts, all of
which, in the opinion of management, were on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated persons and did not involve more than
the normal risk of collectibility or present other unfavorable features. CBI
and CNBL expect to have such transactions on similar terms with its directors,
officers, and their affiliates in the future. The aggregate amount of loans
outstanding by CNBL to directors, executive officers, and related parties of
CBI or CNBL as of December 31, 1994, was approximately $3,093,648, which
represented approximately 9.14% of the consolidated shareholders' equity on
that date.
For information concerning specific transactions and business relationships
between CBI or CNBL and certain of its directors or executive officers, see
"Compensation Committee Interlocks and Insider Participation."
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<PAGE> 111
DESCRIPTION OF CBI CAPITAL STOCK
The authorized capital stock of CBI consists of 10,000,000 shares of Common
Stock, of which 4,047,643 shares were issued and outstanding as of September
30, 1995. No other series or class of capital stock is authorized. Holders of
CBI Common Stock are entitled to receive such dividends as may be declared by
the CBI Board out of funds legally available therefore, and, in the event of
liquidation or dissolution, to receive the net assets of CBI remaining after
payment of all liabilities. Each holder of CBI Common Stock is entitled to one
vote per share of CBI Common Stock held on matters for which CBI shareholders
are entitled to vote. CBI shareholders are not entitled to any preemptive
rights, and each share of CBI Common Stock currently outstanding or to be
issued in connection with the Merger is or will be fully paid and
nonassessable.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
The companies are subject to several anti-takeover provisions under Florida
law that apply to public corporations organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The companies have not elected to opt out of those
provisions. The FBCA prohibits the voting of shares in a publicly-held Florida
corporation that are acquired in a "control share acquisition" unless the
holders of a majority of the corporation's voting shares (exclusive of shares
held by officers of the corporation, inside directors or the acquiring party)
approve the granting of voting rights as to the shares acquired in the control
share acquisition or unless the acquisition is approved by the corporation's
board of directors. A "control share acquisition" is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote in the
election of directors within each of the following ranges of voting power: (i)
one-fifth or more but less than one-third of such voting power; (ii) one-third
or more but less than a majority of such voting power; and (iii) more than a
majority of such voting power.
The FBCA also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation form engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years or (iii) the consideration to
be paid to the corporation's shareholders satisfies certain fair price and form
requirements or (iv)the transaction is approved by the holders of two-thirds of
the corporation's voting shares other than those owned by the interested
shareholder. An interested shareholder is defined as a person who together
with affiliates and associates beneficially owns more than 10% of the
corporation's outstanding voting shares.
CERTAIN DIFFERENCES IN THE RIGHTS OF CBI AND CFB SHAREHOLDERS
At the Effective Time, CFB shareholders automatically will become
shareholders of CBI, and their rights as shareholders will be determined by
CBI's Certificate of Incorporation and Bylaws. The following is a summary of
the material differences in the rights of shareholders of CBI and CFB. CBI is a
Florida corporation having its principal office in Leesburg, Florida, and CFB
is a Florida corporation having its principal office in Ocala, Florida. As both
CBI and CFB are incorporated under the laws of the State of Florida, each of
CBI and CFB are governed by the provisions of the FBCA. The following sets
forth certain differences between the rights of a CBI shareholder under CBI's
Articles of Incorporation and Bylaws and the rights of a CFB shareholder under
CFB's Articles of Incorporation and Bylaws. This summary is not intended to be,
and should not be viewed as a complete discussion of such differences, and is
qualified in its entirety by reference to the FBCA, and the Articles of
Incorporation and Bylaws of each corporation. The following differences may be
determined in full by reference to the Articles of Incorporation and Bylaws of
CBI and CFB.
AUTHORIZED CAPITAL STOCK
CFB. CFB is authorized to issue 750,000 shares of CFB Common Stock, $.10
par value, of which as of November 30, 1995, (i) 304,480 shares of CFB Common
Stock were issued and outstanding and (ii) 18,000 shares
- 101 -
<PAGE> 112
of CFB Common Stock are subject to currently exercisable stock options which
are required to be exercised prior to the Closing Date of the Merger in
accordance with the Agreement and Plan of Merger.
CBI. CBI is authorized to issue 105,000,000 shares of CBI Common Stock,
$.01 par value, of which as of November 30, 1995, (i) 4,047,643 shares of CBI
Common Stock were issued and outstanding and (ii) 67,275 shares of CBI Common
Stock are subject to outstanding stock options of which 11,250 are currently
exercisable.
DIRECTORS
CFB. The Bylaws of CFB provide for a board of directors having between one
and twelve members. The directors or shareholders may determine or redetermine
the number of directors to be elected by amendment to the bylaws, provided that
there shall never be less than one.
Pursuant to CFB's Bylaws, any director may be removed from office with or
without cause at a meeting of the shareholders called expressly for that
purpose, as provided in Section 607.117 of the FBCA. Vacancies may be filled by
the majority vote of directors still in office though less than a quorum of the
Board of Directors, with the replacement to serve until the next election of
directors by the shareholders.
CBI. The Bylaws of CBI provide for a Board of Directors of 13 persons,
which may be increased or decreased from time to time by directors or
shareholders by amendment to the bylaws, but no decrease shall have the effect
of shortening the terms of any incumbent director. Vacancies may be filled by
the affirmative vote of a majority of the remaining directors although less
than a quorum of the Board of Directors.
Pursuant to CBI's Bylaws, any director may be removed from office with or
without cause by the affirmative vote of the holders of a majority of the votes
entitled to be cast by the holders of voting stock of CBI. Removal action may
be taken at any shareholders' meeting with respect to which notice of such
purpose has been given.
RIGHT OF FIRST REFUSAL
CFB. Under CFB's Bylaws, no stock may be transferred without first offering
the Board of Directors the opportunity to purchase the stock within 30 days
from receipt of a notice of the intent to sell at the proposed price and upon
the proposed terms as set forth in the written notice to the Board of
Directors.
CBI. CBI's Bylaws do not contain analogous right of first refusal
provisions.
INSPECTION RIGHTS
CFB. Under CFB's Bylaws, a holder of record of at least one quarter of one
percent of the shares, or of voting trust certificates therefor, at least six
months immediately preceding his demand of inspection shall have the right to
examine in person, or by agent or attorney at any reasonable time or times, for
any proper purpose its relevant books and records of accounts, minutes, and
records of shareholders and to make extracts therefrom, provided, that such
holder provide a written demand stating the purpose therefor.
CBI. Under CBI's Bylaws, any holder of record of shares, or of voting trust
certificates therefor, at least six months immediately preceding his demand of
inspection shall have the right to examine in person, or by agent or attorney
at any reasonable time or times, for any proper purpose its relevant books and
records of accounts, minutes, and records of shareholders and to make extracts
therefrom, provided, that such holder provide a written demand stating the
purpose therefor.
- 102 -
<PAGE> 113
SUPERVISION AND REGULATION
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to banks and bank holding companies and
provides certain specific information related to CBI and CFB. This is a summary
of certain statutory and regulatory provisions referred to below and is not
intended to be and should not be viewed as complete description of the statutes
and regulations applicable to CBI's and CFB's business. Supervision, regulation
and examination of CBI and CFB and their respective subsidiary banks by the
bank regulatory agencies are intended primarily for the protection of
depositors rather than shareholders of CBI and CFB.
GENERAL
CBI and CFB are both bank holding companies registered with the Federal
Reserve under the BHC Act. As such, CBI and CFB and their non-bank subsidiaries
are subject to the supervision, examination, and reporting requirements of the
BHC Act and the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks
by bank holding companies, such that CBI, CFB and any other bank holding
company located in Florida may now acquire a bank located in any other state,
and any bank holding company located outside Florida may lawfully acquire any
bank based in another state, regardless of state law to the contrary, in either
case subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior to that
date, a state has the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether.
The BHC Act generally prohibits CBI and CFB from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or
unsound banking practices. For example, factoring accounts receivable,
acquiring or servicing loans, leasing personal property, conducting discount
securities brokerage activities, performing certain data processing services,
acting as agent or broker in selling credit life insurance and certain other
types of insurance in connection with credit transactions, and performing
certain insurance underwriting
- 103 -
<PAGE> 114
activities all have been determined by the Federal Reserve to be permissible
activities of bank holding companies. The BHC Act does not place territorial
limitations on permissible non-banking activities of bank holding companies.
Despite prior approval, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness, or stability of any bank
subsidiary of that bank holding company.
Each of the banking subsidiaries of CBI and CFB is a member of the Federal
Deposit Insurance Corporation (the "FDIC"), and as such, its deposits are
insured by the FDIC to the maximum extent provided by law. Each such subsidiary
is also subject to numerous state and federal statutes and regulations that
affect its business, activities, and operations, and each is supervised and
examined by one or more state or federal bank regulatory agencies.
The state-chartered banking subsidiary of CFB, CFBO, is a member of the
Federal Reserve System and subject to regulation, supervision, and examination
by the Federal Reserve, the FDIC, and the state banking authorities of the
states in which they are located. The banking subsidiary of CBI, CNBL, is a
national banking association subject to regulation, supervision, and
examination by the Office of the Comptroller of the Currency ("OCC") and the
FDIC. The federal banking regulator for each of the banking subsidiaries of CBI
and CFB, as well as the appropriate state banking authorities in the case of
those depository institution subsidiaries that are state-chartered, regularly
examine the operations of each of the and are given authority to approve or
disapprove mergers, consolidations, the establishment of branches, and similar
corporate actions. The federal and state banking regulators also have the power
to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law.
PAYMENT OF DIVIDENDS
CBI and CFB are legal entities separate and distinct from their banking and
other subsidiaries. The principal sources of cash flow of both CBI and CFB,
including cash flow to pay dividends to their respective stockholders, are
dividends from their banking subsidiaries. There are statutory and regulatory
limitations on the payment of dividends by these depository institution
subsidiaries to CBI and CFB, as well as by CBI and CFB to their stockholders.
CFBO is subject to the respective laws and regulations of the state of
Florida as to the payment of dividends. CNBL is required, as a national banking
association, by federal law to obtain the prior approval of the OCC for the
payment of dividends if the total of all dividends declared by the bank in any
year would exceed the total of (i) such bank's net profits (as defined and
interpreted by regulation) for that year, plus (ii) the retained net profits
(as defined and interpreted by regulation) for the proceeding two years, less
any required transfers to surplus. In addition, national banks may only pay
dividends to the extent that their retained net profits (including the portion
transferred to surplus) exceed statutory bad debts (as defined by regulation).
If, in the opinion of the federal banking regulator, a bank or thrift under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal
agencies have issued policy statements that provide that bank holding companies
and insured banks should generally only pay dividends out of current operating
earnings.
At September 30, 1995, under dividend restrictions imposed under federal
and state laws, the banking subsidiaries of CBI and CFB, without obtaining
governmental approvals, could declare aggregate dividends to CBI and CFB of
approximately $13,830,000 and $1,268,000 million, respectively.
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<PAGE> 115
The payment of dividends by CBI and CFB and their banking subsidiaries may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
CAPITAL ADEQUACY
CBI, CFB, and their respective banking subsidiaries are required to comply
with the capital adequacy standards established by the Federal Reserve in the
case of CBI and CFB and the appropriate federal banking regulator in the case
of each of their banking subsidiaries. There are two basic measures of capital
adequacy for bank holding companies that have been promulgated by the Federal
Reserve: a risk-based measure and a leverage measure. All applicable capital
standards must be satisfied for a bank holding company to be considered in
compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio ("Risk-Based Capital Ratio") of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of Total Capital must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount
of loan loss reserves ("Tier 2 Capital"). At September 30, 1995, CBI'S
consolidated Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio
(i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 9.37% and
18.70%, respectively, and CFB's consolidated Risk-Based Capital and Tier 1
Risk-Based Capital Ratios were 9.97% and 15.46%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for bank holding companies that
meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. CBI's and CFB's respective Leverage Ratios at September 30, 1995, were
9.37% and ______%. The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve has indicated that it will consider a "tangible Tier 1 Capital
Leverage Ratio" (deducting all intangibles) and other indicia of capital
strength in evaluating proposals for expansion or new activities.
Each of CBI'S and CFB's banking subsidiaries is subject to risk-based and
leverage capital requirements adopted by its federal banking regulator, which
are substantially similar to those adopted by the Federal Reserve for bank
holding companies. Each of the banking was in compliance with applicable
minimum capital requirements as of September 30, 1995. Neither CBI, CFB, nor
any of their banking subsidiaries has been advised by any federal banking
agency of any specific minimum capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"--Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve, the OCC, and the FDIC have,
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<PAGE> 116
pursuant to FDICIA, proposed an amendment to the risk-based capital standards
that would calculate the change in an institution's net economic value
attributable to increases and decreases in market interest rates and would
require banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve policy, CBI and CFB are expected to act as sources of
financial strength for, and to commit resources to support, each of their
respective banking subsidiaries. This support may be required at times when,
absent such Federal Reserve policy, CBI or CFB may not be inclined to provide
it. In addition, any capital loans by a bank holding company to any of its
banking subsidiaries are subordinate in right of payment to deposits and to
certain other indebtedness of such banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(i) the default of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to any commonly controlled
FDIC-insured depository institution "in danger of default." "Default" is
defined generally as the appointment of a conservator or receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. The FDIC's claim for damages is superior to claims of stockholders
of the insured depository institution or its holding company, but is
subordinate to claims of depositors, secured creditors, and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The banking subsidiaries of CBI and CFB are subject to
these cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of any of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
banks' depository institution affiliates, and a potential loss of CBI'S or
CFB's respective investments in such other banking subsidiaries.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the banking regulator to appoint a receiver
or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital
level for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Risk-Based Capital Ratio of 10% or
greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, and a Leverage
Ratio of 5.0% or greater and (ii) is not subject to any written agreement,
order, capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized. An
institution with a Risk-Based Capital Ratio of 8.0% or greater, a Tier 1
Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or
greater is considered to be adequately capitalized. A depository institution
that has a Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based
Capital Ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is
considered to be undercapitalized. A depository institution that has a
Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio
of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be
significantly undercapitalized, and an institution that has a tangible equity
capital to assets ratio equal to or less than 2.0% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1 Capital for purposes of the
risk-based capital standards, plus the amount of outstanding cumulative
perpetual preferred stock (including
- 106 -
<PAGE> 117
related surplus), minus all intangible assets with certain exceptions. A
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meet its capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under FDICIA
to fund a capital restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of
the FDIC. In addition, the appropriate federal banking agency is given
authority with respect to any undercapitalized depository institution to take
any of the actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if it determines
"that those actions are necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
non-bank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region;" (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior officer, the agency must comply with certain
procedural requirements, including the opportunity for an appeal in which the
director or officer will have the burden of proving his or her value to the
institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain nondepository affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer.
At September 30, 1995, all of the banking subsidiaries of CBI and CFB had
the requisite capital levels to qualify as well capitalized.
FDIC INSURANCE ASSESSMENTS
In July 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, and replaced a transitional
system that the FDIC had utilized for the 1993 calendar year, assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the undercapitalized category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, as well as the
prior transitional system, there are nine assessment
- 107 -
<PAGE> 118
risk classifications (i.e., combinations of capital groups and supervisory
subgroups) to which different assessment rates are applied. Assessment rates
for members of both the Bank Insurance Fund ("BIF") for the first half of 1995,
as they had been during 1994, ranged from 23 basis points (0.23% of deposits)
for an institution in the highest category (i.e., "well capitalized" and
"healthy") to 31 basis points (0.31% of deposits) for an institution in the
lowest category (i.e., "undercapitalized" and "substantial supervisory
concern"). These rates were established for both funds to achieve a designated
ratio of reserves to insured deposits (i.e., 1.25%) within a specified period
of time.
Once the designated ratio for the BIF was reached, which appears to have
occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment
rates at such levels that would maintain a fund's reserve ratio at the
designated level. In August 1995, the FDIC adopted final regulations reducing
the assessment rates for BIF-member banks. Under the revised schedule,
BIF-member banks, starting with the second half of 1995, will now pay
assessments ranging from 4.0 basis points to 31 basis points, with an average
assessment rate of 4.5 basis points. Refunds, with interest, will be paid for
assessments for the month(s) after the month in which the designated reserve
ratio for the BIF was reached, as well as for the quarterly payment made on
September 30, 1995, assuming that the designated reserve ratio was achieved
prior to June 30, 1995. More recently, on November 14, 1995, the FDIC announced
that, beginning in 1996, it would further reduce the deposit insurance premiums
for BIF members in the highest capital and supervisory categories to $2,000 per
year, regardless of deposit size.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
SAFETY AND SOUNDNESS STANDARDS
The FDIA, as amended by FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits
and such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted, effective
August 9, 1995, a set of guidelines prescribing safety and soundness standards
pursuant to FDICIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth
and compensation, fees, and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal stockholders. The federal banking agencies determined
that stock valuation standards were not appropriate. In addition, the agencies
adopted regulations that authorize, but do not require, an agency to order an
institution that has been given notice by an agency that it is not satisfying
any of such safety and soundness standards to submit a compliance plan. If,
after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan or fails in any material respect to implement an accepted
compliance plan, the agency must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to which
an undercapitalized association is subject under the "prompt correction action"
provisions of FDICIA. See "--Prompt Corrective Act." If an institution fails to
comply with such an order, the agency may seek to enforce such order in
judicial proceedings and to impose civil money penalties. The federal bank
regulatory agencies also proposed guidelines for asset quality and earnings
standards.
- 108 -
<PAGE> 119
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
EXPERTS
The consolidated financial statements of CBI at December 31, 1994, 1993 and
1992, and for the three years then ended appearing elsewhere herein, for the
year ended December 31, 1994, have been audited by Purvis, Gray and Company,
independent auditors, as set forth in their report thereon included herein.
Such consolidated financial statements are included herein in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of CFB at December 31, 1994, 1993 and
1992, and for the three years then ended, appearing elsewhere herein, have been
audited by Purvis, Gray and Company, independent auditors, as set forth in
their report thereon included herein. Such consolidated financial statements
are included herein in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of CBI Common Stock being offered hereby is
being passed upon for CBI by Alston & Bird, Atlanta, Florida, special counsel
for CBI. Alston & Bird will also opine as to certain federal income tax
consequences of the Merger. See "THE MERGER--Certain Federal Income Tax
Consequences."
OTHER MATTERS
From time to time, CBI has engaged in transactions with CFB in the ordinary
course of business, including, without limitation, loan participations.
As of the date of this Proxy Statement/Prospectus, CFB's Board of Directors
knows of no matters that will be presented for consideration at the Special
Meeting other than as described in this Proxy Statement/Prospectus. However, if
any other matter shall come before the Special Meeting or any adjournments or
postponements thereof and shall be voted upon, the proposed proxy will be
deemed to confer authority to the individuals named as authorized therein to
vote the shares represented by such proxy as to any such matters that fall
within the purposes set forth in the Notice of Special Meeting as determined by
a majority of the Board of Directors.
- 109 -
<PAGE> 120
CITIZENS FIRST BANCSHARES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF CITIZENS FIRST BANCSHARES, INC. AND ITS SUBSIDIARY,
- ----------------------------------------------------------------------------------------
SEPTEMBER 30, 1995 (UNAUDITED) AND SEPTEMBER 30, 1994 (UNAUDITED)
-----------------------------------------------------------------
Consolidated Balance Sheets as of September 30, 1995 (Unaudited) and September 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Income for the six month periods ended September 30, 1995
and September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Cash Flows for the Nine months ended September 30, 1995
and September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
CONSOLIDATED FINANCIAL STATEMENTS OF CITIZENS FIRST BANCSHARES, INC. AND ITS SUBSIDIARY,
- ----------------------------------------------------------------------------------------
DECEMBER 31, 1994 AND 1993, WITH THE REPORT OF INDEPENDENT AUDITORS THEREON
---------------------------------------------------------------------------
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Income for the years ended December 31, 1994 and 1993 . . . . . . . . F-7
Consolidated Statement of Changes in Stockholders' Investment . . . . . . . . . . . . . . . . . . F-9
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1993 . . . . . . F-10
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-11
CONSOLIDATED FINANCIAL STATEMENTS OF CITI-BANCSHARES, INC. AND ITS SUBSIDIARY,
- ------------------------------------------------------------------------------
SEPTEMBER 30, 1995 (UNAUDITED) AND SEPTEMBER 30, 1994 (UNAUDITED)
-----------------------------------------------------------------
Consolidated Balance Sheets as of September 30, 1995 (Unaudited) and September 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Consolidated Statements of Income for the six month periods ended September 30, 1995
and September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Consolidated Statements of Cash Flows for the Nine months ended September 30, 1995
and September 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
CONSOLIDATED FINANCIAL STATEMENTS OF CITI-BANCSHARES, INC. AND ITS SUBSIDIARY,
- ------------------------------------------------------------------------------
DECEMBER 31, 1994, 1993 AND 1992, WITH THE REPORT OF INDEPENDENT AUDITORS THEREON
---------------------------------------------------------------------------------
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . F-31
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 . . . . . F-31
Consolidated Statement of Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 . . . F-34
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-35
</TABLE>
<PAGE> 121
CONSOLIDATED BALANCE SHEETS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
OCALA, FLORIDA
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
As of September 30,
----------------------------------
1995 1994
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash and Cash Equivalents $ 2,576 $ 2,197
Interest-Bearing Deposits in Banks 1 1
Investment Securities:
U.S. Treasury 1,499 1,972
U.S. Government Agencies 6,980 1,927
Other 667 664
------------- --------------
Total Investment Securities 9,146 4,563
------------- --------------
Federal Funds Sold 1,656 0
Loans, Less Allowance for Possible Loan Losses of $403
and $406 in 1995 and 1994, respectively 24,384 21,304
Bank Premises and Equipment, Net 1,431 1,039
Deferred Tax Asset, Net 0 281
Accrued Interest and Other Assets 344 235
------------- --------------
Total Assets $ 39,538 $ 29,620
============= ==============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Liabilities
Deposits:
Demand $ 6,053 $ 7,915
NOW and Money Market Accounts 7,718 8,305
Savings 4,726 2,842
Time 16,541 6,709
------------- --------------
Total Deposits 35,038 25,771
Federal Funds Purchased 0 923
Accrued Interest and Other Liabilities 266 94
------------- --------------
Total Liabilities 35,304 26,788
------------- --------------
Stockholders' Investment
Common Stock - Consolidated, $.10 Par Value, 750
Shares Authorized, 304 Shares Issued and
Outstanding in 1995 and 223 in 1993 $ 30 $ 22
Capital Surplus 3,818 3,016
Retained Earnings (Deficit) 398 (140)
Unrealized Losses on Certain Securities (12) (66)
------------- --------------
Total Stockholders' Investment 4,234 2,832
------------- --------------
Total Liabilities and Stockholders' Investment $ 39,538 $ 29,620
============= ==============
</TABLE>
F-1
<PAGE> 122
CONSOLIDATED STATEMENTS OF INCOME
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
OCALA, FLORIDA
<TABLE>
<CAPTION>
Nine Months Ended,
September 30,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Interest Income
Interest and Fees on Loans $ 1,847 $ 1,288
Interest on Investment Securities:
U.S. Treasury 52 72
U.S. Government Agencies 210 48
Other 32 27
Interest on Federal Funds Sold 142 20
------------- --------------
Total Interest Income 2,283 1,455
------------- --------------
Interest Expense
Deposits 852 312
Federal Funds Purchased 6 5
------------- --------------
Total Interest Expense (858) (317)
------------- ---------------
Net Interest Income 1,425 1,138
Provision for Possible Loan Losses 0 0
------------- --------------
Net Interest Income After Provision for Possible Loan Losses 1,425 1,138
Other Operating Income
Service Charges on Deposit Accounts 336 276
Other 102 78
------------- --------------
Total Other Operating Income 438 354
------------- --------------
Other Expenses
Salaries and Employee Benefits 581 612
Occupancy Expense 136 140
Equipment Expense 65 67
Other Operating Expenses 461 411
------------- --------------
Total Other Expenses (1,243) (1,260)
------------- ---------------
Income Before Income Taxes 620 232
Income Tax Expense (209) (74)
------------- ---------------
Net Income $ 411 $ 158
============= ==============
</TABLE>
F-2
<PAGE> 123
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY - OCALA, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 411 $ 158
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 0 0
Depreciation 55 56
Amortization of Premium on Investments 3 16
Decrease (Increase) in Deferred Tax Asset, Net 298 74
Decrease (Increase) in Accrued Interest and Other
Assets (117) (77)
Increase in Accrued Interest and other
Liabilities 138 31
------------- --------------
Net Cash Provided by Operating Activities 788 258
------------- --------------
Cash Flows From Investing Activities
Proceeds from Sales and Maturities of Investment
Securities 3,392 559
Purchases of Investment Securities (7,498) (86)
Proceeds from Sale of Equipment 0 2
Purchases of Equipment and CWIP (465) (9)
(Increase) in Loans (2,194) (5,470)
(Increase) Decrease in Federal Funds, Net (1,656) 743
------------- --------------
Net Cash (Used In) Provided by Investing Activities (8,421) (4,261)
------------- --------------
Cash Flows from Financing Activities
Increase (Decrease) in Deposits, Net 7,806 3,858
Federal Funds Purchased (1,240) 0
Proceeds from Stock Warrants 811 0
------------- --------------
Net Cash Provided by (Used in) Financing Activities 7,377 3,858
------------- --------------
Increase (Decrease) in Cash and Cash Equivalents (256) (145)
Cash and Cash Equivalents, Beginning of Period 2,832 2,341
------------- --------------
Cash and Cash Equivalents, End of Period $ 2,576 $ 2,196
============= ==============
Supplemental Disclosures of Cash Flow Information
Cash Paid for Interest $ 735 $ 325
============= ==============
Disposal of Premises and Equipment:
Cost 2 0
(Accumulated Deficit) 0 0
------------- --------------
Total 2 0
============= ==============
Total Income Taxes Paid $ 0 $ 0
============= ==============
</TABLE>
F-3
<PAGE> 124
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
DECEMBER 31, 1994 AND 1993
F-4
<PAGE> 125
[PURVIS GRAY & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Citizens First Bancshares, Inc. and
Citizens First Bank of Ocala
Ocala, Florida
We have audited the accompanying consolidated balance sheets of Citizens First
Bancshares, Inc. and Subsidiary (the Company) and Citizens First Bank of Ocala
(the Bank) as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in stockholders' investment and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens First
Bancshares, Inc. and Subsidiary and Citizens First Bank of Ocala as of December
31, 1994 and 1993, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company adopted Statement of Financial Accounting Standard No. 115, thereby
changing its method of accounting for certain investment securities.
February 14, 1995
Ocala, Florida /s/ Purvis Gray and Company
F-5
<PAGE> 126
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
<TABLE>
<CAPTION>
ASSETS
CONSOLIDATED BANK
---------------------------- ---------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 2,831,755 $ 2,340,570 $ 2,831,755 $ 2,340,570
Interest-Bearing Deposits in Banks 1,200 1,200 1,200 1,200
Investment Securities:
U.S. Treasury 1,965,210 2,519,244 1,965,210 2,519,244
U.S. Government Agencies 2,409,361 1,996,832 2,409,361 1,996,832
Other 648,842 651,225 648,842 651,225
------------ ------------ ------------ ------------
Total Investment Securities 5,023,413 5,167,301 5,023,413 5,167,301
------------ ------------ ------------ ------------
Loans, Less Allowance For Possible
Loan Losses of $410,280 and
$386,754 in 1994 and 1993, Respectively 22,190,346 15,833,572 22,190,346 15,833,572
Bank Premises and Equipment, Net 1,021,256 1,088,312 1,021,256 1,088,312
Deferred Tax Asset, Net 215,662 306,502 215,662 306,502
Accrued Interest and Other Assets 226,122 157,604 226,122 157,604
------------ ------------ ------------ ------------
TOTAL ASSETS 31,509,754 24,895,061 31,509,754 24,895,061
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
LIABILITIES
Deposits:
Demand 8,276,200 8,659,657 8,276,561 8,667,389
NOW and Money Market Accounts 7,657,943 5,545,271 7,657,943 5,545,271
Savings 2,758,459 2,710,154 2,758,459 2,710,154
Time ($100,000 and Over) 2,669,626 1,133,512 2,669,626 1,133,512
Other Time 5,870,213 3,862,948 5,870,213 3,862,948
------------ ------------ ------------ ------------
Total Deposits 27,232,441 21,911,542 27,232,802 21,919,274
Federal Funds Purchased 1,240,000 180,000 1,240,000 180,000
Accrued Interest and Other Liabilities 93,210 63,232 92,473 62,494
------------ ------------ ------------ ------------
TOTAL LIABILITIES 28,565,651 22,154,774 28,565,275 22,161,768
------------ ------------ ------------ ------------
STOCKHOLDERS' INVESTMENT
Common Stock - Consolidated, $.10 Par
Value, 750,000 Shares Authorized,
223,425 Shares Issued and
Outstanding in 1994 and 1993;
Bank - $5 Par Value, 150,000 Shares
Authorized, 150,000 Shares Issued and
Outstanding in 1994 and 1993 22,343 22,343 750,000 750,000
Capital Surplus 3,015,526 3,015,526 1,860,000 1,860,000
Retained Earnings (Deficit) (13,529) (297,582) 414,716 123,293
Unrealized Losses on Certain Securities (80,237) 0 (80,237) 0
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' INVESTMENT 2,944,103 2,740,287 2,944,479 2,733,293
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 31,509,754 $ 24,895,061 $ 31,509,754 $ 24,895,061
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 127
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
<TABLE>
<CAPTION>
CONSOLIDATED BANK
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 1,835,733 $ 1,409,498 $ 1,835,733 $ 1,409,498
Interest on Investment Securities:
U.S. Treasury 91,388 190,575 91,388 190,575
U.S. Government Agencies 67,519 73,560 67,519 73,560
Other 36,727 46,358 36,727 46,358
Interest on Federal Funds Sold 34,251 36,242 34,251 36,242
------------ ------------- ------------- ------------
TOTAL INTEREST INCOME 2,065,618 1,756,233 2,065,618 1,756,233
------------ ------------- ------------- ------------
INTEREST EXPENSE
Deposits 456,864 384,330 456,864 384,330
Federal Funds Purchased 6,631 982 6,631 982
------------ ------------- ------------- ------------
TOTAL INTEREST EXPENSE 463,495 385,312 463,495 385,312
------------ ------------- ------------- ------------
NET INTEREST INCOME 1,602,123 1,370,921 1,602,123 1,370,921
PROVISION FOR POSSIBLE LOAN LOSSES 0 21,000 0 21,000
------------ ------------- ------------- ------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 1,602,123 1,349,921 1,602,123 1,349,921
------------ ------------- ------------- ------------
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 386,192 430,302 386,192 430,302
Other 104,524 109,809 104,524 109,809
------------ ------------- ------------- ------------
TOTAL OTHER OPERATING INCOME 490,716 540,111 490,716 540,111
------------ ------------- ------------- ------------
OTHER EXPENSES
Salaries and Employee Benefits 805,231 814,469 805,231 814,469
Occupancy Expense 183,464 184,259 183,464 184,259
Equipment Expense 92,348 126,528 92,348 126,528
Other Operating Expenses 588,493 498,041 581,123 491,380
------------ ------------- ------------- ------------
TOTAL OTHER EXPENSES (1,669,536) (1,623,297) (1,662,166) (1,616,636)
------------ ------------- ------------- ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 423,303 266,735 430,673 273,396
INCOME TAX EXPENSE (139,250) (64,324) (139,250) (64,324)
------------ ------------- ------------- ------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 284,053 202,411 291,423 209,072
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGING
METHOD OF ACCOUNTING FOR INCOME TAXES 0 370,826 0 370,826
------------ ------------- ------------- ------------
NET INCOME $ 284,053 $ 573,237 $ 291,423 $ 579,898
============ ============= ============= ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 128
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONCLUDED)
<TABLE>
<CAPTION>
CONSOLIDATED BANK
----------------------------- ------------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE
Income Before Cumulative Effect of
Change in Accounting Principle $ 1.27 $ 0.91 $ 1.94 $ 1.39
Cumulative Effect on Prior Years of
Changing Method of Accounting For
Income Taxes .00 1.66 .00 2.47
---------- ---------- ---------- ----------
NET INCOME PER COMMON SHARE $ 1.27 $ 2.57 $ 1.94 $ 3.86
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE
Income Before Cumulative Effect of
Change in Accounting Principle $ 1.12 $ .81
Cumulative Effect on Prior Years of
Changing Method of Accounting For
Income Taxes .00 1.45
---------- ----------
FULLY DILUTED INCOME PER COMMON SHARE $ 1.12 $ 2.26
========== ==========
Book Value Before Adjustment For
Unrealized Losses on Certain
Securities $ 13.54 $ 12.26
Adjustment For Unrealized Losses
on Certain Securities (.36) .00
---------- ----------
BOOK VALUE AT DECEMBER 31, 1994 $ 13.18 $ 12.26
========== ==========
</TABLE>
See accompanying notes.
F-8
<PAGE> 129
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' INVESTMENT FOR THE YEARS
ENDED DECEMBER 31, 1994 AND 1993 CITIZENS
FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------------------------------------------------------------------
UNREALIZED
COMMON STOCK RETAINED LOSSES ON
-------------------- CAPITAL EARNINGS CERTAIN
SHARES AMOUNT SURPLUS (DEFICIT) SECURITIES TOTAL
------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 223,425 $ 22,343 $ 3,015,526 $ (870,819) $ 0 $ 2,167,050
Net Income 0 0 0 573,237 0 573,237
------- --------- ----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1993 223,425 22,343 3,015,526 (297,582) 0 2,740,287
Net Income 0 0 0 284,053 0 284,053
Unrealized Losses on
Certain Securities 0 0 0 0 (80,237) (80,237)
------- --------- ----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1994 223,425 $ 22,343 $ 3,015,526 $ (13,529) $ (80,237) $ 2,944,103
======= ========= =========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
BANK
-----------------------------------------------------------------------------------------
UNREALIZED
COMMON STOCK RETAINED LOSSES ON
--------------------- CAPITAL EARNINGS CERTAIN
SHARES AMOUNT SURPLUS (DEFICIT) SECURITIES TOTAL
------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 150,000 $ 750,000 $ 1,860,000 $ (456,605) $ 0 $ 2,153,395
Net Income 0 0 0 579,898 0 579,898
------- --------- ----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1993 150,000 750,000 1,860,000 123,293 0 2,733,293
Net Income 0 0 0 291,423 0 291,423
Unrealized Losses on
Certain Securities 0 0 0 0 (80,237) (80,237)
------- --------- ----------- ---------- ---------- -----------
BALANCE, DECEMBER 31, 1994 150,000 $ 750,000 $ 1,860,000 $ 414,716 $ (80,237) $ 2,944,479
======= ========= =========== ========== ========== ===========
</TABLE>
See accompanying notes.
F-9
<PAGE> 130
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
<TABLE>
<CAPTION>
CONSOLIDATED BANK
---------------------------- -----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 284,053 $ 573,237 $ 291,423 $ 579,898
Adjustment to Reconcile Net Income to
Net Cash Provided By Operating
Activities:
Provision For Loan Losses 0 21,000 0 21,000
Depreciation 75,118 51,504 75,118 51,504
Amortization of Premium on Investments 12,333 26,194 12,333 26,194
Decrease (Increase) in Deferred Tax
Asset, Net 139,250 (306,502) 139,250 (306,502)
(Increase) Decrease in Accrued Interest
and Other Assets (68,518) 24,205 (68,518) 24,205
Increase in Accrued Interest and Other
Liabilities 29,978 15,204 29,978 15,204
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 472,214 404,842 479,584 411,503
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales and Maturities of
Investment Securities 577,086 3,132,589 577,086 3,132,589
Purchases of Investment Securities (574,178) (2,036,842) (574,178) (2,036,842)
Proceeds From Sales of Equipment 1,897 1,488 1,897 1,488
Purchases of Equipment (9,959) (206,297) (9,959) (206,297)
(Increase) in Loans (6,356,774) (2,133,731) (6,356,774) (2,133,731)
Proceeds From Sale of Real Estate Owned 0 200,000 0 200,000
Decrease in Federal Funds, Net 0 2,304,000 0 2,304,000
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (6,361,928) 1,261,207 (6,361,928) 1,261,207
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Deposits, Net 5,320,899 (1,992,591) 5,313,529 (1,999,252)
Federal Funds Purchased 1,060,000 0 1,060,000 0
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 6,380,899 (1,992,591) 6,373,529 (1,999,252)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 491,185 (326,542) 491,185 (326,542)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,340,570 2,667,112 2,340,570 2,667,112
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,831,755 $ 2,340,570 $ 2,831,755 $ 2,340,570
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid For Interest $ 445,155 $ 401,475 $ 445,155 $ 401,475
============ ============ ============ ============
Disposal of Premises and Equipment:
Cost $ 2,035 $ 110,514 $ 2,035 $ 110,514
(Accumulated Depreciation) (138) (109,026) (138) (109,026)
------------ ------------ ------------ ------------
TOTAL $ 1,897 $ 1,488 $ 1,897 $ 1,488
============ ============ ============ ============
TOTAL INCOME TAXES PAID $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-10
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Citizens First Bancshares, Inc. (the Company) was formed in 1982
for the purpose of becoming a bank holding company. Citizens First
Bank of Ocala (the Bank), the Company's wholly-owned subsidiary,
was formed in 1978, and began operations in Ocala, Florida in 1979.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Citizens First Bank of
Ocala. All significant intercompany accounts and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent cash and due from banks.
INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 115 (FASB No. 115), Accounting for Certain
Investments in Debt and Equity Securities. Under FASB No. 115, the
Company is required to classify acquired debt and equity securities
into one of three categories: held-to-maturity, available-for-sale
and trading.
[] Investments in debt securities are classified as
held-to-maturity only if the Company has the positive intent
and ability to hold such securities to maturity. These
investments are carried in the Consolidated Balance Sheets at
amortized cost, i.e., cost adjusted for amortization of
premiums and accretion of discounts as computed by the
interest method.
[] All investments not classified as either held-to-maturity
securities or trading securities are classified as
available-for-sale. These securities are carried at market
value as of the date of the Consolidated Balance Sheets. The
unrealized gains and losses on these securities are excluded
from earnings for the year. Instead, the net unrealized gain
or loss, net of the applicable deferred income taxes, is shown
as a separate component of stockholders' equity in the
Consolidated Balance Sheets.
[] Securities that are acquired and held principally for the
purpose of selling them in the near term are classified as
trading securities. Such securities, if any, are carried at
market value and the unrealized gains and losses on such
securities is included in income for the current year.
F-11
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES (CONCLUDED)
Prior to the adoption of FASB No. 115, investment debt securities
were stated at cost adjusted for amortization of premiums and
accretion of discounts as computed by the interest method.
Investments in marketable equity securities were carried at the
lower of cost or market value. Unrealized losses on such equity
securities considered to be temporary were charged against
stockholders' equity; declines in market value considered to be
other than temporary were charged to earnings.
Gains and losses on the sale of investment securities are computed
on the basis of specific identification of the adjusted cost of
each security.
NET INCOME PER COMMON SHARE
Net income per common share is calculated using the weighted
average number of shares outstanding during the year.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at face value, net of unearned discount and the
allowance for loan losses. Interest income on installment loans is
recognized using the method which approximates the interest method.
Interest income on commercial and real estate loans is recognized
using the effective interest method on the principal balances
outstanding. Accrual of interest is discontinued for loans which
are ninety days past due, or earlier if circumstances warrant.
The adoption of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 114 (FASB No. 114), Accounting
by Creditors for Impairment of a Loan, is required in 1995.
Company management does not anticipate that its adoption will have
a material effect on the Company's financial position or results of
operations.
The allowance for loan losses is established through a provision
for loan losses charged to expense. The allowance represents an
amount which, in management's judgment, will be adequate to absorb
probable losses on existing loans that may ultimately become
uncollectible. Management's judgment in determining the adequacy
of the allowance is based on evaluations of the collectibility of
loans. These evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, current
economic conditions that may affect the borrower's ability to pay,
overall portfolio quality, and review of specific problem loans.
Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is
unlikely.
F-12
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan.
REAL ESTATE OWNED
Real estate acquired by foreclosure or deed in lieu of foreclosure
is carried at the lower of its estimated fair value or the balance
of the related loan at the date the real estate is acquired. Costs
relating to the development and improvement of the real estate are
capitalized, whereas those costs related to holding the real estate
are charged to expense.
Sales of real estate owned are recorded under the full accrual
method of accounting. Under this method, a sale is not recognized
until payments received aggregate a specific required percentage of
the contract sales price. Losses are charged to operations as
incurred or when it is determined that the investment in such real
estate is greater than the estimated net realizable value.
BANK PREMISES AND EQUIPMENT
Land is stated at cost. Bank premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using
the straight-line method over the estimated useful lives of the
respective assets as follows:
<TABLE>
<S> <C>
Buildings and Improvements 5 to 35 Years
Furniture, Fixtures and Equipment 5 to 10 Years
Leasehold Improvements 3 Years
</TABLE>
Gains or losses realized on the disposition of properties are
reflected in other operating income. Depreciation expense for 1994
was $75,118 and $51,504 for 1993.
INCOME TAXES
Federal and state income taxes are provided on income reported for
financial statement purposes and include both current and deferred
income tax expense. Current income tax expense is recorded to
reflect income taxes based upon the tax returns filed with the
appropriate taxing agencies. Deferred income taxes are recorded to
reflect the tax consequences on future years of differences between
the tax bases of assets and liabilities and their financial
reporting amounts at year end. The change in deferred taxes
attributable to the
F-13
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
INCOME TAXES (CONCLUDED)
carrying value of investments categorized as "Available-For-Sale"
is recognized as a change in stockholders' equity. The change in
deferred income taxes attributable to all other timing differences
is recognized as deferred income tax expense or benefit. The tax
benefit related to operating loss and tax credit carryforwards, if
any, are recognized if management believes, based on available
evidence, that it is more likely than not that they will be
realized. Investment tax credits, if any, are accounted for under
the flow-through method.
Citizens First Bancshares, Inc. files consolidated federal and
state income tax returns with its subsidiary, Citizens First Bank
of Ocala. Federal and state income taxes are allocated between the
Company and its subsidiary in proportion to the respective
contributions to consolidated taxable income.
Effective January 1, 1993, the Company adopted the asset and
liability method of accounting for income taxes as required by
Financial Accounting Standards Board Statement of Financial
Accounting Standard No. 109 (FASB No. 109), Accounting for Income
Taxes. The Company accounted for this change as a cumulative
effect of an accounting change in the 1993 financial statements.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current financial reporting to facilitate comparison of the
financial data.
NOTE 2 - REGULATORY ISSUES
During 1993, the Bank was operating under a Written Agreement with
the Federal Reserve Board and the Office of Comptroller, Department
of Banking and Finance of the State of Florida (the Regulators),
which imposed certain restrictions and requirements. Some of the
more significant restrictions and requirements included: no
declaration or payment of dividends without prior approval of the
Regulators; maintain a loan loss reserve equivalent to 1.4% of the
loan portfolio; and maintain minimum level of total capital to
total assets (primary capital) of 7.5%.
The Federal Reserve Bank of Atlanta examined the Bank as of October
31, 1993 and determined that the Bank had met all of the
requirements of the Written Agreement. The Federal Reserve Bank's
examination revealed that the Bank was operating in a satisfactory
manner. The Reserve Bank and the Florida Department of Banking and
Finance in letters to the Bank dated January 24, 1994 and February
4, 1994, respectively, terminated the Written Agreement due to the
improved condition of the Bank.
F-14
<PAGE> 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 2 - REGULATORY ISSUES (CONCLUDED)
On November 10, 1994, the Board of Directors signed a Memorandum of
Understanding with the Federal Reserve Bank of Atlanta/Consumer
Affairs whereby the Bank agrees to comply with the requirements and
remedy the repeat violations found in the lending area during the
Bank's previous two Consumer Affairs Examinations. Memorandum
requirements ensure the Bank maintains a strong compliance position
with the various regulators.
NOTE 3 - INVESTMENT SECURITIES
The carrying value of securities, including information regarding
amortized cost, gross unrealized gains, gross unrealized losses and
market value is tabulated below:
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
----------------------------------------------------------
DECEMBER 31, 1994 1993
------------------------------------------- ------------
AVAILABLE- HELD-
FOR- TO-
SALE MATURITY TOTAL TOTAL
------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,965,210 $ 0 $ 1,965,210 $ 2,519,244
U.S. Government Agencies 2,409,361 0 2,409,361 1,996,832
Equity Securities 0 169,850 169,850 82,000
Mortgage-Backed Securities 478,992 0 478,992 569,225
------------- ---------- ------------ ------------
TOTAL $ 4,853,563 $ 169,850 $ 5,023,413 $ 5,167,301
============= ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 AVAILABLE-FOR-SALE
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 2,005,662 $ 0 $ (40,452) $ 1,965,210
U.S. Government Agencies 2,484,484 0 (75,123) 2,409,361
Mortgage-Backed Securities 492,063 0 (13,071) 478,992
------------ ------------ ----------- ------------
TOTAL - DECEMBER 31, 1994 $ 4,982,209 $ 0 $ (128,646) $ 4,853,563
============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
1994 HELD-TO-MATURITY
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equity Securities $ 169,850 $ 0 $ 0 $ 169,850
============ ============ ============ ============
</TABLE>
F-15
<PAGE> 136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities and
U.S. Government Agencies $ 4,516,076 $ 5,473 $ (9,668) $ 4,511,881
Equity Securities 82,000 0 0 82,000
Mortgage-Backed Securities 569,225 19,171 0 588,396
------------ ------------ ----------- ------------
TOTAL - DECEMBER 31, 1993 $ 5,167,301 $ 24,644 $ (9,668) $ 5,182,277
============ ============ =========== ============
</TABLE>
The carrying value and estimated market value of investment
securities at December 31, 1994, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------ ------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET AMORTIZED MARKET
VALUE VALUE COST VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 1,965 $ 1,965 $ 507 $ 513
Due After One Year Through Five Years 2,409 2,409 4,009 3,999
Due After Five Years Through Ten Years 0 0 0 0
Due After Ten Years 0 0 0 0
------------ ------------ ------------ ------------
4,374 4,374 4,516 4,512
Equity Securities 170 170 82 82
Mortgage-Backed Securities 479 479 569 588
------------ ------------ ------------ ------------
TOTAL $ 5,023 $ 5,023 $ 5,167 $ 5,182
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
-------------------------------- --------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 1,965 $ 1,965 $ 0 $ 0
Due After One Year Through
Five Years 2,409 2,409 0 0
Due After Five Years Through
Ten Years 0 0 0 0
Due After Ten Years 0 0 0 0
------------- ------------- ------------- -------------
4,374 4,374 0 0
Equity Securities 0 0 170 170
Mortgage-Backed Securities 479 479 0 0
------------- ------------- ------------- -------------
TOTAL $ 4,853 $ 4,853 $ 170 $ 170
============= ============= ============= =============
</TABLE>
F-16
<PAGE> 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 3 - INVESTMENT SECURITIES (CONCLUDED)
In computing recognized gains and losses, cost is determined using
specific identification of securities. For 1994 and 1993, there
were no sales of investment securities. There were no sales or
transfers of assets classified as held-to-maturity during 1994.
As of December 31, 1994, investment securities with a carrying
value of $1,334,640 were pledged as collateral for public funds and
federal funds purchased.
UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE
As discussed in Note 1, effective January 1, 1994, the Company
adopted the investment categorization and carrying value rules as
required by FASB No. 115. Under this statement, the unrealized
gain or loss on investment securities available-for-sale, net of
the applicable deferred income taxes, is shown as a separate
component of stockholder's equity in the Consolidated Balance
Sheets. The following is a summary of the effects of the statement
of stockholders' equity as of December 31, 1994:
<TABLE>
<S> <C>
Gross Unrealized Gains (Losses) on Investment
Securities Available-For-Sale $ (128,647)
Deferred Income Tax Asset (Liability) on Unrealized
Gain 48,410
------------
NET (DECREASE) IN STOCKHOLDERS' EQUITY $ (80,237)
============
</TABLE>
NOTE 4 - LOANS
Major classifications of loans at December 31, 1994 and 1993 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
--------------- --------------
<S> <C> <C>
Real Estate $ 15,035,879 $ 9,740,025
Commercial 1,871,171 2,977,628
Installment 5,709,879 3,480,422
Other 13,753 40,227
--------------- --------------
Total Loans 22,630,682 16,238,302
(Unearned Discount) (30,056) (17,976)
--------------- --------------
22,600,626 16,220,326
(Allowance For Possible Loan Losses) (410,280) (386,754)
--------------- --------------
TOTAL LOANS, NET $ 22,190,346 $ 15,833,572
=============== ==============
</TABLE>
F-17
<PAGE> 138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 4 - LOANS (CONCLUDED)
During 1994 and 1993, the Bank held loans and engaged in
transactions in the ordinary course of business with certain of its
directors and officers, and their affiliated businesses. Loans to
such persons and businesses aggregate approximately $666,522 and
$411,927 at December 31, 1994 and 1993, respectively. During 1994,
new loans to such related parties amounted to $399,389 and
repayments amounted to $144,794.
Loans on which the accrual of interest had been discontinued
aggregated $7,255 and $198,978 at December 31, 1994 and 1993,
respectively. If interest on these loans had been accrued, such
income would have approximated $512 and $24,322 for 1994 and 1993,
respectively.
Changes in allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 386,754 $ 303,201
Provision Charged to Operations 0 21,000
Loans Charged Off (17,123) (14,777)
Recoveries 40,649 77,330
------------ ------------
BALANCE, END OF YEAR $ 410,280 $ 386,754
============ ============
</TABLE>
NOTE 5 - BANK PREMISES AND EQUIPMENT
Major classifications at December 31, 1994 and 1993 are summarized
as follows:
<TABLE>
<CAPTION>
1994 1993
------------- --------------
<S> <C> <C>
Land $ 458,576 $ 458,576
Buildings 698,630 698,630
Furniture, Fixtures and Equipment 934,661 926,826
Leasehold Improvements 0 6,764
------------- --------------
Total Bank Premises and Equipment 2,091,867 2,090,796
(Accumulated Depreciation) (1,070,611) (1,002,484)
------------- --------------
TOTAL BANK PREMISES AND EQUIPMENT - COST
LESS DEPRECIATION $ 1,021,256 $ 1,088,312
============= ==============
</TABLE>
NOTE 6 - LEASES
The Bank leases one office location and various other equipment
under operating lease agreements expiring at various times through
1996. The minimum future rental payments under these agreements as
of December 31, 1994 are summarized as follows:
F-18
<PAGE> 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 6 - LEASES (CONCLUDED)
<TABLE>
<CAPTION>
FUTURE RENTAL
YEAR PAYMENTS
---- ----------------
<S> <C>
1995 $ 40,957
1996 3,413
----------------
TOTAL MINIMUM LEASE PAYMENTS $ 44,370
================
</TABLE>
Rent expense was $45,429 and $95,227 for the years ended December
31, 1994 and 1993, respectively.
NOTE 7 - INCOME TAXES
As of December 31, 1994, the Bank has net operating loss
carryforwards of approximately $1.4 million for federal income tax
purposes. These carryforwards may be used to offset taxable income
in future periods expiring at various times through the year 2010.
As discussed in Note 1, effective January 1, 1993, the Bank adopted
the asset and liability method of accounting for income taxes as
required by FASB No. 109. The Bank recognized $370,826 for the
cumulative effect of the change in accounting for income taxes for
prior years in the Consolidated Statement of Income for 1993.
The total provision (benefit) for income taxes in the Consolidated
Statements of Income is as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal $ 0 $ 0
State of Florida 0 0
------------- -------------
TOTAL CURRENT INCOME TAX EXPENSE 0 0
------------- -------------
DEFERRED INCOME TAX (BENEFIT)
U.S. Federal 129,713 59,758
State of Florida 9,537 4,566
------------- -------------
TOTAL DEFERRED INCOME TAX (BENEFIT) 139,250 64,324
------------- -------------
TOTAL INCOME TAX EXPENSE $ 139,250 $ 64,234
============= =============
</TABLE>
F-19
<PAGE> 140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 7 - INCOME TAXES (CONCLUDED)
<TABLE>
<CAPTION>
1994 1993
------------------------- ------------------------
AMOUNT % AMOUNT %
------------- ----- ------------- ------
<S> <C> <C> <C> <C>
Computed "Expected" Income Tax Expense $ 143,923 34.0% $ 87,277 32.7%
State Income Taxes, Net of Federal
Income Tax 10,582 2.5 6,669 2.5
Other (15,255) (3.6) (29,622) (11.1)
------------- ---- ------------- -----
TOTAL $ 139,250 32.9% $ 64,324 24.1%
============= ==== ============= ====
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation $ 70,027 $ 56,249
Deferred Expenses and Income 66,383 56,658
Allowance For Possible Loan Losses 78,293 78,293
------------- -------------
GROSS DEFERRED TAX LIABILITIES 214,703 191,200
------------- -------------
DEFERRED TAX (ASSETS)
Tax Net Operating Loss 358,155 471,126
Deferred Expenses Payable 23,800 26,576
Investment Securities Available-For-Sale 48,410 0
------------- -------------
GROSS DEFERRED TAX (ASSETS) (430,365) (497,702)
------------- -------------
NET DEFERRED TAX LIABILITIES (ASSETS) $ (215,662) $ (306,502)
============= =============
</TABLE>
The sources of timing differences and the related income tax effect
for the years indicated are as follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Provision For Possible Loan Losses For
Income Tax Purposes Greater (Less)
Than For Financial Statement Purposes $ 0 $ 7,902
Adjustment For Accrual to Cash Income
and Expenses (12,501) 19,303
Depreciation Deducted For Tax Purposes
Greater (Less) Than Recognized as
Expense For Financial Statement Purposes (13,778) 0
Utilization of Net Operating Loss (112,971) (91,529)
------------- -------------
TOTAL $ (139,250) $ (64,324)
============= =============
</TABLE>
F-20
<PAGE> 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs
of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit, standby letters of credit, lines of credit and
mortgages with interest rate caps. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the Consolidated Statements of
Cash Flows. The contract or notional amounts of those instruments
reflect the extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit, standby letters of credit and lines of credit is
represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance-sheet instruments. For interest rate caps, the contract
or notional amounts do not represent exposure to credit loss.
While the Bank does not have a specific policy for requiring
collateral, for the most part, loans are collateralized by the
items the loan proceeds are to be used to purchase (i.e., real
estate) or some other acceptable property. The Bank also makes
unsecured loans if the customer's credit is sufficient.
<TABLE>
<CAPTION>
1994 1993
------------- --------------
<S> <C> <C>
FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS
REPRESENT CREDIT RISK
Commitments to Extend Credit $ 935,534 $ 1,998,890
Standby Letters of Credit $ 361,000 $ 432,000
Unused Lines of Credit $ 2,817,030 $ 1,355,370
FINANCIAL INSTRUMENTS WHOSE NOTIONAL OR CONTRACT
AMOUNTS EXCEED THE AMOUNT OF CREDIT RISK
Mortgages With Interest Rate Caps $ 4,681,000 $ 3,247,000
</TABLE>
F-21
<PAGE> 142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONCLUDED)
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
some of the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counter-party. Collateral
held may be a private residence, but could include accounts
receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit and lines of credit written are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and
similar transactions. With the exception of home equity loans,
which are open-ended, all letters and lines of credit are
short-term (one year or less). The credit risk involved in issuing
letters and lines of credit is essentially the same as that
involved in extending loan facilities to customers.
Mortgages with interest rate caps are adjustable rate mortgages
that have interest rate increase caps of 2% per year to a maximum
of 6% over the life of the loan.
NOTE 9 - CONCENTRATIONS OF CREDIT
Most of the Bank's business activity is with customers in Marion
County, Florida. The Bank grants commercial, real estate and
personal installment loans to customers who live in this area.
Although the Bank has a diversified loan portfolio, a substantial
portion of its debtor's ability to honor their contracts is
dependent upon the real estate economic sector.
NOTE 10 - STOCK OFFERING/STOCK WARRANTS
In April 1992, the Company prepared an offering circular in which
it offered to existing shareholders of record of the Company at
December 31, 1991, and to selected residents in the community of
Ocala, Florida, up to 250,000 units (the units), with each unit
consisting of one
F-22
<PAGE> 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 10 - STOCK OFFERING/STOCK WARRANTS (CONCLUDED)
share of common stock of the Company, $.10 par value, and one
warrant to purchase one share of common stock. The Company
increased its authorized number of shares of common stock from
250,000 shares to 750,000 shares to accommodate the offering. The
purchase price of a unit was $10.00 per share. The warrants were
exchangeable on a one-to-one basis for common stock at a price of
$10.00 per share for a period of three years following the
expiration of the offering. The Company has the right to redeem
the warrants at $.10 per warrant upon thirty days written notice
during the period from May 1, 1994 to March 31, 1995 (the
Redemption Period). A holder of a warrant has the right to
exercise the warrant during the period from March 31, 1994 to April
30, 1994 (the 1994 Exercise Period) and, if not previously redeemed
by the Company during the Redemption Period, during the period from
March 31, 1995 to April 30, 1995 (the 1995 Exercise Period).
A total of 73,425 units were sold during 1992 resulting in the
issuance of 73,425 shares of $.10 par value common stock and 73,425
warrants.
NOTE 11 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of Citizens First Bancshares, Inc.
(Parent Company Only) for December 31, 1994 and 1993 are presented
as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
1994 1993
------------- -------------
<S> <C> <C>
Cash $ 361 $ 7,731
Investments in Wholly-Owned Subsidiary, at
Equity in Underlying Assets 2,944,479 2,733,293
------------- -------------
TOTAL ASSETS 2,944,840 2,741,024
============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
LIABILITIES
Other 737 737
------------- -------------
STOCKHOLDERS' INVESTMENT
Common Stock 22,343 22,343
Capital Surplus 3,015,526 3,015,526
Unrealized Losses on Certain
Securities (80,237) 0
(Deficit) (13,529) (297,582)
------------- -------------
TOTAL STOCKHOLDERS' INVESTMENT 2,944,103 2,740,287
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 2,944,840 $ 2,741,024
============= =============
</TABLE>
F-23
<PAGE> 144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONTINUED)
NOTE 11 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONCLUDED)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
INCOME
Interest $ 0 $ 0
Other 2,500 0
------------- -------------
TOTAL INCOME 2,500 0
------------- -------------
EXPENSES
Other Expense (9,870) (6,661)
------------- -------------
(LOSS) INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY (7,370) (6,661)
EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY 291,423 579,898
------------- -------------
NET INCOME $ 284,053 $ 573,237
============= =============
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 284,053 $ 573,237
Adjustments to Reconcile Net Income to
Net Cash (Used In) Operating Activities:
Income From Subsidiary (291,423) (579,898)
Other (1) 1
------------- -------------
NET CASH (USED IN) OPERATING ACTIVITIES (7,371) (6,660)
------------- -------------
(DECREASE) IN CASH (7,371) (6,660)
CASH, BEGINNING OF YEAR 7,732 14,392
------------- -------------
CASH, END OF YEAR $ 361 $ 7,732
============= =============
</TABLE>
NOTE 12 - PENSION PLAN
The Company established a 401(k) pension plan in 1993 that covers
all eligible officers and employees. Employees may elect to defer
up to 15% of their annual compensation. The Company may match 10%
of the compensation deferred by the employee up to a maximum of 6%
of the employee's annual compensation. Contributions to the plan
by the Company charged to operations were $1,797 in 1994 and $0 in
1993.
F-24
<PAGE> 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS FIRST BANCSHARES, INC. AND SUBSIDIARY
AND CITIZENS FIRST BANK OF OCALA
OCALA, FLORIDA
(CONCLUDED)
NOTE 13 - STOCK OPTIONS
The Company adopted a stock option plan on May 13, 1993, granting
its officers the option to purchase shares of its common stock at
an option price of $10.05 per share. The maximum number of shares
that may be optioned or sold under the plan is 50,000 shares. Of
the options granted during the year, 40% of that amount vests
immediately. The remaining vesting schedule is at the rate of 20%
per year beginning December 1, 1993, and increasing each December 1
thereafter.
During 1994, one employee terminated employment. The terminating
employees' 9,600 shares under option granted to date must be
exercised by April 29, 1995.
Per the stock option plan, the options shall remain in effect for
seven years from the plan adoption date, unless terminated sooner.
Termination of the plan shall not effect any option previously
granted. Options are immediately exercisable on sale of the Bank.
<TABLE>
<CAPTION>
SHARES
UNDER OPTION
------------
<S> <C>
Outstanding, Beginning of Year 30,000
Forfeited During the Year (2,400)
------
Outstanding, End of Year 27,600
======
</TABLE>
F-25
<PAGE> 146
CONDENSED CONSOLIDATED BALANCE SHEETS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
As of September 30,
--------------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash and Demand Deposits Due from Banks $ 14,370 $ 10,573
Investment Securities (Market Value 9/30/95 - $208,577;
12/31/94 - $203,881; 9/30/94 - $205,522) 206,137 206,440
Federal Funds Sold 7,754 0
Loan Receivables 221,843 195,117
Less: Unearned Income (881) (1,100)
Allowance for Loan Losses (3,234) (2,938)
------------- --------------
Loan Receivables, Net 217,728 191,079
Real Estate Owned 613 797
Premises and Equipment, Net 6,880 6,924
Accrued Interest Receivable 4,336 3,924
Other Assets 2,073 2,687
------------- --------------
Total Assets $ 459,891 $ 422,424
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-Bearing $ 35,528 $ 33,202
Interest-Bearing 368,694 347,567
------------- --------------
Total Deposits 404,222 380,769
Federal Funds Purchased and Securities Sold
under Agreements to Repurchase 7,834 2,831
Accrued Interest Payable 3,869 2,062
Other Liabilities 866 295
------------- --------------
Total Liabilities 416,791 385,957
------------- --------------
Stockholders' Equity
Common Stock - Par Value $.01 Per Share; Authorized
10,000,000 Shares; Issued 4,184,631 Shares $ 42 $ 42
Capital Surplus 11,208 11,208
Retained Earnings 32,106 27,212
Less: Treasury Stock at Cost (792) (792)
(136,988 Shares in 1995 and 1994)
Unrealized Gains (Losses) on Certain Securities 536 (1,203)
------------- --------------
Total Stockholders' Equity 43,100 36,467
------------- --------------
Total Liabilities and Stockholders' Equity $ 459,891 $ 422,424
============= ==============
</TABLE>
F - 26
<PAGE> 147
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Interest Income
Loans, Including Fees $ 14,095 $ 10,849
----------- -----------
Investment Securities:
Taxable 8,531 8,741
Exempt from Federal Income Taxes 2,113 2,049
----------- -----------
Total Investment Securities 10,644 10,790
Federal Funds Sold 439 173
----------- -----------
Total Interest Income 25,178 21,812
----------- -----------
Interest Expense
Deposits 11,927 8,933
Securities sold Under Repurchase Agreements 257 104
----------- -----------
Total Interest Expense 12,184 9,037
----------- -----------
Net Interest Income 12,994 12,775
Provision for Loan Losses (255) (523)
----------- -----------
Net Interest Income After Provision for Loan Losses 12,739 12,252
----------- -----------
Noninterest Income
Investment Securities Gains (Losses) 29 (124)
Service Charges on Deposit Accounts 839 835
Trust Income 629 539
Other Income 191 171
----------- -----------
Total Noninterest Income 1,688 1,421
----------- -----------
Noninterest Expense
Salaries and Employee Benefits 4,300 3,994
Occupancy Expense 862 809
Equipment Expense 691 682
Other expenses 2,107 2,179
----------- -----------
Total Noninterest Expense 7,960 7,664
----------- -----------
Income Before Income Taxes 6,467 6,009
Provision for Income Taxes (1,699) (1,547)
----------- -----------
Net Income $ 4,768 $ 4,462
=========== ===========
Earnings Per Common Share and Common Share Equivalent 1.18 1.10
=========== ===========
Average Number of Shares 4,052,326 4,047,643
=========== ===========
</TABLE>
F - 27
<PAGE> 148
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 4,768 $ 4,462
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 255 523
Depreciation 489 518
Net (Accretion)/Amortization of Discount on (330) (271)
Investments
(Gain) Loss on Sale of Investments and Real (30) 74
Estate Owned
Decrease (Increase) in Accrued Interest (362) (253)
Receivable
Increase (Decrease) in Accrued Interest Payable 1,476 121
Other 158 (406)
-------- ---------
Net Cash Provided by Operating Activities 6,424 4,768
-------- --------
Cash Flows From Investing Activities
Proceeds from Sales of Investment Securities 65,151 17,816
Proceeds from Maturities of Investment Securities 17,728 22,270
Purchases of Investment Securities (75,269) (47,356)
Net (Increase) in Loan Receivables (21,910) (15,498)
Proceeds from Sale of Real Estate Owned 102 1,500
Purchases of Premises and Equipment (562) (772)
-------- ---------
Net Cash (Used In) Investing Activities (14,760) (22,040)
-------- ---------
Cash Flows from Financing Activities
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts 988 2,453
Net Increase in Certificates of Deposit 14,367 14,041
Net Increase (Decrease) in Federal Funds Purchased
and Securities Sold Under Agreements to Repurchase 2,201 (2,660)
Dividends Paid (1,417) (1,255)
-------- ---------
Net Cash Provided by Financing Activities 16,139 12,579
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 7,803 (4,693)
Cash and Cash Equivalents, Beginning of Period 14,321 15,266
-------- --------
Cash and Cash Equivalents, End of Period $ 22,124 $ 10,573
======== ========
Supplemental Disclosures of Cash Flow Information
Cash and Cash Equivalents
Cash and Demand Deposits Due from Banks $ 14,370 $ 10,573
Federal Funds Sold 7,754 0
-------- --------
Total Cash and Cash Equivalents $ 22,124 $ 10,573
======== ========
Interest Paid $ 10,709 $ 8,916
======== ========
Income Taxes Paid $ 1,476 $ 1,493
======== ========
</TABLE>
F - 28
<PAGE> 149
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
CITI-BANCSHARES, INC. AND SUBSIDIARY
LEESBURG, FLORIDA
DECEMBER 31, 1994
F-29
<PAGE> 150
[PURVIS GRAY & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Citi-Bancshares, Inc. and Subsidiary
Leesburg, Florida
We have audited the accompanying consolidated balance sheets of
Citi-Bancshares, Inc. (the Company) and Subsidiary (the Bank) as of December
31, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years ended December 31, 1994,
1993 and 1992. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Citi-Bancshares, Inc. and
Subsidiary at December 31, 1994 and 1993, and the results of its operations and
cash flows for the years ended December 31, 1994, 1993 and 1992, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company adopted Statements of Financial Accounting Standards Nos. 109 and 115
thereby changing its method of accounting for deferred income taxes and certain
investment securities, respectively.
January 31, 1995
Gainesville, Florida /s/ Purvis Gray and Company
F-30
<PAGE> 151
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
ASSETS
1994 1993
------------- -------------
<S> <C> <C>
Cash and Demand Deposits Due From Banks $ 14,321,737 $ 14,168,482
Investment Securities (Market Value 1994 -
$203,880,893; 1993 - $209,712,181) 206,546,777 206,527,107
Federal Funds Sold 0 1,098,000
Loans Receivable 199,976,206 179,866,497
Less:
Unearned Income (1,024,096) (1,266,269)
Allowance For Loan Losses (2,994,255) (2,489,991)
------------- -------------
Loans Receivable, Net 195,957,855 176,110,237
Real Estate Owned 686,735 2,045,918
Premises and Equipment, Net 6,806,835 6,669,861
Accrued Interest Receivable 3,973,722 3,671,123
Other Assets 4,534,679 617,547
------------- -------------
TOTAL ASSETS 432,828,340 410,908,275
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-Bearing 34,539,616 30,749,450
Interest-Bearing 354,327,506 333,525,207
------------- -------------
Total Deposits 388,867,122 364,274,657
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 5,633,216 5,491,063
Accrued Interest Payable 2,392,673 1,940,981
Other Liabilities 1,959,073 2,407,123
------------- -------------
TOTAL LIABILITIES 398,852,084 374,113,824
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock - Par Value $.01 Per Share -
Authorized: 10,000,000 Shares; Issued
4,184,635 Shares 41,846 41,846
Capital Surplus 11,207,783 11,207,783
Retained Earnings 27,339,017 22,750,378
Less: Treasury Stock at Cost (136,988 Shares
in 1994; and 136,988 Shares in 1993) (791,924) (791,924)
Unrealized (Losses) Gains on Certain Securities (3,820,466) 3,586,368
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 33,976,256 36,794,451
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 432,828,340 $ 410,908,275
============= =============
</TABLE>
See accompanying notes.
F-31
<PAGE> 152
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993
AND 1992 CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $ 14,891,243 $ 12,968,947 $ 12,730,988
------------ ------------ ------------
Investment Securities:
Taxable 11,705,226 11,885,845 12,687,529
Exempt From Federal Income Taxes 2,759,492 2,296,789 2,129,626
------------ ------------ ------------
14,464,718 14,182,634 14,817,155
Federal Funds Sold 237,931 347,456 319,876
------------ ------------ ------------
TOTAL INTEREST INCOME 29,593,892 27,499,037 27,868,019
------------ ------------ ------------
INTEREST EXPENSE
Deposits 12,299,939 11,694,799 13,366,175
Securities Sold Under Repurchase Agreements 154,648 90,720 151,039
------------ ------------ ------------
TOTAL INTEREST EXPENSE 12,454,587 11,785,519 13,517,214
------------ ------------ ------------
NET INTEREST INCOME 17,139,305 15,713,518 14,350,805
PROVISION FOR LOAN LOSSES 600,000 1,075,000 1,400,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 16,539,305 14,638,518 12,950,805
------------ ------------ ------------
NONINTEREST INCOME
Investment Securities Gains (Losses) (167,875) 445,454 1,117,228
Service Charges on Deposit Accounts 1,106,506 1,162,074 1,111,309
Trust Income 715,607 587,912 449,044
Other Income 351,264 378,297 407,806
------------ ------------ ------------
TOTAL NONINTEREST INCOME 2,005,502 2,573,737 3,085,387
------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and Employee Benefits 5,342,043 5,045,330 4,549,652
Occupancy Expense 1,078,052 1,166,059 1,062,070
Equipment Expense 911,493 756,187 774,250
Other Expenses 3,125,617 2,929,694 2,940,468
------------ ------------ ------------
TOTAL NONINTEREST EXPENSE 10,457,205 9,897,270 9,326,440
------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 8,087,602 7,314,985 6,709,752
PROVISION FOR INCOME TAXES 2,082,284 1,841,962 1,776,783
------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLES 6,005,318 5,473,023 4,932,969
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGING
METHOD OF ACCOUNTING FOR INCOME TAXES 0 255,072 0
------------ ------------ ------------
NET INCOME $ 6,005,318 $ 5,728,095 $ 4,932,969
============ ============ ============
EARNINGS PER SHARE:
Income Before Cumulative Effect of Change
in Accounting Principle $ 1.48 $ 1.35 $ 1.22
Cumulative Effect on Prior Years of
Changing Method of Accounting For
Income Taxes .00 .06 .00
------------ ------------ ------------
EARNINGS PER SHARE $ 1.48 $ 1.41 $ 1.22
============ ============ ============
AVERAGE SHARES OUTSTANDING $ 4,047,647 4,050,051 4,052,827
============ ============ ============
</TABLE>
See accompanying notes.
F-32
<PAGE> 153
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER31, 1994, 1993 AND 1992
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
COMMON CAPITAL RETAINED TREASURY CERTAIN
STOCK SURPLUS EARNINGS STOCK SECURITIES TOTAL
-------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1991 $ 41,846 $ 11,207,783 $ 14,478,876 $ (742,676) $ 0 $ 24,985,829
Net Income 4,932,969 4,932,969
Cash Dividends Declared ($.28 Per Share) (1,134,791) (1,134,791)
BALANCES, DECEMBER 31, 1992 41,846 11,207,783 18,277,054 (742,676) 0 28,784,007
-------- ------------ ------------ ---------- ------------ ------------
Net Income 5,728,095 5,728,095
Cash Dividends Declared ($.31 Per Share) (1,254,771) (1,254,771)
Purchase of Treasury Stock, 2,205 Shares (49,248) (49,248)
Unrealized Gain on Certain Securities 3,586,368 3,586,368
-------- ------------ ------------ ---------- ------------ ------------
BALANCES, DECEMBER 31, 1993 41,846 11,207,783 22,750,378 (791,924) 3,586,368 36,794,451
Net Income 6,005,318 6,005,318
Cash Dividends Declared ($.35 Per Share) (1,416,679) (1,416,679)
Unrealized (Loss) on Certain Securities (7,406,834) (7,406,834)
-------- ------------ ------------ ---------- ------------ ------------
BALANCES, DECEMBER 31, 1994 $ 41,846 $ 11,207,783 $ 27,339,017 $ (791,924) $ (3,820,466) $ 33,976,256
======== ============ ============ ========== ============ ============
</TABLE>
See accompanying notes.
F-33
<PAGE> 154
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,005,318 $ 5,728,095 $ 4,932,969
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Provision For Loan Losses 600,000 1,075,000 1,400,000
Depreciation 694,055 579,322 594,759
Accretion of Discount on Investments (387,880) (31,233) (1,984)
(Gain) Loss on Sale of Investments and Other
Real Estate 167,875 (445,453) (1,136,691)
Provision (Benefit) For Deferred Income Taxes (126,381) (321,362) (24,009)
Net Amortization of Deferred Loan Fees (176,802) (38,807) (101,502)
Decrease (Increase) in Accrued Interest Receivable (302,599) (169,862) 461,219
(Decrease) Increase in Accrued Interest Payable 451,692 (76,125) (713,318)
Other (12,882) (396,708) 207,260
--------------- --------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,912,396 5,902,867 5,618,703
--------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales of Investment Securities 21,754,099 37,944,615 69,003,092
Proceeds From Maturities of Investment Securities 29,297,426 44,842,510 33,902,366
Purchases of Investment Securities (62,469,051) (100,382,610) (111,095,419)
Net Increase in Loans Receivable (20,628,192) (19,727,797) (16,236,516)
Payment of Other Costs on Real Estate Owned (172,013) (76,278) (22,117)
Proceeds From Sale of Real Estate Owned 1,711,770 797,120 487,229
Purchases of Premises and Equipment (831,029) (372,561) (300,857)
--------------- --------------- -------------
NET CASH (USED IN) INVESTING ACTIVITIES (31,336,990) (36,975,001) (24,262,222)
--------------- --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, NOW
Accounts, and Savings Accounts 355,004 14,532,249 30,898,342
Net Increase in Certificates of Deposit 24,237,461 6,877,954 2,382,801
Net Increase (Decrease) in Federal Funds Purchased
and Securities Sold Under Agreements to Repurchase 142,153 2,880,892 (5,598,776)
Dividends Paid (1,254,769) (1,134,792) (772,022)
Purchases of Treasury Stock 0 (49,248) 0
--------------- --------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,479,849 23,107,055 26,910,345
--------------- --------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (944,745) (7,965,079) 8,266,826
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 15,266,482 23,231,561 14,964,735
--------------- --------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14,321,737 $ 15,266,482 $ 23,231,561
=============== =============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH AND CASH EQUIVALENTS
Cash and Demand Deposits Due From Banks $ 14,321,737 $ 14,168,482 $9,987,561
Federal Funds Sold 0 1,098,000 13,244,000
--------------- --------------- -------------
TOTAL CASH AND CASH EQUIVALENTS $ 14,321,737 $ 15,266,482 $ 23,231,561
=============== =============== =============
INTEREST PAID $11,850,646 $ 11,770,924 $ 14,079,493
=============== =============== =============
INCOME TAXES PAID $2,292,048 $ 2,282,506 $ 1,707,001
=============== =============== =============
</TABLE>
See accompanying notes.
F-34
<PAGE> 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Citi-Bancshares, Inc. (the Company) and its wholly-owned
subsidiary, Citizens National Bank of Leesburg (the Bank). All
significant intercompany accounts and transactions have been
eliminated. Assets held in an agency or fiduciary capacity are
not assets of the Bank and, accordingly, are not included in the
accompanying financial statements.
CASH EQUIVALENTS
Cash equivalents include cash, demand deposits due from banks and
federal funds sold. Generally, federal funds sold mature within
ninety days.
SECURITIES
Effective December 31, 1993, the Company adopted the investment
categorization and carrying value rules as required by Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 115 (FASB No. 115), Accounting for Certain
Investments in Debt and Equity Securities. Under FASB 115, the
Company is required to classify acquired debt and equity
securities into one of three categories: held-to-maturity,
available-for-sale and trading.
[] Investments in debt securities are classified as
held-to-maturity only if the Company has the positive intent
and ability to hold such securities to maturity. These
investments are carried in the balance sheet at amortized cost,
i.e., cost adjusted for amortization of premiums and accretion
of discounts as computed by the interest method.
[] All investments not classified as either held-to-maturity
securities or trading securities are classified as
available-for-sale. These securities are carried at market
value as of the date of the balance sheet. The unrealized
gains and losses on these securities are excluded from earnings
for the year. Instead, the net unrealized gain or loss, net of
the applicable deferred income taxes, is shown as a separate
component of stockholders' equity in the balance sheet.
[] Securities that are acquired and held principally for the
purpose of selling them in the near term are classified as
trading securities. Such securities, if any, are carried at
market value and the unrealized gains and losses on such
securities are included in income for the current year.
Prior to the adoption of FASB No. 115, investment debt securities
were stated at cost adjusted for amortization of premiums and
accretion of discounts as computed by the interest method.
Investments in marketable equity securities were carried at the
lower of cost or market value. Unrealized losses on such equity
securities considered to be temporary were charged against
stockholders' equity; declines in market value considered to be
other than temporary were charged to earnings.
F-35
<PAGE> 156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES (CONCLUDED)
Gains and losses on the sale of investment securities are computed
on the basis of specific identification of the adjusted cost of
each security.
LOANS RECEIVABLE
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full,
timely collection of interest or principal, or when a loan becomes
contractually past due by ninety days or more with respect to
interest or principal. When a loan is placed on nonaccrual
status, all interest previously accrued but not collected is
reversed against current period interest income. Income on such
loans is then recognized only to the extent that cash is received
and where the future collection of principal is probable.
Interest accruals are resumed on such loans only when they are
brought fully current with respect to interest and principal and
when, in the judgment of management, the loans are estimated to be
fully collectible as to both principal and interest.
The adoption of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 114 (FASB No. 114), Accounting
by Creditors for Impairment of a Loan, is required in 1995.
Company management does not anticipate that its adoption will have
a material effect on the Company's financial position or results
of operations.
Interest income on loans is recognized based upon the principal
amounts outstanding, except that on consumer loans, the sum of the
month's digits method is used.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely or, with respect to
consumer installment loans, according to an established
delinquency schedule. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing
loans and commitments to extend credit, based on evaluations of
the collectibility and prior loss experience of loans and
commitments to extend credit. The evaluations take into
consideration such factors as changes in the nature and volume of
the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, commitments, and current and anticipated
economic conditions that may affect the borrower's ability to pay.
Recoveries of previous charge-offs are added back to the
allowance.
REAL ESTATE OWNED
Real estate acquired by foreclosure or deed in lieu of foreclosure
is carried at the lower of its estimated fair value or the balance
of the related loan at the date the real estate is acquired.
Costs relating to the development and improvement of the real
estate are capitalized, whereas those costs relating to holding
the real estate are charged to expense.
F-36
<PAGE> 157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE OWNED (CONCLUDED)
Sales of real estate owned are recorded under the full accrual
method of accounting. Under this method, a sale is not recognized
until payments received aggregate a specific required percentage
of the contract sales price. Losses are charged to operations as
incurred or when it is determined that the investment in such real
estate is greater than the estimated net realizable value.
PREMISES AND EQUIPMENT
Land is stated at cost. The premises and equipment are stated at
cost less accumulated depreciation. Depreciation is computed on
the straight-line method over the assets' estimated useful lives.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO
REPURCHASE The Bank enters into agreements to repurchase
securities sold to customers. The securities sold are United
States Treasury and agency securities which are included in the
Bank's investment portfolio and are held in safekeeping by other
large banks. The repurchase agreements outstanding at December
31, 1994 are one day agreements which are automatically renewable
unless the customer notifies the Bank. The interest rate on such
agreements varies between 1.80% and 5.75%.
Federal funds purchased mature within one to four days from the
transaction date.
INCOME TAXES
Federal and state income taxes are provided on income reported for
financial statement purposes and include both current and deferred
income tax expense. Current income tax expense is recorded to
reflect income taxes based upon the tax returns filed with the
appropriate taxing agencies. Deferred income taxes are recorded
to reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their
financial reporting amounts at year end. The change in deferred
taxes attributable to the carrying value of investments
categorized as "Available-for-Sale" is recognized as a change in
stockholders' equity. The change in deferred income taxes
attributable to all other timing differences is recognized as
deferred income tax expense or benefit. The tax benefit related
to operating loss and tax credit carryforwards, if any, are
recognized if management believes, based on available evidence,
that it is more likely than not that they will be realized.
Investment tax credits, if any, are accounted for under the
flow-through method.
Citi-Bancshares, Inc. files consolidated federal and state income
tax returns with its subsidiary, Citizens National Bank of
Leesburg. Federal and state income taxes are allocated between
the Company and its subsidiary in proportion to the respective
contributions to consolidated taxable income.
F-37
<PAGE> 158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
INCOME TAXES (CONCLUDED)
Effective January 1, 1993, the Company adopted the asset and
liability method of accounting for income taxes as required by
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109 (FASB No. 109), Accounting for
Income Taxes. The Company previously used the deferred method to
account for income taxes. The Company accounted for this change
as a cumulative effect of an accounting change in the 1993
financial statements.
MARKET VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (FASB No.
107), Disclosures About Fair Value of Financial Instruments,
requires market value disclosure for virtually all financial
instruments broadly defined to include receivables and payables,
forward contracts, options, guarantees and equity instruments.
FASB No. 107 is effective for years ended after December 15, 1992.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of
shares of common stock outstanding, adjusted retroactively for
stock dividends and stock splits.
LOAN ORIGINATION FEES
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan.
PENSION PLAN
The Bank has a noncontributory defined benefit pension plan
covering all employees who meet certain eligibility requirements.
Pension costs in the accompanying statements were computed based
on the provision of Statement of Financial Accounting Standards
No. 87 (FASB No. 87), Employers' Accounting For Pension.
CONCENTRATION OF CREDIT RISK
The Bank grants agribusiness, commercial, and residential loans
primarily to customers in Lake, Marion and Sumter Counties in the
state of Florida. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the real estate economic sector.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
current financial reporting to facilitate comparison of the
financial data.
F-38
<PAGE> 159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 2 - SECURITIES
The carrying value of securities, including information regarding
amortized cost, gross unrealized gains, gross unrealized losses
and market value is tabulated below:
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
----------------------------------------------------------------------
1994 1993 1992
------------------------------------------- ------------ ------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL TOTAL TOTAL
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 37,198,800 $ 0 $ 37,198,800 $ 44,389,718 $ 38,811,113
U.S. Government Agencies 50,735,813 11,238,149 61,973,962 49,327,658 30,696,548
Mortgage-Backed
Securities 37,656,428 8,122,239 45,778,667 55,096,199 65,558,569
Obligations of State and
Political Subdivisions 5,895,856 50,365,192 56,261,048 49,968,432 37,946,342
Corporate Securities 4,874,300 0 4,874,300 7,285,100 9,363,038
------------- ------------- ------------- ------------ ------------
Total Debt Securities 136,361,197 69,725,580 206,086,777 206,067,107 182,375,610
Equity Securities 0 460,000 460,000 460,000 460,000
------------- ------------- ------------- ------------ ------------
TOTAL SECURITIES $ 136,361,197 $ 70,185,580 $ 206,546,777 $206,527,107 $182,835,610
============= ============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 AVAILABLE-FOR-SALE
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 37,877,190 $ 148,074 $ 826,464 $ 37,198,800
U.S. Government Agencies 53,807,679 117,300 3,189,166 50,735,813
Mortgage-Backed Securities 39,821,707 104,726 2,270,005 37,656,428
Obligations of State and
Political Subdivisions 5,862,952 79,907 47,003 5,895,856
Corporate Securities 4,990,202 30,850 146,752 4,874,300
------------- ------------- ------------ ------------
TOTAL DEBT SECURITIES $ 142,359,730 $ 480,857 $ 6,479,390 $136,361,197
============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
1994 HELD-TO-MATURITY
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 0 $ 0 $ 0 $ 0
U.S. Government Agencies 11,238,149 0 565,544 10,672,605
Mortgage-Backed Securities 8,122,239 19,482 193,955 7,947,766
Obligations of State and
Political Subdivisions 50,365,192 795,335 2,721,202 48,439,325
Corporate Securities 0 0 0 0
------------- ------------- ------------ -------------
Total Debt Securities 69,725,580 814,817 3,480,701 67,059,696
Equity Securities 460,000 0 0 460,000
------------- ------------- ------------ -------------
TOTAL SECURITIES $ 70,185,580 $ 814,817 $ 3,480,701 $ 67,519,696
============= ============= ============ =============
</TABLE>
F-39
<PAGE> 160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 2 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
CARRYING VALUE SUMMARY
-----------------------------------------
1993
-----------------------------------------
AVAILABLE- HELD-TO-
FOR-SALE MATURITY TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
U.S. Treasury Securities $ 43,367,870 $ 1,021,848 $ 44,389,718
U.S. Government Agencies 48,330,295 997,363 49,327,658
Mortgage-Backed Securities 48,213,750 6,882,449 55,096,199
Obligations of State and
Political Subdivisions 6,841,190 43,127,242 49,968,432
Corporate Securities 7,285,100 0 7,285,100
------------ ----------- ------------
Total Debt Securities 154,038,205 52,028,902 206,067,107
Equity Securities 0 460,000 460,000
------------ ----------- ------------
TOTAL SECURITIES $154,038,205 $52,488,902 $206,527,107
============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
1993 AVAILABLE-FOR-SALE
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 40,890,734 $ 2,477,801 $ 665 $ 43,367,870
U.S. Government Agencies 47,337,801 1,060,111 67,617 48,330,295
Mortgage-Backed Securities 46,867,554 1,402,397 56,201 48,213,750
Obligations of State and
Political Subdivisions 6,347,849 493,341 0 6,841,190
Corporate Securities 6,974,939 310,161 0 7,285,100
------------- ------------- ------------ ------------
TOTAL DEBT SECURITIES $ 148,418,877 $ 5,743,811 $ 124,483 $154,038,205
============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
1993 HELD-TO-MATURITY
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,021,848 $ 0 $ 1,248 $ 1,020,600
U.S. Government Agencies 997,363 2,637 0 1,000,000
Mortgage-Backed Securities 6,882,449 315,291 0 7,197,740
Obligations of State and
Political Subdivisions 43,127,242 2,925,530 57,136 45,995,636
Corporate Securities 0 0 0 0
------------- ------------- ------------ -----------
Total Debt Securities 52,028,902 3,243,458 58,384 55,213,976
Equity Securities 460,000 0 0 460,000
------------- ------------- ------------ -----------
TOTAL SECURITIES $ 52,488,902 $ 3,243,458 $ 58,384 $55,673,976
============= ============= ============ ===========
</TABLE>
F-40
<PAGE> 161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 2 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1992 IN TOTAL
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 38,811,113 $ 2,306,103 $ 16,206 $ 41,101,010
U.S. Government Agencies 30,696,548 1,038,692 0 31,735,240
Mortgage-Backed Securities 65,558,569 1,931,371 256,911 67,233,029
Obligations of State and
Political Subdivisions 37,946,342 2,243,828 65,338 40,124,832
Corporate Securities 9,363,038 447,375 0 9,810,413
------------- ------------- ------------ ------------
Total Debt Securities 182,375,610 $ 7,967,369 $ 338,455 190,004,524
Other Securities 460,000 ============= ============ 460,000
------------- ------------
TOTAL SECURITIES $ 182,835,610 $190,464,524
============= ============
</TABLE>
The carrying value, market value and weighted average yields of
investment securities at December 31, 1994, by contractual
maturity are shown below. The weighted average yield is
determined using the amortized cost of securities. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligation with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING MARKET WEIGHTED
VALUE VALUE AVERAGE YIELD
------------ ------------ -------------
<S> <C> <C> <C>
Due in One Year or Less $ 5,256,312 $ 5,278,548 8.44%
Due After One Year Through Five Years 70,668,815 70,389,660 6.53%
Due After Five Years Through Ten Years 39,387,943 39,295,272 6.74%
Due After Ten Years 44,995,040 42,853,219 6.33%
------------ ------------
160,308,110 157,816,699
Mortgage-Backed Securities 45,778,667 45,604,194 7.01%
Equity Securities 460,000 460,000
------------ ------------
TOTAL $206,546,777 $203,880,893
============ ============
</TABLE>
Detailed information of contractual maturity for each investment
classification is as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------------------- ------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Due in One Year or Less $ 3,945,532 $ 3,981,870 $ 1,274,442 $ 1,296,678
Due After One Year Through
Five Years 64,866,250 62,738,815 7,930,000 7,650,845
Due After Five Years Through
Ten Years 30,899,877 29,190,183 10,197,760 10,105,089
Due After Ten Years 2,826,364 2,793,901 42,201,139 40,059,318
--------------- -------------- ------------- -----------
102,538,023 98,704,769 61,603,341 59,111,930
Mortgage-Backed Securities 39,821,707 37,656,428 8,122,239 7,947,766
Equity Securities 0 0 460,000 460,000
--------------- -------------- ------------- -----------
TOTAL $ 142,359,730 $ 136,361,197 $ 70,185,580 $67,519,696
=============== ============== ============= ===========
</TABLE>
F-41
<PAGE> 162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 2 - SECURITIES (CONCLUDED)
Proceeds from sales of investment securities classified as
available-for-sale during 1994 were $21,753,855, with gross gains
of $80,158 and gross losses of $275,998. Assets classified as
held-to-maturity totalling $1,317,200 were called by issuers
during 1994, resulting in gross gains of $27,966. There were no
sales or transfers of assets classified as held-to-maturity during
1994. During 1993, proceeds from sales of investment securities
were $37,944,615, with gross gains of $567,334 and gross losses of
$121,181. Proceeds from sales of investment securities during
1992 were $69,003,092, with gross gains of $1,231,209 and gross
losses of $113,981. In computing recognized gains and losses,
cost is determined using specific identification of securities.
As of December 31, 1994, investment securities with a carrying
value of $5,607,216 were pledged as collateral for public funds,
trust deposits and repurchase agreements.
UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE
As discussed in Note 1, effective December 31, 1993, the Company
adopted the investment categorization and carrying value rules as
required by Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 115 (FASB No. 115), Accounting
for Certain Investments in Debt and Equity Securities. Under this
statement, the unrealized gain or loss on investment securities
available-for-sale, net of the applicable deferred income taxes,
is shown as a separate component of stockholders' equity in the
balance sheet. The following is a summary of the effects of the
statement on stockholders' equity as of December 31:
<TABLE>
<CAPTION>
1994 1993
------------ ----------
<S> <C> <C>
Gross Unrealized Gains (Losses) on Investment
Securities Available-For-Sale $ (5,998,533) $ 5,619,328
Deferred Income Tax Asset (Liability) on
Unrealized Gain 2,178,067 (2,032,960)
------------ -----------
NET (DECREASE) INCREASE IN STOCKHOLDERS' EQUITY $ (3,820,466) $ 3,586,368
============ ===========
</TABLE>
The following tabulation presents the net change in unrealized
gain or loss on available-for-sale securities that is shown as a
separate component of stockholders' equity.
<TABLE>
<CAPTION>
1994 1993
------------ ----------
<S> <C> <C>
(Decrease) Increase in Unrealized Gain or Loss $(11,617,861) $ 5,619,328
Decrease (Increase) in Related Deferred Income
Taxes 4,211,027 (2,032,960)
------------ -----------
NET (DECREASE) INCREASE IN STOCKHOLDERS' EQUITY $ (7,406,834) $ 3,586,368
============ ===========
</TABLE>
F-42
<PAGE> 163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Major categories of loans included in the loan portfolio are:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
Commercial, Financial and Agricultural $ 13,457,158 $ 13,152,667
Real Estate 166,039,204 146,152,476
Installment Loans 20,479,844 20,561,354
---------------- ----------------
Loans Receivable (Gross) 199,976,206 179,866,497
(Unearned Income) (1,024,096) (1,266,269)
---------------- ----------------
LOANS RECEIVABLE (NET OF UNEARNED INCOME) $ 198,952,110 $ 178,600,228
================ ================
</TABLE>
The maturity ranges of the loan portfolio and the amount of loans
with predetermined interest rates and floating rates in each
maturity range, as of December 31, 1994, are summarized as
follows:
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY DISTRIBUTION
-----------------------------------------------------
WITHIN ONE - AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural $ 10,392,618 $ 3,028,324 $ 25,990 $ 13,446,932
Real Estate 130,589,388 23,378,472 11,318,952 165,286,812
Installment Loans 7,786,051 11,545,294 887,021 20,218,366
------------ ------------ ----------- ------------
TOTAL LOANS (NET OF UNEARNED INCOME) $148,768,057 $ 37,952,090 $12,231,963 $198,952,110
============ ============ =========== ============
Loans With Predetermined Rate 8,607,520 37,877,552 12,231,963 58,717,035
Loans With a Floating Rate 140,160,537 74,538 0 140,235,075
------------ ------------ ----------- ------------
TOTAL LOANS (NET OF UNEARNED INCOME) $148,768,057 $ 37,952,090 $12,231,963 $198,952,110
============ ============ =========== ============
</TABLE>
The Bank has granted loans to its executive officers, directors
and principal equity holders and their associates. The aggregate
dollar amount of these loans was approximately $2,967,543 and
$4,285,680 at December 31, 1994 and 1993, respectively. During
1994, approximately $2,782,847 in new loans were made while
repayment approximated $4,100,985.
Loans on which the accrual of interest has been discontinued or
reduced at December 31, 1994 and 1993 approximated $502,574 and
$812,339, respectively. Interest income realized on these loans
was $579 and $45,705 in 1994 and 1993, respectively. If interest
on those loans had been accrued, it would not have a material
effect on the accompanying consolidated financial statements. At
December 31, 1994, the Bank had loans subject to floors and caps
totalling $76,828,512. The floors and caps on these loans range
from 1.50% to 15.25%.
At December 31, 1994, there were no commitments to lend additional
funds to borrowers whose loans are classified as nonaccrual.
F-43
<PAGE> 164
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (CONCLUDED)
Changes in the allowance for loan losses for 1994, 1993 and 1992
are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $2,489,991 $1,686,880 $1,670,890
---------- ---------- ----------
Provisions Charged to Expense 600,000 1,075,000 1,400,000
---------- ---------- ----------
Recoveries of Loans Previously Charged-Off:
Commercial, Financial and Agricultural 59,167 33,092 250
Real Estate 47,904 21,674 14,464
Installment Loans 7,544 53,977 33,583
---------- ---------- ----------
Total Recoveries 114,615 108,743 48,297
---------- ---------- ----------
Loans Charged-Off:
Commercial, Financial and Agricultural 55,389 0 544,630
Real Estate 77,479 320,967 790,282
Installment Loans 77,483 59,665 97,395
---------- ---------- ----------
Total Loans Charged-Off (210,351) (380,632) (1,432,307)
---------- ---------- ----------
BALANCE, END OF YEAR $2,994,255 $2,489,991 $1,686,880
========== ========== ==========
RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS
OUTSTANDING .05% .16% .89%
========== ========== ==========
RATIO OF ALLOWANCE FOR LOAN LOSSES AS A
PERCENTAGE OF YEAR END LOANS 1.51% 1.39% 1.05%
========== ========== ==========
</TABLE>
As of December 31, 1994 and 1993, the allowance for loan losses
was allocated as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ -------------------------
PERCENT BY PERCENT BY
AMOUNT CATEGORY AMOUNT CATEGORY
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 682,990 23% $ 516,594 21%
Real Estate 2,200,895 73% 1,836,911 74%
Installment 110,370 4% 136,486 5%
TOTAL ALLOWANCE FOR ---------- --- ---------- ---
LOAN LOSSES $2,994,255 100% $2,489,991 100%
========== === ========== ===
</TABLE>
F-44
<PAGE> 165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 4 - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Land $ 839,958 $ 839,958
Buildings 6,669,938 6,653,938
Furniture, Fixtures and Equipment 4,898,628 4,528,762
----------- -----------
12,408,524 12,022,658
(Accumulated Depreciation) (5,601,689) (5,352,797)
----------- -----------
TOTAL PREMISES AND EQUIPMENT $ 6,806,835 $ 6,669,861
=========== ===========
</TABLE>
NOTE 5 - DEPOSITS
A summary of interest-bearing deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Demand $ 54,121,540 $ 52,363,603
Savings 111,648,230 116,841,329
Time 188,557,736 164,320,275
------------ ------------
TOTAL INTEREST-BEARING DEPOSITS $354,327,506 $333,525,207
============ ============
</TABLE>
Included in interest-bearing deposits are certificates of deposit
in amounts of $100,000 or more. These certificates and their
remaining maturities at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Three Months or Less $ 7,609,057 $ 6,993,065
Three Through Six Months 2,953,564 3,461,012
Six Through Twelve Months 5,066,999 4,285,754
Over Twelve Months 11,584,021 9,423,250
----------- -----------
TOTAL $27,213,641 $24,163,081
=========== ===========
</TABLE>
A summary of interest on deposits is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- -----------
<S> <C> <C> <C>
Interest-Bearing Demand Deposits $ 2,709,256 $ 2,878,854 $ 3,488,906
Savings 1,309,118 1,235,463 1,367,973
Time Deposits of $100,000 or More 1,249,600 1,064,086 1,141,043
Other Time Deposits 7,031,965 6,516,396 7,368,253
-------------- -------------- -----------
TOTAL $ 12,299,939 $ 11,694,799 $13,366,175
============== ============== ===========
</TABLE>
F-45
<PAGE> 166
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 6 - INCOME TAXES
As discussed in Note 1, effective January 1, 1993, the Company
adopted the asset and liability method of accounting for income
taxes as required by Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109 (FASB No.
109), Accounting for Income Taxes. The Company previously used
the deferred method to account for income taxes. The Company
accounted for this change as the cumulative effect of an
accounting changes in the 1993 financial statements. The
cumulative effect of $255,072 is recognized in the 1993
consolidated statement of income.
The total provision (benefit) for income taxes in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal $1,924,114 $1,841,861 $1,541,778
State of Florida 284,551 321,463 259,014
---------- ---------- ----------
TOTAL CURRENT INCOME TAX EXPENSE 2,208,665 2,163,324 1,800,792
---------- ---------- ----------
DEFERRED INCOME TAX (BENEFIT)
U.S. Federal (107,909) (274,392) (20,424)
State of Florida (18,472) (46,970) (3,585)
---------- ---------- ----------
TOTAL DEFERRED INCOME TAX (BENEFIT) (126,381) (321,362) (24,009)
---------- ---------- ----------
TOTAL INCOME TAX EXPENSE $2,082,284 $1,841,962 $1,776,783
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
------------------- ------------------------- ------------------------
AMOUNT % AMOUNT % AMOUNT %
---------- ----- --------------- ---- --------------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed "Expected" Income
Tax Expense $2,749,785 34.0 $ 2,487,095 34.0 $ 2,281,316 34.0
Interest Income Exempt From
Federal Income Tax (851,507) (10.5) (717,410) (9.8) (667,215) (9.9)
State Income Taxes, Net of
Federal Income Tax Benefits 175,612 2.1 181,165 2.5 168,583 2.5
Other 8,394 .1 (108,888) (1.5) (5,901) (0.1)
---------- ---- --------------- ---- --------------- ----
TOTAL $2,082,284 25.7 $ 1,841,962 25.2 $ 1,776,783 26.5
========== ==== =============== ==== =============== ====
</TABLE>
Deferred tax liabilities (assets) are comprised of the following
at December 31:
<TABLE>
<CAPTION>
1994 1993
------- ----------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation $91,466 $ 99,175
Basis Difference on Investment Securities
Available-For-Sale 0 2,032,960
------- ----------
GROSS DEFERRED TAX LIABILITIES 91,466 2,132,135
======= ==========
</TABLE>
F-46
<PAGE> 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 6 - INCOME TAXES (CONCLUDED)
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
DEFERRED TAX (ASSETS)
Basis Difference on Investment Securities
Available-For-Sale $ 2,178,067 $ 0
Allowance For Loan Losses 878,493 685,734
Allowance For Losses on Other Real Estate Owned 61,633 100,721
Earnings of Real Estate Mortgage Investment
Conduit (REMIC) 46,108 85,986
Deferred Expenses Payable 65,835 76,424
Deferred Loan Income 290,612 275,144
----------- ----------
GROSS DEFERRED TAX (ASSETS) (3,520,748) (1,224,009)
----------- ----------
NET DEFERRED TAX LIABILITIES (ASSETS) $(3,429,282) $ 908,126
=========== ==========
</TABLE>
The sources of timing differences and the related income tax
effect of each of the years ended December 31, 1994, 1993 and 1992
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- --------
<S> <C> <C> <C>
Provision For Loan and Other Real Estate Owned
Losses For Income Tax Purposes Greater (Less)
Than For Financial Statement Purposes $ (153,672) $ (316,785) $(48,956)
Adjustment of Prior Year Deferred Income Tax
Estimate 0 0 14,718
Interest Income Earned on Real Estate Mortgage
Investment Conduit For Income Tax Purposes
(Less) Greater Than For Financial Statement
Purposes 39,800 39,461 (44,956)
Depreciation Deducted For Tax Purposes (Less)
Greater Than That Recognized as Expense For
Financial Statement Purposes (7,709) 1,931 17,341
Loan Fee Income Realized For Income Tax Purposes
Greater (Less) Than For Financial Statement
Purposes (15,468) (35,674) 47,592
Other 10,668 (10,295) (9,748)
----------- ----------- --------
TOTAL $ (126,381) $ (321,362) $(24,009)
=========== =========== ========
</TABLE>
As a result from gains and losses on sales of securities, income
tax expense increased (decreased) by the following amounts:
$(63,171) in 1994; $167,624 in 1993; and $420,413 in 1992.
F-47
<PAGE> 168
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 7 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS
For those short-term instruments, the carrying amount is
considered a reasonable estimate of fair value.
INVESTMENT SECURITIES
For marketable equity securities held for investment purposes,
fair values are based on quoted market prices or dealer quotes.
For other securities held as investments, fair value equals quoted
market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
LOANS RECEIVABLE
The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For those short-term instruments, the carrying amount is
considered a reasonable estimate of fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Substantially all of the Bank's commitments to extend credit and
standby letters of credit are at variable rates and are subjected
to the same credit criteria as for recognized loans receivable.
The variable rates ascribed to these commitments to extend credit
and standby letters of credit approximate market rates for such
instruments. Accordingly, the carrying amount is considered a
reasonable estimate of fair value.
F-48
<PAGE> 169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 7 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
The estimated fair values of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and Short-Term
Investments $ 14,321,737 $ 14,321,737 $ 15,266,482 $ 15,266,482
Investment Securities $ 206,546,777 $ 203,880,893 $ 206,527,107 $209,712,181
Loans Receivable, Net $ 195,957,855 $ 195,063,705 $ 176,110,237 $176,593,556
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1994 1993
---------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FINANCIAL LIABILITIES
Deposits $ 388,867,122 $ 390,534,696 $ 364,274,657 $366,221,927
Federal Funds Purchased
and Securities Sold
Under Agreements to
Repurchase $ 5,633,216 $ 5,633,216 $ 5,491,063 $ 5,491,063
UNRECOGNIZED FINANCIAL
INSTRUMENTS
Commitments to Extend
Credit $ 28,728,029 $ 28,728,029 $ 23,701,487 $ 23,701,487
Standby Letters of
Credit $ 630,602 $ 630,602 $ 1,847,086 $ 1,847,086
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank has various commitments
and contingent liabilities outstanding, such as commitments to
extend credit and standby letters of credit which are not
reflected in the consolidated financial statements. At December
31, 1993, the Bank had commitments to customers of approximately
$630,602 for standby letters of credit, and $28,728,029 for
approved lines of credit. Unfunded loan commitments at December
31, 1994 were $4,647,250. No losses are anticipated as a result
of these transactions.
The Bank is involved in legal proceedings primarily concerning the
recovery of loans previously charged-off or adequately provided
for in the allowance for loan losses. Management, after a review
of all litigation with counsel, believes that the resolution of
these matters will not have a material effect on the accompanying
consolidated financial statements.
F-49
<PAGE> 170
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONCLUDED)
Minimum commitments for rental expenditures under all
noncancellable operating leases are presented for future years in
the following table:
<TABLE>
<S> <C>
1995 $ 35,250
1996 36,000
1997 36,000
1998 36,000
1999 36,000
Thereafter 36,000
------------
TOTAL MINIMUM LEASE PAYMENTS $ 215,250
============
</TABLE>
Rental expense for all operating leases was $68,896, $68,720 and
$68,719 in 1994, 1993 and 1992, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
AVERAGE SHARES OUTSTANDING
The weighted-average number of shares outstanding during 1994,
1993 and 1992 were 4,047,647, 4,050,051, and 4,052,827,
respectively.
REGULATORY MATTERS
There are no restrictions on the ability of the Company to pay
dividends from its retained earnings; however, banking regulations
limit the amount of dividends national banks may declare without
receiving prior approval from the Comptroller of the Currency. At
December 31, 1994, approximately $12,714,897 was available for
payment of dividends by the Bank without such approval.
The Board of Governors of the Federal Reserve System has specified
guidelines for purposes of evaluating a bank's capital adequacy.
Currently, banks must maintain a minimum primary capital ratio of
capital to risk assets of 8.0%. Primary capital includes the
Company's stockholders' equity and the allowance for loan losses.
At December 31, 1994, the primary capital ratio of capital to risk
assets was in excess of 10%.
STOCK OPTION PLAN
In 1994, the Company adopted a stock option plan for granting
nonqualified stock options to specified officers. The
nonqualified stock options are granted to the officers provided
the Bank meets certain target performance and asset quality
criteria. The stock options are exercisable at a price equal to
the book value per share as of the date of grant. These stock
options are exercisable two years after the date of grant. In
1995, options for 11,250 shares were granted effective December
31, 1994.
F-50
<PAGE> 171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 10 - OTHER EXPENSES
A summary of other expenses is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Stationery and Supplies $ 355,800 $ 272,633 $ 293,598
Advertising 285,212 275,235 219,469
Insurance, Including Regulatory Assessments 891,428 836,066 786,109
Postage 195,433 169,937 162,894
Taxes (Other Than Payroll, Real Estate and
Income Taxes) 181,760 206,080 205,733
Directors' Fees 265,288 266,167 233,400
Trust Department Expense 136,116 118,255 103,596
Miscellaneous 814,580 785,321 935,669
---------- ---------- ----------
TOTAL OTHER EXPENSES $3,125,617 $2,929,694 $2,940,468
========== ========== ==========
</TABLE>
NOTE 11 - PENSION AND PROFIT SHARING PLANS
The Bank maintains pension and profit sharing plans covering
eligible officers and employees. Profit sharing contributions
($385,645 in 1994, $261,991 in 1993 and $256,688 in 1992) are
determined annually at the discretion of the Board of Directors of
the Bank. Effective January 1, 1988, the Bank adopted Statement
of Financial Accounting Standards No. 87, Employers' Accounting
For Pensions. Under this statement, pension expense must be
accounted for using the projected unit credit method. Net
periodic pension expense for the years ended December 31 includes
the following components:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service Cost $ 255,148 $ 224,639 $ 153,504
Interest Cost 175,201 149,779 155,980
Return on Plan Assets 65,955 (111,429) (148,157)
Amortization of Net Transition Asset (7,283) (7,283) (7,283)
Amortization of Prior Service Cost 18,040 19,989 19,989
Amortization of Net Loss (Gain) From
Earlier Periods 69,363 60,512 867
Asset Gain (Loss) Deferred (210,725) (11,112) (28,749)
--------- --------- ---------
TOTAL PENSION EXPENSE $ 365,699 $ 325,095 $ 146,151
========= ========= =========
</TABLE>
The initial unrecognized asset at January 1, 1988 was $316,896,
which is the excess of the fair value of assets over the projected
benefit obligation on that date. The initial unrecognized
transition asset, as adjusted for any subsequent lump-sum
settlements, is being amortized over thirty-one years.
F-51
<PAGE> 172
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 11 - PENSION AND PROFIT SHARING PLANS (CONCLUDED)
The Bank's funding policy is to make an annual contribution that
will not be less than the minimum required contribution nor
greater than the maximum federal income tax deductible limit. The
Bank contributed $362,000 for 1994; $345,588 for 1993; and
$326,913 for 1992. The funded status of the plan at December 31,
1994 and 1993 as determined by consulting actuaries, was as
follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
Vested $ 1,934,126 $ 1,770,343
Nonvested 259,354 182,595
-------------- --------------
TOTAL $ 2,193,480 $ 1,952,938
============== ==============
ACCRUED PENSION LIABILITY
Projected Benefit Obligation $ (3,199,274) $ (2,854,146)
Fair Value of Plan Assets 2,548,469 2,677,964
-------------- --------------
PROJECTED BENEFIT OBLIGATION (IN EXCESS OF
or) Less Than Plan Assets (650,805) (176,182)
UNRECOGNIZED NET TRANSITION ASSET (174,799) (182,082)
UNRECOGNIZED NET LOSSES (GAINS) 1,151,651 641,840
UNRECOGNIZED PRIOR SERVICE COST 195,682 241,852
-------------- --------------
PREPAID PENSION COST $ 521,729 $ 525,428
============== ==============
</TABLE>
The expected long-term rate of return on plan assets was 6% in
1994 and 1993 and 9% for the preceding years. The discount rate
and rate of increase in future compensation levels used in
determining the actuarial present value of benefit obligations is
presented below for each year.
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount Rate 6.00% 6.00% 8.00%
Rate of Compensation Increase 5.00% 5.00% 5.00%
</TABLE>
NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters
of credit, interest rate caps and floors written. Those
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the
consolidated balance sheets. The contract or notional amounts of
those instruments reflect the extent of involvement the Bank has
in particular classes of financial instruments.
F-52
<PAGE> 173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CITI-BANCSHARES, INC. AND SUBSIDIARY - LEESBURG, FLORIDA
(CONTINUED)
NOTE 12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONCLUDED)
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit written is represented
by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments. For interest rate caps and floors, the contract or
notional amounts do not represent exposure to credit loss.
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of
the Company which, in the opinion of management, reflects
adjustments (comprising only normal recurring accruals) necessary
for fair presentation:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------------------------------------
1994 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------------------- ----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Interest Income $7,816 $7,490 $7,403 $6,885
Interest Expense 3,418 3,215 2,959 2,863
Net Interest Income 4,398 4,275 4,444 4,022
Provision For Losses
on Loans 77 201 172 150
Security Gains (Losses) (44) 0 (178) 54
Net Income 1,544 1,550 1,539 1,373
Earnings Per Share .38 .38 .38 .34
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------------------------------------
1993 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------------------- ----------- ------------ ------- --------
<S> <C> <C> <C> <C>
Interest Income $6,952 $6,905 $6,939 $6,703
Interest Expense 2,881 2,949 2,962 2,994
Net Interest Income 4,071 3,956 3,977 3,709
Provision For Losses
on Loans 400 225 225 225
Security Gains (Losses) 55 111 59 220
Net Income 1,293 1,457 1,405 1,573
Earnings Per Share $ .32 $ .36 $ .35 $ .39
</TABLE>
NOTE 14 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of Citi-Bancshares, Inc. (Parent
Company Only) are presented on the following pages.
F-53
<PAGE> 174
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
CITI-BANCSHARES, INC. (PARENT COMPANY ONLY) - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
ASSETS
1994 1993
----------- ----------
<S> <C> <C>
Cash $ 1,552,951 $ 1,390,876
Investment in Wholly-Owned Subsidiary,
at Equity in Underlying Assets 33,832,787 36,693,226
Other Assets 50,921 24,814
----------- -----------
TOTAL ASSETS 35,436,659 38,108,916
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Dividends Payable 1,416,675 1,254,769
Other 43,728 59,696
----------- -----------
TOTAL LIABILITIES 1,460,403 1,314,465
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock 41,846 41,846
Capital Surplus 11,207,783 11,207,783
Retained Earnings 27,339,017 22,750,378
(Treasury Stock) (791,924) (791,924)
Unrealized (Losses) Gains on Certain Securities (3,820,466) 3,586,368
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 33,976,256 36,794,451
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,436,659 $38,108,916
=========== ===========
</TABLE>
F-54
<PAGE> 175
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CITI-BANCSHARES, INC. (PARENT COMPANY ONLY) - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Cash Dividends From Subsidiary $1,500,000 $1,400,000 $1,155,000
Interest 21,350 16,798 14,690
---------- ---------- ----------
TOTAL INCOME 1,521,350 1,416,798 1,169,690
---------- ---------- ----------
EXPENSES
Interest 2,856 1,910 1,774
Other Expense 82,866 69,650 55,987
---------- ---------- ----------
TOTAL EXPENSES 85,722 71,560 57,761
---------- ---------- ----------
INCOME BEFORE INCOME TAX BENEFIT AND
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY 1,435,628 1,345,238 1,111,929
INCOME TAX BENEFIT RESULTING FROM
FILING CONSOLIDATED INCOME TAX
RETURNS 23,294 19,814 15,582
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARY 4,546,396 4,363,043 3,805,458
---------- ---------- ----------
NET INCOME $6,005,318 $5,728,095 $4,932,969
========== ========== ==========
</TABLE>
F-55
<PAGE> 176
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CITI-BANCSHARES, INC. (PARENT COMPANY ONLY) - LEESBURG, FLORIDA
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $6,005,318 $5,728,095 $4,932,969
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Deferred Compensation (15,968) 10,926 6,080
Income From Subsidiary (4,546,396) (4,363,043) (3,805,458)
Tax Benefit (23,294) (19,814) (15,582)
Other (2,816) 87,005 (3)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,416,844 1,443,169 1,118,006
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid (1,254,769) (1,134,792) (772,022)
Purchase of Treasury Stock 0 (49,248) 0
---------- ---------- ----------
NET CASH (USED IN) FINANCING ACTIVITIES (1,254,769) (1,184,040) (772,022)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH 162,075 259,129 345,984
CASH, BEGINNING OF YEAR 1,390,876 1,131,747 785,763
---------- ---------- ----------
CASH, END OF YEAR $1,552,951 $1,390,876 $1,131,747
========== ========== ==========
</TABLE>
F-56
<PAGE> 177
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CITIZENS FIRST BANCSHARES, INC.
AND
CITI-BANCSHARES, INC.
DATED AS OF OCTOBER 19, 1995
<PAGE> 178
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 _ TRANSACTIONS AND TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Bank Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 _ TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 _ MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Anti-Dilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Shares Held by CFB or CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4 _ EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1 Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Rights of Former CFB Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 5 _ REPRESENTATIONS AND WARRANTIES OF CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 CFB Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.9 Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.10 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.12 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.16 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.17 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.18 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.19 Accounting, Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.20 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.21 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.22 Directors' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.23 Shareholders' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.24 Federal Home Loan Bank of Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.25 Real Estate/Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
A - i
<PAGE> 179
<TABLE>
<S> <C>
ARTICLE 6 _ REPRESENTATIONS AND WARRANTIES OF CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.7 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.8 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.9 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.10 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.11 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.12 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.13 Accounting, Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.14 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.15 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.16 Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.17 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 7 _ CONDUCT OF BUSINESS PENDING CONSUMMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Affirmative Covenants of CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Negative Covenants of CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.3 Covenants of CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 Adverse Changes in Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 8 _ ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Registration Statement; Proxy Statement; Shareholder Approval . . . . . . . . . . . . . . . . . 20
8.2 Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Filings with State Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.5 Agreement as to Efforts to Consummate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.6 Investigation and Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.7 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.8 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 Accounting and Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.10 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.11 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.12 Agreements of Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.13 Employee Benefits and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.14 Certain Policies of CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.15 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.16 Director and Officer Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 9 _ CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Conditions to Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.2 Conditions to Obligations of CBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.3 Conditions to Obligations of CFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 10 _ TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Non-Survival of Representations and Covenants . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 11 _ MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
A - ii
<PAGE> 180
<TABLE>
<S> <C> <C>
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.3 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.5 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.6 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.12 Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.13 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
A - iii
<PAGE> 181
LIST OF EXHIBITS
Exhibit Number Description
1. Bank Plan of Merger. (Sec. 1.4).
2. Form of Directors' Agreement. (Sec. 5.22).
3. Form of Shareholders' Agreement. (Sec. 5.25).
4. Form of agreement of affiliates of CFB. (Sec.
8.12, 9.2(g)).
5. Matters as to which Hicks & MacQuarrie will opine.
(Sec. 9.2(d)).
6. Form of Claims Letter (Sec. 9.2(h)).
7. Matters as to which Alston & Bird will opine. (Sec.
9.3(d)).
A - iv
<PAGE> 182
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of October 19, 1995, by and between CITIZENS FIRST BANCSHARES,
INC. ("CFB"), a Florida corporation having its principal office located in
Ocala, Florida; and CITI-BANCSHARES, INC. ("CBI"), a Florida corporation having
its principal office located in Leesburg, Florida.
PREAMBLE
The Boards of Directors of CFB and CBI are of the opinion that the
transactions described herein are in the best interests of the parties and
their respective shareholders. This Agreement provides for the acquisition of
CFB by CBI pursuant to the Merger (as defined below) of CFB with and into CBI.
At the effective time of such Merger, the outstanding shares of the capital
stock of CFB shall be converted into the right to receive shares of the common
stock of CBI (except as provided herein). As a result, shareholders of CFB
shall become shareholders of CBI and CBI shall continue to conduct the business
and operations of CFB. The transactions described in this Agreement are
subject to the approvals of the shareholders of CFB, the Board of Governors of
the Federal Reserve System, the Office of the Comptroller of the Currency, the
Florida State Banking Department and other necessary authorities, and the
satisfaction of certain other conditions described in this Agreement. It is
the intention of the parties to this Agreement that the Merger for federal
income tax purposes shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code, and for accounting purposes shall
qualify for treatment as a pooling of interests.
Following the Closing of the Merger, Citizens First Bank of Ocala ("CFBO"),
a wholly-owned Florida state bank subsidiary of CFB, will be merged (the "Bank
Merger") with Citizens National Bank of Leesburg ("CNBL"), a wholly-owned
subsidiary of CBI.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, CFB shall be merged with and into CBI in accordance with
the provisions of Section 607.1101 of the FBCA and with the effect provided in
Section 607.1106 of the FBCA (the "Merger"). CBI shall be the Surviving
Corporation resulting from the Merger and shall continue to be governed by the
Laws of the State of Florida. The Merger shall be consummated pursuant to the
terms of this Agreement, which has been approved and adopted by the respective
Boards of Directors of CFB and CBI.
1.2 TIME AND PLACE OF CLOSING. The Closing will take place at 9:00
A.M. on the date that the Effective Time occurs (or the immediately preceding
day if the Effective Time is earlier than 9:00 A.M.), or at such other time as
the Parties, acting through their chief executive officers or chief financial
officers, may mutually agree. The place of Closing shall be at the offices of
Alston & Bird, Atlanta, Georgia, or such other place as may be mutually agreed
upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by
this Agreement shall become effective on the date and at the time the Articles
of Merger reflecting the Merger shall become effective with the Secretary of
State of the State of Florida (the "Effective Time"). Subject to the terms and
conditions hereof, unless
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otherwise mutually agreed upon in writing by the chief executive officers or
chief financial officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on (a) the last business day of
the month in which occurs the last to occur of (i) the effective date
(including expiration of any applicable waiting period) of the last required
Consent of any Regulatory Authority having authority over and approving or
exempting the Merger, and (ii) the date on which the shareholders of CFB
approve this Agreement to the extent such approval is required by applicable
Law or (b) such later date within 30 days thereof as may be specified by CBI.
1.4 BANK MERGER. Following the Merger, CFBO shall (at CBI's
discretion) be merged with CNBL (the "Bank Merger") under the Charter and
Articles of Association of CNBL in accordance with the provisions of and with
the effect provided in Title 12, United States Code, Section 215a on terms and
subject to the provisions of the Bank Plan of Merger ("Bank Plan"), attached
hereto as Exhibit 1. The Bank Plan shall be executed and the transactions
contemplated therein shall be consummated at such date and time as CBI directs
(the "Bank Merger Effective Time"). CFB shall vote all the shares of CFBO
capital stock in favor of the Bank Plan and the Bank Merger provided therein.
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER. The Articles of Incorporation of CBI in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until otherwise amended or repealed.
2.2 BYLAWS. The Bylaws of CBI in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of CBI in office
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of CBI in office immediately prior to
the Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the officers of the Surviving Corporation from and
after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of CBI, CFB, or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of CBI Capital Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of CFB Common Stock (excluding shares held by any
CFB Company or any CBI Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by shareholders who perfect their statutory
dissenters' rights as provided in Section 3.4 of this Agreement)
issued and outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and exchanged solely for the
right to receive that number of shares of CBI Common Stock equal to
425,000 divided by the number of shares of CFB Common Stock issued and
outstanding at the Effective Time (the "Exchange Ratio").
3.2 Anti-Dilution Provisions. In the event CFB or CBI changes the
number of shares of CFB Common Stock or CBI Common Stock, respectively, issued
and outstanding prior to the Effective Time as a result of a stock
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split, stock dividend, or similar recapitalization with respect to such
stock and the record date therefor (in the case of a stock dividend) or the
effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted.
3.3 Shares Held by CFB or CBI. Each of the shares of CFB Common
Stock held by any CFB Company or by any CBI Company, in each case other
than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 Dissenting Shareholders. Any holder of shares of CFB Common
Stock who perfects his dissenters' rights in accordance with and as
contemplated by Section 607.1301 et seq. of the FBCA shall be entitled to
receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has
complied with the applicable provisions of the FBCA and surrendered to CFB
the certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time a dissenting
shareholder of CFB fails to perfect, or effectively withdraws or loses, his
right to appraisal and of payment for his shares, CBI shall issue and
deliver the consideration to which such holder of shares of CFB Common Stock
is entitled under this Article 3 (without interest) upon surrender by such
holder of the certificate or certificates representing shares of CFB Common
Stock held by him.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of CFB Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of
a share of CBI Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of CBI Common
Stock multiplied by the market value of one share of CBI Common Stock at
the Effective Time. The market value of one share of CBI Common Stock at the
Effective Time shall be the last sale price of such common stock on the
Nasdaq National Market (as reported by The Wall Street Journal or, if
not reported thereby, any other authoritative source) on the last trading
day preceding the Effective Time. No such holder will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of
any fractional shares.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, CBI
and CFB shall cause the exchange agent selected by CBI (the "Exchange
Agent") to mail to the former shareholders of CFB appropriate
transmittal materials (which shall specify that delivery shall be effected,
and risk of loss and title to the certificates theretofore representing shares
of CFB Common Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent). After the Effective Time, each
holder of shares of CFB Common Stock (other than shares to be canceled
pursuant to Section 3.3 of this Agreement or as to which statutory
dissenters' rights have been perfected as provided in Section 3.4 of this
Agreement) issued and outstanding at the Effective Time shall surrender the
certificate or certificates representing such shares to the Exchange Agent
and shall promptly upon surrender thereof receive in exchange therefor the
consideration provided in Section 3.1 of this Agreement, together with
all undelivered dividends or distributions in respect of such shares
(without interest thereon) pursuant to Section 4.2 of this Agreement. To
the extent required by Section 3.5 of this Agreement, each holder of shares
of CFB Common Stock issued and outstanding at the Effective Time also shall
receive, upon surrender of the certificate or certificates representing such
shares, cash in lieu of any fractional share of CBI Common Stock to which
such holder may be otherwise entitled (without interest). CBI shall not be
obligated to deliver the consideration to which any former holder of CFB
Common Stock is entitled as a result of the Merger until such holder
surrenders his certificate or certificates representing the shares of CFB
Common Stock for exchange as provided in this Section 4.1. The certificate
or certificates of CFB Common Stock so surrendered shall be duly endorsed
and/or accompanied by such transmittal materials as the Exchange Agent may
require. Any other provision of this
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Agreement notwithstanding, neither CBI, the Surviving Corporation nor the
Exchange Agent shall be liable to a holder of CFB Common Stock for any
amounts paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property Law.
4.2 Rights of Former CFB Shareholders. At the Effective Time, the
stock transfer books of CFB shall be closed as to holders of CFB Common Stock
immediately prior to the Effective Time, and no transfer of CFB Common Stock
by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Agreement, each certificate theretofore representing shares of CFB
Common Stock (other than shares to be canceled pursuant to Sections 3.3
and 3.4 of this Agreement) shall from and after the Effective Time represent
for all purposes only the right to receive the consideration provided in
Sections 3.1 and 3.5 of this Agreement in exchange therefor, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which have been declared or made by CFB in respect of such shares of CFB
Common Stock in accordance with the terms of this Agreement and which remain
unpaid at the Effective Time. Whenever a dividend or other distribution is
declared by CBI on the CBI Common Stock, the record date for which is at or
after the Effective Time, the declaration shall include dividends or other
distributions on all shares issuable pursuant to this Agreement, but
after the Effective Time no dividend or other distribution payable to
the holders of record of CBI Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any certificate
representing shares of CFB Common Stock issued and outstanding at the
Effective Time until such holder surrenders such certificate for exchange as
provided in Section 4.1 of this Agreement. However, upon surrender of such
CFB Common Stock certificate, both the CBI Common Stock certificate (together
with all such undelivered dividends or other distributions, all without
interest) and any undelivered cash payments to be paid for fractional
share interests (without interest) shall be delivered and paid with respect
to each share represented by such certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CFB
CFB hereby represents and warrants to CBI as follows:
5.1 Organization, Standing, and Power. CFB is a corporation duly
organized, validly existing, and in good standing under the Laws of the State
of Florida, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. CFB is
duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CFB.
5.2 Authority; No Breach By Agreement.
(a) CFB has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Mergers, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
CFB, subject to the approval of this Agreement by the holders of a majority of
the outstanding CFB Common Stock, which is the only shareholder vote required
for approval of this Agreement and consummation of the Merger by CFB. Subject
to such requisite shareholder approval, this Agreement represents a legal,
valid, and binding obligation of CFB, enforceable against CFB in accordance
with its terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought).
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(b) Neither the execution and delivery of this Agreement by CFB,
nor the consummation by CFB and of the transactions contemplated hereby, nor
compliance by CFB with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of CFB's Articles of Incorporation
or Bylaws or, or (ii) constitute or result in a Default under, or require
any Consent pursuant to, or result in the creation of any Lien on any
Asset of any CFB Company under, any Contract or Permit of any CFB
Company, or (iii) subject to receipt of the requisite approvals referred to
in Section 9.1(b) of this Agreement, violate any Law or Order applicable to
any CFB Company or any of their respective material Assets.
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and
securities Laws, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect
to any employee benefit plans, or under, and other than Consents,
filings, or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFB, no notice to, filing with, or Consent of, any public
body or authority is necessary for the consummation by CFB of the Merger and
the other transactions contemplated in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of CFB consists of 750,000
shares of CFB Common Stock, of which 304,480 shares are issued and outstanding
as of the date of this Agreement and not more than 322,480 shares will be
issued and outstanding at the Effective Time. All of the issued and
outstanding shares of capital stock of CFB are duly and validly issued and
outstanding and are fully paid and nonassessable. None of the outstanding
shares of capital stock of CFB has been issued in violation of any
preemptive rights of the current or past shareholders of CFB. CFB has
reserved 50,000 shares of CFB Common Stock for issuance under the CFB Stock
Plan, pursuant to which options to purchase not more than 18,000 shares of
CFB Common Stock are outstanding.
(b) Except as set forth in Section 5.3(a) of this Agreement or
as disclosed in Section 5.3 of the CFB Disclosure Memorandum, there are no
shares of capital stock or other equity securities of CFB outstanding and
no outstanding Rights relating to the capital stock of CFB.
5.4 CFB Subsidiaries. CFB has disclosed in Section 5.4 of the CFB
Disclosure Memorandum all of the CFB Subsidiaries as of the date of this
Agreement. Except as disclosed in Section 5.4 of the CFB Disclosure
Memorandum, CFB or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock of each CFB Subsidiary. No equity
securities of any CFB Subsidiary are or may become required to be issued by
reason of any Rights, and there are no Contracts by which any CFB Subsidiary
is bound to issue (other than to another CFB Company) additional shares of
its capital stock or Rights or by which any CFB Company is or may be bound
to transfer any shares of the capital stock of any CFB Subsidiary (other
than to another CFB Company). There are no Contracts relating to the
rights of any CFB Company to vote or to dispose of any shares of the
capital stock of any CFB Subsidiary. All of the shares of capital stock of
each CFB Subsidiary are held by a CFB Company, and are fully paid and
(except pursuant to 12 USC Section 55 in the case of national banks and
comparable, applicable state Law, if any, in the case of state depository
institutions) nonassessable and are owned by the CFB Company free and clear
of any Lien. Each CFB Subsidiary is either a bank, a savings association,
or a corporation, and is duly organized, validly existing, and (as to
corporations) in good standing under the Laws of the jurisdiction in which
it is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease, and operate its Assets and to carry on its
business as now conducted. Each CFB Subsidiary is duly qualified or licensed
to transact business as a foreign corporation in good standing in the
States of the United States and such foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it
to be so qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CFB. Each CFB
Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Bank Insurance Fund.
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5.5 Financial Statements. CFB has included in Section 5.5 of the
CFB Disclosure Memorandum, copies of all CFB Financial Statements for periods
ended prior to the date hereof and will deliver to CBI copies of all CFB
Financial Statements prepared subsequent to the date hereof. The CFB
Financial Statements (as of the dates thereof and for the periods covered
thereby) (i) are or, if dated after the date of this Agreement, will be in
accordance with the books and records of the CFB Companies, which are or will
be, as the case may be, complete, correct maintained in accordance with
good business practices, and (ii) present or will present, as the case may
be, fairly the consolidated financial position of the CFB Companies as of the
dates indicated and the consolidated results of operations, changes in
shareholders' equity and cash flows of the CFB Companies for the periods
indicated, in accordance with GAAP (subject to any exceptions as to
consistency specified therein or as may be indicated in the notes
thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material in amount or effect).
5.6 Absence of Undisclosed Liabilities. No CFB Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFB, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of CFB as of
December 31, 1994 and June 30, 1995, included in the CFB Financial Statements
delivered prior to the date of this Agreement or reflected in the notes
thereto. No CFB Company has incurred or paid any Liability since June 30,
1995, except for such Liabilities incurred or paid in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CFB.
5.7 Absence of Certain Changes or Events. Since December 31, 1994,
except as disclosed in the CFB Financial Statements delivered prior to the date
of this Agreement or as disclosed in Section 5.7 of the CFB Disclosure
Memorandum, (i) there have been no events, changes, or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CFB, and (ii) the CFB Companies have not taken any
action, or failed to take any action, prior to the date of this Agreement,
which action or failure, if taken after the date of this Agreement, would
represent or result in a material breach or violation of any of the covenants
and agreements of CFB provided in Article 7 of this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of any
of the CFB Companies have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended on or
before December 31, 1994, and on or before the date of the most recent
fiscal year end immediately preceding the Effective Time, and all returns
filed are complete and accurate to the Knowledge of CFB. All Taxes shown on
filed returns have been paid. As of the date of this Agreement, there is no
audit examination, deficiency, or refund Litigation with respect to any
Taxes, except as reserved against in the CFB Financial Statements or as
disclosed in Section 5.8 of the CFB Disclosure Memorandum. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.
(b) None of the CFB Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due (excluding such statutes that relate to years currently under examination
by the Internal Revenue Service or other applicable taxing authorities)
that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any of the CFB Companies for the period or periods through and including the
date of the respective CFB Financial Statements has been made and is reflected
on such CFB Financial Statements.
(d) Deferred Taxes of the CFB Companies have been provided for in
accordance with GAAP.
(e) Each of the CFB Companies is in compliance with, and its
records contain all information and documents (including properly completed
IRS Forms W-9) necessary to comply with, all applicable information reporting
and Tax withholding requirements under federal, state, and local Tax
Laws, and such records identify with specificity all accounts subject to
backup withholding under Section 3406 of the Internal Revenue Code.
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(f) CFB has not made any payments, is not obligated to make any
payments, and is not a party to any contract, agreement or other arrangement
that obligate it to make any payments that would be deemed not deductible
under Section 280G of the Internal Revenue Code.
(g) There are no Liens with respect to Taxes previously due and
payable upon any of the assets of CFB or any of its Subsidiaries.
(h) There has not been an ownership change, as defined in
Internal Revenue Code Section 382(g), of CFB or any of its Subsidiaries that
occurred during or after any Taxable Period in which CFB or any of its
Subsidiaries incurred a net operating loss that carries over to any Taxable
Period ending after December 31, 1994.
(i) Neither CFB nor any of its Subsidiaries has filed any
consent under Section 341(f) of the Internal Revenue Code concerning
collapsible corporations.
5.9 Allowance for Possible Loan Losses. The allowance for
possible loan or credit losses (the "Allowance") shown on the
consolidated balance sheets of CFB included in the most recent CFB
Financial Statements dated prior to the date of this Agreement was, and the
Allowance shown on the consolidated balance sheets of CFB included in the
CFB Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of
GAAP and applicable regulatory requirements or guidelines) to provide for
losses relating to or inherent in the loan and lease portfolios (including
accrued interest receivables) of the CFB Companies and other extensions of
credit (including letters of credit and commitments to make loans or extend
credit) by the CFB Companies as of the dates thereof.
5.10 Assets. Except as disclosed in Section 5.10 of the
CFB Disclosure Memorandum or as disclosed or reserved against in the CFB
Financial Statements delivered prior to the date of this Agreement, the CFB
Companies have good and marketable title, free and clear of all Liens, to
all of their respective Assets. All tangible properties used in the
businesses of the CFB Companies are in good condition, reasonable wear
and tear excepted, and are usable in the ordinary course of business
consistent with CFB's past practices. All Assets which are material to CFB's
business on a consolidated basis, held under leases or subleases by any of the
CFB Companies, are held under valid Contracts enforceable in accordance with
their respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. The CFB
Companies currently maintain insurance similar in amounts, scope, and
coverage to that maintained by other peer banking organizations. None of
the CFB Companies has received notice from any insurance carrier that (i)
such insurance will be canceled or that coverage thereunder will be reduced
or eliminated, or (ii) premium costs with respect to such policies of
insurance will be substantially increased. There are presently no claims
pending under such policies of insurance and no notices have been given by
any CFB Company under such policies. The Assets of the CFB Companies include
all assets required to operate the business of the CFB Companies as presently
conducted.
5.11 Environmental Matters.
(a) To the Knowledge of CFB, each CFB Company, its
Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws.
(b) To the Knowledge of CFB, there is no Litigation pending
or threatened before any court, governmental agency, or authority or other
forum in which any CFB Company or any of its Participation Facilities
has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release into the environment of
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any Hazardous Substance, whether or not occurring at, on, under, or
involving a site owned, leased, or operated by any CFB Company or any of its
Participation Facilities.
(c) To the Knowledge of CFB, there is no Litigation pending
or threatened before any court, governmental agency, or board or other forum
in which any of its Loan Properties (or CFB in respect of such Loan
Property) has been or, with respect to threatened Litigation, may be named as
a defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Substance, whether or not
occurring at, on, under, or involving a Loan Property.
(d) To the Knowledge of CFB, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c).
(e) During the period of (i) any CFB Company's ownership or
operation of any of their respective current properties, (ii) any CFB
Company's participation in the management of any Participation Facility or
(iii) any CFB Company's holding of a security interest in a Loan Property,
there have been no releases of Hazardous Substances in, on, under, or
affecting such properties, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CFB. Prior to
the period of (i) any CFB Company's ownership or operation of any of their
respective current properties, (ii) any CFB Company's participation in the
management of any Participation Facility or (iii) any CFB Company's
holding of a security interest in a Loan Property, to the Knowledge of CFB,
there were no releases of Hazardous Substances in, on, under, or affecting any
such property, Participation Facility or Loan Property.
5.12 Compliance with Laws. CFB is duly registered as a bank
holding company under the BHC Act and Florida Law. Each CFB Company has in
effect all Permits necessary for it to own, lease, or operate its material
Assets and to carry on its business as now conducted, except for those Permits
the absence of which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on CFB, and there has occurred no
Default under any such Permit. Except as disclosed in Section 5.12 of
the CFB Disclosure Memorandum, none of the CFB Companies:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any CFB
Company is not in compliance with any of the Laws or Orders which
such governmental authority or Regulatory Authority enforces, (ii)
threatening to revoke any Permits or (iii) requiring any CFB
Company to enter into or consent to the issuance of a cease and
desist order, formal agreement, directive, commitment, or memorandum
of understanding, or to adopt any Board resolution or similar
undertaking, which restricts materially the conduct of its business,
or in any manner relates to its capital adequacy, its credit or reserve
policies, its management, or the payment of dividends.
5.13 Labor Relations. No CFB Company is the subject of any
Litigation asserting that it or any other CFB Company has committed an unfair
labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other CFB Company to
bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving any
CFB Company, pending or threatened, or to the Knowledge of CFB, is there any
activity involving any CFB Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) CFB has disclosed in Section 5.14 of the CFB Disclosure
Memorandum, and has delivered or made available to CBI prior to the
execution of this Agreement copies in each case of, all pension,
retirement,
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profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive plan, all
other written employee programs, arrangements, or agreements, all medical,
vision, dental, or other health plans, all life insurance plans, and all
other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed
to by any CFB Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "CFB Benefit
Plans"). Any of the CFB Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "CFB ERISA Plan." Each CFB ERISA Plan which is also a "defined
benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is
referred to herein as a "CFB Pension Plan." Except as disclosed in Section
5.14 of the CFB Disclosure Memorandum, no CFB Pension Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) Except as disclosed in Section 5.14 of the CFB Disclosure
Memorandum, all CFB Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, including the 1986 amendments
thereto, and any other applicable Laws the breach or violation of which are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFB. Except as disclosed in Section 5.14 of the CFB
Disclosure Memorandum, each CFB ERISA Plan which is intended to be
qualified under Section 401(a) of the Internal Revenue Code has received a
favorable determination letter from the Internal Revenue Service, and CFB is
not aware of any circumstances likely to result in revocation of any such
favorable determination letter. To the Knowledge of CFB, no CFB Company has
engaged in a transaction with respect to any CFB Benefit Plan that, assuming
the taxable period of such transaction expired as of the date hereof, would
subject any CFB Company to a Tax imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CFB.
(c) No CFB Pension Plan has any "unfunded current liability," as
that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market
value of the assets of any such plan exceeds the plan's "benefit liabilities,"
as that term is defined in Section 4001(a)(16) of ERISA, when determined under
actuarial factors that would apply if the plan terminated in accordance with
all applicable legal requirements and assuming the adoption of interest rates
and mortality tables described in Section 417(e)(3)(A)(i) and the use of such
interest rates published in June 1995, and assuming that all participants take
a lump sum distribution of their vested accrued benefits on June 30, 1995.
Since the date of the most recent actuarial valuation, there has been (i) no
material change in the financial position of any CFB Pension Plan, (ii) no
change in the actuarial assumptions with respect to any CFB Pension Plan, and
(iii) no increase in benefits under any CFB Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CFB or
materially adversely affect the funding status of any such plan. Neither any
CFB Pension Plan nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by any CFB Company, or
the single-employer plan of any entity which is considered one employer with
CFB under Section 4001 of ERISA or Section 414 of the Internal Revenue Code or
Section 302 of ERISA (whether or not waived) (an "ERISA Affiliate") has an
"accumulated funding deficiency" within the meaning of Section 412 of the
Internal Revenue Code or Section 302 of ERISA. No CFB Company has provided, or
is required to provide, security to a CFB Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is expected
to be incurred by any CFB Company with respect to any ongoing, frozen, or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate. No CFB Company has incurred any withdrawal Liability with
respect to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No
notice of a "reportable event," within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been
required to be filed for any CFB Pension Plan or by any ERISA Affiliate
within the 12-month period ending on the date hereof.
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(e) Except as disclosed in Section 5.14 of the CFB Disclosure
Memorandum, no CFB Company has any Liability for retiree health and life
benefits under any of the CFB Benefit Plans and there are no
restrictions on the rights of such CFB Company to amend or terminate any
such Plan without incurring any Liability thereunder.
(f) Except as disclosed in Section 5.14 of the CFB Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director, officer or employee of any CFB
Company from any CFB Company under any CFB Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any CFB Benefit Plan, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit.
(g) All liabilities under any CFB benefit plan, other than
benefits accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, have been fully reflected on the CFB Financial Statements to the extent
required by and in accordance with GAAP.
5.15 Material Contracts. Except as disclosed in Section 5.15 of
the CFB Disclosure Memorandum or otherwise reflected in the CFB Financial
Statements, none of the CFB Companies, nor any of their respective Assets,
businesses, or operations, is a party to, or is bound or affected by, or
receives benefits under, (i) any employment, severance, termination,
consulting, or retirement Contract providing for aggregate payments to any
Person in any calendar year in excess of $50,000, (ii) any Contract relating
to the borrowing of money by any CFB Company or the guarantee by any CFB
Company of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully-secured repurchase
agreements, trade payables and Contracts relating to borrowings or
guarantees made in the ordinary course of business), (iii) any Contracts
between or among CFB Companies, and (iv) any other Contract or amendment
thereto that would be required to be filed as an exhibit to a Form 10-K
filed by CFB with the SEC (assuming for purposes hereof that CFB was required
to file such reports) (together with all Contracts referred to in Sections
5.10 and 5.14(a) of this Agreement, the "CFB Contracts"). With respect
to each CFB Contract and except as disclosed in Section 5.15 of the CFB
Disclosure Memorandum: (i) the Contract is in full force and effect; (ii) no
CFB Company is in Default thereunder; (iii) no CFB Company has repudiated
or waived any material provision of any such Contract; and (iv) no other
party to any such Contract is, to the Knowledge of CFB, in Default in any
respect or has repudiated or waived any material provision thereunder.
All of the indebtedness of any CFB Company for money borrowed is
prepayable at any time by such CFB Company without penalty or premium.
5.16 Legal Proceedings. There is no Litigation instituted or
pending, or, to the Knowledge of CFB, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against any CFB Company, or
against any Asset, interest, or right of any of them, that is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on CFB, nor are there any Orders of any Regulatory Authorities,
other governmental authorities, or arbitrators outstanding against any
CFB Company. Section 5.16 of the CFB Disclosure Memorandum includes a
summary report of all Litigation as of the date of this Agreement to which
any CFB Company is a party and which names a CFB Company as a defendant or
cross-defendant. No CFB Company nor any of their Affiliates or legal counsel
thereto are aware of any facts or circumstances that would (i) result in a
loss to any CFB Company relating to the First Union National Bank of Florida
vs. Henry Lee Wood litigation described in Section 5.16 of the CFB Disclosure
Memorandum, (ii) result in the failure of the Attorneys Title Insurance Fund,
Inc. to indemnify and make whole CFBO or any of its Affiliates pursuant to
that certain title policy ("Policy") provided by Attorney's Title
Insurance Fund, Inc. relating to the property (the "Property") that is
subject to the above-referenced litigation in the event that the above
referenced litigation is not resolved in favor of CFBO or its Affiliates,
(iii) otherwise give rise to a denial of coverage under the exclusion
provisions of the Policy, (iv) constitute any failure by CFBO or its
Affiliates to comply with the Conditions and Stipulations or other terms of
the Policy or (v) give rise to a claim that any CFB Company had either actual,
implied or constructive knowledge of the claim of title by First Union
National Bank of Florida to the property that is the subject of the above
referenced litigation prior to (a) December 1, 1991 and (b) the date of the
Policy. Absent any such defense to coverage, the Attorney's Title Insurance
Fund will be obligated to reimburse (up to $240,000, i.e., the maximum amount
of insurance coverage under the Policy)
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CFBO to its Affiliates for losses that CFBO or its Affiliates incur as a
result of the above referenced litigation, together with attorneys fees and
other costs as provided by the terms of the Policy.
5.17 Reports. Since January 1, 1990, or the date of organization
if later, each CFB Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto,
that it was required to file with (i) any Regulatory Authorities and (ii)
any applicable state securities or banking authorities (except, in the case
of state securities authorities, failures to file which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on CFB). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As
of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances under which they
were made, not misleading.
5.18 Statements True and Correct. No statement, certificate,
instrument, or other writing furnished or to be furnished by any CFB
Company or any Affiliate thereof to CBI pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will
contain any untrue statement of material fact or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any CFB Company or any Affiliate
thereof for inclusion in the Registration Statement to be filed by CBI with
the SEC will, when the Registration Statement becomes effective, be false
or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein not misleading. None
of the information supplied or to be supplied by any CFB Company or any
Affiliate thereof for inclusion in the Proxy Statement to be mailed to CFB's
shareholders in connection with the Shareholders' Meeting, and any other
documents to be filed or provided by a CFB Company or any Affiliate thereof
with or to the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement, when first mailed to the
shareholders of CFB, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for the Shareholders' Meeting.
All documents that any CFB Company or any Affiliate thereof is responsible
for filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
5.19 Accounting, Tax and Regulatory Matters. No CFB Company or
any Affiliate thereof has taken any action or has any Knowledge of any fact
or circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred
to in Section 9.1(b) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
5.20 State Takeover Laws. Each CFB Company has taken all
necessary action to exempt the transactions contemplated by this
Agreement from any applicable state takeover Law, including Sections
607.0901 and 607.0902 of the FBCA.
5.21 Charter Provisions. Each CFB Company has taken all action so
that the entering into of this Agreement and the consummation of the Merger
and the other transactions contemplated by this Agreement do not and will not
result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of any CFB Company or
restrict or impair the ability of CBI or any of its Subsidiaries to vote,
or otherwise to exercise the rights of a shareholder with respect to, shares
of any CFB Company that may be directly or indirectly acquired or controlled by
it.
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5.22 Directors' Agreements. Each of the directors of CFB has
executed and delivered to CBI an agreement in substantially the form of
Exhibit 2.
5.23 Shareholders' Agreements. Each of the directors of CFB and
each of the holders of 5% or more of the outstanding shares of CFB
Common Stock has executed and delivered to CBI an agreement in
substantially the form of Exhibit 3.
5.24 Federal Home Loan Bank of Atlanta. CFBO is a member on good
standing with the Federal Home Loan Bank of Atlanta.
5.25 Real Estate/Construction. Costs to CFB and its
Affiliates relating to the full and complete construction of the banking
office described in Section 5.7 of the CFB Disclosure Memorandum (the
"Construction Project") will not exceed, in the aggregate, $1,300,000.
The real property (the "Parcel") described in Section 5.7 of the CFB
Disclosure Memorandum is the subject of a valid and enforceable land sale
contract which provides for (i) a purchase price of $300,000 and (ii) a
closing date, at the discretion of CFB, not later than January 15, 1996.
There are no facts or circumstances that would result in the sale of the
Parcel for an amount (on a net basis) less than $290,000. Neither the
sale of the Parcel nor the Construction Project will be closed and
completed (i) prior to January 1, 1996, and (ii) without the prior written
consent of CBI which such consent shall not be unreasonably withheld. The
work performed and/or completed to date with respect to the Construction
Project has been performed and/or completed in accordance with the plan
specifications set forth in that certain Program Services Agreement
between Design Build Concepts, Inc. ("DBC") and CFBO. All monies currently
due from CFBO and its Affiliates to DBC have been paid in full. To the
Knowledge of CFBO, DBC has, in turn, properly paid all persons or
companies furnishing labor, materials or services to the Construction
Project and none of which have asserted any unresolved claims or placed
any liens on the Construction Project or the underlying real property. The
foundations of all structural improvements relating to the Construction
Project are located within the boundaries of the property owned in fee
simple by CFB or its Affiliates and within the buildable areas permitted by
applicable zoning and private covenants affecting such property.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF CBI
CBI hereby represents and warrants to CFB as follows:
6.1 Organization, Standing, and Power. CBI is a corporation duly
organized, validly existing, and in good standing under the Laws of the State
of Florida, and has the corporate power and authority to carry on its business
as now conducted and to own, lease and operate its material Assets. CBI is
duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CBI.
6.2 Authority; No Breach By Agreement.
(a) CBI has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
CBI. This Agreement represents a legal, valid, and binding obligation of CBI,
enforceable against CBI in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding may be brought).
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(b) Neither the execution and delivery of this Agreement by CBI,
nor the consummation by CBI of the transactions contemplated hereby, nor
compliance by CBI with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of CBI's Articles of
Incorporation or Bylaws, or (ii) constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on
any Asset of any CBI Company under, any Contract or Permit of any CBI
Company or, (iii) subject to receipt of the requisite approvals referred to
in Section 9.1(b) of this Agreement, violate any Law or Order applicable to
any CBI Company or any of their respective material Assets.
(c) Other than in connection or compliance with the
provisions of the Securities Laws, applicable state corporate and
securities Laws, and rules of the NASD, and other than Consents required from
Regulatory Authorities, and other than notices to or filings with the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with respect to
any employee benefit plans, and other than Consents, filings, or notifications
which, if not obtained or made, are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CBI, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by CBI of the Merger and the other
transactions contemplated in this Agreement.
6.3 Capital Stock.
(a) The authorized capital stock of CBI consists of 10,000,000
shares of CBI Common Stock, of which 4,047,643 shares are issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of CBI Capital Stock are, and all of the shares of CBI
Common Stock to be issued in exchange for shares of CFB Common Stock upon
consummation of the Merger, when issued in accordance with the terms of this
Agreement, will be, duly and validly issued and outstanding and fully paid
and nonassessable. None of the outstanding shares of CBI Capital Stock has
been, and none of the shares of CBI Common Stock to be issued in exchange
for shares of CFB Common Stock upon consummation of the Merger will be,
issued in violation of any preemptive rights of the current or past
shareholders of CBI. CBI has reserved 111,025 shares of CBI Common Stock
for issuance under the CBI Stock Plan and other option awards, pursuant to
which options to purchase no more than 67,275 shares of CBI Common Stock are
outstanding as of the date hereof.
(b) Except as set forth in Section 6.3(a) of this Agreement, or
as disclosed in Section 6.3 of the CBI Disclosure Memorandum, there are no
shares of capital stock or other equity securities of CBI outstanding and
no outstanding Rights relating to the capital stock of CBI.
6.4 Financial Statements. CBI has disclosed in Section 6.4 of the
CBI Disclosure Memorandum all CBI Financial Statements for periods ended
prior to the date hereof and will deliver to CFB copies of all CBI Financial
Statements prepared subsequent to the date hereof. The CBI Financial
Statements (as of the dates thereof and for the periods covered thereby) (i)
are or, if dated after the date of this Agreement, will be in accordance with
the books and records of the CBI Companies, which are or will be, as the
case may be, complete and correct and which have been or will have been, as
the case may be, maintained in accordance with good business practices, and
(ii) present or will present, as the case may be, fairly the consolidated
financial position of the CBI Companies as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity and cash
flows of the CBI Companies for the periods indicated, in accordance with GAAP
(subject to exceptions as to consistency specified therein or as may be
indicated in the notes thereto or, in the case of interim financial
statements, to normal recurring year-end adjustments that are not material in
amount or effect).
6.5 Absence of Undisclosed Liabilities. No CBI Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CBI, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of CBI as of
December 31, 1994 and June 30, 1995, included in the CBI Financial
Statements or reflected in the notes thereto. No CBI Company has incurred
or paid any Liability since June 30, 1995, except for such Liabilities
incurred or paid in the ordinary course of business consistent with past
business practice and which would prevent, or materially delay or impair the
ability of CBI to timely consummate the transactions contemplated by this
Agreement.
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6.6 Absence of Certain Changes or Events. Since December 31, 1994,
except as disclosed in the CBI Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 6.6 of the CBI Disclosure
Memorandum, (i) there have been no events, changes or occurrences which
have had, or are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CBI, and (ii) the CBI Companies have
not taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any
of the covenants and agreements of CBI provided in Article 7 of this Agreement.
6.7 Environmental Matters.
(a) To the Knowledge of CBI, each CBI Company, its
Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on CBI.
(b) To the Knowledge of CBI, there is no Litigation pending
or threatened before any court, governmental agency or board or other forum
in which any of its Loan Properties (or CBI in respect of such Loan
Property) has been or, with respect to threatened Litigation, may be named as
a defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release, discharge, spillage or disposal into the environment of
any Hazardous Substance, whether or not occurring at, on, under or
involving a Loan Property, except for such Litigation pending or threatened
that is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CBI.
(c) To the Knowledge of CBI, there is no Litigation pending
or threatened before any court, governmental agency or authority or other
forum in which any CBI Company or any of its Participation Facilities
has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release, discharge, spillage
or disposal into the environment of any Hazardous Substance, whether or not
occurring at, on, under or involving a site owned, leased or operated by
any CBI Company or any of its Participation Facilities, except for such
Litigation pending or threatened that is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on CBI.
(d) To the Knowledge of CBI, there is no reasonable basis for any
Litigation of a type described in subsections (b) or (c), except such as is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CBI.
(e) During the period of (i) any CBI Company's ownership or
operation of any of their respective current properties, (ii) any CBI
Company's participation in the management of any Participation Facility, or
(iii) any CBI Company's holding of a security interest in a Loan Property, no
release, discharge, spillage or disposal of Hazardous Substances has occurred
in, on, under, or affecting such properties, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on CBI. Prior to the period of (i) any CBI Company's ownership or operation
of any of their respective current properties, (ii) any CBI Company's
participation in the management of any Participation Facility, or (iii)
any CBI Company's holding of a security interest in a Loan Property, to the
Knowledge of CBI, no release, discharge, spillage or disposal of Hazardous
Substances has occurred in, on, under or affecting any such property,
Participation Facility or Loan Property, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CBI.
6.8 Compliance with Laws. CBI is duly registered as a bank holding
company under the BHC Act and Florida Law. Each CBI Company has in effect
all Permits necessary for it to own, lease or operate its material Assets
and to carry on its business as now conducted, except for those Permits the
absence of which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CBI, and there has
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occurred no Default under any such Permit. Except as disclosed in
Section 6.8 of the CBI Disclosure Memorandum, no CBI Company:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business,
except for violations which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CBI; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any CBI
Company is not in compliance with any of the Laws or Orders which
such governmental authority or Regulatory Authority enforces, where
such noncompliance is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on CBI, (ii) threatening
to revoke any Permits, the revocation of which is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
CBI, or (iii) requiring any CBI Company to enter into or consent to
the issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the
conduct of its business, or in any manner relates to its capital
adequacy, its credit or reserve policies, its management, or the
payment of dividends.
6.9 Employee Benefit Plans. CBI has delivered or made available to
CFB prior to the execution of this Agreement copies in each case of all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans,
and all other employee benefit plans or fringe benefit plans, including
"employee benefit plans" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any CBI Company or Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "CBI Benefit
Plans"). Any of the CBI Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "CBI ERISA Plan." Each CBI ERISA Plan which is also a "defined
benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is
referred to herein as a "CBI Pension Plan." No CBI Pension Plan is or has
been a multiemployer plan within the meaning of Section 3(37) of ERISA.
6.10 Legal Proceedings. There is no Litigation instituted or
pending, or, to the Knowledge of CBI, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against any CBI Company, or
against any Asset, interest, or right of any of them, that would prevent, or
materially delay or impair the ability of CBI to timely consummate the
transactions contemplated by this Agreement, nor are there any Orders of
any Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any CBI Company, that would prevent, or materially delay
or impair the ability of CBI to timely consummate the transactions
contemplated by this Agreement.
6.11 Reports. Since January 1, 1990, or the date of organization
if later, each CBI Company has filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required
to file with (i) the SEC, including, but not limited to, Forms 10-K, Forms
10-Q, Forms 8-K, and proxy statements, (ii) other Regulatory Authorities, and
(iii) any applicable state securities or banking authorities (except, in the
case of state securities authorities, failures to file which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CBI). As of their respective dates, each of such reports
and documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As of
its respective date, each such report and document did not, in all material
respects, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
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6.12 Statements True and Correct. No statement,
certificate, instrument or other writing furnished or to be furnished by
any CBI Company or any Affiliate thereof to CFB pursuant to this Agreement or
any other document, agreement or instrument referred to herein contains or
will contain any untrue statement of material fact or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any CBI Company or any Affiliate
thereof for inclusion in the Registration Statement to be filed by CBI with
the SEC, will, when the Registration Statement becomes effective, be false
or misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein not misleading. None of the
information supplied or to be supplied by any CBI Company or any Affiliate
thereof for inclusion in the Proxy Statement to be mailed to CFB's
shareholders in connection with the Shareholders' Meeting, and any other
documents to be filed by any CBI Company or any Affiliate thereof with the SEC
or any other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents are filed,
and with respect to the Proxy Statement, when first mailed to the shareholders
of CFB, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for the Shareholders' Meeting. All
documents that any CBI Company or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
6.13 Accounting, Tax and Regulatory Matters. No CBI Company or
any Affiliate thereof has taken any action or has any Knowledge of any fact
or circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred
to in Section 9.1(b) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
6.14 Labor Relations. No CBI Company is the subject of any
Litigation asserting that it or any other CBI Company has committed an unfair
labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other CBI Company to
bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving any
CBI Company, pending or threatened, or to the Knowledge of CBI, is there any
activity involving any CBI Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
6.15 Tax Matters.
(a) As of the date hereof, all Tax returns required to be filed
by or on behalf of any of the CBI Companies have been timely filed or
requests for extensions have been timely filed, granted, and have not expired
for periods ended on or before December 31, 1994, and on or before the date
of the most recent fiscal year end immediately preceding the Effective Time,
and all returns filed are complete and accurate to the Knowledge of CBI,
except for any such failure to file or to be complete or accurate which is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on CBI. As of the date hereof, all Taxes shown on filed
returns have been paid and as of the date of this Agreement, there is no
audit examination, deficiency, or refund Litigation with respect to any
Taxes, except as reserved against in the CBI Financial Statements or as
disclosed in Section 6.15 of the CBI Disclosure Memorandum or except such as
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CBI. As of the date hereof, all Taxes and other
Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid, except such as are not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on CBI.
(b) Adequate provision for any Taxes due or to become due for
any of the CBI Companies for the period or periods through and including the
date of the respective CBI Financial Statements has been made and is
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reflected on such CBI Financial Statements, except such as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
CBI.
(c) Deferred Taxes of the CFB Companies have been provided for
in accordance with GAAP, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on CBI.
6.16 Allowance for Possible Loan Losses. The allowance for
possible loan or credit losses (the "Allowance") shown on the consolidated
balance sheets of CBI included in the most recent CBI Financial
Statements dated prior to the date of this Agreement was adequate (within the
meaning of GAAP and applicable regulatory requirements or guidelines) to
provide for losses relating to or inherent in the loan and lease portfolios
(including accrued interest receivables) of the CBI Companies and other
extensions of credit (including letters of credit and commitments to make
loans or extend credit) by the CBI Companies as of the date hereof.
6.17 Material Contracts. Except as disclosed in Section 6.17 of
the CBI Disclosure Memorandum or otherwise reflected in the CBI Financial
Statements dated prior to the date hereof, as of the date hereof, none of
the CBI Companies, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting, or retirement
Contract providing for aggregate payments to any Person in any calendar
year in excess of $500,000 and (ii) any other Contract or amendment thereto
that would be required to be filed as an exhibit to a Form 10-K filed by CBI
with the SEC which has not been so filed.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of CFB. Unless the prior written consent
of the other Party shall have been obtained, and except as otherwise
expressly contemplated herein, CFB shall and shall cause each of its
Subsidiaries to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and Assets and
maintain its rights and franchises, and (c) take no action which would (i)
adversely affect the ability of any Party to obtain any Consents required
for the transactions contemplated hereby without imposition of a condition
or restriction of the type referred to in the last sentences of Section
9.1(b) or 9.1(c) of this Agreement, or (ii) adversely affect the ability of
any Party to perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of CFB. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
CFB covenants and agrees that it will not do or agree or commit to do, or
permit any of its Subsidiaries to do or agree or commit to do, any of the
following without the prior written consent of the chief executive officer,
president or chief financial officer of CBI, which consent shall not be
unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of any CFB Company, or
(b) incur any additional debt obligation or other obligation for
borrowed money, except in the ordinary course of the business of
CFB Subsidiaries consistent with past practices (which shall
include, for CFBO, creation of deposit liabilities, purchases of
federal funds, advances from the Federal Reserve Bank or Federal Home
Loan Bank, and entry into repurchase agreements fully secured by U.S.
government or agency securities), or impose, or suffer the
imposition, on any Asset of any CFB Company of any Lien or permit
any such Lien to exist (other than in connection with deposits,
repurchase agreements, bankers acceptances, "treasury tax and loan"
accounts established in the ordinary course of CBFO's business, the
satisfaction of legal requirements in the exercise of trust powers,
and Liens in effect as of the date hereof that are disclosed in the CFB
Disclosure Memorandum); or
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(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any CFB Company, or declare or pay any dividend or make any
other distribution in respect of CFB's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of stock
options outstanding as of the date hereof and pursuant to the terms thereof in
existence on the date hereof, or as disclosed in Section 7.2(d) of the CFB
Disclosure Memorandum, issue, sell, pledge, encumber, authorize the issuance
of, enter into any Contract to issue, sell, pledge, encumber, or authorize the
issuance of, or otherwise permit to become outstanding, any additional shares
of CFB Common Stock or any other capital stock of any CFB Company, or any stock
appreciation rights, or any option, warrant, conversion, or other right to
acquire any such stock, or any security convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of any CFB
Company or issue or authorize the issuance of any other securities in respect
of or in substitution for shares of CFB Common Stock, or sell, lease, mortgage
or otherwise dispose of or otherwise encumber any shares of capital stock of
any CFB Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another CFB Company) or any Asset other than in the ordinary
course of business for reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S. Government
agency securities, which in either case have maturities of three years or less,
purchase any securities or make any material investment, either by purchase of
stock of securities, contributions to capital, Asset transfers, or purchase of
any Assets, in any Person other than a wholly owned CFB Subsidiary, or
otherwise acquire direct or indirect control over any Person, other than in
connection with (i) foreclosures in the ordinary course of business, (ii)
acquisitions of control by a depository institution Subsidiary in its fiduciary
capacity, or (iii) the creation of new wholly owned Subsidiaries organized to
conduct or continue activities otherwise permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the employees or
officers of any CFB Company, except in accordance with past practice disclosed
in Section 7.2(g) of the CFB Disclosure Memorandum or as required by Law; pay
any severance or termination pay or any bonus other than pursuant to written
policies or written Contracts in effect on the date of this Agreement and
disclosed in Section 7.2(g) of the CFB Disclosure Memorandum; and enter into or
amend any severance agreements with officers of any CFB Company; grant any
material increase in fees or other increases in compensation or other benefits
to directors of any CFB Company except in accordance with past practice
disclosed in Section 7.2(g) of the CFB Disclosure Memorandum; or voluntarily
accelerate the vesting of any stock options or other stock-based compensation
or employee benefits; or
(h) enter into, amend or change any employment, benefit or severance
Contract between any CFB Company and any Person (unless such amendment or
change is required by Law) that the CFB Company does not have the unconditional
right to terminate without Liability (other than Liability for services already
rendered), at any time on or after the Effective Time;
(i) adopt any new employee benefit plan of any CFB Company or make any
material change in or to any existing employee benefit plans of any CFB Company
other than any such change that is required by Law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax qualified status of any
such plan; or
(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or GAAP;
or
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(k) commence any Litigation other than in accordance with past
practice, or compromise of settle any Litigation involving any Liability of any
CFB Company for material money damages or restrictions upon the operations of
any CFB Company; or
(l) modify, amend or terminate any material Contract (including any
loan Contract or extension of credit with any Person or affiliated or related
persons with an aggregate unpaid balance exceeding $100,000 or any loan
Contract or extension of credit to any director, officer principal (5% or
greater) shareholder of CFB or their affiliated or related persons) or waive,
release, compromise or assign any material rights or claims; or
(m) obtain any advances or otherwise borrow any monies from, or become
indebted to, the FHLB.
7.3 Covenants of CBI. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, CBI
covenants and agrees that it shall (x) continue to conduct its business and
the business of its Subsidiaries in a manner designed in its reasonable
judgment, to enhance the long-term value of the CBI Common Stock, and (y)
take no action which would (i) materially adversely affect the ability of
any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the
type referred to in the last sentences of Section 9.1(b) or 9.1(c) of this
Agreement, or (ii) materially adversely affect the ability of any Party
to perform its covenants and agreements under this Agreement; provided, that
the foregoing shall not prevent any CBI Company from discontinuing or
disposing of any of its Assets or business if such action is, in the judgment
of CBI, desirable in the conduct of the business of CBI and its Subsidiaries.
CBI further covenants and agrees that it will not, without the prior written
consent of the chief executive officer, president or chief financial officer
of CFB, which consent shall not be unreasonably withheld, amend the
Articles of Incorporation or Bylaws of CBI, in each case, in any manner
adverse to the holders of CFB Common Stock as compared to the rights of
holders of CBI Common Stock generally.
7.4 Adverse Changes in Condition. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the
occurrence or impending occurrence of any event or circumstance relating to
it or any of its Subsidiaries which (i) is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on it or (ii)
would cause or constitute a breach of any of its representations,
warranties, or covenants contained herein, and to use its reasonable efforts
to prevent or promptly to remedy the same.
7.5 Reports. Each Party and its Subsidiaries shall timely file
all reports required to be filed by it with Regulatory Authorities between
the date of this Agreement and the Effective Time and shall deliver to the
other Party copies of all such reports promptly after the same are filed. If
financial statements are contained in any such reports filed with the
SEC, such financial statements will fairly present the consolidated
financial position of the entity filing such statements as of the dates
indicated and the consolidated results of operations, changes in
shareholders' equity, and cash flows for the periods then ended in
accordance with GAAP (subject in the case of interim financial statements to
normal recurring year-end adjustments that are not material). As of their
respective dates, such reports filed with the SEC will comply in all material
respects with the Securities Laws and will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Any financial statements contained in any other reports to other Regulatory
Authorities shall be prepared in accordance with the Laws applicable to such
reports, and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval. At
a date determined by CBI in its sole discretion, CBI shall file the
Registration Statement with the SEC, and shall use its reasonable efforts to
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cause the Registration Statement to become effective under the 1933 Act and
take any action required to be taken under the applicable state Blue Sky or
securities Laws in connection with the issuance of the shares of CBI Common
Stock upon consummation of the Merger. CFB shall furnish all information
concerning it and the holders of its capital stock as CBI may reasonably
request in connection with such action. CFB shall call a Shareholders'
Meeting, to be held as soon as reasonably practicable after the Registration
Statement is declared effective by the SEC, for the purpose of voting upon
approval of this Agreement and such other related matters as it deems
appropriate. In connection with the Shareholders' Meeting, (i) CFB shall
prepare and file with the SEC a Proxy Statement and mail such Proxy Statement
to its shareholders, (ii) the Parties shall furnish to each other all
information concerning them that they may reasonably request in connection with
such Proxy Statement, (iii) the Board of Directors of CFB shall recommend
(subject to compliance with their fiduciary duties as advised by counsel) to
its shareholders the approval of this Agreement, and (iv) the Board of
Directors and officers of CFB shall (subject to compliance with their fiduciary
duties as advised by counsel) use their reasonable efforts to obtain such
shareholders' approval.
8.2 Exchange Listing. CBI shall use its reasonable efforts to list,
prior to the Effective Time, on the Nasdaq National Market the shares of CBI
Common Stock to be issued to the holders of CFB Common Stock pursuant to the
Merger.
8.3 Applications. CBI shall promptly prepare and file, and CFB
shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
8.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, CBI shall execute and file the Articles of
Merger.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including using its reasonable efforts to lift or rescind any
Order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to in
Article 9 of this Agreement; provided, that nothing herein shall preclude
either Party from exercising its rights under this Agreement. Each Party shall
use, and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
8.6 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall keep the other
Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause
to be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the
other Party reasonably requests, provided that such investigation shall be
reasonably related to the transactions contemplated hereby and shall not
interfere unnecessarily with normal operations. No investigation by a
Party shall affect the representations and warranties of the other Party.
(b) In addition to the Parties' respective obligations under
the Confidentiality Agreements, each Party shall, and shall cause its
advisers and agents to, maintain the confidentiality of all
confidential information furnished to it by the other Party concerning its
and its Subsidiaries' businesses, operations, and financial positions and
shall not use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement. If this Agreement is
terminated prior to the Effective Time, each Party shall promptly return or
certify the destruction of all documents and copies thereof, and all work
papers containing confidential information received from the other Party.
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(c) CFB shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons which were
considering an Acquisition Transaction with CFB to preserve the confidentiality
of the information relating to CFB provided to such Persons and their
Affiliates and Representatives.
(d) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have a Material Adverse Effect on the other
Party.
8.7 Press Releases. Prior to the Effective Time, CFB and CBI shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.7
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
8.8 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, no CFB Company nor any Affiliate thereof nor
any Representatives thereof retained by any CFB Company shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the
extent necessary to comply with the fiduciary duties of CFB's Board of
Directors as advised by counsel, no CFB Company or any Affiliate or
Representative thereof shall furnish any non-public information that it is not
legally obligated to furnish, negotiate with respect to, or enter into any
Contract with respect to, any Acquisition Proposal, but CFB may communicate
information about such an Acquisition Proposal to its shareholders if and to
the extent that it is required to do so in order to comply with its legal
obligations as advised by counsel. CFB shall promptly notify CBI orally and in
writing in the event that it receives any inquiry or proposal relating to any
such transaction. CFB shall (i) immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any Persons conducted
heretofore with respect to any of the foregoing, and (ii) direct and use its
reasonable efforts to cause all of its Representatives not to engage in any of
the foregoing.
8.9 Accounting and Tax Treatment. Each of the Parties undertakes
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify for pooling-of-interests
accounting treatment and treatment as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code for federal income tax purposes.
8.10State Takeover Laws. Each CFB Company shall take all
necessary steps to exempt the transactions contemplated by this Agreement
from, or if necessary challenge the validity or applicability of, any
applicable state takeover Law, including Sections 607.0901 and 607.0902 of the
FBCA.
8.11Charter Provisions. Each CFB Company shall take all
necessary action to ensure that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby do
not and will not result in the grant of any rights to any Person
under the Articles of Incorporation, Bylaws or other governing instruments
of any CFB Company or restrict or impair the ability of CBI or any of its
Subsidiaries to vote, or otherwise to exercise the rights of a shareholder
with respect to, shares of any CFB Company that may be directly or indirectly
acquired or controlled by it.
8.12Agreement of Affiliates. CFB has disclosed in Section 8.12
of the CFB Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of CFB for purposes of Rule 145 under the 1933 Act. CFB shall use
its reasonable efforts to cause each such Person to deliver to CBI not later
than 30 days prior to the Effective Time, a written agreement, substantially
in the form of Exhibit 4, providing that such Person will not sell, pledge,
transfer, or otherwise dispose of the shares of CFB Common Stock held by
such Person except as contemplated by such agreement or by this Agreement and
will not sell, pledge, transfer, or otherwise dispose of the shares of CBI
Common Stock to be received by such Person upon consummation of the Merger
except in
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compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder and until such time as financial results covering at
least 30 days of combined operations of CBI and CFB have been published within
the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies. To qualify the Merger for pooling-of-interests
accounting treatment, shares of CBI Common Stock issued to such
affiliates of CFB in exchange for shares of CFB Common Stock shall not be
transferable until such time as financial results covering at least 30 days
of combined operations of CBI and CFB have been published within the meaning
of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this Section 8.12 (and CBI shall be
entitled to place restrictive legends upon certificates for shares of CBI
Common Stock issued to affiliates of CFB pursuant to this Agreement to
enforce the provisions of this Section 8.12). CBI shall not be required to
maintain the effectiveness of the Registration Statement under the 1933 Act
for the purposes of resale of CBI Common Stock by such affiliates.
8.13 Employee Benefits and Contracts. Following the Effective
Time, CBI shall provide generally to officers and employees of the CFB
Companies employee benefits under employee benefit plans (other than stock
option or other plans involving the potential issuance of CBI Common Stock or
cash bonuses), on terms and conditions which when taken as a whole are
substantially similar to those currently provided by the CBI Companies to their
similarly situated officers and employees. For purposes of participation and
vesting, but otherwise not in calculating any benefits or benefit accrual under
such employee benefit plans, the service of the employees of the CFB Companies
prior to the Effective Time shall be treated as service with a CBI Company
participating in such employee benefit plan. CBI also shall cause the
Surviving Corporation and its Subsidiaries to honor in accordance with their
terms all provisions for vested benefits or other vested amounts earned or
accrued through the Effective Time under the CFB Benefit Plans.
8.14 Certain Policies of CFB. At the request of CBI, CFB shall
use its best efforts to modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications
and levels of reserves) prior to the Effective Time so as to be consistent
on a mutually satisfactory basis with those of CBI and GAAP. CFB shall
not be required to modify or change any such policies or practices,
however, until such time as (i) satisfaction of the conditions set forth in
Section 9.1(a), 9.1(b) and 9.1(c) of this Agreement, (ii) such time as CFB and
CBI agree that the Effective Time will occur prior to the public disclosure of
such modifications or changes in regular periodic earnings releases or
periodic reports filed with the SEC, and (iii) CBI acknowledges in writing
that all conditions to its obligation to consummate the Merger (and CBI's
rights to terminate this Agreement) have been waived or satisfied;
provided, that in all circumstances CFB shall make such modifications and
changes not later than immediately prior to the Effective Time. CFB's
representations, warranties, covenants and agreements contained in this
Agreement shall not be deemed to be untrue or breached in any respect for any
purpose as a consequence of any modifications or changes undertaken solely on
account of this Section 8.14.
8.15 Real Estate. CFB shall use all reasonable efforts to cause
the real property defined as the Parcel in Section 5.25 hereof to be sold
prior to Closing for an amount (on a net basis) of not less than $290,000.
8.16 Director and Officer Insurance. CFBO, at its option and
expense, may seek to maintain CFBO's existing directors' and officers'
liability insurance policy covering persons who are currently covered by
such insurance carried by CFBO for a period of two years after the Effective
Time on terms no less favorable than those in effect on the date hereof;
provided, that no CBI Company shall be obligated to make annual premium
payments in respect of such policy and further provided that the cost of such
policy extension shall not exceed a total of $18,000 and that all such
amounts shall be expenses of CFBO during the 1995 calendar year, and upon
and following the Effective Time, the CBI Companies shall be entitled to the
rights and benefits of such policy to the same extent as the CFB Companies,
including CFBO, were as of the date hereof.
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ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective
obligations of each Party to perform this Agreement and consummate the
Merger and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 11.6 of this Agreement:
(a) Shareholder Approval. The shareholders of CFB shall have
adopted, approved, ratified and confirmed this Agreement, and the
consummation of the transactions contemplated hereby, including the
Merger, as and to the extent required by Law, by the provisions of
any governing instruments; the holders of not more than five (5%)
percent of the outstanding shares of CFB Common Stock shall have
given notice of their intent to exercise their statutory rights of
dissent.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or
made and shall be in full force and effect and all waiting periods
required by Law shall have expired. No Consent obtained from any
Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in
a manner (including requirements relating to the raising of additional
capital or the disposition of Assets) which in the reasonable judgment
of the Board of Directors of CBI would so materially adversely affect
the economic or business benefits of the transactions contemplated by
this Agreement that, had such condition or requirement been known,
such Party would not, in its reasonable judgment, have entered into this
Agreement.
(c) Consents and Approvals. Each Party shall have obtained any
and all Consents required for consummation of the Merger (other than
those referred to in Section 9.1(b) of this Agreement) or for the
preventing of any Default under any Contract or Permit of such Party
which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on such
Party. No Consent so obtained which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted
in a manner which in the reasonable judgment of the Board of
Directors of CBI would so materially adversely affect the
economic or business benefits of the transactions contemplated by
this Agreement that, had such condition or requirement been known,
CBI would not, in its reasonable judgment, have entered into this
Agreement.
(d) Legal Proceedings. No court or governmental or
regulatory authority of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether
temporary, preliminary or permanent) or taken any other action
which prohibits, restricts in any material respect or makes illegal,
consummation of the transactions contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit, cease and desist or other order, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall
have been initiated and be continuing, and all necessary approvals
under state securities Laws or the 1933 Act or 1934 Act relating to the
issuance or trading of the shares of CBI Common Stock issuable pursuant
to the Merger shall have been received and remain in effect.
(f) Listing of CBI Common Stock. The shares of CBI Common Stock
issuable pursuant to the Merger shall have been approved for listing on
the Nasdaq National Market.
(g) Pooling Letters. The Parties shall have received a letter,
dated as of the Effective Time, in form and substance reasonably
acceptable to such Party, from Purvis, Gray and Company, or such other
certified public accountant that is mutually acceptable to the Parties, to
the effect that the Merger will qualify for pooling-of-interests accounting
treatment and that such firm is not aware of any matters relating to CFB and
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its Subsidiaries which would preclude the Merger from qualifying for
pooling-of-interests accounting treatment.
(h) Tax Matters. Each Party shall have received a written
opinion of counsel from Alston & Bird, in form reasonably satisfactory
to such Parties (the "Tax Opinion"), to the effect that (i) the Merger
will constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, (ii) the exchange in the Merger of CFB
Common Stock for CBI Common Stock will not give rise to gain or loss
to the shareholders of CFB with respect to such exchange (except to the
extent of any cash received), and (iii) none of CFB or CBI will
recognize gain or loss as a consequence of the Merger (except for
amounts resulting from any required change in accounting methods
and any income and deferred gain recognized pursuant to Treasury
regulations issued under Section 1502 of the Internal Revenue Code),
and, with respect to the Bank Merger, that (i) the Bank Merger
will constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, and (ii) none of CFB, CBI, CFBO or CNBL
will recognize gain or loss as a consequence of the Bank Merger. In
rendering such Tax Opinion, such counsel shall be entitled to rely
upon representations of officers of CFB and CBI reasonably
satisfactory in form and substance to such counsel.
9.2 Conditions to Obligations of CBI. The obligations of CBI
to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by CBI pursuant to Section 11.6(a) of this
Agreement:
(a) Representations and Warranties. The representations and
warranties of CFB set forth or referred to in this Agreement shall be
true and correct as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to a
specified date shall speak only as of such date).
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of CFB to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with.
(c) Certificates. CFB shall have delivered to CBI (i) a
certificate, dated as of the Effective Time and signed on its behalf
by its chief executive officer and its chief financial officer, to
the effect that the conditions of its obligations set forth in Section
9.2(a) and 9.2(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by CFB's Board of
Directors and shareholders evidencing the taking of all corporate
action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail as CBI
and its counsel shall request.
(d) Opinion of Counsel. CBI shall have received an opinion of
Hicks & MacQuarrie, counsel to CFB, dated as of the Closing, in form
reasonably satisfactory to CBI, as to the matters set forth in Exhibit
5.
(e) Accountant's Letters. CBI shall have received from Purvis,
Gray & Company letters dated not more than five days prior to (i) the
date of the Joint Proxy Statement and (ii) the Effective Time, with
respect to certain financial information regarding CFB, in form
and substance reasonably satisfactory to CBI, which letters shall be
based upon customary specified procedures undertaken by such firm in
accordance with Statement of Auditing Standard No. 72.
(f) Affiliates' Agreements. CBI shall have received from each
affiliate of CFB the affiliates letter referred to in Section 8.12
of this Agreement, to the extent necessary to assure in the
reasonable judgment of CBI that the transactions contemplated
hereby will qualify for pooling-of-interests accounting treatment.
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(h) Claims Letters. Each of the directors and officers of CFB
and CFBO shall have executed and delivered to CBI letters in
substantially the form of Exhibit 6.
(i) Survey. CFB shall provide to CBI an updated survey for
the Construction Project, of sufficient quality and detail for
title insurance purposes, showing that the foundations of all
structural improvements are located within the boundaries of the
property owned in fee simple by CFB or its Affiliates and within the
buildable areas permitted by applicable zoning and private covenants
affecting such property.
(j)
Options. All options to purchase shares of CFB Common Stock
outstanding on the date hereof as provided in Section 5.3 hereof and
in the CFB Disclosure Memorandum, shall have been exercised in full,
and no CFB Company nor any of their Affiliates or successors shall have
paid or be obligated to pay any cash or other consideration (except
shares of CFB Common Stock issuable upon exercise) for, or in
respect of, such options.
9.3 Conditions to Obligations of CFB. The obligations of CFB to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by CFB pursuant to Section 11.6(b) of this Agreement:
(a) Representations and Warranties. The representations and
warranties of CBI set forth or referred to in this Agreement shall
be true and correct as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations
and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to
a specified date shall speak only as of such date), except as expressly
contemplated by this Agreement.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of CBI to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with.
(c) Certificates. CBI shall have delivered to CFB (i) a
certificate, dated as of the Effective Time and signed on its behalf
by its chief executive officer and its chief financial officer, to
the effect that the conditions of its obligations set forth in Section
9.3(a) and 9.3(b) of this Agreement have been satisfied, and (ii)
certified copies of resolutions duly adopted by CBI's Board of
Directors evidencing the taking of all corporate action necessary
to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, all in such reasonable detail as CFB and its counsel shall
request.
(d) Opinion of Counsel. CFB shall have received an opinion of
Alston & Bird, special counsel to CBI, dated as of the Effective Time,
in form reasonably acceptable to CFB, as to the matters set forth in
Exhibit 7.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of CFB, this Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of CBI and the
Board of Directors of CFB; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event of a material breach by the other
Party of any representation or warranty contained in this
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Agreement which cannot be or has not been cured within 30 days after
the giving of written notice to the breaching Party of such breach; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event of a material breach by the other Party
of any covenant or agreement contained in this Agreement which cannot
be or has not been cured within 30 days after the giving of written
notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii)
the shareholders of CFB fail to vote their approval of this
Agreement and the transactions contemplated hereby as required by the
FBCA and the rules of the NASD at the Shareholders' Meeting where the
transactions were presented to such shareholders for approval and voted
upon; or
(e) By the Board of Directors of either Party in the event that
the Merger shall not have been consummated by April 30, 1996, if the
failure to consummate the transactions contemplated hereby on or before
such date is not caused by any breach of this Agreement by the
Party electing to terminate pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in
this Agreement) in the event that any of the conditions precedent
to the obligations of such Party to consummate the Merger cannot be
satisfied or fulfilled by the date specified in Section 10.1(e) of this
Agreement; or
(g) By CBI, in the event that the Board of Directors of CFB
shall have failed to reaffirm its approval of the Merger and the
transactions contemplated by this Agreement (to the exclusion of any
other Acquisition Proposal), or shall have resolved not to reaffirm the
Merger, or shall have affirmed, recommended or authorized entering into
any other Acquisition Proposal or other transaction involving a merger,
share exchange, consolidation or transfer of substantially all of the
Assets of CFB.
10.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 10.2 and Article 11 and Section 8.6(b) of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant
to Sections 10.1(b), 10.1(c) or 10.1(f) of this Agreement shall not relieve the
breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
10.3 Non-Survival of Representations and Covenants. The
respective representations, warranties, obligations, covenants, and
agreements of the Parties shall not survive the Effective Time except
this Section 10.3 and Articles 2, 3, 4 and 11 and Sections 8.12 and 8.13 of
this Agreement.
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ARTICLE 11
MISCELLANEOUS
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
"Acquisition Proposal" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or assets of, or other business
combination involving such Party or any of its Subsidiaries or the
acquisition of a substantial equity interest in, or a substantial
portion of the assets of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person;
(ii) any officer, director, partner, employer, or direct or indirect
beneficial owner of any 5% or greater equity or voting interest of
such Person; or (iii) any other Person for which a Person described
in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated herein
by reference.
"Articles of Merger" shall mean the Articles of Merger to be
executed by CBI and filed with the Secretary of State of the State of
Florida relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC Act" shall mean the federal Bank Holding Company Act of
1956, as amended.
"CBI Capital Stock" shall mean, collectively, the CBI Common Stock
and any other class or series of capital stock of CBI.
"CBI Common Stock" shall mean the $.01 par value common stock of
CBI.
"CBI Companies" shall mean, collectively, CBI and all CBI
Subsidiaries.
"CBI Disclosure Memorandum" shall mean the written information
entitled "Citi-Bancshares, Inc. Disclosure Memorandum" delivered prior to
the date of this Agreement to CFB describing in reasonable detail the
matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with
respect to one Section shall not be deemed to be disclosed for purposes
of any other Section not specifically referenced with respect thereto.
"CBI Financial Statements" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if any) of
CBI as of June 30, 1995, and as of December 31, 1994 and 1993, and the
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for the six months
ended June 30, 1995, and for each of the three years ended December 31,
1994, 1993 and 1992, as filed by CBI in SEC Documents, and (ii) the
consolidated statements
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of condition of CBI (including related notes and schedules, if any) and
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to June 30, 1995.
"CBI Stock Plan" shall mean the existing stock option and other
stock-based compensation plan of CBI designated as follows: 1994 Stock
Option and Stock Appreciation Rights Plan.
"CBI Subsidiaries" shall mean the Subsidiaries of CBI and any
corporation, bank, savings association, or other organization acquired as a
Subsidiary of CBI in the future and owned by CBI at the Effective Time.
"CFB Common Stock" shall mean the $.10 par value common stock of
CFB.
"CFB Companies" shall mean, collectively, CFB and all CFB
Subsidiaries.
"CFB Disclosure Memorandum" shall mean the written information
entitled "Citizens First Bancshares, Inc. Disclosure Memorandum" delivered
prior to the date of this Agreement to CBI describing in reasonable detail
the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect to
one Section shall not be deemed to be disclosed for purposes of any other
Section not specifically referenced with respect thereto.
"CFB Financial Statements" shall mean (i) the audited consolidated
balance sheets (including related notes and schedules, if any) of CFB as of
December 31, 1994 and 1993, and the related audited statements of income,
changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) for each of the three fiscal years ended December
31, 1994, 1993 and 1992, and the unaudited balance sheets as of June 30,
1995, and (ii) the consolidated balance sheets of CFB (including related
notes and schedules, if any) and related statements of income, changes in
shareholders' equity, and cash flows (including related notes and
schedules, if any) with respect to periods ended subsequent to June 30,
1995, and such financial statements as of and for the years ended December
31, 1995 shall be audited by an independent certified public accounting
firm, with a nonqualified opinion expressed thereon by such independent
certified public accounting firm, and (iii) the balance sheets, and related
statements of income and changes in shareholders' equity (including related
notes and schedules, if any) filed as "Call Reports" by CFB with the FDIC
as of and for the periods ending June 30, 1995, and as of and for each
period subsequent to June 30, 1995.
"CFB Stock Plan" shall mean the existing stock option and other
stock-based compensation plan of CFB designated as follows: 1993
Nonstatutory Stock Option Plan.
"CFB Subsidiaries" shall mean the Subsidiaries of CFB, which shall
include the CFB Subsidiaries described in Section 5.4 of this Agreement and
any corporation, bank, savings association, or other organization acquired
as a Subsidiary of CFB in the future and owned by CFB at the Effective
Time.
"CFBO" shall mean Citizens First Bank of Ocala, a Florida bank,
wholly-owned by CFB.
"CNBL" shall mean Citizens National Bank of Leesburg, a national
banking association, wholly-owned by CBI.
"Closing Date" shall mean the date on which the Closing occurs.
"Confidentiality Agreement" shall mean those certain
confidentiality provisions contained in that certain Letter of Intent dated
September 14, 1995, between CFB and CBI.
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"Consent" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person pursuant
to any Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of or default
under any Contract, Order or Permit, (ii) any occurrence of any event that
with the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order or Permit, or
(iii) any occurrence of any event that with or without the passage of time
or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate, increase, or
impose any Liability under, any Contract, Order or Permit, where, in any
such event, such Default is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on a Party.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface or subsurface strata) and which
are administered, interpreted or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over, and including common law in respect of, pollution or
protection of the environment, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
discharges, releases or threatened releases of any Hazardous Material, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Hazardous
Material.
"ERISA Affiliate" shall have the meaning provided in Section 5.14
of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exhibits" 1 through 7, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"FHLB" shall mean the Federal Home Loan Bank of Atlanta.
"FBCA" shall mean the Florida Business Corporation Act.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Hazardous Substance" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance or toxic substance
(as those terms are defined by any applicable Environmental Laws) and (ii)
any chemicals, pollutants, contaminants, petroleum, petroleum products, or
oil (and specifically shall include asbestos requiring abatement, removal
or encapsulation pursuant to the requirements of governmental authorities
and any polychlorinated biphenyls).
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person (including references
to such Person being aware of a particular matter) shall mean those facts
that are known or should reasonably have been known after due
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inquiry by the Chairman, President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, General Counsel, any Assistant or
Deputy General Counsel, or any Senior or Executive Vice President of such
Person and the knowledge of any such persons obtained or which would have
been obtained from a reasonable investigation.
"Law" shall mean any code, law, ordinance, regulation, reporting
or licensing requirement, rule, or statute or written, publicly available
interpretation applicable to a Person or its Assets, Liabilities or
business, including those promulgated, interpreted or enforced by any
Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or expense
(including costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than
endorsements of notes, bills, checks, and drafts presented for collection
or deposit in the ordinary course of business) of any type, whether
accrued, absolute or contingent, liquidated or unliquidated, matured or
unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository institution Subsidiaries
of a Party, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (iii) Liens which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or
other examination or investigation, hearing, inquiry, administrative or
other proceeding, or notice (written or oral) by any Person alleging
potential Liability or requesting information relating to or affecting a
Party, its business, its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
"Loan Property" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or Subsidiary
holds a security interest, and, where required by the context, includes the
owner or operator of such property, but only with respect to such property.
"Material Adverse Effect" on a Party shall mean an event, change
or occurrence which, individually or together with any other event, change
or occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of such Party and its Subsidiaries,
taken as a whole, or (ii) the ability of such Party to perform its
obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that "material
adverse impact" shall not be deemed to include the impact of (x) changes in
banking and similar Laws of general applicability or interpretations
thereof by courts or governmental authorities, (y) changes in generally
accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies, and (z) the
Merger and compliance with the provisions of this Agreement on the
operating performance of the Parties. "Material" for purposes of this
Agreement shall be determined in light of the facts and circumstances of
the matter in question; provided that any specific monetary amount stated
in this Agreement shall determine materiality in that instance.
"Mergers" shall mean the Merger and the Bank Merger, collectively.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
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"Nasdaq National Market" shall mean the National Market System of
the National Association of Securities Dealers Automated Quotations System.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency or Regulatory Authority.
"Participation Facility" shall mean any facility or property in
which the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such
facility or property.
"Party" shall mean either CFB or CBI, and "Parties" shall mean
both CFB and CBI.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, order, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets or business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"Proxy Statement" shall mean the proxy statement used by CFB to
solicit the approval of its shareholders of the transactions contemplated
by this Agreement, which shall include the prospectus of CBI relating to
the issuance of the CBI Common Stock to holders of CFB Common Stock.
"Registration Statement" shall mean the Registration Statement on
Form S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by CBI
under the 1933 Act with respect to the shares of CBI Common Stock to be
issued to the shareholders of CFB in connection with the transactions
contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the United
States Department of Justice, the Board of the Governors of the Federal
Reserve System, the Office of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation,, the Florida State Banking Department, all
state regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries, the NASD, and the SEC.
"Representative" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative of a
Person.
"Rights" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
the capital stock of a Person or by which a Person is or may be bound to
issue additional shares of its capital stock or other Rights.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"SEC Documents" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed, or
required to be filed, by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
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"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders
of CFB to be held pursuant to Section 8.1 of this Agreement, including any
adjournment or adjournments thereof.
"Significant Subsidiary" shall mean any present or future
consolidated Subsidiary of the Party in question, the assets of which
constitute ten percent (10%) or more of the consolidated assets of such
Party as reflected on such Party's consolidated statement of condition
prepared in accordance with GAAP.
"Subsidiaries" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or
controls 50% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 50% or more of
the outstanding equity securities is owned directly or indirectly by its
parent; provided, there shall not be included any such entity acquired
through foreclosure or any such entity the equity securities of which are
owned or controlled in a fiduciary capacity.
"Surviving Corporation" shall mean CBI as the surviving
corporation resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county, local, or
foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, and other taxes,
assessments, charges, fares, or impositions, including interest, penalties,
and additions imposed thereon or with respect thereto.
(b) The terms set forth below shall have the meanings ascribed
thereto in the referenced sections:
Allowance Section 6.16
Bank Merger Section 1.4
Bank Plan Section 1.4
CBI Benefit Plans Section 6.9
CBI ERISA Plan Section 6.9
CBI Pension Plan Section 6.9
CFB Benefit Plans Section 5.14
CFB Contracts Section 6.17
CFB ERISA Plan Section 5.14
CFB Options Section 5.14
CFB Pension Plan Section 5.14
Closing Section 1.2
Construction Project Section 1.2
Effective Time Section 1.3
ERISA Affiliate Section 5.14
Exchange Agent Section 4.1
Exchange Ratio Section 3.1(c
Parcel Section 1.2
Merger Section 1.1
Tax Opinion Section 9.1(h
(c) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
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11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees
and expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that each of the Parties shall bear and pay
one-half of the filing fees payable in connection with the Registration
Statement and the Joint Proxy Statement and printing costs incurred in
connection with the printing of the Registration Statement and the Joint Proxy
Statement.
(b) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach by a
Party of the terms of this Agreement or otherwise limit the rights of the
nonbreaching Party.
11.3 Brokers and Finders. Except for The Carson Medlin Company as
to CBI, each of the Parties represents and warrants that neither it nor any of
its officers, directors, employees, or Affiliates has employed any broker or
finder or incurred any Liability for any financial advisory fees, investment
bankers' fees, brokerage fees, commissions, or finders' fees in connection with
this Agreement or the transactions contemplated hereby. In the event of a
claim by any broker or finder based upon his or its representing or being
retained by or allegedly representing or being retained by CFB or CBI, each of
CFB and CBI, as the case may be, agrees to indemnify and hold the other Party
harmless from and against any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral (except, as to Section
8.6(b) of this Agreement, for the Confidentiality Agreement). Nothing in this
Agreement expressed or implied, is intended to confer upon any Person, other
than the Parties or their respective successors, whether third party
beneficiaries or otherwise, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, other than as provided in Sections 8.13
of this Agreement.
11.5 Amendments. To the extent permitted by Law, this Agreement
may be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties, whether before or
after shareholder approval of this Agreement has been obtained; provided, that
after any such approval by the holders of CFB Common Stock, there shall be made
no amendment that pursuant to the FBCA requires further approval by such
shareholders without the further approval of such shareholders; and further
provided, that after any such approval by the holders of CFB Common Stock, the
provisions of this Agreement relating to the manner or basis in which shares of
CFB Common Stock will be exchanged for shares of CBI Common Stock shall not be
amended after the Shareholders' Meetings in a manner adverse to the holders of
CFB Common Stock without any requisite approval of the holders of the issued
and outstanding shares of CFB Common Stock entitled to vote thereon.
11.6 Waivers.
(a) Prior to or at the Effective Time, CBI, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by CFB, to waive or extend the time for the compliance or fulfillment
by CFB of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of CBI under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of CBI.
(b) Prior to or at the Effective Time, CFB, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by CBI, to waive or extend the time for the compliance or fulfillment
by CBI of any and all of its
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obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of CFB under this Agreement, except any condition
which, if not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly authorized officer
of CFB.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained
in this Agreement in one or more instances shall be deemed to be or construed
as a further or continuing waiver of such condition or breach or a waiver of
any other condition or of the breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
11.8 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered as of the date so delivered:
<TABLE>
<S> <C>
CFB: Citizens First Bancshares, Inc.
750 S.W. Martin Luther King, Jr. Ave.
Ocala, Florida 34478
Telecopy Number: (904) 732-0540
Attention: H. Reid Sides, Jr.
Copy to Counsel: Hicks & MacQuarrie
2303 S.E. 17th Street
Ocala, Florida 34471
Telecopy Number: (904) 351-2284
Attention: C. Daniel Hicks
CBI: Citi-Bancshares, Inc.
1211 North Boulevard West
Leesburg, Florida 34748-5351
Telecopy Number: (904) 326-4738
Attention: Kenneth W. Mullis
Copy to Counsel: Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopy Number: (404) 881-7777
Attention: Ralph F. MacDonald, III
</TABLE>
11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Florida, without regard
to any applicable conflicts of Laws.
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11.10 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
11.11 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 Interpretations. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against any
party, whether under any rule of construction or otherwise. No party to
this Agreement shall be considered the draftsman. The parties acknowledge
and agree that this Agreement has been reviewed, negotiated and accepted by
all parties and their attorneys and shall be construed and interpreted
according to the ordinary meaning of the words used so as fairly to
accomplish the purposes and intentions of all parties hereto.
11.13 Enforcement of Agreement. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement was not performed in accordance with its specific terms or
was otherwise breached. It is accordingly agreed that the Parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
11.14 Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST: CITI-BANCSHARES, INC.
/s/ BOBBY A. SULLIVAN By: /s/ KENNETH W. MULLIS
- --------------------------- ---------------------------
Secretary President
[CORPORATE SEAL]
ATTEST: CITIZENS FIRST BANCSHARES, INC.
/s/ CHERYL R. ROSS By: /s/ H. REID SIDES, JR.
- --------------------------- ---------------------------
Secretary President
</TABLE>
[CORPORATE SEAL]
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ANNEX B
EXCERPT FROM THE FLORIDA BUSINESS CORPORATION ACT
RELATING TO RIGHTS OF DISSENTING SHAREHOLDERS
607.1301 DISSENTER'S RIGHTS; DEFINITIONS. -- The following
definitions apply to ss. 607.1302 and 607.132:
(1) "Corporation" means the issuer of the shares held by a
dissenting shareholder before the corporate action or the surviving or
acquiring corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the
value of the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a
copy of the plan of merger was mailed to each shareholder of record of the
subsidiary corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT -- (1) Any shareholder
has the right to dissent from, and obtain payment of the fair value of his
shares in the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under s. 607.1104, and the shareholders would have been entitled to
vote on action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation, other than in the usual and
regular course of business, if the shareholder is entitled to vote on the sale
or exchange pursuant to s. 607. 1202, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be
acquired, if the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his shares;
2. Altering or abolishing the voting rights pertaining to any of
his shares, except as such rights may be affected by the voting rights of
new shares then being authorized of any existing or new class or series of
shares;
3. Effecting an exchange, cancellation, or reclassification of
any of his shares, when such exchange, cancellation, or reclassification
would alter or abolish his voting rights or alter his percentage of equity
in the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking fund for
the redemption or purchase of any of his shares, or making any of his shares
subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of
his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares;
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(2) A shareholder dissenting from any amendment specified in
paragraph (1)(e) has the right to dissent only as to those of his shares
which are adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares
registered in his name. In that event, his rights shall be determined as
if the shares as to which he has dissented and his other shares were
registered in the names of different shareholders;
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class
or series which, on the record date fixed to determine the shareholders
entitled to vote at the meeting of shareholders at which such action is to
be acted upon or to consent to any such action without a meeting, were either
registered on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or held of record by not fewer than
2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his
shares under this section may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect
to the shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS -- (1)(a)
If a proposed corporate action creating dissenters' rights under s. 607.1320
is submitted to a vote at a shareholders' meeting, the meeting notice shall
state that shareholders are or may be entitled to assert dissenters' rights
and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action
is effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under
s. 607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320
to each shareholder simultaneously with any request for his written consent
or, if such a request is not made, within 10 days after the date the
corporation received written consents without a meeting from the requisite
number of shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder
who filed a notice of intent to demand payment for his shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent,
to each shareholder, excepting any who voted for, or consented in writing
to, the proposed action.
(3) Within 20 days after the giving of notice to him, any
shareholder who elects to dissent shall file with the corporation a notice
of such election, stating his name and address, the number, classes, and
series of shares as to which he dissents, and a demand for payment of the
fair value of his shares. Any shareholder failing to file such election to
dissent within the period set forth shall be bound by the terms of the
proposed corporate action. Any shareholder filing an election to
dissent shall deposit his certificates for certificated shares with the
corporation simultaneously with the filing of the election to dissent. The
corporation may restrict the transfer of uncertificated shares from the date
the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder
shall thereafter be entitled only to payment as provided in this section and
shall not be entitled to vote or to exercise any other rights of a
shareholder. A notice of election may be withdrawn in writing by the
shareholder at any time before an offer is made by the corporation, as
provided in subsection (5), to pay for his shares. After such offer, no such
notice of election may be withdrawn unless the corporation consents
thereto. However, the right of such shareholder to be paid the fair value
of his shares shall cease, and he shall be reinstated to have all his rights
as a shareholder as of the filing of his notice of election, including
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion,
but without prejudice otherwise to any corporate proceedings that may have
been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
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<PAGE> 219
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by
a court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such
shareholder is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the
corporation shall make a written offer to each dissenting shareholder who
has made demand as provided in this section to pay an amount the corporation
estimates to be the fair value for such shares. If the corporate action has
not been consummated before the expiration of the 90-day period after the
shareholders' authorization date, the offer may be made conditional upon the
consummation of such action. Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any
shareholder accepts the same, payment for his shares shall be made within 90
days after the making of such offer or the consummation of the proposed
action, whichever is later. Upon payment of the agreed value, the dissenting
shareholder shall cease to have any interest in such shares.
(7) If the corporation falls to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any
dissenting shareholder or shareholders fail to accept the same within the
period of 30 days thereafter, then the corporation, within 30 days after
receipt of written demand from any dissenting shareholder given within 60
days after the date on which such corporate action was effected, shall, or
at its election at any time within such period of 60 days may, file an
action in any court of competent jurisdiction in the county in this state
where the registered office of the corporation is located requesting that
the fair value of such shares be determined. The court shall also
determine whether each dissenting shareholder, as to whom the corporation
requests the court to make such determination, is entitled to receive payment
for his shares. If the corporation fails to institute the proceeding as
herein provided, any dissenting shareholder may do so in the name of the
corporation. All dissenting shareholders (whether or not residents of this
state), other than shareholders who have agreed with the corporation as to the
value of their shares, shall be made parties to the proceeding as an action
against their shares. The corporation shall serve a copy of the initial
pleading in such proceeding upon each dissenting shareholder who is a
resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either
by registered or certified mail and publication or in such other manner as
is permitted by law. The jurisdiction of the court is plenary and exclusive.
All shareholders who are proper parties to the proceeding are entitled to
judgment against the corporation for the amount of the fair value of their
shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers shall have such power and authority as is
specified in the order of their appointment or an amendment thereof.
The corporation shall pay each dissenting shareholder the amount found to be
due him within 10 days after final determination of the proceedings. Upon
payment of the judgment, the dissenting shareholder shall cease to have any
interest in such shares.
(8) The judgment may, at the discretion of the court, include a
fair rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be
determined by the court and shall be assessed against the corporation, but
all or any part of such costs and expenses may be apportioned and assessed
as the court deems equitable against any or all of the dissenting
shareholders who are parties to the proceeding, to whom the corporation has
made an offer to pay for the shares, if the court finds that the action of
such shareholders in failing to accept such offer was arbitrary, vexatious,
or not in good faith. Such expenses shall include reasonable compensation
for, and reasonable expenses of, the appraisers, but shall exclude the fees
and expenses of counsel for, and experts employed by, any party. If the fair
value of the shares, as determined, materially exceeds the amount which the
corporation offered to pay therefor or if no offer was made, the court in its
discretion may award
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to any shareholder who is a party to the proceeding such sum as the
court determines to be reasonable compensation to any attorney or expert
employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the
agreed value thereof or pursuant to payment of the judgment entered therefor,
as provided in this section, may be held and disposed of by such corporation
as authorized but unissued shares of the corporation, except that, in the
case of a merger, they may be held and disposed of as the plan of merger
otherwise provides. The shares of the surviving corporation into which
the shares of such dissenting shareholders would have been converted had they
assented to the merger shall have the status of authorized but unissued shares
of the surviving corporation.
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<PAGE> 221
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The provisions of the Florida Business Corporation Act and CBI s Bylaws set
forth the extent to which the Registrant s directors and officers may be
indemnified against liabilities they may incur while serving in such
capacities. CBI's Bylaws provide that a director who performs his duties under
the bylaws in good faith shall have no liability by reason of being or
having been a director of the corporation. The Florida Business
Corporation Act's ("FBCA") provisions for indemnification are summarized below.
Section 607.0850(1) of the FBCA empowers a corporation to indemnify any
person who was or is a party to any proceeding (other than an action by, or
in right of, the corporation), by reason of the fact that he is or was a
director. officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other
enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. This Subsection
further provides that the termination of proceeding by judgment, order,
settlement, or conviction or upon a plea of nolo contenders or its
equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be
in, or not opposed to, the beat interests of the corporation or, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 607.0850(2) empowers a corporation to indemnify any person
who was or is a party to any proceeding by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee, or agent of the corporation or
is or was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other Enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification may be made in respect of any claim, issue, or
matter as to which such person shall have been adjudged to be liable unless,
and only to the extent that, the court in which such proceeding was
brought, or any other court of competent jurisdiction shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
Section 607.0850(3) provides that to the extent that a director,
officer, employee, or agent of a corporation has been successful on the
merits or otherwise in the defense of any proceeding referred to in the
preceding subparagraphs, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith.
Section 607.0850(4) provides that any indemnification under subsections
(1) or (2), unless pursuant to a determination by a court, shall be made by
the corporation only as authorized in a specific case upon a determination
that indemnification of the director, officer, employee, or agent is
proper in the circumstances because the person has met the applicable
standard of conduct as set forth in subsections (1) or (2). Such
determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors who are not parties to such
proceeding; (b) if such a quorum is not obtaining or, even if obtainable, by
majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two or
more directors who are not at the time parties to the proceeding; (c) by
independent legal counsel selected by the board of directors described in
paragraph (a) or the committee described in paragraph
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(b), or if a quorum of the directors cannot be obtained for paragraph
(a) and the committee cannot be designated under paragraph (b), selected
by a majority vote of the full board of directors (in which directors
who are parties may participate); or 9d) by the shareholders by a
majority vote of a quorum consisting of shareholders who are not parties
to such proceeding or, if no such quorum is obtainable, by a majority vote of
shareholders who were not parties to such proceeding.
Section 607.0850(5) provides that evaluation of the reasonableness of
expenses and authorization of indemnification shall be made in the same
manner as the determination that indemnification is permissible. However, if
the determination of permissibility is made by independent legal counsel,
persons specified by paragraph 4(c) shall evaluate the reasonableness of
expenses and may authorize indemnification.
Section 607.0850(6) provides that expenses incurred by an officer or
director in defending a civil or criminal proceeding may be paid by the
corporation in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if he is ultimately found not to be entitled to
indemnification by the corporation. Expenses incurred by other employees
and agents may be paid in advance upon terms or conditions that the
board of directors deems appropriate.
Section 607.0850(7) provides that the indemnification and advancement of
expenses provided pursuant to this section are not exclusive, and the
corporation is empowered to make any other or further indemnification or
advancement of expenses of any of its directors, officers, employees, or
agents, under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, unless a judgment
or other final adjudication establishes that such person's actions or
omissions to act were material to the cause of action so adjudicated and
constitute (a) a violation of the criminal law, unless such person had
reasonable cause to believe that his conduct was lawful or had no
reasonable cause to believe that his conduct was unlawful; (b) a transaction
from which such person derived an improper personal benefit; (c) in the case
of a director, a circumstance under which the liability provisions of
Section 607.0834 of the Florida Business Corporation Act are applicable; or
(d) willful misconduct or a conscious disregard for the best interests
of the corporation in a proceeding by or in the right of the corporation to
procure a judgment in its favor, or in a proceeding by or in the right of a
shareholder.
Section 607.0850(8) provides that indemnification and advancement of
expenses shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer,
employee, or agent, and shall inure to the benefit of such person's
heirs, executors and administrators unless otherwise provided when authorized
or ratified.
Section 607.0850(9) provides that unless the corporation's articles of
incorporation provide otherwise notwithstanding the failure of a
corporation to provide indemnification and despite any contrary
determination of the board or of the shareholders of the specific case, a
director, officer, employee, or agent who is or was a party to a
proceeding may apply for indemnification or advancement of expenses, or
both, to the court conducting the proceeding, to the circuit court, or
to another court of competent jurisdiction. On receipt of an application,
the court, after giving any notice that it considers necessary, may order
indemnification and advancement notice that it considers necessary, may order
indemnification and advancement of expenses, including expenses incurred in
seeking court-ordered indemnification or advancement of expenses, if it
determines that (a) the director, officer, employee, or agent is entitled
to mandatory indemnification under subsection (3), in which case the court
shall also order the corporation to pay the director reasonable expenses
incurred in obtaining court-ordered indemnification or advancement or
expenses; (b) the director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to subsection (7); or
(c) the director, officer, employee, or agent is failure and reasonably
entitled to indemnification or advancement of expenses, or both, in view of
all the relevant circumstances, regardless of whether such person meet the
standard of conduct set forth in subsection (1), subsection (2), or subsection
(7).
Section 607.0850(12) provides that the corporation is empowered to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee, or agent
of another corporation, partnership, joint
II-2
<PAGE> 223
venture, trust, or other enterprise against any liability asserted against him
or incurred by him in any such capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this section.
The Registrant maintains an insurance policy insuring the Registrant and
directors and officers of the Registrant against certain liabilities,
[including liabilities under the Securities Act of 1933.]
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------ -----------------------
<S> <C>
2(a) - Agreement and Plan of Merger, dated as of October 19, 1995, by and between CBI and CFB
(included in ANNEX A to the Proxy Statement/Prospectus and incorporated by reference herein)
3(a) - Articles of Incorporation, as amended (Previously filed in Registrant s Registration
Statement on Form 8A, dated April 26, 1990 (File No. 2-82233))
3(b) - Bylaws(Previously filed in Registrant s Registration Statement on Form 8A, dated April 26,
1990 (File No. 2-82233))
4 - See Exhibits 3(a) and 3(b) for provisions of the Certificate of Incorporation and Bylaws of
the Registrant defining rights of holders of Common Stock of the Registrant
5 - Form of Opinion of Alston & Bird
8 - Form of Opinion of Alston & Bird regarding federal income tax matters, including consent
10.1 - Stock Option Agreement between Citi-Bancshares, Inc. and Kenneth W. Mullis (previously
filed as an Exhibit to the Regitrant's 1993 Annual Report on Form 10-K (File No. 2-82233)
10.2 - Citi-Bancshares, Inc. 1994 Stock Option and Stock Appreciation Rights Plan (previously
filed as an Exhibit to the Regitrant's 1993 Annual Report on Form 10-K (File No. 2-82233)
21 - Subsidiary of the Registrant
23(a) - Consent of Purvis, Gray and Company
23(b) - Consent of Alston & Bird (included in Exhibit 5)
23(c) - Consent of Terry E. Trexler
24 - Powers of Attorney (included on the signature page of this Registration Statement)
99 - Form of Proxy of CFB
(b) Financial Statement Schedules
</TABLE>
Schedules are omitted because they are not required or are not applicable,
or the required information is shown in the financial statements or notes
thereto.
II-3
<PAGE> 224
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the Registrant s Articles
of Incorporation or Bylaws, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
II-4
<PAGE> 225
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-5
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Leesburg, State of Florida, on December 29, 1995.
CITI-BANCSHARES, INC.
By: /s/ KENNETH W. MULLIS
---------------------------
Kenneth W. Mullis
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Kenneth W. Mullis and Clifton L.
Bridges, M.D., and either of them (with full power in each to act alone) as
true and lawful attorneys in fact, with full power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any
amendments to this Registration Statement and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact, or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 29, 1995.
<TABLE>
<S> <C>
Signature Title
- --------- -----
/s/ CLIFTON S. BRIDGES Chairman of the Board
- ---------------------
Clifton L. Bridges, M.D.
/s/ KENNETH W. MULLIS President and Chief Executive Officer
- --------------------- (principal executive officer)
Kenneth W. Mullis
T. MICHAEL KILLINGSWORTH Senior Vice President, Chief Financial Officer and Secretary
- --------------------- (principal financial and accounting
T. Michael Killingsworth
/s/ BOBBY A. SULLIVAN Director
- ---------------------
Bobby A. Sullivan
/s/ FRANK S. BOUIS Director
- --------------------
Frank S. Bouis
/s/ DOUGLAS W. BRAUN Director
- ---------------------
Douglas W. Braun
/s/ W. THOMAS BROOKS Director
- ---------------------
W. Thomas Brooks
/s/ THOMAS N. GRIZZARD Director
- ---------------------
Thomas N. Grizzard
</TABLE>
[Signatures continued on following page]
II-6
<PAGE> 227
<TABLE>
<S> <C>
/s/ W. F. HERLONG, JR. Director
- ---------------------------------
W.F. Herlong, Jr.
/s/ WENDELL F. HUSEBO Director
- ---------------------------------
Wendell F. Husebo
/s/ WALTER S. MCLIN Director
- ---------------------------------
Walter S. McLin
/s/ LINDA SPRADLIN Director
- ---------------------------------
Linda Spradlin
/s/ FERRELL D. YOUNG, D.V.M. Director
- ---------------------------------
Ferrell D. Young, D.V.M.
</TABLE>
II-7
<PAGE> 228
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential Page
Number Description of Exhibits Number
<S> <C> <C>
2(a) - Agreement and Plan of Merger, dated as of October 19, 1995,
by and between CBI and CFB (included in ANNEX A to the Proxy
Statement/Prospectus and incorporated by reference herein)
3(a) - Articles of Incorporation, as amended (Previously filed in
Registrant's Registration Statement on Form 8A, dated April
26, 1990 (File No. 2-82233))
3(b) - Bylaws(Previously filed in Registrants Registration
Statement on Form 8A, dated April 26, 1990 (File No.
2-82233))
4 - See Exhibits 3(a) and 3(b) for provisions of the Certificate
of Incorporation and Bylaws of the Registrant defining rights
of holders of Common Stock of the Registrant
5 - Form of Opinion of Alston & Bird
8 - Form of Opinion of Alston & Bird regarding federal income tax
matters, including consent
10.1 - Stock Option Agreement between Citi-Bancshares, Inc. and
Kenneth W. Mullis (previously filed as an Exhibit to the
Regitrant's 1993 Annual Report on Form 10-K (File No. 2-
82233)
10.2 - Citi-Bancshares, Inc. 1994 Stock Option and Stock
Appreciation Rights Plan (previously filed as an Exhibit to
the Regitrant's 1993 Annual Report on Form 10-K (File No. 2-
82233)
21 - Subsidiary of the Registrant
23(a) - Consent of Purvis, Gray and Company
23(b) - Consent of Alston & Bird (included in Exhibit 5)
23(c) - Consent of Terry E. Trexler
24 - Powers of Attorney (included on the signature page of this
Registration Statement)
99 - Form of Proxy of CFB
</TABLE>
<PAGE> 1
EXHIBIT 5
ALSTON & BIRD
One Atlantic Center
1201 West Peachtree Street
Atlanta, Florida 30309-3424
404-881-7000
Fax: 404-881-7777 Telex: 54-2996
________________, 1996
Citi-Bancshares, Inc.
801 Broad Street
Leesburg, Florida 37401
Gentlemen:
This opinion is given in connection with the filing by Citi-Bancshares,
Inc., a corporation organized and existing under the laws of the State of
Florida ("CBI"), with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, of a Registration Statement on Form S-4
("Registration Statement") with respect to the shares of the $.01 par value
common stock of CBI ("CBI Common Stock") to be issued in connection with
the proposed merger of Citizens First Bancshares, Inc. ("CFB") with and
into CBI (the "Merger").
The Merger is intended to be effected pursuant to an Agreement and Plan
of Merger, dated as of October 19, 1995 (the "Merger Agreement"), by and
between CBI and CFB, pursuant to which each outstanding share of the $.01
par value common stock of CFB ("CFB Common Stock") (excluding shares held
by CFB or any of its subsidiaries or by CBI or any of its subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts
previously contracted, and excluding shares held by shareholders who
perfect their dissenters rights) will be converted into and exchanged for
solely the right to receive that number of shares of CBI Common Stock equal
to 425,000 divided by the number of shares of CFB Common Stock issued and
outstanding on the effective date of the Merger.
In rendering this opinion, we have examined such corporate records and
documents, including the Merger Agreement, as we have deemed relevant and
necessary as the basis for the opinion set forth herein.
Based upon the foregoing, it is our opinion that the shares of CBI
Common Stock included in the Registration Statement have been duly
authorized by all requisite actions on the part of CBI and, upon
consummation of the Merger, such shares, when issued to the holders of CFB
Common Stock in connection with the Merger as provided in the Merger
Agreement, will be validly issued, fully paid, and non-assessable under the
Florida General Corporation Law.
We hereby consent to the use of the opinions included as Exhibits 5 and 8
of this Registration Statement and to the reference made to the firm under
the caption Legal Matters in the Proxy Statement/Prospectus constituting
part of the Registration Statement.
Sincerely yours,
ALSTON & BIRD
By:
-------------------------------
Ralph F. MacDonald III
<PAGE> 1
EXHIBIT 8
ALSTON&BIRD
One Atlantic Center
1201 West Peachtree Street
Atlanta, Florida 30309-3424
404-881-7000
Fax: 404-881-7777 Telex: 54-2996
__________________, 1996
Citi-Bancshares, Inc.
1211 North Boulevard West
Leesburg, Florida 37401
Citizens First Bancshares, Inc.
750 Southwest Martin Luther King, Jr. Blvd.
Ocala, Florida 34478
Re: Proposed Agreement and Plan of Merger involving Citizens
First Bancshares, Inc., Citi-Bancshares, Inc., and
Citizens First Bank of Ocala
Ladies and Gentlemen:
We have acted as counsel to Citi-Bancshares, Inc. ("CBI") in
connection with the proposed merger of Citizens First Bancshares, Inc.
("CFB") with and into CBI, with CBI as the surviving entity (the "Parent
Merger"), and the proposed merger by Citizens First Bank of Ocala (the
"Bank"), a wholly-owned subsidiary of CFB, with and into Citizens National
Bank of Leesburg ("CNBL"), a wholly-owned subsidiary of CBI, with CNBL as
the surviving entity (the "Bank Merger") (collectively, the "Mergers").
The Parent Merger will be effected pursuant to the Agreement and Plan of
Merger by and between CFB and CBI dated as of October 19, 1995 (the
"Agreement"). The Bank Merger will be effected pursuant to the Plan of Merger
of the Bank with and into CNBL, dated as of October 19, 1995 (the "Bank
Plan").
In our capacity as counsel to CBI, our opinion has been requested with
respect to certain of the federal income tax consequences of the proposed
Mergers.
In rendering this opinion, we have examined (i) the Internal Revenue
Code of 1986, as amended (the "Code"), and Treasury Regulations thereunder,
(ii) the legislative history of applicable sections of the Code, and (iii)
appropriate Internal Revenue Service and court decisional authority. In
addition, we have relied upon certain assumptions as more fully described
below. All capitalized terms used herein without definition shall have the
respective meanings specified in the Agreement and Bank Plan, and, unless
otherwise specified, all section references herein are to the Code.
INFORMATION RELIED UPON
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including:
(1) the Agreement;
(2) the Bank Plan;
<PAGE> 2
(3) the Registration Statement that is being filed with the
Securities and Exchange Commission regarding the Parent Merger,
which includes the preliminary Proxy Statement/Prospectus; and
(4) such additional documents as we have considered relevant.
In our examination of such documents, we have assumed, with your consent,
that all documents submitted to us as photocopies faithfully reproduce the
originals thereof, that such originals are authentic, that all such
documents have been or will be duly executed to the extent required, and that
all statements set forth in such documents are accurate.
We have also obtained such additional information and representations
as we have deemed relevant and necessary through consultation with various
officers and representatives of CBI, CFB and the Bank.
You have advised us that the proposed transaction will enable the
combined organization to realize certain economies of scale, yield a wider
array of services to consumers and businesses, and provide for a stronger
market position and for greater financial resources to meet competitive
challenges. To achieve these goals, the following will occur pursuant to the
Agreement and the Bank Plan:
A. The Parent Merger.
(1) CFB will merge with and into CBI under the laws of the State
of Florida. CBI shall be the Surviving Corporation and shall continue to be
governed by the laws of the State of Florida.
(2) At the Effective Time, by virtue of the Parent Merger, and without
any action on the part of CBI, CFB or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted
as follows:
(a) Each share of CBI Capital Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of CFB Common Stock (excluding shares held
by any CFB Company or any CBI Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by shareholders who perfect their statutory
dissenters' rights as provided in Section 3.4 of the Agreement) issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
converted into and exchanged for the right to receive that number of shares
of CBI Common Stock equal to 425,000 divided by the number of shares of CFB
Common Stock issued and outstanding at the Effective Time (the "Exchange
Ratio"). In the event CFB or CBI changes the number of shares of CFB Common
Stock or CBI Common Stock, respectively, issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Exchange Ratio shall
be proportionately adjusted.
(3) Each of the shares of CFB Common Stock held by any CFB Company
or by any CBI Company, in each case other than in a fiduciary capacity or as
a result of debts previously contracted, shall be canceled and retired at the
Effective Time, and no consideration shall be issued in exchange therefor.
(4) Any holder of shares of CFB Common Stock who perfects his
dissenters' rights in accordance with and as contemplated by Section
607.1301 et seq. of the Florida Business Corporation Act ("FBCA") shall be
entitled to receive the value of such shares in cash as determined
pursuant to such provision of Law; provided, that no such payment shall be
made to any dissenting shareholder unless and until such dissenting
shareholder has complied with all applicable provisions of the FBCA and
surrendered to CFB the certificate or certificates
<PAGE> 3
representing the shares for which payment is being made. In the event
that after the Effective Time a dissenting shareholder of CFB fails to
perfect, or effectively withdraws or loses, his right to appraisal of and
payment for his shares, CBI shall issue and deliver the consideration to
which such holder of shares of CFB Common Stock is entitled under Article 3
of the Agreement (without interest) upon surrender by such holder of the
certificate or certificates representing shares of CFB Common Stock held by
him.
(5) Notwithstanding any other provision of the Agreement, each holder
of shares of CFB Common Stock exchanged pursuant to the Parent Merger who
would otherwise have been entitled to receive a fraction of a share of
Common Stock (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Common Stock multiplied by the
market value of one share of CBI Common Stock at the Effective Time. The
market value of one share of CBI Common Stock at the Effective Time shall
be the last sale price of such common stock on the Nasdaq National Market
(as reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source) on the last trading day preceding the Effective Time.
No such holder will be entitled to dividends, voting rights, or any other
rights as a shareholder in respect of any fractional shares.
B. The Bank Merger.
(1) It is proposed that it CBI so directs, the Bank shall be
merged with and into CNBL under the Charter and Articles of Association of
CNBL pursuant to the provisions of and with the effect provided in Title
12, United States Code, Section 215a. CNBL shall be the surviving bank and
the receiving association resulting from the Bank Merger and shall continue
to conduct its business under the name "Citizens National Bank of Leesburg."
The Bank Merger shall be consummated pursuant to the terms of the Bank
Plan, which has been approved and adopted by the respective Boards of Directors
and shareholders of CNBL and the Bank.
(2) All of the shares of CNBL Common Stock issued and outstanding at
the Effective Time shall remain issued and outstanding after the Effective
Time and shall be unaffected by the Bank Merger. At the Effective Time, the
certificates representing all of the issued and outstanding shares of the
Bank Common Stock shall be surrendered to CNBL for cancellation and no
consideration shall be issued in exchange therefor.
With your consent, we have also assumed that the following statements
are true on the date hereof and will be true on the date(s) on which the
Mergers are consummated:
A. The Parent Merger.
(1) The fair market value of the CBI Common Stock received by the
shareholders of CFB will be, in each instance, approximately equal to the
fair market value of the CFB Common Stock surrendered in exchange therefor.
(2) There is no plan or intention on the part of the shareholders of
CFB who own one percent (1%) or more of the CFB Common Stock, and to the best
of the knowledge of the management of CFB, there is no plan or intention on
the part of the remaining shareholders of CFB to sell, exchange or otherwise
dispose of a number of shares of CBI Common Stock to be received in the
proposed transaction that would reduce their holdings in CBI Common Stock to a
number of shares having, in the aggregate a value as of the Effective Time of
less than fifty percent (50%) of the total value of all of the stock of
CFB outstanding immediately prior to the Effective Time. For purposes of
this representation, shares of CFB Common Stock exchanged for cash or other
property surrendered by dissenters or exchanged for cash in lieu of
fractional shares of CBI Common Stock will be treated as outstanding CFB
Common Stock as of the Effective Time. Moreover, shares of CFB Common
Stock and shares of CBI Common Stock held by CFB shareholders and otherwise
sold, redeemed or disposed of prior or subsequent to the transaction will be
considered in making this representation.
(3) CBI has no plan or intention to reacquire any of its stock issued
in the transaction.
<PAGE> 4
(4) Other than as may be deemed to occur as a result of effecting the
Bank Merger, CBI has no plan or intention to sell or otherwise dispose of any
of the assets of CFB acquired in the transaction, except for dispositions
made in the ordinary course of its business or transfers to a corporation
controlled by CBI. For purposes of this letter, "control" means ownership
of stock possessing at least 80 percent of the total combined voting power
of all classes of stock entitled to vote and at least 80 percent of the total
number of shares of all other classes of stock of the corporation in question.
(5) The liabilities of CFB assumed by CBI and the liabilities to
which the transferred assets of CFB are subject were incurred by CFB in the
ordinary course of its business.
(6) Following the transaction, CBI will continue the historic
business of CFB or use a significant portion of CFB's historic business
assets in a business.
(7) CBI, CFB, and the shareholders of CFB will pay their respective
expenses, if any, incurred in connection with the Parent Merger, except as
otherwise provided in Section 11.2(a) of the Agreement.
(8) There is no intercorporate indebtedness existing between CFB and
CBI that was issued, acquired, or will be settled at a discount.
(9) CFB is not under the jurisdiction of a court in a Title 11
of the United States Code or a receivership, foreclosure or similar
proceeding in a federal or state court.
(10) The fair market value and the total adjusted basis of the
assets of CFB transferred to CBI will each equal or exceed the sum of the
liabilities assumed by CBI plus the amount of the liabilities, if any, to
which the transferred assets are subject.
(11) The payment of cash in lieu of fractional shares of CBI
Common Stock is solely for the purpose of avoiding the expense and
inconvenience to CBI of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that
will be paid in the transaction to the CFB shareholders instead of issuing
fractional shares of CBI Common Stock will not exceed one percent (1%) of
the total consideration that will be issued in the transaction to the CFB
shareholders in exchange for their shares of CFB Common Stock. The
fractional share interests of each CFB shareholder will be aggregated, and
no CFB shareholder will receive cash in an amount equal to or greater than
the value of one full share of CBI Common Stock.
(12) None of the compensation received by any
shareholder-employees of CFB will be separate consideration for, or
allocable to, any of their shares of CFB Common Stock; none of the
shares of CBI Common Stock received by any shareholder-employees will be
separate consideration for, or allocable to, any employment agreement or
arrangement. Any compensation to be paid to a CFB shareholder-employee who
continues as an employee of CBI subsequent to the Parent Merger will be for
services rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
(13) At all times during the five-year period ending on the
effective date of the Parent Merger, the fair market value of all of CFB's
United States real property interests was and will have been less than fifty
percent (50%) of the total fair market value of (a) its United States real
property interests, (b) its interests in real property located outside the
United States, and (c) its other assets used or held for use in a trade or
business. For purposes of the preceding sentence, (x) United States real
property interests include all interests (other than an interest solely as a
creditor) in real property and associated personal property (such as movable
walls and furnishings) located in the United States or the Virgin Islands
and interests in any corporation (other than a controlled corporation)
owning any United States real property interest, (y) CFB is treated as
owning its proportionate share (based on the relative fair market value of
its ownership interest to all ownership interests) of the assets owned by
any controlled corporation or any partnership, trust, or estate in which CFB
is a partner or beneficiary, and (z) any such entity in turn is treated as
owning its proportionate share of the assets owned by any controlled
corporation or any partnership, trust, or estate in which the entity is a
partner or beneficiary. As used in this paragraph, "controlled
<PAGE> 5
corporation" means any corporation at least fifty percent (50%) of the fair
market value of the stock of which is owned by CFB, in the case of a
first-tier subsidiary of CFB, or by a controlled corporation, in the case of a
lower-tier subsidiary.
(14) For each of CBI and CFB, not more than twenty-five percent
(25%) of the fair market value of its adjusted total assets consists of stock
and securities of any one issuer, and not more than fifty percent (50%) of the
fair market value of its adjusted total assets consists of stock and
securities of five or fewer issuers. For purposes of the preceding sentence,
(a) a corporation's adjusted total assets exclude cash, cash items (including
accounts receivable and cash equivalents), and United States government
securities, (b) a corporation's adjusted total assets exclude stock and
securities issued by any subsidiary at least fifty percent (50%) of the
voting power or fifty percent (50%) of the total fair market value of the
stock of which is owned by the corporation, but the corporation is treated as
owning directly a ratable share (based on the percentage of the fair market
value of the subsidiary's stock owned by the corporation) of the assets
owned by any such subsidiary, and (c) all corporations that are members of
the same "controlled group" within the meaning of section 1563(a) of the Code
are treated as a single issuer.
(15) The Agreement represents the entire understanding of CFB and
CBI with respect to the Parent Merger.
B. The Bank Merger.
(1) The Bank will transfer to CNBL assets representing at least
ninety percent (90%) of the fair market value of its assets and at least
seventy percent (70%) of the fair market value of its gross assets held
immediately prior to the proposed transaction. For purposes of this
representation, assets used by the Bank to pay its expenses incurred in
connection with the proposed transaction, and all redemptions and
distributions (except for regular and normal distributions) made
immediately preceding the transfers and which are part of the plan of
reorganization will be included as assets of the Bank held immediately prior
to the proposed transaction.
(2) Prior to the transaction, CBI will be in control of CNBL.
(3) Following the transaction, CNBL will not issue additional shares
of stock that would result in CBI losing control of CNBL.
(4) CBI has no plan or intention to liquidate CNBL; to merge CNBL
with and into another corporation; to sell or otherwise dispose of the stock
of CNBL; or to cause CNBL to sell or otherwise dispose of any of the assets
of the Bank acquired in the transaction, except for dispositions made in the
ordinary course of business or transfers to a corporation controlled by CNBL.
(5) The liabilities of the Bank assumed by CNBL and the liabilities
to which the transferred assets of the Bank are subject were incurred by the
Bank in the ordinary course of its business.
(6) Following the transaction, CNBL will continue the historic
business of the Bank or use a significant portion of the Bank's historic
business assets in a business.
(7) The Bank and CNBL will pay their respective expenses, if any,
incurred in connection with the transaction.
(8) There is no intercorporate indebtedness existing between CNBL
and the Bank that was issued, acquired, or will be settled at a discount.
(9) For each of the Bank and CNBL, not more than twenty-five percent
(25%) of the fair market value of its adjusted total assets consists of
stock and securities of any one issuer, and not more than fifty percent
(50%) of the fair market value of its adjusted total assets consists of stock
and securities of five or fewer issuers. For purposes of the preceding
sentence, (a) a corporation's adjusted
<PAGE> 6
total assets exclude cash, cash items (including accounts receivable and cash
equivalents), and United States government securities, (b) a corporation's
adjusted total assets exclude stock and securities issued by any subsidiary
at least fifty percent (50%) of the voting power or fifty percent (50%) of
the total fair market value of the stock of which is owned by the
corporation, but the corporation is treated as owning directly a ratable
share (based on the percentage of the fair market value of the
subsidiary's stock owned by the corporation) of the assets owned by any
such subsidiary, and (c) all corporations that are members of the same
"controlled group" within the meaning of section 1563(a) of the Code are
treated as a single issuer.
(10) The Bank is not under the jurisdiction of a court in a Title
11 of the United States Code or a receivership, foreclosure or similar
proceeding in a federal or state court.
(11) The fair market value and total adjusted basis of the assets
of the Bank transferred to CNBL will each equal or exceed the sum of the
liabilities assumed by CNBL, plus the amount of liabilities, if any, to which
the transferred assets are subject.
(12) The Bank Plan represents the entire understanding of the
Bank and CNBL with respect to the Bank Merger.
OPINIONS
Based solely on the information submitted and the representations set
forth above, we are of the opinion that:
A. The Parent Merger.
(1) Provided the proposed merger of CFB with and into CBI
qualifies as a statutory merger under Florida law, the merger will be a
reorganization within the meaning of section 368(a) of the Code. CFB and CBI
will each be "a party to a reorganization" within the meaning of section 368(b)
of the Code.
(2) CFB will recognize no gain or loss upon the transfer of its
assets to CBI in exchange solely for CBI Common Stock and the assumption by CBI
of the liabilities of CFB. Sections 361(a) and 357(a).
(3) No gain or loss will be recognized by CBI on receipt of CFB's
assets in exchange for CBI Common Stock. Section 1032(a).
(4) The basis of CFB's assets in the hands of CBI will, in each
case, be the same as the basis of those assets in the hands of CFB
immediately prior to the transaction. Section 362(b).
(5) The holding period of the assets of CFB in the hands of CBI
will, in each case, include the period during which such assets were held by
CFB. Section 1223(2).
(6) The shareholders of CFB will recognize no gain or loss upon
the exchange of their CFB Common Stock solely for shares of CBI Common Stock.
Section 354(a)(1).
(7) The basis of the CBI Common stock received by the CFB
shareholders in the proposed transaction will, in each instance, be the same
as the basis of the CFB Common Stock surrendered in exchange therefor.
Section 358(a)(1).
(8) The holding period of the CBI Common Stock received by the
CFB shareholders will, in each instance, include the period during which CFB
shares surrendered therefor were held, provided that the CFB shares are held
as a capital asset on the date of the exchange. Section 1223(1).
(9) The payment of cash to CFB shareholders in lieu of fractional
share interests of CBI Common Stock will be treated for federal income tax
purposes as if the fractional shares were distributed as part of the exchange
and then were redeemed by CBI. These cash payments will be treated as
having been received as distributions in full payment in exchange for the
stock redeemed as provided in section 302(a) of the Code. Any gain or loss
<PAGE> 7
recognized upon such exchange will be capital gain or loss, provided the
fractional share constitutes a capital asset in the hands of the exchanging
shareholder. Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2
C.B. 574.
(10) Where solely cash is received by a CFB shareholder in
exchange for his CFB Common Stock pursuant to the exercise of dissenter's
rights, such cash will be treated as having been received in redemption
of his CFB Common Stock, subject to the provisions and limitations of section
302 of the Code.
B. The Bank Merger.
(1) Provided the proposed merger of the Bank with and into CNBL
qualifies as a statutory merger under the applicable laws of the State of
Florida, the transaction will constitute a reorganization within the
meaning of section 368(a) of the Code. CNBL and the Bank will each be "a
party to a reorganization" within the meaning of section 368(b) of the Code.
Rev. Rul. 68-526, 1968-2 C.B. 156; Rev. Rul. 57-278, 1957-1 C.B. 124.
(2) No gain or loss will be recognized by the Bank on the
transfer of its assets to CNBL in constructive exchange for CNBL Common
Stock and the assumption by CNBL of the Bank's liabilities. Sections 361
and 357(a). In addition, no gain or loss will be recognized by CFB or
CBI as a result of the Bank Merger.
(3) No gain or loss will be recognized by CNBL on the receipt of
the Bank's assets in constructive exchange for CNBL Common Stock and the
assumption by CNBL of the Bank's liabilities. Section 1032(a).
(4) The basis of the Bank's assets acquired by CNBL will be the
same in the hands of CNBL as the basis of those assets in the hands of the
Bank immediately prior to the exchange. Section 362(b).
(5) The holding period of the assets of the Bank in the hands of CNBL
will include, in each instance, the period during which such assets were held
by the Bank. Section 1223(2).
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time
with retroactive effect. In addition, our opinions are based solely on the
documents that we have examined, the additional information that we have
obtained, and the statements set out herein, which we have assumed and you
have confirmed to be true on the date hereof and will be true on the date(s)
on which the proposed exchanges are consummated. Our opinions cannot be
relied upon if any of the facts contained in such documents or if such
additional information is, or later becomes, inaccurate, or if any of the
statements set out herein is, or later becomes, inaccurate. Finally, our
opinions are limited to the tax matters specifically covered thereby, and
we have not been asked to address, nor have we addressed, any other
tax consequences of the Mergers, including for example any issues
related to intercompany transactions, accounting methods, or changes in
accounting methods resulting from the Mergers.
This opinion is being provided solely for the benefit of CBI,
CFB, CNBL, the Bank and their shareholders. No other person or party shall
be entitled to rely on this opinion.
We hereby consent to the use of this opinion and to the
references made to the firm under the captions "Certain Federal Income Tax
Consequences of the Merger" and "Description of the Transaction--Certain
Federal Income Tax Consequences of the Merger" in the Proxy Statement
constituting part of the Registration Statement on Form S-4 of CBI.
Very truly yours,
ALSTON & BIRD
By:
---------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
Citizens National Bank of Leesburg, N.A.
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF PURVIS GRAY AND COMPANY
We hereby consent to the use of our reports dated February 14, 1995, and
January 31, 1995, relating to the consolidated financial statements of
Citizen First Bancshares, Inc. and Citi-Bancshares, Inc. respectively,
included in the Registration Statement on Form S-4. We also consent to the
reference to us under the heading "Experts" in the Proxy
Statement/Prospectus constituting part of such Registration Statement on
Form S-4.
PURVIS GRAY & COMPANY
Gainsville, Florida
December 27, 1995
<PAGE> 1
EXHIBIT 23(c)
CONSENT OF TERRY E. TREXLER
The undersigned hereby consents, pursuant to Rule 438 of the Securities
Act of 1933, as amended, to the reference to him under the caption "THE
MERGER -- Interests of Certain Persons" in the Proxy Statement and
Prospectus, which is part of this Registration Statement on Form S-4 of
Citi-Bancshares, Inc.
TERRY E. TREXLER
Ocala, Florida
December 27, 1995
<PAGE> 1
EXHIBIT 99
CITIZENS FIRST BANCSHARES, INC.
The undersigned hereby constitutes and appoints Terry E. Trexler
and _________________, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of common stock of Citizens
First Bancshares, Inc. (CFB) which the undersigned would be entitled to vote
if personally present at the Special Meeting of CFB Shareholders to be held at
the offices of CFB, 1601 S.W. College Road, Ocala, Florida, at ________,
Eastern Time, on __________, ___________, 1996, and at any adjournment or
postponement thereof (the "Special Meeting") upon the proposals described in
the Proxy Statement/Prospectus and the Notice of Special Meeting of
Shareholders, both dated ____________, 1995, the receipt of which is
acknowledged in the manner specified below.
1. To approve, ratify, confirm and adopt the Agreement and Plan of
Merger, dated as of October 20, 1995 (the Merger Agreement), by
and among CFB and Citi-Bancshares, Inc. (CBI), and the
transactions contemplated therein, including (a) the merger of CFB with
and into CBI (the Merger) with CBI as the surviving corporation and
(b) the conversion of each share of CFB common stock (excluding shares
held by CFB or CBI or any of their respective subsidiaries, in each
case other than in a fiduciary capacity or as a result of debts
previously contracted, and excluding shares of CFB common stock held by
persons who perfect their dissenters' rights) will be converted
into the right to receive that number of shares of CBI Common Stock
equal to 425,000 divided by the number of shares of CFB issued
and outstanding on the effective date of Merger, all as more
fully described in the Proxy Statement/Prospectus dated __________,
1996.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSAL 1 ABOVE.
Please sign exactly as name appears below. When shares are held jointly,
both should sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign
in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATED: ____________________, 1996
___________________________________________
Signature
___________________________________________
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CITIZENS FIRST BANCSHARES,
INC., AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
