SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER PERIOD ENDED
JUNE 30, 1997
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.)
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 31, 1997, there were 19,446,578 outstanding shares, without
par value, of the registrant.
Exhibit index is on page 22.
<PAGE>
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet ........................ 1
Consolidated Statement of Income .................. 2
Consolidated Condensed Statement of
Changes in Shareholders' Equity ................. 3
Consolidated Statement of Cash Flows .............. 4
Notes to Consolidated Financial Statements ........ 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ... 10-19
PART II. Other Information ................................... 20
Signatures ......................................................... 21
Exhibit Index ...................................................... 22
<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,
1997 1996 1996
----------- -------------- -----------
<S> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 115,583 $ 114,469 $ 118,594
Federal funds sold and other short-term money market investments 4,508 34,628 48,782
----------- -------------- -----------
TOTAL CASH AND CASH EQUIVALENTS 120,091 149,097 167,376
Real estate loans held for sale 10,466 6,457 76,150
Investment securities available for sale 1,421,910 1,379,872 1,290,893
Investment securities held to maturity
(Market value $244,383 at June 30, 1997, $249,150 at
December 31, 1996, and $236,417 at June 30, 1996) 242,885 248,088 238,842
Loans, net of unearned income 2,374,309 2,275,089 2,126,398
Less: Allowance for loan losses 32,910 31,262 30,372
----------- -------------- -----------
NET LOANS 2,341,399 2,243,827 2,096,026
Premises and equipment 73,707 71,468 71,014
Intangible assets 32,004 32,847 33,293
Interest receivable 29,677 30,863 31,060
Other assets 76,259 54,056 46,191
----------- -------------- -----------
TOTAL ASSETS $4,348,398 $ 4,216,575 $4,050,845
=========== ============== ===========
LIABILITIES
- -----------
Deposits:
Non-interest bearing $ 346,763 $ 359,146 $ 326,902
Interest bearing 2,739,617 2,755,584 2,647,455
----------- -------------- -----------
TOTAL DEPOSITS 3,086,380 3,114,730 2,974,357
Securities sold under repurchase agreements 610,720 530,261 445,124
Federal funds purchased and other short-term borrowings 72,908 29,608 80,095
FHLB advances and other long-term debt 216,509 176,730 199,846
Interest payable and other liabilities 36,107 39,832 34,393
----------- -------------- -----------
TOTAL LIABILITIES 4,022,624 3,891,161 3,733,815
SHAREHOLDERS' EQUITY
- --------------------
Common stock, $1 stated value
Shares authorized: 50,000,000
Shares issued: 19,557,788 at June 30, 1997, 19,887,107 at
December 31, 1996, and 19,023,958 at June 30, 1996 19,558 19,887 19,024
Capital surplus 256,508 271,001 249,787
Retained earnings 50,865 35,779 54,029
Net unrealized losses on investment securities available for sale (1,157) (1,253) (5,810)
----------- -------------- -----------
TOTAL SHAREHOLDERS' EQUITY 325,774 325,414 317,030
----------- -------------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $4,348,398 $ 4,216,575 $4,050,845
=========== ============== ===========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except for share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees:
Taxable $ 54,125 $ 48,937 $ 106,050 $ 95,474
Tax exempt 409 365 778 747
Real estate loans held for sale 197 230 291 3,462
Investment securities:
Taxable 25,502 22,729 50,229 41,767
Tax exempt 2,781 2,067 5,422 3,814
Federal funds sold and other short-term
money market investments 253 556 508 1,230
------------------- ----------- ----------------- -----------
Total interest income 83,267 74,884 163,278 146,494
INTEREST EXPENSE
Deposits 32,004 29,558 63,569 59,268
Short-term borrowings 8,287 5,672 15,580 9,965
FHLB advances and other long-term debt 3,117 2,741 5,870 5,191
------------------- ----------- ----------------- -----------
Total interest expense 43,408 37,971 85,019 74,424
------------------- ----------- ----------------- -----------
NET INTEREST INCOME 39,859 36,913 78,259 72,070
Provision for loan losses 3,221 2,045 5,979 3,707
------------------- ----------- ----------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 36,638 34,868 72,280 68,363
NON-INTEREST INCOME
Service charges on deposit accounts 3,544 3,128 6,707 5,953
Insurance premiums and commissions 2,182 1,887 4,229 3,877
Trust and plan administration fees 2,133 1,555 4,128 2,964
Credit card and other non-interest fees on loans 1,476 1,412 2,696 2,509
Mortgage banking revenue 1,269 1,229 2,382 5,041
Investment products fees 906 820 1,736 1,903
Net securities gains 181 162 505 568
Other 3,035 1,559 5,489 2,973
------------------- ----------- ----------------- -----------
Total non-interest income 14,726 11,752 27,872 25,788
------------------- ----------- ----------------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 17,933 16,163 35,278 31,958
Data processing and other services 3,046 3,055 5,977 6,009
Occupancy 2,277 2,126 4,549 4,226
Equipment 1,963 1,858 3,848 3,598
Advertising and promotion 971 1,138 1,948 2,308
Professional fees 1,111 793 2,085 1,728
Printing and supplies 845 944 1,795 1,837
Postage and freight 835 863 1,712 1,876
Other 4,251 4,075 7,367 9,598
------------------- ----------- ----------------- -----------
Total non-interest expense 33,232 31,015 64,559 63,138
------------------- ----------- ----------------- -----------
INCOME BEFORE INCOME TAXES 18,132 15,605 35,593 31,013
Income taxes 6,066 5,465 11,975 11,029
------------------- ----------- ----------------- -----------
NET INCOME $ 12,066 $ 10,140 $ 23,618 $ 19,984
=================== =========== ================= ===========
NET INCOME PER SHARE $ 0.61 $ 0.51 $ 1.19 $ 1.01
=================== =========== ================= ===========
AVERAGE COMMON AND EQUIVALENT SHARES OUTSTANDING 19,825,795 19,886,088 19,925,075 19,774,467
=================== =========== ================= ===========
See notes to consolidated financial statements.
</TABLE>
<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,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BEGINNING BALANCE $316,869 $309,136 $325,414 $311,331
Net income 12,066 10,140 23,618 19,984
Cash dividends declared (4,331) (3,774) (8,533) (7,527)
Issuance of common stock for:
Dividend reinvestment plan 868 873 1,817 1,796
Stock options exercised 166 555 524 718
Exercise and conversion of stock purchase
contracts and debentures 238 290 381 352
Acquisitions 6,286 6,286
Other 196
Purchase and retirement of common stock (9,126) (2,633) (17,543) (6,579)
Change in unrealized gains/losses on
investment securities available for sale 9,024 (3,843) 96 (9,527)
--------- --------- --------- ---------
ENDING BALANCE $325,774 $317,030 $325,774 $317,030
========= ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
------------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 23,618 $ 19,984
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,398 6,758
Provision for loan losses 5,979 3,707
Amortization of premiums and discounts on securities 1,604 871
Net gains on securities (505) (568)
Loans originated for sale (50,174) (38,461)
Proceeds from sale of loans 46,165 44,616
Increase in interest receivable and other assets, net of amortization (20,331) (10,463)
Increase (decrease) in interest payable and other liabilities (3,725) 857
------------------ ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,029 27,301
------------------ ----------
INVESTING ACTIVITIES:
Cash and cash equivalents of subsidiaries acquired, net of purchase price 2,869
Proceeds from the maturity of investment securities available for sale 85,457 149,274
Proceeds from the sale of investment securities available for sale 309,622 193,582
Purchase of investment securities available for sale (437,847) (464,529)
Proceeds from the maturity of investment securities held to maturity 4,977 6,663
Purchase of investment securities held to maturity (36,015)
Net increase in loans (105,238) (94,418)
Purchase of premises and equipment (5,879) (5,750)
------------------ ----------
NET CASH USED BY INVESTING ACTIVITIES (148,908) (248,324)
------------------ ----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (28,642) 18,481
Net increase in short-term borrowings 123,080 170,667
Payment and maturity of long-term debt (72,069) (9,178)
Proceeds of long-term borrowings 112,239 51,200
Cash dividends paid (8,533) (7,527)
Proceeds from common stock issued for dividend reinvestment plan 1,817 1,796
Proceeds from exercise of stock options 524 718
Purchase and retirement of common stock (17,543) (6,579)
------------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 110,873 219,578
------------------ ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (29,006) (1,445)
CASH AND CASH EQUIVALENTS AT JANUARY 1, 149,097 168,821
------------------ ----------
CASH AND CASH EQUIVALENTS AT JUNE 30, $ 120,091 $ 167,376
================== ==========
Supplemental disclosure:
Cash paid for:
Interest $ 83,399 $ 74,094
Income taxes 12,663 12,383
Non-cash investing and financing activities:
Common stock issued for acquisitions 6,286
Stock issued in exchange of debentures and equity contracts
and pursuant to employee benefit plans 400 562
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except for share data)
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 consolidated financial
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 complete description of the Corporation's accounting
policies and footnotes are contained in the 1996 Annual Report to
Shareholders.
NOTE 2: BUSINESS COMBINATIONS
On February 14, 1997, the Corporation issued 718,867 shares of its common
stock in exchange for all of the outstanding shares of BMC Bancshares, Inc.,
(BMC) parent company for Bank of Mt. Carmel, Mt. Carmel, Illinois. The
acquisition 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 this acquisition. At the date of acquisition, BMC had total assets
and shareholders' equity of $100,041 and $13,583, respectively.
NOTE 3: 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>
Available for Sale at June 30, 1997:
U.S. Treasury $ 1,002 $ 4 $ 1,006
Federal agencies:
Bonds and notes 236,443 583 $ (641) 236,385
Mortgage-backed securities 1,010,197 3,313 (5,517) 1,007,993
State and municipal 65,004 1,417 (90) 66,331
Collateralized mortgage obligations 84,270 582 (1,677) 83,175
Other securities 26,945 197 (122) 27,020
- ---------------------------------------------------------------------------------------
Total $1,423,861 $ 6,096 $ (8,047) $1,421,910
=======================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3: INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY,
CONTINUED:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Held to Maturity at June 30, 1997:
Federal agencies:
Mortgage-backed securities $ 73,834 $ 107 $ (1,775) $ 72,166
State and municipal 139,827 3,799 (400) 143,226
Collateralized mortgage obligations 29,224 (233) 28,991
- -------------------------------------------------------------------------------------
Total $ 242,885 $ 3,906 $ (2,408) $244,383
=====================================================================================
</TABLE>
The amortized cost and estimated market value of investment securities at
June 30, 1997, 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.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Maturity distribution
at June 30, 1997:
Due in one year or less $ 6,298 $ 6,349 $ 570 $ 574
Due after one year through five years 180,782 180,985 22,300 22,936
Due after five years through ten years 77,429 77,690 44,602 45,685
Due after ten years 38,444 39,191 72,355 74,031
Mortgage-backed securities 1,010,197 1,007,993 73,834 72,166
Collateralized mortgage obligations 84,270 83,175 29,224 28,991
- -----------------------------------------------------------------------------------------------------
Total debt securities 1,397,420 1,395,383 242,885 244,383
Equity securities 26,441 26,527
- -----------------------------------------------------------------------------------------------------
Total $ 1,423,861 $ 1,421,910 $ 242,885 $244,383
=====================================================================================================
</TABLE>
Proceeds from sales of investment securities available for sale during
the six months ended June 30, 1997, were $309,622. Gross gains and losses
realized on those sales were $1,283 and $778, respectively.
NOTE 4: IMPAIRED LOANS
At June 30, 1997, impaired loans totaled $15,090. An allowance for loan
losses of $1,136 was recorded for impaired loans totaling $7,670. At December
31, 1996, impaired loans totaled $18,172. An allowance of $1,653 was recorded
for impaired loans totaling $7,420. The average balance for impaired loans
was $14,593 for the six months ended June 30, 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5: INTEREST RATE CONTRACTS
Through the purchase of interest rate cap agreements (caps), the
Corporation has reduced the impact of increased interest rates on its costs to
acquire certain deposits, 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 $980 and $647 for the six months ended June 30,
1997 and 1996, respectively. This expense was offset by counterparty
reimbursements of $207 and $398 for the six months ended June 30, 1997 and
1996, respectively.
At June 30, 1997, the notional amount of the interest rate caps was
$290,000. The caps are indexed to LIBOR with contract strike prices ranging
from 5.50% to 6.00% and mature through the third quarter of 1999. The
carrying value and estimated market value of the caps at June 30, 1997, was
$2,481 and $1,711, respectively.
The Corporation has entered into interest rate swaps as a hedge against
certain long-term borrowings to manage its interest rate sensitivity. The
contracts represent an exchange of interest payments and the underlying
principal balances of the liabilities are not affected. At June 30, 1997, the
Corporation had swaps with a notional value of $55,000. The agreements
require the Corporation to pay a fixed rate of interest ranging from 5.77% to
6.12% and receive a variable rate based on three-month LIBOR. The agreements
terminate on or prior to January 12, 2001. The Corporation paid $1,648 while
receiving $1,549 from these agreements during the six months ended June 30,
1997.
The Corporation is exposed to losses if a counterparty fails to make its
payments under a contract in which the Corporation is in a receiving status.
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.
At June 30, 1997, option forward contracts, if exercised, committed the
Corporation to sell $80,000 par value of mortgage-backed securities available
for sale at prices not less than their carrying values during the third
quarter of 1997. Fees received from these contracts have been deferred until
expiration, termination or exercise of the contract.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6: LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
--------- ------------- ---------
<S> <C> <C> <C>
Parent Company:
Convertible subordinated debentures, 7.50%, redemptions of
$1,125 annually beginning in 2001, balance due 2011 $ 5,629 $ 6,029 $ 6,262
Redeemable subordinated debentures, 9.50%, redeemed August
1996 2,187
Notes payable, unsecured:
9.81%, payable $600 annually through 1996, balance due in
1997 2,400 2,400 3,000
Variable rate adjusted with changes in LIBOR, payable $250
quarterly through 2000 (6.29%, 6.16% and 6.04% at
June 30, 1997, December 31, 1996, and June 30, 1996,
respectively) 4,000 4,500 5,000
Variable rate adjusted with changes in LIBOR, due 1997
(6.29% and 6.04% at June 30, 1997, and
June 30, 1996, respectively) 15,000 12,200
Subsidiaries:
Federal Home Loan Bank advances, due at various dates
through 2016 (weighted average rates of 5.77%, 5.56%
and 5.54% at June 30, 1997, December 31, 1996 and
June 30, 1996, respectively) 183,640 158,640 147,840
Notes payable, revolving credit agreement, secured by finance
receivables, variable rate adjusted with changes in LIBOR
(6.10% at June 30, 1996, paid in October 1996) 18,247
Other, including capitalized leases 5,840 5,161 5,110
- ---------------------------------------------------------------------------------------------------
Total $ 216,509 $ 176,730 $ 199,846
===================================================================================================
</TABLE>
Qualifying, unencumbered mortgage assets equal to at least 170 percent of
the aggregate amount of advances and Federal Home Loan Bank stock have been
pledged as collateral for the Federal Home Loan Bank advances.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7: NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during each period. The assumed conversion of the convertible subordinated
debentures into common shares had no material dilutive effect on net income
per share. All share data included in the consolidated financial statements,
notes and Management's Discussion and Analysis has been adjusted for stock
dividends.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 "Earnings Per Share." This statement simplifies the
computation of earnings per share and requires dual presentation of basic and
diluted earnings per share on the face of the income statement. This
statement is effective for financial statements issued for periods ending
after December 15, 1997, with earlier application not permitted.
The application of this standard would have resulted in earnings per
share as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Proforma basic net income per share $ .62 $ .51 $ 1.20 $ 1.02
Proforma diluted net income per share .60 .50 1.17 1.00
Reported net income per share .61 .51 1.19 1.01
</TABLE>
NOTE 8: NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 130, "
Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components. In addition, the
Financial Accounting Standards Board has issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for disclosing information about operating segments in
interim and annual financial statements. The Corporation will comply with the
new disclosure requirements beginning in 1998. The application of the new
rules will not have a material impact on the Corporation's financial condition
or results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except for share data)
OVERVIEW
- --------
Net income for the three months ended June 30, 1997, was $12,066, an
increase of 19.0% over the $10,140 earned in the same period of 1996. Net
income per share increased 19.6% to $.61 for the three months ended June 30,
1997, compared to $.51 for the three months ended June 30, 1996. Net income
for the first six months of 1997 was $23,618 compared to $19,984 earned in the
same period of 1996, an increase of 18.2%. Net income per share was $1.19 and
$1.01 for the six months ended June 30, 1997 and 1996, respectively. The
increased earnings was primarily due to growth in earning assets and
non-interest income. Net interest income increased $6,189, or 8.6%, over the
first six months of 1996 due to growth in earning assets of 11.9%. The net
interest margin, however, declined from 4.15% for the first half of 1996 to
4.06% for the first half of 1997, primarily due to reduced loan yields coupled
with an increase in its cost of funds.
Net income of $12,066 for the second quarter of 1997 increased over 1997
first quarter results of $11,552. Net income per share was $.61 for the
second quarter of 1997 compared to $.58 for the first quarter 1997.
The Corporation's total assets at June 30, 1997, were $4,348,398, which
were $131,823 greater than the $4,216,575 at December 31, 1996, and $297,553,
or 7.3%, greater than total assets at June 30, 1996. Total loans of
$2,374,309 at June 30, 1997, increased from $2,275,089 at December 31, 1996,
and from $2,126,398 one year ago.
Annualized returns on average assets and average shareholders' equity for
the six months ended June 30, 1997, were 1.11% and 14.64%, respectively,
compared with 1.05% and 12.86% for the same period of 1996. For the quarter
ended June 30, 1997, annualized returns on average assets and average
shareholders' equity were 1.12% and 15.00%, respectively, compared to 1.04%
and 12.88% in the second quarter of 1996.
Cash dividends of $.22 per share were declared during the second quarter
of 1997 representing an increase of 10% compared with $.20 per share during
the same period of 1996. For the six months ended June 30, 1997 and 1996,
total dividends declared were $8,533 and $7,527, 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 $78,259 for the six months ended June 30, 1997, compared
with $72,070 for the same period in 1996. Net interest income for the most
recent quarter was $39,859 compared to $36,913 for the three months ended June
30, 1996. The increased net interest income was the result of a 10.2% and
11.9% increase in average earning assets on a quarter and year-to-date basis,
respectively, compared to 1996 periods, partially offset by a decline in the
net interest margin over the same periods. Net interest income for the most
recent quarter was $1,459 greater than the $38,400 recorded in the first
quarter of 1997 due to the effects of an improved net interest margin coupled
with a $93.9 million increase in average earning assets.
The net 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 4.06% and 4.15%,
respectively, for the six months ended June 30, 1997 and 1996. Average
earning assets for the six months ended June 30, 1997, increased to $3,999,482
from $3,573,571 for the same period in 1996. Average loans increased $247
million to $2,316,922
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET INTEREST INCOME, CONTINUED
- ---------------------------------
for the first half of 1997 compared to 1996 and represented 57.9% of earning
assets in both periods. Average investment securities increased $286 million
during the first six months of 1997 compared to 1996 and represented 41.4% and
38.4% of earning assets for similar periods of 1997 and 1996, respectively.
The securitization of $235 million of residential mortgage loans during 1996
accounted for a significant portion of the increase in the investment
portfolio.
NET INTEREST MARGIN
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
<S> <C> <C>
Yields (FTE)
Loans 9.25% 9.33%
Securities 7.01 6.90
Other earning assets 6.59 7.16
------ ------
Total earning assets 8.31 8.32
Cost of funds
Interest bearing deposits 4.63 4.60
Other interest bearing liabilities 5.39 5.41
------ ------
Total interest bearing liabilities 4.81 4.75
------ ------
Total interest expense to earning assets 4.25 4.17
- --------------------------------------------------------------------
Net interest margin 4.06% 4.15%
====================================================================
</TABLE>
The decline in the net interest margin from the first six months of 1996
was primarily due to an increased cost of funds. Interest expense as a
percentage of earning assets increased by 8 basis points from 4.17% to 4.25%
from the first half of 1996 to the first half of 1997, respectively, due to
more competitive pricing and a shift in the funding mix to marginally
higher-costing funds. Interest income as a percentage of earning assets
decreased 1 basis point to 8.31% during the first six months of 1997 compared
to 8.32% during the same period one year prior. Yields on loans declined 8
basis points to 9.25% during this period as a result of more competitive
pricing. The yield on investment securities increased from 6.90% for the
first half of 1996 to 7.01% for the first half of 1997.
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 negative gap on June 30, 1997, of
$152,078 which represented 3.8% of the $4,054,078 in earning assets at that
date. Net interest income at financial institutions with negative gaps tends
to decrease in periods of rising interest rates and increase as interest rates
decline. Management also utilizes a simulation model to measure the
Corporation's net interest income volatility to changes in the level of
interest rates, interest rate spreads, the shape of the yield curve and
changing product growth patterns and investment strategies. Results of the
simulation model indicate that the Corporation's net interest income would be
affected by approximately 2.00% or less should interest rates increase or
decrease by up to 200 basis points.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST INCOME
- --------------------
During the first six months of 1997, non-interest income was $27,872
compared to $25,788 reported for the same period in 1996. The first quarter
of 1996 included net gains of $2,578 from the securitization of residential
mortgage loans. Net securities gains of $505 were recorded during the first
six months of 1997 compared to $568 for the same period of 1996. Excluding
net loan securitization and securities gains, non-interest income for the six
months ended June 30, 1997, totaled $27,367, which represented an increase of
20.9% compared to the same period of 1996. Second quarter 1997 non-interest
income was $1,580 greater than first quarter 1997 and $2,974 greater than the
1996 second quarter. Improvements were broad based as all non-interest
categories increased from second quarter 1996 and first quarter 1997.
<TABLE>
NON-INTEREST INCOME
- ----------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
JUNE 30, INCREASE
1997 1996 (DECREASE)
<S> <C> <C> <C>
Service charges on deposit accounts $ 6,707 $ 5,953 $ 754
Insurance premiums and commissions 4,229 3,877 352
Trust and plan administration fees 4,128 2,964 1,164
Credit card and other non-interest fees on loans 2,696 2,509 187
Mortgage banking revenue 2,382 5,041 (2,659)
Investment products fees 1,736 1,903 (167)
Net securities gains 505 568 (63)
Other 5,489 2,973 2,516
- ----------------------------------------------------------------------------------
Total non-interest income $ 27,872 $25,788 $ 2,084
==================================================================================
</TABLE>
Service charges on deposit accounts increased $754 or 12.7% due to
increased volumes and improved efforts to collect a greater percentage of
assessed fees. Insurance commissions increased $352 for the six months ended
June 30, 1997, compared to 1996. Income from the sale of credit life and
disability insurance offered by the Corporation's banking subsidiaries
increased $178 or 10.4% due to improved sales penetration to new loan
customers. Casualty insurance premiums increased $207 or 11.6%. Profit
sharing bonuses received from insurance underwriters during the first half of
1997, which are experience related and associated with policies written during
the prior year, were $56 less than payments received in 1996. Trust and plan
administration fees increased $1,164 or 39.3% compared to the first six
months of 1996 primarily due to increased benefit plan administration fees of
$932 resulting from the May 31, 1996 purchase of Small Parker & Blossom.
Credit card and other non-interest fees on loans increased $187 during the
first six months of 1997 compared to 1996 primarily due to increased merchant
credit card transaction volumes. Merchant transactions generated revenues of
$1,645 during the first six months of 1997 compared to $1,462 for the same
period one year ago. This was partially offset by reduced retail credit card
revenues due to the sale of the portfolio. During the second quarter of 1997
the Corporation entered into a joint marketing arrangement with a leading
national credit card issuer which included the sale of its $31 million credit
card portfolio. The Corporation will continue to receive a portion of future
credit card revenues generated from its customers without any credit risk
associated with the outstanding
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST INCOME, CONTINUED
- --------------------------------
balances. Mortgage banking revenues declined by $2,659 during the first six
months of 1997 compared to the same period of 1996. The Corporation
securitized $162 million of residential mortgage loans during the first
quarter of 1996 resulting in net gains of $2,578. Mortgage banking revenue
was $1,269 for the second quarter of 1997 compared to $1,229 for the second
quarter of 1996 and $1,113 for the first quarter of 1997. Investment products
fees decreased 8.8% to $1,736 for the first half of 1997 due to decreased
brokered certificates of deposit, annuity and mutual fund sales activity.
Sales volume increased during the second quarter of 1997, resulting in
revenues of $906 compared to $830 for the first quarter of 1997 and $820 for
the second quarter of 1996. Other income increased to $5,489 during the six
months ended June 30, 1997, from $2,973 for the comparable period of 1996.
The Corporation recorded a gain of $646 during the second quarter of 1997 from
the sale of its credit card portfolio, as previously discussed. The remaining
increase is due in part to increased revenues of $190 from net trading account
gains, $123 from the expiration of interest rate option contracts, $934 from a
corporate-owned life insurance program and $361 from non-customer ATM access
fees, a new revenue source beginning in May 1996.
NON-INTEREST EXPENSE
- ---------------------
Non-interest expense, which includes personnel, occupancy costs,
equipment and other operating expenses was $64,559 for the six months ended
June 30, 1997, compared to $63,138 for the same period of 1996, an increase of
2.3%. Non-recurring charges of $2.3 million, primarily related to office
closures, were included in non-interest expenses for the first quarter of
1996. Excluding these charges, non-interest expenses increased $3,704 or 6.1%
from the six months ended June 30, 1996.
NON-INTEREST EXPENSE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, INCREASE
1997 1996 (DECREASE)
<S> <C> <C> <C>
Salaries and employee benefits $ 35,278 $ 31,958 $ 3,320
Data processing and other services 5,977 6,009 (32)
Occupancy 4,549 4,226 323
Equipment 3,848 3,598 250
Advertising and promotion 1,948 2,308 (360)
Professional fees 2,085 1,728 357
Printing and supplies 1,795 1,837 (42)
Postage and freight 1,712 1,876 (164)
Other 7,367 9,598 (2,231)
- -------------------------------------------------------------------------------
Total non-interest expense $ 64,559 $ 63,138 $ 1,421
===============================================================================
</TABLE>
Salaries and employee benefits increased $3,320 or 10.4% for the six
month period in 1997 over 1996. Performance-based incentives and commissions
increased $1,289 to $2,328 during the first half of 1997 and represented 6.6%
of salaries and employee benefits expense compared to 3.3% for the same period
of 1996. The Corporation continues to emphasize performance-based awards
tied to net income per share and sales of fee-based services. A portion of
the salary expense increase is due to increased staff from May 1996
acquisitions where prior periods were not restated, including DuQuoin Bancorp,
Small Parker & Blossom and Money One. The remaining increase is generally due
to normal salary increases and related expenses associated with increased
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST EXPENSE, CONTINUED
- ---------------------------------
business activity. Occupancy and equipment expenses increased 7.6% and 6.9%,
respectively, during the first six months of 1997 as the Corporation was
operating additional finance offices and two new non-banking subsidiaries
during 1997 compared to 1996. Reduced credit card promotions resulted in a
reduction in advertising expense of $360 or 15.6% from one year ago.
Management chose not to offer any significant credit card solicitations in
light of the pending sale of its portfolio, which became effective May 30, as
previously discussed and the increase in credit card delinquencies experienced
nationally by the credit card industry. Professional fees increased $357
during the first half of 1997 compared to the same period one year ago due to
increased legal fees and fees in lieu of salaries as certain staff functions
have been outsourced. Postage and freight expense decreased $164 or 8.7%
during the six months ended June 30, 1997, compared to the same period one
year ago due to cost benefits associated with additional centralization.
Other expenses decreased $2,231 during the first six months of 1997 compared
to the same period of 1996. One-time charges of $1,983 related to the closure
of five offices recorded during first quarter 1996 accounted for most of the
decrease. FDIC assessments decreased $1,085 during the six months ended June
30, 1997, compared to the same period of 1996 as a result of assessment rate
modifications approved in September 1996. Operating expenses as a percentage
of revenues, commonly referred to as the efficiency ratio, improved from 63%
during the first six months of 1996 to 59% during the first six months of
1997.
INCOME TAX EXPENSE
- --------------------
Income tax expense was $11,975 for the six months ended June 30, 1997,
compared with $11,029 for the same period in 1996. The effective tax rate was
33.6% and 35.6% for the six months ended June 30, 1997 and 1996, respectively.
The decline in the effective tax rate is attributable to an increase in income
from tax exempt sources, including municipal investments and corporate
owned-life insurance. Tax exempt interest income from municipal securities
increased $1,608 during the first six months of 1997 as additional investments
were made. Investments in corporate-owned life insurance policies on certain
officers generated $934 of additional income during the first half of 1997
compared to the same period one year ago.
LOANS
- -----
Loans were $2,374,309 at June 30, 1997, compared to $2,275,089 at
December 31, 1996, and $2,126,398 at June 30, 1996. The loan portfolio
increased $99,220 or 8.7% annualized from year-end 1996 and $247,911 or 11.7%
from one year ago. The May 30, sale of the $31 million credit card portfolio
resulted in a decline in outstanding consumer loans at June 30, 1997, compared
to year-end 1996. Growth was experienced in all other loan categories during
the second quarter of 1997 compared to year-end 1996 and one year prior and
the mix of the loan portfolio remained relatively constant over the last
twelve months.
Commercial loans increased to $711,050 at June 30, 1997, compared to
$679,609 at December 31, 1996 and $622,694 at June 30, 1996. Commercial loans
accounted for 29.9% of the loan portfolio at June 30, 1997 compared to 29.3%
at June 30, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LOANS, CONTINUED
- -----------------
<TABLE>
LOANS OUTSTANDING
- -----------------------------------------------------------------------------------------------
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
<S> <C> <C> <C>
Commercial, industrial and agricultural
production loans $ 711,050 $ 679,609 $ 622,694
Tax exempt loans 24,896 21,756 21,042
Real estate mortgage loans:
Commercial and agricultural 210,223 171,715 147,286
Construction 79,691 67,679 60,675
Residential 759,167 740,647 703,743
Consumer loans 589,282 593,683 570,958
- -----------------------------------------------------------------------------------------------
Total loans $2,374,309 $ 2,275,089 $2,126,398
===============================================================================================
</TABLE>
Real estate mortgage loans, which consist of residential, commercial and
agricultural loans secured by real estate and construction loans, totaled
$1,049,081 at June 30, 1997, compared to $911,704 one year prior. Residential
mortgage loans increased $18,520 or 2.5% from year-end and $55,424 from one
year ago. Approximately $73 million of adjustable rate loans were securitized
during the third quarter of 1996. Residential mortgage loans were 32.0% of
total loans at June 30, 1997, compared to 33.1% one year prior. Demand for
new residential mortgage loans remained strong throughout most of 1996 and
during the second quarter of 1997 but the Corporation sold a significant
portion of that production. The Corporation originated $52 million of
residential mortgage loans in the first quarter of 1997 and $77 million in the
second quarter. Current asset-liability management policy dictates that most
adjustable rate and fixed rate loans with original maturities exceeding 15
years are sold in the secondary market or securitized. Fixed rate balloon and
15-year mortgage loans may be sold, securitized and held in the investment
portfolio or held in the loan portfolio, depending on market conditions at the
time the loan is originated. While the Corporation may sell certain loans in
the secondary market, servicing rights are generally retained. At June 30,
1997, $851,154 of residential mortgage loans originated by the Corporation's
banks and subsequently sold in the secondary market were being serviced. In
addition to residential real estate mortgages reported as loans, the
Corporation held $10,466, $6,457 and $76,150 of real estate loans for sale at
June 30, 1997, December 31, 1996, and June 30, 1996, respectively. These
loans were $76,150 at June 30, 1996.
Consumer loans, which include installment, home equity and credit card
loans, decreased $4,401 from December 31, 1996, and increased $18,324 from one
year ago. As previously mentioned, the Corporation sold its credit card
portfolio effective May 30. These loans totaled $34,523 at December 31, 1996,
and $34,474 at June 30, 1996. Excluding credit card loans, consumer loans
increased $30,122 and $52,798 from December 31, 1996, and June 30, 1996,
respectively. Of this increase from one year ago, $19.2 million is the result
of 1996 acquisitions. Installment loan balances have continued to increase
during 1997 primarily due to indirect automobile loans. Direct installment
loan activity was promoted more heavily during the second quarter and
increased $5,532 or 4.1% annualized from year-end 1996. Home equity and
other lines of credit outstandings increased $7,640 and $20,527 from year-end
1996 and one year ago, respectively.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LOANS, CONTINUED
- -----------------
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% of total loans.
ASSET QUALITY
- --------------
The allowance for loan losses is maintained at a level considered
adequate by management to absorb potential loan losses by evaluations of the
loan portfolio on a continuing basis. This evaluation by management includes
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 the financial condition of specific
borrowers and current economic conditions.
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
<S> <C> <C>
Beginning balance $ 31,262 $ 29,406
Allowance of subsidiaries at acquisition date 1,872
Provision for loan losses 5,979 3,707
Loans charged-off (5,415) (6,288)
Recoveries 1,084 1,675
- -----------------------------------------------------------------------------
Ending balance $ 32,910 $ 30,372
=============================================================================
- -----------------------------------------------------------------------------
Percent to total loans 1.39% 1.43%
=============================================================================
</TABLE>
The allowance for loan losses was $32,910 at June 30, 1997, representing
1.39% of total loans, compared with $31,262 at December 31, 1996, which
represented 1.37% of total loans. At June 30, 1996, the allowance for loan
losses was $30,372 and represented 1.43% of total loans. Annualized net
charge-offs to average loans was .37% during the first six months of 1997
compared to .45% for the same period of 1996. The provision for loan losses
to average loans was .52% and .36% for the six months ended June 30, 1997 and
1996, respectively. The allowance for loan losses to non-performing loans was
173% at June 30, 1997, compared to 144% at December 31, 1996, and 157% at
June 30, 1996.
Risk assets consist of non-performing loans, foreclosed properties and
loans 90 days or more past due but accruing. Although these assets have more
than a normal risk of loss, they will not necessarily result in a higher level
of future charge-offs or losses.
Non-performing loans consist of loans classified as troubled debt
restructurings and loans on non-accrual status. As indicated in the following
table, the Corporation's non-performing loans as of June 30, 1997, totaled
$19,044, a decrease of $2,722 from December 31, 1996. The non-performing
loans to total loans ratio was .80% on June 30, 1997, as compared to .96% on
December 31, 1996, and .91% on June 30, 1996. Total risk assets
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ASSET QUALITY, CONTINUED
- ------------------------
equaled 1.02% of loan-related assets at June 30, 1997, compared to 1.20% at
December 31, 1996. In addition to loans classified as risk assets, there were
other loans totaling $7,668 at June 30, 1997, where the borrowers were
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 risk assets.
NON-PERFORMING AND RISK ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
<S> <C> <C> <C>
Non-accrual loans:
Commercial, agricultural and tax exempt $ 8,666 $ 10,112 $ 10,450
Real estate mortgage 7,830 8,437 5,926
Consumer 1,408 1,960 1,616
---------- -------------- ----------
Total non-accrual 17,904 20,509 17,992
Restructured loans 1,140 1,257 1,323
---------- -------------- ----------
Total non-performing loans 19,044 21,766 19,315
Foreclosed properties 2,048 1,721 3,193
---------- -------------- ----------
Total non-performing assets 21,092 23,487 22,508
90 days or more past due:
Commercial, agricultural and tax exempt 499 267 1,429
Real estate mortgage 1,255 2,033 1,707
Consumer 1,401 1,457 1,906
---------- -------------- ----------
Total 90 days or more past due 3,155 3,757 5,042
---------- -------------- ----------
Total risk assets $ 24,247 $ 27,244 $ 27,550
===============================================================================
-------------------------------------------------------------------------------
Risk assets to loan-related assets 1.02% 1.20% 1.29%
===============================================================================
</TABLE>
INVESTMENT SECURITIES
- ----------------------
Total investment securities available for sale and held to maturity
represented 41.1% of earning assets at June 30, 1997, compared to 41.3% and
40.5% at December 31, 1996, and June 30, 1996, respectively. The portfolio
has continued to shift toward investments in mortgage-backed securities,
predominately underwritten to the standards of, and guaranteed by government
sponsored enterprises. 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 4.3 years and 4.9 years,
respectively, at June 30, 1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DEPOSITS AND OTHER SOURCES OF FUNDS
- -----------------------------------
Total deposits were $3,086,380 at June 30, 1997, compared to $3,114,730
and $2,974,357 at December 31, 1996, and June 30, 1996, respectively. Since
December 31, 1996, non-interest bearing deposits, which were seasonally high
at year-end, declined by $12,383 and interest bearing deposits decreased by
$15,967. A change in the mix of interest-bearing deposits due to changes in
market rates and new product features and promotions resulted in money market
deposit accounts increasing $46,469 from year-end to $375,261 while large
certificates of deposit declined $50,975 during this period to $194,406. The
Corporation increased its short-term borrowings as a more cost-effective
funding alternative to large certificates of deposit and certain other
interest-bearing deposit sources. Non-interest bearing deposits increased
from June 30, 1996, by $19,861 while interest bearing deposits increased by
$92,162.
Securities sold under repurchase agreements are acquired in national
markets as well as from the Corporation's commercial customers as part of a
cash management service. Repurchase agreements, which play a key role in
funding earning assets, were $610,720, $530,261 and $445,124 at June 30, 1997,
December 31, 1996, and June 30, 1996, respectively. A portion of these
repurchase agreements, acquired to fund certain fixed rate earning assets, is
being hedged by interest rate caps.
Long-term debt totaled $216,509 at June 30, 1997, compared to $176,730 at
December 31, 1996, and $199,846 at June 30, 1996. Advances from the Federal
Home Loan Bank accounted for $183,640 of total long-term debt at June 30,
1997.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
Liquidity is a measure of the Corporation's ability to meet its
customers' present and future deposit withdrawals and/or 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 funding sources and assets readily
convertible into cash to meet these requirements. The Corporation has
provided for its liquidity needs by maintaining adequate balances in money
market assets, through growth in core deposits, maturing loans and investments
in its securities portfolio and by maintaining various short-term borrowing
sources. At June 30, 1997, the Corporation had $249,600 in investment
securities maturing within one year. The Corporation additionally has federal
funds lines and other borrowing sources available to it and its subsidiary
banks. Investment securities maturing within one year and unused borrowing
sources are considered by management to provide adequate liquidity in view of
projected needs. The Parent Company's liquidity is provided by dividends from
its subsidiaries and a $20,000 bank line of credit of which $15,000 was being
used at June 30, 1997.
The Corporation continues to maintain a strong capital position which
supports its current needs and provides a sound foundation to support further
expansion. Total shareholders' equity at June 30, 1997, was $325,774,
compared to $325,414 at December 31, 1996 and $317,030 at June 30, 1996. The
Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
- ----------------------------------------------
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and its banking subsidiaries must meet
specific capital guidelines that involve quantitative measures of their
respective assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and its banking subsidiaries to maintain
minimum amounts and ratios of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, that as of June
30, 1997, the Corporation and its banking subsidiaries exceeded all regulatory
capital adequacy requirements to which it was subject.
As of June 30, 1997, the most recent notification from regulatory
agencies categorized the subsidiary banks as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the
subsidiary banks' categories. The Corporation's actual and minimum required
capital amounts and ratios as mandated by the regulators at June 30, 1997,
include:
<TABLE>
<CAPTION>
REQUIREMENTS TO BE
MINIMUM CLASSIFIED
ACTUAL REQUIREMENTS AS "WELL CAPITALIZED"
Amount Ratio Amount Ratio Amount Ratio
-------- ------------ -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital to risk weighted assets $336,852 12.69% $212,298 8.00% $265,372 10.00%
Tier 1 Capital to risk weighted assets 298,313 11.24 106,149 4.00 159,223 6.00
Tier 1 Capital to average assets 298,313 6.99 170,662 4.00 213,328 5.00
(leverage ratio)
</TABLE>
<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:
27 - Financial Data Schedule
Reports on Form 8-K
-------------------
b. No reports were filed.
- -------------------------------------------------------------------------------
No other information is required to be filed under Part II of the form.
<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 6, 1997 by /s/ James J. Giancola
---------------------------- --------------------------------------
James J. Giancola,
President and Chief Executive Officer
Date August 6, 1997 by /s/ Ralph L. Alley
---------------------------- --------------------------------------
Ralph L. Alley, Senior Vice President,
Controller and Treasurer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Reg. S-K
Exhibit No. Description of Exhibit Page
- ----------- ----------------------
27 Financial Data Schedule 24
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Note: This schedule contains summary financial information extracted from
CNB Bancshares, Inc.'s consolidated balance sheet as of June 30, 1997
and the consolidated statement of income for the six months ended
June 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 115583
<INT-BEARING-DEPOSITS> 233
<FED-FUNDS-SOLD> 4275
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1421910
<INVESTMENTS-CARRYING> 242885
<INVESTMENTS-MARKET> 244383
<LOANS> 2384775
<ALLOWANCE> 32910
<TOTAL-ASSETS> 4348398
<DEPOSITS> 3086380
<SHORT-TERM> 683628
<LIABILITIES-OTHER> 36107
<LONG-TERM> 216509
0
0
<COMMON> 19558
<OTHER-SE> 306216
<TOTAL-LIABILITIES-AND-EQUITY> 4348398
<INTEREST-LOAN> 107119
<INTEREST-INVEST> 55651
<INTEREST-OTHER> 508
<INTEREST-TOTAL> 163278
<INTEREST-DEPOSIT> 63569
<INTEREST-EXPENSE> 85019
<INTEREST-INCOME-NET> 78259
<LOAN-LOSSES> 5979
<SECURITIES-GAINS> 505
<EXPENSE-OTHER> 64559
<INCOME-PRETAX> 35593
<INCOME-PRE-EXTRAORDINARY> 35593
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23618
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 4.06
<LOANS-NON> 17904
<LOANS-PAST> 3155
<LOANS-TROUBLED> 1140
<LOANS-PROBLEM> 7668
<ALLOWANCE-OPEN> 31262
<CHARGE-OFFS> 5415
<RECOVERIES> 1084
<ALLOWANCE-CLOSE> 32910
<ALLOWANCE-DOMESTIC> 29054
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3856
</TABLE>
