<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
<TABLE>
<CAPTION>
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE QUARTER PERIOD ENDED
JUNE 30, 1995
<S> <C>
CNB BANCSHARES, INC. 0-11510
(Exact name of registrant as specified in its charter) (Commission file number)
INDIANA 35-1568731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
20 N.W. THIRD STREET, EVANSVILLE, INDIANA 47739
(Address of principal executive office) (Zip Code)
(812) 464-3400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report.)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ -----
As of July 21, 1995, there were 14,702,069 outstanding shares, without par
value, of the registrant.
Exhibit index is on page 23.
<PAGE>
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet...................... 1
Consolidated Condensed Statement
of Income..................................... 2
Consolidated Condensed Statement of
Changes in Shareholders' Equity............... 3
Consolidated Statement of Cash Flows............ 4
Notes to Consolidated Financial Statements...... 5 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11 - 20
PART II. Other Information................................... 21
Signatures.......................................................... 22
Exhibit Index....................................................... 23
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CNB Bancshares, Inc.
Consolidated Balance Sheet
(In thousands except for share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Assets
- ------
Cash & due from banks $ 114,146 $ 105,638 $ 90,617
Interest bearing deposits in other banks 1,716 5,171 14,653
Federal funds sold and securities purchased under agreements to resell 11,674 16,200 13,250
---------- ---------- ---------
Total cash and cash equivalents 127,536 127,009 118,520
Real estate loans held for sale 5,346 1,260 3,065
Investment securities available for sale 285,971 221,418 286,536
Investment securities held to maturity
(Market value $505,985 at June 30, 1995, $520,873 at
December 31, 1994, and $494,440 at June 30, 1994) 510,164 549,861 510,163
Loans:
Commercial, real estate and consumer loans, net of unearned interest 1,933,405 1,917,982 1,753,495
Less: Allowance for loan losses 26,543 26,615 24,169
---------- ---------- ----------
Net loans 1,906,862 1,891,367 1,729,326
Premises & equipment 60,030 59,584 59,737
Other real estate owned 1,946 2,943 3,686
Interest receivable and other assets 66,438 65,645 58,242
---------- ---------- ----------
Total assets $2,964,293 $2,919,087 $2,769,275
========== ========== ==========
Liabilities
- -----------
Deposits:
Non-interest bearing $ 290,850 $ 297,954 $ 274,164
Interest bearing 1,975,234 1,944,689 1,915,795
---------- ---------- ----------
Total deposits 2,266,084 2,242,643 2,189,959
Securities sold under repurchase agreements 324,013 319,965 241,567
Federal funds purchased 21,925 27,000 34,020
Other short-term borrowings 14,136 9,938 13,520
Long-term debt 67,334 58,077 44,930
Interest payable and other liabilities 30,194 24,204 20,095
---------- ---------- ----------
Total liabilities 2,723,686 2,681,827 2,544,091
Shareholders' equity
- --------------------
Preferred stock, no par or stated value
Shares authorized & unissued: 2,000,000
Common stock, $1 stated value
Shares authorized: 50,000,000
Shares issued: 14,738,412 at June 30, 1995, 15,008,636 at
December 31, 1994, and 13,247,678 at June 30, 1994 14,738 15,009 13,248
Capital surplus 194,527 202,945 156,801
Retained earnings 29,471 21,125 54,476
Net unrealized gains (losses) on investment securities available for sale 1,871 (1,819) 659
---------- ---------- ----------
Total shareholders' equity 240,607 237,260 225,184
---------- ---------- ----------
Total liabilities & shareholders' equity $2,964,293 $2,919,087 $2,769,275
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
Page 1 of 24
<PAGE>
CNB Bancshares, Inc.
Consolidated Condensed Statement of Income
(In thousands, except for share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees:
Taxable $ 43,960 $ 34,968 $ 86,831 $ 67,966
Tax exempt 422 389 861 766
Investment securities:
Taxable 11,474 10,141 22,550 18,663
Tax exempt 1,176 1,214 2,372 2,394
Real estate loans held for sale 78 154 128 626
Federal funds sold and securities purchased
under agreements to resell 185 131 433 545
Interest bearing deposits in other banks 48 125 121 248
----------- ----------- ----------- -----------
Total interest income 57,343 47,122 113,296 91,208
Interest Expense
Deposits 21,999 17,641 42,754 35,389
Short-term borrowings 4,699 2,418 9,196 3,487
Long-term debt 1,086 906 2,195 1,788
----------- ----------- ----------- -----------
Total interest expense 27,784 20,965 54,145 40,664
----------- ----------- ----------- -----------
Net Interest Income 29,559 26,157 59,151 50,544
Provision for loan losses 1,462 1,476 2,966 2,778
----------- ----------- ----------- -----------
Net Interest Income After Provision For Loan Losses 28,097 24,681 56,185 47,766
Non-Interest Income
Net securities gains 1,072 718 1,120 1,339
Other non-interest income 8,705 8,350 17,550 17,991
----------- ----------- ----------- -----------
Total non-interest income 9,777 9,068 18,670 19,330
Non-Interest Expense
Salaries, benefits, occupancy,
other operating expenses 26,118 23,738 52,056 47,721
----------- ----------- ----------- -----------
Income Before Income Taxes 11,756 10,011 22,799 19,375
Income taxes 4,319 3,498 8,377 6,551
----------- ----------- ----------- -----------
Net Income $ 7,437 $ 6,513 $ 14,422 $ 12,824
=========== =========== =========== ===========
Net Income Per Share:
Primary Net Income Per Share $ 0.50 $ 0.45 $ 0.97 $ 0.89
=========== =========== =========== ===========
Fully Diluted Net Income Per Share $ 0.50 $ 0.44 $ 0.97 $ 0.86
=========== =========== =========== ===========
Average shares outstanding 14,880,238 14,456,945 14,940,555 14,451,153
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 2 of 24
<PAGE>
CNB Bancshares, Inc.
Consolidated Condensed Statement of Changes in Shareholders' Equity
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Beginning Balance $242,074 $226,304 $ 237,260 $224,303
Net income 7,437 6,513 14,422 12,824
Cash dividends declared (3,110) (3,357) (6,076) (5,826)
Purchase and retirement of common stock (8,448) (3,475) (10,856) (5,566)
Issued pursuant to employee benefit plans -- -- 219 385
Dividends reinvested 731 708 1,492 1,316
Stock options exercised 130 112 241 217
Exercise and conversion of stock
purchase contracts and debentures 33 75 215 2,008
Change in unrealized gains/losses on
investment securities available for sale 1,760 (1,696) 3,690 (4,477)
-------- -------- --------- --------
Ending Balance $240,607 $225,184 $ 240,607 $225,184
======== ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
Page 3 of 24
<PAGE>
CNB Bancshares, Inc.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Operating Activities:
Net income $ 14,422 $ 12,824
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,936 4,085
Provision for loan losses 2,966 2,778
Amortization of securities' premiums and discounts 813 1,361
Net gains on securities (1,120) (1,339)
Loans originated for sale (19,080) (29,178)
Proceeds from sale of loans 14,994 54,547
(Increase) decrease in other assets, net of amortization (3,936) 2,579
Increase (decrease) in other liabilities 5,878 (4,185)
-------- -------
Net Cash Provided by Operating Activities 19,873 43,472
Investing Activities:
Proceeds from the maturity of investment securities available for sale 37,904 100,567
Proceeds from the sale of investment securities available for sale 107,634 123,792
Purchase of investment securities available for sale (180,754) (70,546)
Proceeds from the maturity of investment securities held to maturity 23,059 33,252
Purchase of investment securities held to maturity (6,515) (289,745)
Net increase in loans (17,965) (93,744)
Purchase of bank premises and equipment (3,294) (3,101)
-------- --------
Net Cash Used by Investing Activities (39,931) (199,525)
Financing Activities:
Net increase (decrease) in deposits 23,429 (19,125)
Net increase in short-term borrowings 2,587 142,782
Payment of long-term debt (11,358) (6,011)
Proceeds from long-term borrowings 20,795 2,962
Proceeds from exercise of stock options 241 217
Payment of cash dividends (5,745) (5,578)
Proceeds from common stock issued for dividend reinvestment plan 1,492 1,316
Purchase and retirement of common stock (10,856) (5,566)
-------- --------
Net Cash Provided by Financing Activities 20,585 110,997
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 527 (45,056)
Cash and Cash Equivalents at January 1, 127,009 163,576
-------- --------
Cash and Cash Equivalents at June 30, $127,536 $118,520
======== =========
Supplemental disclosure:
Cash paid for:
Interest $ 49,381 $ 40,152
Income taxes 9,497 7,953
Non-cash investing and financing activities:
Other real estate transfers 496 572
Stock issued in exchange of debentures and equity contracts 223 2,132
Reclassification of investment securities available for sale, related to merger 22,492
</TABLE>
See notes to consolidated financial statements.
Page 4 of 24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of CNB Bancshares,
Inc. (Corporation) and its wholly-owned subsidiaries, after elimination of all
material intercompany accounts and transactions.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and do not include all the information and footnotes
required for a complete presentation of statements. The Corporation's
accounting and reporting policies for interim financial reporting are consistent
with those followed for annual financial reporting. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the results of operations for the periods reported
have been included in the foregoing interim consolidated financial statements.
The interim results of operations presented are not necessarily indicative of
the results that may be expected for the full year. A description of the
Corporation's current accounting policies is contained in the 1994 Annual Report
to Shareholders.
NOTE 2: ACCOUNTING FOR IMPAIRED LOANS
Effective January 1, 1995, the Corporation adopted Financial Accounting
Standards Board Statement No. 114 "Accounting by Creditors for Impairment of a
Loan" (FAS 114) which was amended by statement No. 118. These accounting
standards require that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
the fair value of the underlying collateral. The adoption of these standards
did not have a material impact on the Corporation's financial position or
results of operations since the method prescribed by the standard was not
significantly different from that historically used by the Corporation.
NOTE 3: BUSINESS COMBINATIONS
On February 1, 1995, the Corporation issued 652,447 shares of its common stock
in exchange for all of the outstanding shares of King City Federal Savings Bank,
Mt. Vernon, Illinois (King City). In addition, the Corporation reserved an
additional 57,467 shares for future issuance due to outstanding King City stock
options. The Corporation issued 480,334 shares of its common stock on
February 10, 1995, in exchange for all of the outstanding shares of Harrisburg
Bancshares, Inc., holding company for the Harrisburg National Bank, Harrisburg,
Illinois, (Harrisburg) and the minority interests of Harrisburg. Both mergers
were accounted for under the pooling of interests method of accounting and,
accordingly, all financial data of the Corporation for prior periods has been
restated to include the financial position and operating results of King City
and Harrisburg. On May 6, 1995, First National Bank of Effingham, a wholly-
owned subsidiary of the Corporation, was merged into Harrisburg and the
resulting institution was renamed Citizens Bank of Illinois, N.A. On June 24,
1995, King City was also merged into Citizens Bank of Illinois, N.A.
Page 5 of 24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3: BUSINESS COMBINATIONS, CONTINUED
On December 1, 1994, the Corporation issued 416,775 shares of its common stock
in exchange for all of the outstanding common shares of Citizens Realty and
Insurance, Inc., Evansville, Indiana. The transaction was accounted for under
the pooling of interests method of accounting and, accordingly, all financial
data of the Corporation for prior periods has been restated to include the
financial position and operating results of Citizens Realty and Insurance, Inc.
Effective August 30, 1994, the Corporation issued 157,875 shares of its common
stock in exchange for all of the outstanding shares of Oakland City Bancshares
Corp., holding company for First Bank & Trust Company of Oakland City (First
Bank), and the minority interests of First Bank. At that time, First Bank was
merged into the Corporation's lead bank, The Citizens National Bank of
Evansville. On July 1, 1994, the Corporation issued 445,443 shares of its
common stock in exchange for all of the outstanding common stock of Union Bank
and Trust Company, Morganfield, Kentucky (Union). Union was renamed Citizens
Bank of Kentucky at that time. Simultaneous with the merger, Peoples Bank and
Trust Company, and the Morganfield office of First Federal Savings Bank of
Kentucky, both wholly-owned subsidiaries of the Corporation, were merged into
Citizens Bank of Kentucky. On September 30, 1994, the Corporation merged three
other of its subsidiary banks (CNB Bank of Kentucky, First Federal Savings Bank
of Kentucky and Citizens Bank of Kentucky, N.A.) into Citizens Bank of Kentucky.
These mergers were accounted for under the pooling of interests method of
accounting without restatement of prior periods as the amounts involved were not
material to the Corporation's financial results.
On October 18, 1994, the Corporation signed a definitive agreement to acquire
all of the outstanding shares of The Bank of Orleans, Indiana (Orleans). Under
terms of the agreement, the Corporation will issue approximately 319,000 shares
of its common stock. The transaction will be accounted for under the pooling of
interests method of accounting and is subject to approval by Orleans'
shareholders. Although the Corporation anticipates that the merger will be
consummated effective August 5, 1995, there can be no assurance that the
acquisition will be completed. At June 30, 1995, The Bank of Orleans had total
assets and shareholders' equity of $58,298,000 and $5,774,000, respectively.
On December 13, 1994, the Corporation signed a definitive agreement to acquire
all of the outstanding shares of UF Bancorp, Inc. (UF), parent company for Union
Federal Savings Bank, Evansville, Indiana. Under terms of the agreement, the
Corporation will issue approximately 2,258,000 shares of its common stock and
will reserve an additional 173,000 shares for future issuance due to outstanding
UF Bancorp options. The transaction will be accounted for under the pooling of
interests method of accounting and is subject to approval by UF shareholders.
Although the Corporation anticipates that the merger will be consummated
effective August 5, 1995, there can be no assurance that the merger will be
completed. At June 30, 1995, UF Bancorp had total assets and shareholders'
equity of $563,195,000 and $43,440,000, respectively.
Page 6 of 24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3: BUSINESS COMBINATIONS, CONTINUED
On April 7, 1995, the Corporation announced the signing of an agreement
whereby a wholly-owned subsidiary, Citizens Bank of Western Indiana will acquire
the four Indiana offices and assume the deposit liabilities of Household Bank,
f.s.b., (Household) a subsidiary of Household International. The transaction
will be accounted for under the purchase method of accounting and is anticipated
to be consummated effective August 5, 1995. At June 30, 1995, the four
Household offices had total deposits of approximately $80,000,000.
NOTE 4: INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Investment Securities Available for Sale
at June 30, 1995:
U.S. Treasury $ 40,089 $ 332 $ (394) $ 40,027
Federal agencies:
Bonds and notes 85,231 2,604 (1,369) 86,466
Mortgage-backed securities 142,465 4,204 (2,389) 144,280
State and municipal securities 3,885 386 (195) 4,076
Other securities 11,252 187 (317) 11,122
- ---------------------------------------------------------------------------------------
Total $282,922 $7,713 $(4,664) $285,971
=======================================================================================
Investment Securities Held to Maturity
at June 30, 1995:
Federal agencies:
Bonds and notes $ 547 $ 22 $ (12) $ 557
Mortgage-backed securities 426,856 7,392 (14,016) 420,232
State and municipal 79,107 5,455 (2,966) 81,596
Other securities 3,654 45 (99) 3,600
- ---------------------------------------------------------------------------------------
Total $510,164 $12,914 $(17,093) $505,985
=======================================================================================
</TABLE>
Net unrealized gains or (losses) on investment securities available for sale,
net of tax, at December 31, 1994 and June 30, 1995 and 1994, were ($1,819,000),
$1,871,000 and $659,000, respectively. The amortized cost and estimated market
value of investment securities at June 30, 1995, by contractual maturity, are
shown in the following table. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.
Page 7 of 24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4: INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY,
CONTINUED
<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT SECURITIES
AVAILABLE FOR SALE HELD TO MATURITY
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Maturity distribution
at June 30, 1995:
Due in one year or less $ 51,353 $ 50,910 $ 10,674 $ 11,553
Due after one year through five years 73,441 74,736 31,090 32,369
Due after five years through ten years 624 751 31,589 31,881
Due after ten years 4,610 4,833 9,955 9,950
Mortgage-backed securities 142,465 144,280 426,856 420,232
- ---------------------------------------------------------------------------------------
Total debt securities 272,493 275,510 510,164 505,985
- ---------------------------------------------------------------------------------------
Equity securities 10,429 10,461
- ---------------------------------------------------------------------------------------
Total $282,922 $285,971 $510,164 $505,985
=======================================================================================
</TABLE>
During the quarter ended March 31, 1995, $22,492,000 of investment securities
were transferred from held to maturity to available for sale. This
reclassification was necessitated to conform the investment portfolios of two
recently acquired institutions to the Corporation's policy for credit risk and
interest rate risk.
Proceeds from sales of investment securities available for sale during the six
months ended June 30, 1995, were $105,394,000. Gross gains and losses realized
on those sales were as follows. The gains related to investment securities held
to maturity were due to the call of certain securities prior to their
maturities.
<TABLE>
<CAPTION>
INVESTMENT INVESTMENT
SECURITIES SECURITIES
AVAILABLE FOR SALE HELD TO MATURITY TOTAL
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1995
Gross gains from sales
and called bonds $1,323 $29 $1,352
Gross losses from sales (232) 0 (232)
- ---------------------------------------------------------------------------------
Net securities gains $1,091 $29 $1,120
=================================================================================
</TABLE>
NOTE 5: INTEREST RATE CONTRACTS
Through the purchase of interest rate cap agreements, (caps) the Corporation
has reduced the potential impact of increased interest rates on its costs to
acquire certain repurchase agreements and long-term borrowings being hedged.
These caps entitle the Corporation to receive periodic payments from
counterparties based upon the notional amount of the caps and the excess of the
index rate over the strike price. Amortization of premiums paid for interest
rate caps totaled $639,000 and $378,000 for the six months ended June 30, 1995
and 1994, respectively. This expense was offset by counterparty reimbursements
of $742,000 during the six months ended June 30, 1995. No counterparty
reimbursements were received during the six months ended June 30, 1994.
Page 8 of 24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5: INTEREST RATE CONTRACTS, CONTINUED
At June 30, 1995, the notional amount of the interest rate caps was
$135,000,000. The caps are indexed to LIBOR with contract strike prices ranging
from 4 percent to 7 percent and mature in 1997. The carrying value and estimated
market value of the caps at June 30, 1995, was $2,142,000 and $1,983,000,
respectively. The Corporation is exposed to credit losses in the event of
nonperformance by the counterparties but has no off-balance sheet credit risk of
accounting loss. Although collateral or other security is not obtained, the
Corporation minimizes its credit risk by monitoring the credit standing of the
counterparties and anticipates that the counterparties will be able to fully
satisfy their obligation under the agreements.
NOTE 6: NET INCOME PER SHARE
Primary net income per share has been computed by dividing net income by the
weighted average number of common shares outstanding during each period. Fully
diluted net income per share has been computed based on the weighted average
number of common and common equivalent shares outstanding during each period
assuming conversion of the convertible subordinated debentures into common
shares and the elimination from net income of the related interest expense, less
income tax effect. The common equivalent shares and assumed conversion of the
convertible subordinated debentures into common shares had no materially
dilutive effect on primary net income per share for either the three months or
six months ended June 30, 1995. All share data included in the notes to the
financial statements and Management's Discussion and Analysis has been adjusted
for the one-for-ten stock dividend declared on October 18, 1994.
Page 9 of 24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
NOTE 7: LONG-TERM DEBT (IN THOUSANDS)
June 30, December 31, June 30,
1995 1994 1994
-------- ------------ --------
<S> <C> <C> <C>
Convertible subordinated debentures,
7.50%, redemption of $1,125 annually beginning in
2001, balance due 2011 $ 6,636 $ 6,785 $ 7,899
Redeemable subordinated debentures, 9.50% due 1997 2,192 2,266 2,272
Notes payable:
9.75%, payable in 1994 1,800
9.81%, payable $600 annually through 1996, 3,600 3,600 4,200
balance due in 1997
7.25%, adjusted with changes in Prime, 2,197
payable $75 quarterly through 1998
6.81%, adjusted monthly with changes in LIBOR,
payable $250 quarterly through 2000 6,000
6.25% , adjusted quarterly with changes in LIBOR, 6,000 6,500
payable $250 quarterly through 2000
10.00%, payable in 2000 3,250 3,250
Federal Home Loan Bank advances:
6.11%, adjusted monthly with changes in LIBOR,
payable in 1995 10,000 10,000
6.21%, adjusted quarterly with changes in LIBOR,
payable in 1997 9,838
6.25%, adjusted quarterly with changes in LIBOR,
payable in 1999 5,000 5,000
Mortgage notes payable:
2.00%, payable $75 annually including interest,
due year 2032 (Federal Urban Development
Grant Program) 1,941 1,977 1,977
Revolving credit agreement:
6.81%, adjusted monthly with changes in LIBOR,
balance due 1997 5,000
Notes payable, revolving credit agreement, secured by
finance receivables:
6.88%, adjusted quarterly with changes in LIBOR 13,650 9,102 5,413
Fixed rate borrowings at 7.50% to 8.20%, payable
in 1995 6,500 6,500
Other, including capitalized leases 3,477 3,597 2,922
------- ------- -------
Total $67,334 $58,077 $44,930
=========================================================================================================
</TABLE>
Qualifying unencumbered mortgage loans held in the loan portfolio that equal
at least 170 percent of the aggregate amount of advances have been pledged as
collateral for the Federal Home Loan Bank advances.
Page 10 of 24
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Net income for the three months ended June 30, 1995, was $7,437,000, an
increase of 14.2 percent over the $6,513,000 earned in the same period of 1994.
Fully diluted net income per share increased by 13.6 percent to $.50 for the
three months ended June 30, 1995 compared to $.44 for the three months ended
June 30, 1994. Net income for the first six months of 1995 was $14,422,000
compared to $12,824,000 earned in the same period of 1994, an increase of 12.5
percent. Fully diluted earnings per share was $.97 and $.86 for the six months
ended June 30, 1995 and 1994, respectively. The earnings improvement was due to
an improvement in the net interest margin and continued growth in earning assets
which resulted in a 17.0 percent increase in net interest income over the first
six months of 1994. The net interest margin was 4.50 percent for the six months
ended June 30, 1995 compared to 4.21 percent for the six months ended June 30,
1994. During the first half of 1995, average earning assets were 9.2 percent
greater than during the same period of 1994.
Net income of $7,437,000 and fully diluted net income per share of $.50 for
the second quarter of 1995 were also increased over 1995 first quarter results
of $6,985,000 and $.47 per share.
The Corporation's total assets at June 30, 1995, were $2,964,293,000, which
were 7.0 percent greater than the $2,769,275,000 at June 30, 1994, and 1.5
percent greater than total assets at December 31, 1994. Total loans of
$1,933,405,000 at June 30, 1995, were increased from $1,917,982,000 at December
31, 1994, and $1,753,495,000 from one year ago.
Annualized returns on average assets and average shareholders' equity for the
six months ended June 30, 1995, were .99 percent and 11.94 percent,
respectively, compared with .95 percent and 11.49 percent for the same period of
1994. For the quarter ended June 30, 1995, annualized returns on average assets
and average shareholders' equity were 1.02 percent and 12.32 percent,
respectively, compared to .95 percent and 11.59 percent in the second quarter of
1994.
Cash dividends of $.21 per share were declared during the second quarter of
1995 compared with $.20 per share during the same period of 1994, representing
an increase of 5.0 percent. For the six months ended June 30, 1995 and 1994,
total dividends declared were $6,076,000 and $5,826,000, respectively.
NET INTEREST INCOME
- -------------------
Net interest income is the Corporation's largest component of income and
represents the difference between interest and fees earned on loans and
investments and the interest paid on interest bearing liabilities. Net interest
income was $59,151,000 for the six months ended June 30, 1995, compared with
$50,544,000 for the same period in 1994. Net interest income for the most
recent quarter was $29,559,000 compared to $26,157,000 for the three months
ended June 30, 1994. The increased net interest income was the result of a 7.3
percent and 9.2 percent increase in average earning assets on a quarter and
year-to-date basis, respectively, compared to 1994 periods, and an improved net
interest margin. Net interest income for the most recent quarter was $33,000
less than the $29,592,000 recorded in the first quarter of 1995 due to the
effects of a slightly lower net interest margin offsetting a $2,687,000 increase
in average earning assets.
Page 11 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET INTEREST INCOME, CONTINUED
- ------------------------------
The interest margin is a percentage computed by dividing net interest income
on a fully taxable equivalent basis ("FTE") by average earning assets and
represents a measure of basic earnings on interest bearing assets held by the
Corporation. The annualized net interest margins were 4.50 percent and 4.21
percent, respectively, for the six months ended June 30, 1995 and 1994. Average
earning assets for the six months ended June 30, 1995, increased to
$2,721,550,000 from $2,493,016,000 for the same period in 1994. Average loans
increased by $223,398,000 to $1,914,662,000 for the first six months of 1995 and
represented 70.4 percent of earning assets compared to 67.8 percent in 1994.
Investment securities increased by 6.4 percent for the first six months of 1995
compared to 1994 and represented 28.8 percent and 29.6 percent of earning assets
for the first half of 1995 and 1994, respectively. The increase in the prime
lending rate by 300 basis points since the beginning of 1994 has resulted in
loans, particularly commercial loans, repricing to a greater extent than
deposits and borrowed funds. This, along with increased loan demand, has
contributed to an increase in the net interest margin for the most recent
quarter to 4.47 percent compared to 4.26 percent for the same period of 1994.
The net interest margin for the first quarter of 1995 was 4.53 percent.
An ongoing objective of the Corporation's asset/liability management policy is
to match rate-adjustable assets and liabilities at similar maturity horizons so
that changes in interest rates will not result in wide fluctuations in net
interest income. The rate sensitivity position is computed for various
repricing intervals by calculating rate sensitivity gaps. The Corporation had a
cumulative one-year positive gap on June 30, 1995, of $74,714,000 which
represented 2.7 percent of the $2,745,227,000 in earning assets at that date
and, in the opinion of management, represented a relatively balanced position.
Net interest income at financial institutions with positive gaps tends to be
increased in periods of rising interest rates and decline as interest rates
fall.
NON-INTEREST INCOME
- -------------------
During the first six months of 1995, non-interest income, which includes
deposit fees, insurance commissions, trust fees, credit card and non-interest
fees on loans, net gains and servicing fees on real estate loans sold, brokerage
commissions, and net securities gains, was $18,670,000 compared to $19,330,000
reported for the same period in 1994. Net security gains of $1,120,000 were
recorded during the first two quarters of 1995 compared to $1,339,000 for the
same period of 1994. Security gains of $1,072,000 were recorded during the
second quarter of 1995 as the Corporation chose to minimize the increased
prepayment risks in the current interest rate environment by selling certain
higher coupon 15 year and balloon mortgage backed securities. Proceeds were
reinvested in mortgage backed securities and agency bonds. The 1994 gains
resulted as the Corporation took advantage of a steep yield curve by selling
certain U.S. Treasury notes at gains and reinvesting the proceeds in mortgage-
backed securities with higher current yields and only slightly longer estimated
average lives. Non-interest income excluding net securities gains totaled
$17,550,000, which represented a decrease of 2.5 percent over the same period
of 1994. Non-interest income for the second quarter of 1995 was 7.8 percent
greater than that reported for the same quarter of 1994. Non-interest income
excluding net securities gains for the most recent quarter was increased by 4.3
percent from the $8,350,000 for the second quarter of 1994.
Page 12 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST INCOME, CONTINUED
- ------------------------------
<TABLE>
<CAPTION>
NON-INTEREST INCOME
- --------------------------------------------------------------------------------
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, INCREASE
1995 1994 (DECREASE)
<S> <C> <C> <C>
Service charges on deposit accounts $ 4,720 $ 4,089 $ 631
Insurance premiums and commissions 3,164 3,508 (344)
Trust fees 2,561 2,213 348
Credit card and other non-interest fees on loans 2,111 1,661 450
Brokerage commissions 1,349 1,106 243
Other fees and commissions 1,163 1,087 76
Net gains and servicing fees on real estate
loans sold 709 1,289 (580)
Net securities gains 1,120 1,339 (219)
Other 1,773 3,038 (1,265)
------- ------- -------
Total non-interest income $18,670 $19,330 $ (660)
=============================================================================
</TABLE>
Service charges on deposit accounts were increased by $631,000 or 15.4
percent due to increased volumes and revised fee schedules. Revenues from
insurance premiums and commissions decreased by $344,000 during the first half
of 1995 compared to 1994. Profit-sharing bonuses received during the first six
months of 1995, which are experience related and associated with prior year
property and casualty policies, were $413,000 lower than payments received
during the same period of 1994. Trust fees, based primarily on the market value
of assets under management, increased by $348,000 or 15.7 percent compared to
the first six months of 1994 due to an increase in the number of accounts and an
increase in the market value of assets managed. Credit card and other non-
interest fees on loans increased by $450,000 over the comparable period last
year. Greater volumes from a larger customer base resulted in credit card
merchant and interchange fees increasing by $237,000. Loan application fees
also increased over the same period last year due to increased marketing which
has resulted in a greater volume. Brokerage commissions were increased by
$243,000 or 22.0 percent, as the Corporation continues to expand this fee-based,
non-traditional banking product. Net gains and servicing fees on real estate
loans decreased by $580,000 during the first half of 1995 compared to 1994. The
volume of new mortgage loan originations and refinancings has declined as
interest rates have risen over the past year. Additionally, the Corporation has
elected to hold certain residential mortgage loans in its portfolio due to the
current interest rate environment rather than selling the loans in the secondary
market. Customers have generally elected adjustable-rate or shorter-term
balloon mortgages in the current interest rate environment, which are held in
the loan portfolio, rather than longer-term, fixed rate loans that the
Corporation generally sells. Gains on the sale of mortgage loans were $189,000
for the first six months of 1995 compared to $737,000 for the comparable period
of 1994. The volume of mortgage loan originations has recently increased as
interest rates have fallen and gains on the sale of mortgage loans were $129,000
for the most recent quarter compared to $60,000 in the first quarter of 1995.
Other income decreased to $1,773,000 during the six months ended June 30, 1995
from $3,038,000 for the comparable period of 1994. The first quarter of 1994
included gains of $364,000 and $479,000, respectively, associated with the sale
and change in market
Page 13 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON INTEREST INCOME, CONTINUED
- ------------------------------
value of interest rate caps in accordance with hedge accounting rules where the
hedged liabilities were terminated during the first quarter of 1994. Gains on
the sale of other real estate in 1994 accounted for $129,000 of the remaining
decline in other income compared to the first six months of the current year.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense, which includes personnel, occupancy costs, equipment and
other operating expenses was $52,056,000 for the six months ended June 30, 1995,
compared to $47,721,000 for the same period of 1994, an increase of 9.1 percent.
<TABLE>
<CAPTION>
NON-INTEREST EXPENSE
- -----------------------------------------------------------------------------
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, INCREASE
1995 1994 (DECREASE)
<S> <C> <C> <C>
Salaries and employee benefits $25,392 $24,325 $1,067
Net occupancy expense 3,519 3,492 27
Equipment expense 2,958 2,876 82
Data processing and other services 5,413 2,756 2,657
FDIC assessments 2,517 2,542 (25)
Professional fees 1,784 1,695 89
Advertising and promotion 1,527 1,185 342
Printing and supplies 1,566 1,380 186
Postage and freight 1,410 1,157 253
Amortization of intangible assets 741 741
Other 5,229 5,572 (343)
------- ------- ------
Total non-interest expense $52,056 $47,721 $4,335
=============================================================================
</TABLE>
Salaries and employee benefits increased by $1,067,000 or 4.4 percent for the
six month period in 1995 over 1994. This increase was generally due to normal
salary increases, additional staff and related expenses associated with
increased business activity. Data processing and other services in 1995 have
increased by $2,657,000 primarily due to the agreement with ALLTEL Information
Services Inc., which provides data processing software systems and computer
equipment and operates the Corporation's data processing facility. The
agreement was effective December 1992 but provided for a transition to the full
contracted service over a period which ended December 31, 1994. Increased data
processing expenses have been partially offset by reductions in personnel,
equipment and other expenses as the agreement became fully effective January 1,
1995. In addition to on-going processing expenses, 1995 expense includes
approximately $200,000 of expense associated with the upcoming merger with UF
Bancorp. Advertising and promotion expense increased by $342,000 during the
first half of 1995 compared to 1994 due to increased marketing efforts related
to loan and deposit promotions, Corporate identity promotions due to mergers and
acquisitions and generally higher levels of business activity. Expenses for
printing and supplies and postage and freight have increased by $186,000 and
$253,000, respectively, during the first
Page 14 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST EXPENSE, CONTINUED:
- --------------------------------
six months of 1995 compared to 1994 due primarily to the acquisition, merger and
conversion of the Corporation's Illinois banks, completed during June 1995.
Postage expense was also negatively impacted by the increased postal rates,
effective January 1, 1995. Other expenses were decreased by $343,000 during the
first six months of 1995 compared to the same period of 1994. Operating
expenses, including ceding fees and policy reserves, related to the life
insurance subsidiary which was formed during the first quarter of 1994,
decreased by $123,000 during the first half of 1995 compared to 1994 as required
reserves have stabilized. Expenses related to the management of other real
estate owned was reduced by $201,000 during the first six months of 1995
compared to the same period of 1994 as several properties have been sold.
The Corporation continues its efforts to maintain control of its operating
costs and has implemented several strategies to further improve operating
efficiencies, including consolidating certain subsidiary banks in adjacent
markets and centralizing backroom operations. Operating expenses as a
percentage of revenues, commonly referred to as the efficiency ratio, improved
from 66.81 percent to 65.58 percent during the first six months of 1994 and
1995, respectively. This ratio was further improved to 65.12 percent for the
most recent quarter.
INCOME TAX EXPENSE
- ------------------
Income tax expense was $8,377,000 for the six months ended June 30, 1995,
compared with $6,551,000 for the same period in 1994. The effective tax rate
for the current period increased to 36.7 percent from 33.8 percent for the six
months ended June 30, 1994. This increase is primarily due to the acquisition
of Citizens Realty and Insurance, Inc., which did not pay corporate income tax
in 1994 as the former shareholders elected to be treated as an S Corporation for
income tax purposes. As such, the corporate income was passed directly to the
shareholders and combined with their taxable income on their personal returns.
Additionally, the Corporation continues to derive a lesser portion of its total
revenue from tax-exempt sources as the supply of qualified tax-exempt securities
and loans is limited.
LOANS
- -----
Total loans were $1,933,405,000 at June 30, 1995, compared to $1,753,495,000
at June 30, 1994, and $1,917,982,000 at December 31, 1994. The loan portfolio
was increased by $15.4 million from year-end 1994 and by 10.3 percent from one
year ago. Commercial and industrial loans and agricultural production loans
grew by 18.9 percent and 44.9 percent, respectively, from June 30, 1994.
Commercial and industrial loans were also increased by $15.7 million from year-
end. Tax exempt loans declined from one year ago by $1.5 million. Total real
estate mortgage loans were $17.5 million greater at June 30, 1995, than at
December 31, 1994, and $108.2 million greater than one year ago. The
Corporation has continued to experience demand for new residential real estate
mortgage loans, but has seen the demand for mortgage refinancings diminish due
to the present interest rate environment. Customer preference in the current
rate environment has shifted to adjustable rate and fixed rate 15-year and
shorter term balloon residential real estate loans, which the Corporation
generally holds rather than selling in the secondary market. In addition to
residential real estate mortgages reported as loans, the Corporation held
$5,346,000 and $1,260,000 of real estate loans for sale at June 30, 1995, and
December 31, 1994, respectively, which were anticipated to be sold in the
secondary market. These loans were $3,065,000 at June 30, 1994.
Page 15 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LOANS, CONTINUED
- ----------------
Consumer loans at June 30, 1995, were $13.3 million or 2.7 percent greater
than at June 30, 1994, but $19.3 million less than at December 31, 1994. Much
of this growth during the past year has related to direct mail and in-office
promotions, for both fixed and variable rate automobile and other personal
loans. Direct consumer loan demand has continued through 1995. New indirect
volume of consumer loans purchased through automobile dealers, however, has not
been sufficient to replace normal payments and payoffs and these balances have
declined since year-end. The Corporation's choice to not match what were
considered low rates by competitors in certain markets has resulted in the
decreasing indirect loan portfolio. Credit card outstandings were $35,372,000 at
June 30, 1995, which represented an increase of 13.6 percent from June 30, 1994
due to increased marketing efforts, but were approximately $2.5 million less
than at December 31, 1994, which were seasonally high at that time.
<TABLE>
<CAPTION>
LOANS OUTSTANDING
- ---------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
JUNE 30, DECEMBER 31, JUNE 30,
1995 1994 1994
Commercial and industrial loans $ 287,277 $ 271,566 $ 241,556
Agricultural production loans 45,661 42,093 31,511
Tax exempt loans 23,154 25,248 24,668
Real estate mortgage loans:
Commercial 275,167 271,442 268,334
Agricultural 36,439 36,593 35,131
Construction 60,028 64,699 42,490
Residential 703,344 684,700 620,812
Consumer loans 502,335 521,641 488,993
---------- ---------- ----------
Total loans $1,933,405 $1,917,982 $1,753,495
=========================================================================
</TABLE>
The Corporation's loan portfolio contains no loans to foreign governments,
foreign enterprises, foreign operations of domestic companies, nor any
concentrations to borrowers engaged in the same or similar industries that
exceed 10 percent of total loans.
LOAN QUALITY
- ------------
The allowance for loan losses is maintained at a level considered adequate to
absorb potential loan losses based upon quarterly evaluations of the loan
portfolio by management and the boards of directors of the Corporation and each
subsidiary bank. These evaluations include consideration of past loan loss
experience, changes in the composition of the portfolio, the volume and
condition of loans outstanding, expected cash flows or the observable market
price of the loans or the fair value of the collateral for impaired loans, as
well as current economic conditions.
Page 16 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LOAN QUALITY, CONTINUED
- -----------------------
The allowance for loan losses was $26,543,000 at June 30, 1995, representing
1.37 percent of total loans, compared with $24,169,000 at June 30, 1994, which
represented 1.38 percent of total loans. At December 31, 1994, the allowance
for loan losses was $26,615,000 and represented 1.39 percent of total loans.
Annualized net charge-offs to average loans increased to .32 percent during the
first two quarters of 1995 from .15 percent for the same period of 1994,
substantially as a result of increased credit card and consumer loan charge-offs
and write-downs at recently acquired banks which had previously been fully
provided for by pre-merger additions to reserves. The provision for loan losses
to average loans was .31 percent and .33 percent for the six months ending June
30, 1995, and 1994, respectively. The allowance for loan losses to non-
performing loans at June 30, 1995, and 1994, and at December 31, 1994, were
152.1 percent, 147.4 percent, and 177.2 percent, respectively.
<TABLE>
<CAPTION>
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30,
1995 1994
Beginning balance $ 26,615 $ 22,629
Provision for loan losses 2,966 2,778
Loans charged-off (3,975) (2,169)
Recoveries of loans previously 937 931
charged-off
-------- --------
Ending balance $ 26,543 $ 24,169
==============================================================
- --------------------------------------------------------------
Percent of total loans 1.37% 1.38%
==============================================================
</TABLE>
Non-performing loans consist of loans past due 90 days or more, loans
classified as troubled debt restructurings and loans on nonaccrual status.
Although these loans have more than a normal risk of loss, they will not
necessarily result in a higher level of charge-offs in the future. As indicated
by the following table, the Corporation's non-performing loans as of June 30,
1995 totaled $17,447,000, an increase of $2,426,000 from December 31, 1994. The
non-performing loans to total loans ratio was .90 percent on June 30, 1995, as
compared to .93 percent on June 30, 1994, and .78 percent on December 31, 1994.
In addition to loans classified as non-performing, there were other loans
totaling $7,458,000, at June 30, 1995, where the borrowers are experiencing
difficulties and management is closely monitoring the borrowers' abilities to
comply with payment terms. However, conditions at this time do not warrant
classification as non-performing loans.
Page 17 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-PERFORMING LOANS
- --------------------------------------------------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1995 1994 1994
<S> <C> <C> <C>
Nonaccrual loans:
Commercial, agricultural, and tax exempt $ 2,633 $ 3,175 $ 3,194
Real estate mortgage 8,988 5,868 8,151
Consumer 2,095 1,980 1,981
------- ------- -------
Total nonaccrual 13,716 11,023 13,326
Restructured loans:
Commercial, agricultural, and tax exempt 846 892 908
Real estate mortgage 191 168 194
Consumer 5
------- ------- -------
Total restructured 1,037 1,065 1,102
90 days or more past due:
Commercial, agricultural, and tax exempt 442 241 112
Real estate mortgage 827 1,488 1,255
Consumer 1,425 1,204 597
------- ------- -------
Total 90 days or more past due 2,694 2,933 1,964
------- ------- -------
Total non-performing loans $17,447 $15,021 $16,392
============================================================================
- ----------------------------------------------------------------------------
Percent of total loans .90% .78% .93%
============================================================================
</TABLE>
DEPOSITS AND OTHER SOURCES OF FUNDS
- -----------------------------------
Total deposits were $2,266,084,000 at June 30, 1995, compared to
$2,189,959,000 and $2,242,643,000 at June 30, 1994, and December 31, 1994,
respectively. Interest bearing and non-interest bearing deposits were increased
from June 30, 1994, by 3.1 percent and 6.1 percent, respectively. Since
December 31, 1994, non-interest bearing deposits, which were seasonally high at
year-end, declined by $7.1 million and interest bearing deposits increased by
$30.5 million. The mix of interest bearing deposits is moving from liquid
interest bearing transaction accounts to certificates of deposits and other time
deposits as customer preference has shifted in response to competitive pricing
on these longer-term deposit products.
Securities sold under repurchase agreements (repos) generally involve a
slightly lower cost of funds than do certificates of deposit and are offered by
the banks to their commercial customer base as a part of a corporate cash
management service and as an alternative to short-term certificates. Securities
sold under repurchase agreements were $324,013,000, $241,567,000, and
$319,965,000 at June 30, 1995, June 30, 1994, and December 31, 1994,
respectively. Much of the outstanding repurchase agreement balances were
acquired in the national money market and used to fund the increase in
residential mortgages and the purchase of mortgage-backed securities. These
repos are partially hedged by interest-rate caps as previously discussed.
Page 18 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INVESTMENT SECURITIES
- ---------------------
Total investment securities available for sale and held to maturity
represented 29.0 percent of earning assets at June 30, 1995 compared to 30.9
percent and 28.4 percent at June 30, 1994 and December 31, 1994, respectively.
The portfolio has continued to shift toward investments in mortgage-backed
securities, predominately underwritten to the standards of, and guaranteed by
government sponsored agencies. These securities generally yield 70-100 basis
points more than comparable U.S. Treasury securities. Mortgage-backed
securities differ from traditional debt securities in that they have uncertain
maturity dates and are priced based on estimated prepayment rates on the
underlying mortgages. Prepayment rates generally can be expected to increase
during periods of lower interest rates as the underlying mortgages are
refinanced at lower market rates. Conversely, the average lives of these
securities generally are extended as interest rates increase. The estimated
average life of these securities and the overall portfolio was 3.5 years and 3.8
years, respectively, at June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is a measure of the Corporation's ability to meet its customers'
present and future deposit withdrawals and increased loan demand without unduly
penalizing earnings. The Corporation manages its liquidity needs through a
coordinated asset/liability management program directed by the Funds Management
and Investment Committee.
Liquidity is provided by projecting credit demand and other financial needs
and then maintaining sufficient cash and assets readily convertible into cash to
meet these requirements. The Corporation has provided for its liquidity needs
through growth in core deposits, maturing loans and investments in its
securities portfolio, and by maintaining adequate balances in other short-term
securities and money market assets. At June 30, 1995, the Corporation had
$133,116,000 in investment securities maturing within one year. The Corporation
additionally has federal funds lines and other borrowing sources available to it
and its banks. Investment securities maturing within one year and unused
borrowing sources was considered by management to provide adequate liquidity in
view of projected needs.
Total shareholders' equity at June 30, 1995, was $240,607,000, compared to
$237,260,000 at December 31, 1994. The Federal Reserve Board has established a
minimum leverage ratio of 3.0 percent for the most highly rated bank holding
companies that do not anticipate significant growth. All other institutions are
required to maintain a ratio of 4.0 to 5.0 percent depending on their particular
circumstances and risk profile. This ratio is defined as shareholders' equity
less intangible assets, as a percentage of the sum of total assets less
intangible assets, and is sometimes referred to as tangible equity to tangible
assets. The tangible equity to tangible asset ratio at June 30, 1995, was 7.48
percent as compared to 7.57 percent at the end of 1994. The Federal Reserve
Board has also adopted risk-based capital guidelines which assign various risk
weightings to assets and off-balance sheet items and set minimum capital
requirements. Banks are required to have core capital (Tier 1) of at least 4.0
percent of risk weighted assets and total capital of 8.0 percent of risk
weighted assets. Tier 1 capital consists primarily of shareholders' equity less
goodwill; and total capital consists of Tier 1 capital, certain long-term debt
and convertible debentures and a portion of the allowance for loan losses.
Under the provisions of the Federal Deposit Insurance Corporation Improvement
Act of 1991, institutions must have a leverage ratio of 5.0 percent or above,
Tier 1 capital to risk-based assets of 6.0 percent or above, and total
Page 19 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
- ------------------------------------------
capital to risk-based assets of 10.0 percent or above in order to qualify as
well capitalized. The Federal Reserve has proposed regulations which would
revise the current risk-based capital guidelines to include a measurement of
interest rate risk. The proposed change would not have a material impact to the
Corporation's capital ratios based on its interest rate sensitivity position.
At June 30, 1995, the Corporation's leverage, Tier 1 and total capital ratios
were 7.48 percent, 11.48 percent, and 13.19 percent, respectively, well above
all regulatory minimums. Furthermore, each of the Corporation's subsidiary
banks was rated as "well capitalized" by the Federal Deposit Insurance
Corporation at year-end 1994. The Corporation is not aware of any current
recommendations by its regulatory authorities or any other known trends, events,
or uncertainties that will have or that are reasonably likely to have a material
effect on its liquidity, capital resources, or operations.
Page 20 of 24
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS NONE
ITEM 2. CHANGES IN SECURITIES NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE
ITEM 5. OTHER INFORMATION NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibits
--------
a. The following exhibit is submitted herewith:
11 - Statement regarding computation of per share earnings
Reports on Form 8-K
-------------------
b. A report on Form 8-K dated May 23, 1995 was
filed regarding the restated supplemental
consolidated financial statements of the
Corporation giving retroactive effect to the
completion of the mergers with King City Federal
Savings Bank and Harrisburg Bancshares, Inc.
A report on Form 8-K dated June 15, 1995 was filed
regarding the amended financial statements of UF
Bancorp, Inc.
A report on Form 8-K dated June 26, 1995 was filed
regarding the 10-Q/A (Second Amendment) of UF
Bancorp, Inc. for the quarter ended March 31, 1995.
- -----------------------------------------------------------------------------
No other information is required to be filed under Part II of the form.
Page 21 of 24
<PAGE>
CNB BANCSHARES, INC.
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB Bancshares, Inc.
-------------------------------
(Registrant)
Date August 2, 1995 by /s/ H. Lee Cooper
---------------- -------------------------------
H. Lee Cooper, Chairman of the
Board and Chief Executive Officer
Date August 2, 1995 by /s/ Ralph L. Alley
---------------- -------------------------------
Ralph L. Alley, Senior Vice President
and Controller, Treasurer
(Principal Accounting Officer)
Page 22 of 24
<PAGE>
EXHIBIT INDEX
Reg. S-K
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
11 Statement regarding computation of
per share earnings 24
Page 23 of 24
<PAGE>
Exhibit 11
CNB BANCSHARES, INC.
Computation of Consolidated Net Income Per Share
(In thousands except for share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary:
Net income $ 7,437 $ 6,513 $14,422 $12,824
Weighted average number of shares outstanding 14,880 14,457 14,941 14,451
------- ------- ------- -------
Net income per share $ 0.50 $ 0.45 $ 0.97 $ 0.89
======= ======= ======= =======
Fully Diluted:
Net income $ 7,437 $ 6,513 $14,422 12,824
Add - Interest and amortization of expenses
on 7.5% subordinated convertible debentures
due 2001, net of applicable taxes 77 92 156 187
------- ------- ------- -------
Net income, as adjusted 7,514 6,605 14,578 13,011
------- ------- ------- -------
Weighted average number of shares outstanding 14,880 14,457 14,941 14,451
Add - shares issued assuming conversion of
7.5% subordinated debentures, due 2001 336 400 337 433
Add - common stock equivalents 141 167 148 181
------- ------- ------- -------
Weighted average number of shares oustanding, as adjusted 15,357 15,024 15,426 15,065
------- ------- ------- -------
Net income per share $ 0.49 (1) $ 0.44 $ 0.95 (1) $ 0.86
======= ======= ======= =======
(1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by
footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
Page 24 of 24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
CNB Bancshares Inc.'s consolidated balance sheet as of June 30, 1995 and the
consolidated statement of income for the six months ended June 30, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 114,146
<INT-BEARING-DEPOSITS> 1,716
<FED-FUNDS-SOLD> 11,674
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 285,971
<INVESTMENTS-CARRYING> 510,164
<INVESTMENTS-MARKET> 505,985
<LOANS> 1,938,751
<ALLOWANCE> 26,543
<TOTAL-ASSETS> 2,964,293
<DEPOSITS> 2,266,084
<SHORT-TERM> 360,074
<LIABILITIES-OTHER> 30,194
<LONG-TERM> 67,334
<COMMON> 14,738
0
0
<OTHER-SE> 225,869
<TOTAL-LIABILITIES-AND-EQUITY> 2,964,293
<INTEREST-LOAN> 87,820
<INTEREST-INVEST> 24,922
<INTEREST-OTHER> 554
<INTEREST-TOTAL> 113,296
<INTEREST-DEPOSIT> 42,754
<INTEREST-EXPENSE> 54,145
<INTEREST-INCOME-NET> 59,151
<LOAN-LOSSES> 2,966
<SECURITIES-GAINS> 1,120
<EXPENSE-OTHER> 52,056
<INCOME-PRETAX> 22,799
<INCOME-PRE-EXTRAORDINARY> 22,799
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,422
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
<YIELD-ACTUAL> 4.50
<LOANS-NON> 13,716
<LOANS-PAST> 2,694
<LOANS-TROUBLED> 1,037
<LOANS-PROBLEM> 7,458
<ALLOWANCE-OPEN> 26,615
<CHARGE-OFFS> 3,975
<RECOVERIES> 937
<ALLOWANCE-CLOSE> 26,543
<ALLOWANCE-DOMESTIC> 22,824
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,719
</TABLE>
