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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1997
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
---------- ----------
CNB Bancshares, Inc. 0-11510
(Exact name of registrant (Commission file number)
as specified in its charter)
Indiana 35-1568731
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
20 N.W. Third Street, Evansville, Indiana 47739
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) 456-3400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, No Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $762,249,000 as of March 5, 1998.
The number of shares outstanding of the registrant's common stock, without
par value, as of March 5, 1998 was 20,431,695 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1997. (Part I, Part II and Part IV)
(2) Portions of the Registrant's Proxy Statement for Annual Meeting of
Shareholders to be held April 21, 1998. (Part III)
Exhibit index is on page 18.
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PART I
ITEM 1. BUSINESS
Overview
CNB Bancshares, Inc. (the Corporation) is a regional, multi-bank holding
company headquartered in Evansville, Indiana. Incorporated on May 26, 1983,
under the laws of the State of Indiana, the Corporation began operating in 1984
as a one-bank holding company for The Citizens National Bank of Evansville
(Citizens), which was chartered in 1874. Since that time, the Corporation has
acquired additional financial subsidiaries and currently owns six commercial
banks and one consumer finance company. Certain of the acquired subsidiaries
have subsequently been merged into other subsidiaries of the Corporation. With
assets of $2,208,941,000 at December 31, 1997, Citizens remains the lead bank
and largest of the Corporation's subsidiaries. As of December 31, 1997, the
Corporation had consolidated total assets of $4,480,223,000 and total
shareholders' equity of $334,468,000.
The Corporation's banking and finance subsidiaries are listed below:
<TABLE>
<CAPTION>
Financial Principal Year Year Number of Total Total
Subsidiary Office Organized Acquired Locations* Assets# Equity#
---------- ------ --------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
The Citizens National Evansville,
Bank of Evansville Indiana 1874 1984 29 $2,208,941 $ 154,048
Citizens Bank of Madisonville,
Kentucky Kentucky 1929 1986 19 678,452 54,946
Citizens Bank of Western Terre Haute,
Indiana Indiana 1890 1990 13 401,367 33,370
Citizens Bank of Jasper Jasper,
Indiana 1978 1991 2 110,060 8,670
Citizens Bank of Greenwood,
Central Indiana Indiana 1933 1992 20 656,997 43,110
Peoples Security Finance Madisonville,
Company Kentucky 1971 1993 33 57,949 7,487
Citizens Bank of Mt. Vernon,
Illinois, N.A. Illinois 1959 1993 12 657,216 51,923
</TABLE>
*Number of offices does not include off-site ATM's or non-banking locations.
#Dollar amounts are reported in thousands.
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The Corporation's financial subsidiaries are engaged in commercial and
retail banking, consumer lending, mortgage lending and servicing, trust services
and cash management services for corporate accounts and other banks. Through its
financial subsidiaries, the Corporation has 128 offices throughout its primary
market areas of Indiana, Illinois, Kentucky and portions of Tennessee.
The Corporation's financial subsidiaries offer a broad range of deposit,
loan and other banking products and services to their customers. Deposit
products include certificates of deposit, individual retirement accounts and
other time deposits, checking and other demand deposit accounts, including NOW
accounts, and savings and money market accounts. Loans include commercial and
industrial, real estate mortgage, consumer, agricultural and leasing services.
Other products and services include deposit and investment brokerage, credit
cards, credit-related insurance, automatic teller machines and safe deposit
boxes. Citizens Trust Company of Indiana, N.A., a subsidiary of The Citizens
National Bank of Evansville, provides trust, asset management and record-keeping
services for retirement plans. The Corporation continues to explore new products
and services to meet the needs and demands of its growing customer base and to
remain competitive with other financial institutions operating in its market
areas.
The Corporation also has three non-banking subsidiaries. Citizens
Information Systems, Inc., based in Evansville, Indiana, provides data
processing and information services to the Corporation and its subsidiaries and
other banks and businesses in Indiana, Kentucky and Illinois. Citizens Life
Assurance Company underwrites credit life and disability insurance sold through
the Corporation's affiliates in Indiana and Illinois. Citizens Insurance of
Evansville sells property and casualty insurance.
Pending and Recently Completed Acquisitions
As part of its ongoing operations, the Corporation continually is presented
with and seeks out acquisition opportunities to enhance its banking franchise.
On January 1, 1998, the Corporation acquired Wedgewood Partners, a full
service broker/dealer and asset management firm based in St. Louis, Missouri.
Goodwill of $2,345,000 related to this acquisition is being amortized on a
straight-line basis over 15 years. The acquisition was accounted for under the
purchase method of accounting and, accordingly, the consolidated financial
statements will include the assets and liabilities and results of operations
from the January 1, 1998 transaction date forward.
On October 14, 1997, the Corporation signed a definitive agreement to
acquire all of the outstanding shares of Pinnacle Financial Services, Inc.
(Pinnacle), headquartered in St. Joseph, Michigan. Under terms of the agreement,
the Corporation will issue approximately 13 million 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 shareholders of the Corporation and
Pinnacle and applicable regulatory agencies. Although the Corporation
anticipates that the merger will be consummated during the second quarter of
1998, there can be no assurances that the acquisition will be completed. At
December 31, 1997, Pinnacle had total assets and shareholders' equity of
$2,116,449,000 and $181,305,000, respectively.
On February 13, 1998, the Corporation signed a definitive agreement to
acquire all of the outstanding shares of National Bancorp of Tell City, Indiana.
Under terms of the agreement, the Corporation will issue approximately 1,118,000
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
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shareholders of National Bancorp and applicable regulatory agencies. Although
the Corporation anticipates that the merger will be consummated during the
second quarter of 1998, there can be no assurances that the acquisition will be
completed. At December 31, 1997, National Bancorp had total assets and
shareholders' equity of $191,287,000 and $17,850,000, respectively.
Competition
The business of the Corporation and its subsidiaries is highly competitive.
There are numerous bank holding companies and groupings of banks located in
southern Illinois, southern, western, and central Indiana, Kentucky, and
Tennessee, which offer substantial competition in the acquisition and operation
of banks, savings associations and non-bank financial institutions. The banking
and finance subsidiaries and the Corporation's non-banking subsidiaries
encounter substantial competition in all of their banking and related activities
and expect such competition to intensify as the financial industry expands due
to more non-bank competitors offering financial services. In addition, recent
changes in laws relating to interstate banking have permitted some local
institutions to become part of larger regional and national organizations.
The Corporation's banking and finance subsidiaries compete with other
commercial banks, savings associations and credit unions for loans and deposits
and with money market funds for deposits. Consumer and commercial finance
companies, mortgage banks, securities brokerage companies, investment banking
firms and insurance companies also compete with the financial subsidiaries for
various types of loans and financial services. Some of these entities and
institutions are not subject to the same regulatory restrictions as financial
institution holding companies and their subsidiary banks and savings
associations and therefore enjoy certain competitive advantages. The principal
methods of competition in banking activities are price, service and convenience.
Regulations and Supervision
The United States banking industry is highly regulated, with federal and
state agencies having supervisory authority regarding the chartering,
supervision and examination of banks, savings banks and their bank holding
companies. There are numerous laws and regulations which limit how a bank
holding company and its subsidiaries conduct their businesses, including minimum
capital levels, limitations on the payment of dividends and regulation of
acquisitions and mergers.
As a bank holding company, the Corporation is subject to regulation under
the Bank Holding Company Act of 1956, as amended (the BHC Act), which is
administered by the Board of Governors of the Federal Reserve System (Federal
Reserve Board). The Corporation is required to file reports with the Federal
Reserve Board and various other federal and state agencies and to provide such
additional information as may be required.
A bank holding company must obtain Federal Reserve Board approval before
acquiring, directly or indirectly, ownership or control of any voting shares of
any bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares (unless it already owns or controls a
majority of such shares). Federal Reserve Board approval must also be obtained
before any bank holding company acquires all or substantially all of the assets
of another bank or bank holding company or merges or consolidates with another
bank holding company.
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The BHC Act also prohibits a bank holding company, with certain limited
exceptions, from acquiring or retaining direct or indirect ownership or control
of more than 5% of the voting shares of any company which is not a bank or bank
holding company, or from engaging in any activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain activities which the
Federal Reserve Board has determined to be so closely related to the business of
banking or managing or controlling banks as to be a proper incident thereto.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)
was signed into law on September 30, 1996. EGRPRA streamlined the non-banking
activities application process for well-capitalized and well-managed bank
holding companies. Under EGRPRA, qualified bank holding companies may commence a
regulatorily approved non-banking activity without prior notice to the Federal
Reserve Board; written notice is required within 10 days after commencing the
activity. Under EGRPRA, the prior notice period is reduced to 12 days in the
event of any non-banking acquisition or share purchase, assuming the size of the
acquisition does not exceed 10% of risk-weighted assets of the acquiring bank
holding company and the consideration does not exceed 15% of Tier 1 capital. The
Federal Reserve Board has adopted comprehensive amendments to its regulations
under the BHC Act that implement the foregoing provisions of the EGRPRA,
including provisions allowing the 12-day prior notice for acquisitions that
exceed the 10% of risk-weighted assets limit, under certain circumstances, and
that also streamline the application/notice process for acquisitions of banks
and bank holding companies and eliminate regulatory provisions that the Federal
Reserve Board considered unnecessary.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Act) was signed into law, authorizing, among
other things, interstate acquisitions by bank holding companies, interstate
mergers of banks and "agency banking" with affiliates in different states. The
Interstate Act amended the BHC Act to allow an adequately capitalized and
managed bank holding company to acquire banks located in any state, beginning
September 29, 1995, subject to state deposit caps and a 10% nationwide deposit
cap. Adequately capitalized banks were permitted to merge across state lines
without regard to whether the merger is prohibited by the laws of any state
(except for states that "opted-out" of the interstate branching authorization,
specifically Texas and Montana) beginning June 1, 1997. The Interstate Act's
"agency banking" provisions, effective September 29, 1995, permit affiliated
banks to act as agent for each other in the conduct of most core banking
activities. Affiliated banks may receive deposits, renew time deposits, close
loans, service loans and receive payments on loans and other obligations on
behalf of each other, without being treated as branches.
Subsidiary banks of a bank holding company are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or the
lease or sale of any property or the furnishing of services. Bank holding
companies and their nonbank subsidiaries that engage in electronic benefit
transfer services are also subject to certain anti-tying restrictions.
Subsidiary banks of a bank holding company are also subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, or investments in stock or
other securities thereof, and on the taking of such stock or other securities as
collateral for loans.
The Federal Reserve Board has prescribed capital adequacy guidelines for
use in its examination and regulation of bank holding companies. If the capital
of a bank holding company falls below the minimum levels established by these
guidelines, it may be denied approval to acquire or establish additional banks
or non-bank businesses. The guidelines established by the Federal Reserve Board
set a
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minimum leverage ratio of 3.0% 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% depending on their particular circumstances
and risk profile. This ratio is defined as shareholders' equity less non-
qualifying intangible assets, as a percentage of the sum of quarter to date
total average assets less non-qualifying intangible assets. 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. Under the current rules, banks are required to have core capital
(Tier 1) of at least 4.0% of risk-weighted assets and total capital of 8.0% of
risk-weighted assets. Tier 1 capital consists primarily of shareholders' equity
less intangible assets; and total capital consists of Tier 1 capital, certain
long-term debt and convertible debentures and a portion of the allowance for
loan losses. At December 31, 1997, the Corporation's leverage, Tier 1 and total
capital ratios were 6.9%, 10.7%, and 11.9%, respectively, all well above
regulatory minimums.
The Federal Reserve Board has issued a policy statement on the payment of
cash dividends by bank holding companies. In the statement, the Federal Reserve
Board expressed its view that a holding company experiencing earnings weaknesses
should not pay cash dividends exceeding its net income nor pay a dividend which
can only be funded in a way that weakens the holding company's financial health,
such as by borrowing. The Federal Reserve Board periodically examines bank
holding companies and possesses cease and desist powers over bank holding
companies and their non-bank subsidiaries if their actions represent unsafe or
unsound practices.
Per the "cross guarantee" provisions of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, each financial subsidiary of the
Corporation could be liable for any loss incurred by the FDIC in connection with
the failure of any other financial subsidiary of the Corporation.
Each of the financial subsidiaries is subject to supervision and regulation
by its chartering authority. The primary supervisory authorities of the
Corporation's bank subsidiaries are the Comptroller of the Currency (national
banks) and appropriate state banking regulatory authorities (state banks). Each
regulator regularly examines such areas as reserves, loans, investments,
management practices and other aspects of bank operations, and has the authority
to prevent a bank from engaging in an unsafe or an unsound practice in
conducting its business. In addition, the Corporation's subsidiary banks are
members of, and subject to regulation and examination by, the Federal Deposit
Insurance Corporation (FDIC).
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments it may make, the reserves
against deposits it must maintain, loans a bank makes and collateral it takes,
minimum capital levels, activities with respect to mergers and consolidations,
and the establishment of branches.
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) was enacted. FDICIA contains various provisions relating to the
supervision, regulation, and operation of banks and bank holding companies.
Various regulations implementing FDICIA have been promulgated by bank
regulators. FDICIA, among other things, identifies the following capital
standards for depository institutions: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below any such measure, and critically
undercapitalized
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if it fails to meet any critical capital level set forth in the regulations.
FDICIA requires a bank that is determined to be undercapitalized to submit a
capital restoration plan, and the bank's holding company, subject to certain
limitations, must guarantee that the bank will meet its capital plan. FDICIA
also prohibits banks from making any capital distribution or paying any
management fee if the bank would thereafter be undercapitalized. Under these
rules, institutions must have a leverage ratio of 5.0% or above, Tier 1 capital
to risk-based assets of 6.0% or above, and total capital to risk-based assets of
10.0% or above in order to qualify as well capitalized. All of the Corporation's
banking subsidiaries were well capitalized for purposes of FDICIA and exceeded
all other regulatory capital requirements at year-end 1997.
FDICIA grants the FDIC authority to impose special assessments on insured
depository institutions to repay FDIC borrowings from the United States Treasury
or other sources and to establish semiannual assessment rates on Bank Insurance
Fund (BIF) and Savings Association Insurance Fund (SAIF) member banks so as to
maintain the funds at the designated reserve ratios defined in FDICIA. FDICIA
also required the FDIC to implement a risk-based insurance assessment system
pursuant to which the premiums paid by a depository institution are based on the
probability that the BIF or SAIF will incur a loss in respect of such
institution. At December 31, 1997, each of the Corporation's financial
subsidiaries was in the category of institutions that paid deposit assessments
at the lowest rates.
Because of concerns relating to competitiveness and the safety and
soundness of the banking industry, Congress is considering a number of
wide-ranging proposals for altering the structure, regulation and competitive
relationships of the nation's financial institutions. Among such bills are new
proposals to merge the BIF and the SAIF insurance funds, to eliminate the
federal thrift charter, to alter the statutory separation of commercial and
investment banking, to allow a wider variety of financial services companies to
affiliate with banks and to further expand the powers of banks, bank holding
companies and competitors of banks. It cannot be predicted whether or in what
form any of these proposals will be adopted or the extent to which the business
of the Corporation may be affected thereby.
Government Policies
The policies of federal and state agencies including the Federal Reserve
Board, the FDIC and other regulatory authorities may have a significant effect
on the operating results of the Corporation and the banking industry. An
important function of the Federal Reserve Board is to regulate aggregate money
supply and credit conditions and interest rates in order to influence general
economic conditions. The Federal Reserve Board, primarily through open market
operations of U.S. Government securities, and by varying the discount rate for
member bank borrowings and changing reserve requirements against member bank
deposits, can exercise significant influence on the overall growth and
distribution of bank loans and deposits and interest rates charged on loans and
earned on investments or paid for time and savings deposits. The general effect,
if any, of such policies upon the future business and earnings of the
Corporation and its financial subsidiaries cannot be determined.
Forward Looking Statements
Statements contained in this Report and in future filings by the
Corporation with the Securities and Exchange Commission, in the Corporation's
press releases and in oral statements made with the approval of an authorized
executive officer, which are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of
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1995 (Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended). There can be no assurance that
such forward-looking statements will in fact transpire. The following important
factors, risks and uncertainties, among others, could cause actual results to
differ materially from such forward-looking statements:
Credit risk: Although the Corporation has had good credit quality in
recent years, changes in economic conditions could adversely affect the
credit quality of the loan portfolio.
Interest rate risk: Although the Corporation actively manages its
interest rate sensitivity, such management is not an exact science.
Rapid increases or decreases in interest rates could adversely impact
the Corporation's net interest margin if changes in its cost of funds
do not correspond to the changes in income yields.
Competition: The Corporation's activities in its local markets involve
competition with other banks as well as other financial institutions
and enterprises. Also, the financial service markets have and likely
will continue to experience substantial changes, which could
significantly change the Corporation's competitive environment in the
future.
Legislative and regulatory environment: The Corporation operates in a
rapidly changing legislative and regulatory environment. It cannot be
predicted how or to what extent future developments in these areas will
affect the Corporation. These developments could negatively impact the
Corporation through increased operating expenses for compliance with
new laws and regulations, restricted access to new products and
markets, or in other ways.
General business and economic trends: These factors, including the
impact of inflation levels, influence the Corporation's results in
numerous ways, including operating expense levels, deposit and loan
activity, and availability of trained individuals needed for future
growth.
The foregoing list should not be construed as exhaustive and the
Corporation disclaims any obligation to subsequently update or revise any
forward-looking statements after the date of this Report.
Executive Officers of the Registrant
The following table sets forth the names and ages of all executive officers
of the Corporation, including all positions and offices with the Corporation
held by each such person, the term of office and the period during which he has
served as such.
Name Age Office and Business Experience
H. Lee Cooper 59 Chairman of the Board of the Corporation since
1986. Previously, Mr. Cooper also served as
Chief Executive Officer and President of the
Corporation and in various capacities as a
senior executive officer of both the Corporation
and Citizens.
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James J. Giancola 49 President and Chief Executive Officer of the
Corporation. Mr. Giancola has been President
since 1994 and was named Chief Executive Officer
in 1996. Prior to joining the Corporation in
1992, Mr. Giancola was President of Gainer Bank
of Merrillville, Indiana.
M. Lynn Cooper 47 Executive Vice President of the Corporation
since 1994. Prior to 1994, Mr. Cooper served as
Chairman of the Board, President and Chief
Executive Officer of Citizens Bank of Kentucky,
a subsidiary of the Corporation.
Marvin Huff, Jr. 64 Executive Vice President of the Corporation
since 1996 and President of Citizens Information
Systems, Inc., a subsidiary of the Corporation,
since 1994. Previously, Mr. Huff served in
various capacities as an officer of Citizens.
David L. Knapp 58 Executive Vice President of the Corporation
since 1986. Mr. Knapp was named President and
Chief Executive Officer of Citizens in 1994.
Previously, Mr. Knapp served as Chief Financial
Officer of the Corporation and Citizens and in
various other capacities as a senior executive
officer of both the Corporation and Citizens.
John R. Spruill 55 Executive Vice President and Chief Financial
Officer of the Corporation since 1995. Prior to
1995, Mr. Spruill served as Executive Vice
President and Chief Financial Officer of
Southern National Corporation in North Carolina.
David M. Viar 48 Executive Vice President of the Corporation
since 1996. Previously, Mr. Viar served as
Senior Vice President and Treasury Officer of
the Corporation. Prior to joining the
Corporation in 1993, Mr. Viar was Senior Vice
President--Funds Management of Dominion
Bancshares in Virginia.
Ralph L. Alley 46 Senior Vice President, Controller and Treasurer
of the Corporation and Senior Vice President and
Controller of Citizens since 1985. Previously,
Mr. Alley served in various capacities as an
officer of Citizens.
John N. Daniel, Jr. 52 Senior Vice President and Chief Credit Officer
since 1997. Previously, Mr. Daniel served as
Senior Vice President, Commercial Lending of
Citizens.
James R. Dodd 52 Senior Vice President of the Corporation since
1993. In 1996, Mr. Dodd was named President of
Citizens Trust Co., a subsidiary of Citizens.
Prior to joining the Corporation in 1993, he was
President of BancOklahoma Trust Company.
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Douglas R. Hanks 51 Senior Vice President and Director of Marketing
of the Corporation since 1994. Prior to joining
the Corporation in 1994, Mr. Hanks served as
Vice President--Director of Field Marketing for
BancOne Corporation.
John M. Oberhelman 56 Senior Vice President of Human Resources for the
Corporation since 1992 and Senior Vice President
and Human Resources Director of Citizens.
Previously, Mr. Oberhelman served in various
capacities as an officer of Citizens.
There are no family relationships between any of the named persons. Each
executive officer is elected by the Corporation's Board of Directors to serve
until the close of the next annual meeting of the shareholders following his
election and until the election of his successor. No executive officer of the
Corporation was selected to his position pursuant to any arrangement or
understanding with any other person.
Statistical Disclosure
The statistical disclosures of the Corporation on a consolidated basis,
included on pages 18 to 35 of the Corporation's Annual Report to Shareholders
for the year ended December 31, 1997, are hereby incorporated by reference
herein.
ITEM 2. PROPERTIES
Citizens owns a modern, 15-story office building which houses the
Corporation's principal offices and the main banking offices of Citizens. The
building is located at 20 Northwest Third Street, Evansville, Indiana, and is in
excellent condition. The Corporation and Citizens presently occupy approximately
three-fourths of the building and the remainder is leased to various tenants.
The Corporation and Citizens also utilize five other buildings in close
proximity to the main banking office in downtown Evansville which are also owned
and are available for future office needs of the Corporation. A portion of this
space is also currently being leased by various tenants. The financial
subsidiaries own 76 of the 127 remaining offices in which they conduct their
businesses. Additionally, three other properties are utilized as office space by
the Corporation's subsidiaries. The net investment, as of December 31, 1997, of
the Corporation and its subsidiaries in property and equipment was $75,003,000.
Three properties are security for real estate mortgages payable which balances
totaled $2,696,000 at December 31, 1997. None of the other properties are
subject to material liens or other encumbrances.
Management of the Corporation believes that, as a group, the facilities are
in satisfactory condition and repair and will be adequate to meet its
foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
The Corporation presently is engaged in routine litigation incidental to
its business and management does not believe such litigation will materially
adversely affect the Corporation's consolidated financial position or
operations.
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ITEM 4. SUBMISSION MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
Pages 1 and 61 of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1997, are hereby incorporated by reference herein.
ITEM 6. SELECTED FINANCIAL DATA
Page 18 of the Corporation's Annual Report to Shareholders for the year
ended December 31, 1997, is hereby incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Pages 19 to 35 of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1997, are hereby incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Managing interest rate risk is fundamental to the financial services
industry. The Corporation's policies are designed to manage the inherently
different maturity and repricing characteristics of the loan and deposit
portfolios to achieve a desired interest sensitivity position and to limit
exposure to interest rate risk. By using a combination of on- and off-balance
sheet financial instruments, the Corporation manages interest rate sensitivity
while optimizing interest income within the constraints of prudent capital
adequacy and liquidity needs. Principal maturities and repricing profiles are
monitored through static gap analysis and future operating results are simulated
through computer modeling.
The management of interest rate sensitivity includes monitoring the
maturities and repricing opportunities of interest earning assets and interest
bearing liabilities. The Corporation's interest rate sensitivity analysis as of
December 31, 1997 is included in the Liquidity and Interest Rate Sensitivity
section of Management's Discussion and Analysis in the Corporation's 1997 Annual
Report to Shareholders on pages 33 and 34. A rate sensitivity position is
computed for various repricing intervals by calculating rate sensitivity gaps.
Interest earning assets and interest bearing liabilities have been distributed
based on their repricing opportunities. The maturities of certain investments,
loans and deposits have been adjusted based on projected prepayment patterns or
historical relationships to changes in market interest rates. The repricing of
certain liabilities has been adjusted to reflect the expected benefit of
interest rate contracts in place at year-end. Although rate sensitivity gaps
constantly change as funds are acquired and invested, the Corporation's negative
gap of $147,517 at one year or less as of
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December 31, 1997, was approximately 3.3% of total assets. This, in the opinion
of management, represented a relatively balanced position.
The Corporation utilizes a simulation model to measure and evaluate the
impact of changing interest rates on net interest income. The simulation
techniques involve changes in interest rate relationships, asset and liability
mixes, prepayment options inherent in financial instruments and directional
changes in prevailing interest rates. The table below illustrates the projected
change in the Corporation's net interest income during the next twelve months if
all market rates were to uniformly and gradually increase or decrease by as much
as 2.00% compared to the results of a flat rate environment. These projections,
based upon the Corporation's balance sheet as of December 31, 1997, were
prepared using the modeling techniques and assumptions which were then used for
asset/liability management purposes.
Increase (Decrease)
-----------------------------------
Change in interest rates from current level (2.00)% (1.00)% 1.00% 2.00%
Change in net interest income 1.3% .5% (.2)% (.3)%
The table indicates that if rates were to gradually increase or decrease by
2.00%, net interest income would be expected to decrease by .3% or increase by
1.3%, respectively, compared to a flat rate environment. This narrow projected
exposure to interest rate risk is consistent with management's desire to limit
the sensitivity of net interest income to changes in interest rates in order to
reduce risk to earnings and capital. This model is based solely on gradual,
uniform changes in market rates and does not reflect the levels of interest rate
risk that may arise from other factors such as changes in the spreads between
key market rates or the shape of the Treasury curve.
To assist in achieving the desired level of interest rate sensitivity, the
Corporation has entered into 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. In addition, the Corporation has entered into interest rate swaps as a
hedge against certain long-term borrowings. The contracts represent an exchange
of interest payments requiring 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. These contracts are described more fully in Note 14 to the consolidated
financial statements on page 53 of the Corporation's 1997 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 26 and 36 to 58 of the Corporation's Annual Report to Shareholders
for the year ended December 31, 1997, are hereby incorporated by reference
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the headings "Information Regarding Nominees for
Class I Directors" and "Information Regarding Directors Continuing in Office" on
pages 3 and 4 of the Corporation's Proxy Statement for its Annual Meeting of
Shareholders to be held April 21, 1998, is hereby incorporated by reference
herein. The information on Executive Officers is included in Part I, Item 1 of
this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation" on pages 7 to 13
of the Corporation's Proxy Statement for its Annual Meeting of Shareholders to
be held April 21, 1998, is hereby incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding beneficial ownership of the Common Stock of the
Corporation set forth under the headings "Certain Beneficial Ownership,"
"Information Regarding Nominees for Class I Directors," "Information Regarding
Directors Continuing in Office" and "Security Ownership of Management," on pages
2 through 6 of the Corporation's Proxy Statement for its Annual Meeting of
Shareholders to be held April 21, 1998, is hereby incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Transactions with Directors, Officers
and Associates" on page 14 of the Corporation's Proxy Statement for its Annual
Meeting of Shareholders to be held April 21, 1998, is hereby incorporated by
reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(1) The following consolidated financial statements of the Corporation,
included on pages 36 through 58 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1997, are hereby
incorporated by reference herein:
. Consolidated Balance Sheets at December 31, 1997 and 1996.
. Consolidated Statements of Income, years ended December 31, 1997,
1996, and 1995.
. Consolidated Statements of Changes in Shareholders' Equity, years
ended December 31, 1997, 1996 and 1995.
13
<PAGE>
. Consolidated Statements of Cash Flows, years ended December 31, 1997,
1996 and 1995.
. Notes to Consolidated Financial Statements.
. Independent Auditors' Report.
(2) All schedules are omitted because they are not applicable or not
required, or because the required information is included in the
consolidated financial statements or related notes.
(b) Reports on Form 8-K
None.
(c) Exhibits
(1) Exhibits required to be filed by Item 601(a) of Regulation S-K are
included as exhibits to or incorporated by reference in this Report as
follows:
3(i) - Restated Articles of Incorporation of the Corporation,
filed as Exhibit 3(i) to the Corporation's 1994 Annual
Report on Form 10-K, is incorporated herein by reference.
3(ii) - Amended Bylaws of the Corporation, filed as Exhibit 3(ii)
to the Corporation's 1995 Annual Report on Form 10-K, is
incorporated herein by reference.
4 - No long-term debt instrument issued by the Corporation
exceeds 10% of the consolidated total assets of the
Corporation and its subsidiaries. In accordance with
paragraph 4 (iii) of Item 601(b) of Regulation S-K, the
Corporation will furnish to the Securities and Exchange
Commission upon request copies of long-term debt instruments
and related agreements.
10* - (1) The following Executive Compensation Plans and
Arrangements, filed as Exhibits 10(1)(c) and (d) to the
Corporation's 1992 Annual Report on Form 10-K, are
incorporated herein by reference:
(a) CNB Bancshares, Inc. 1992 Incentive Stock Option Plan;
and
(b) Citizens Incentive Savings Plan.
(2) The following Management Contract and Executive
Compensation Plans, filed as exhibits 10 (3)(b) and
10 (3)(c) to the Corporation's 1994 Annual Report on Form
10-K, are incorporated herein by reference.
(a) CNB Bancshares, Inc. Savings Equalization Plan, dated
May 1, 1994.
(b) CNB Bancshares, Inc. Pension Equalization Plan, dated
May 1, 1994.
14
<PAGE>
(3) The CNB Bancshares Inc. 1995 Incentive Stock Option Plan is
incorporated herein by reference to the Corporation's
filing with the Securities and Exchange Commission as an
exhibit to a Registration Statement on Form S-8,
Registration No. 33-60431.
(4) The following Management Contracts are incorporated herein
by reference to the Corporation's filing with the
Securities and Exchange Commission as exhibits (10)(a)
through (10)(e) to a Registration Statement on Form S-4,
Registration No. 333-46837:
(a) Change of Control Agreement, effective August 8, 1997,
between the Corporation and M. Lynn Cooper; and
(b) Change of Control Agreement, effective June 3, 1997,
between the Corporation and James J. Giancola; and
(c) Change of Control Agreement, effective June 3, 1997,
between the Corporation and Marvin Huff, Jr.; and
(d) Change of Control Agreement, effective May 28, 1997,
between the Corporation and David L. Knapp; and
(e) Change of Control Agreement, effective May 23, 1997
between the Corporation and John R. Spruill.
(5) (a) Change of Control Agreement, effective May 23, 1997,
between the Corporation and John N. Daniel, Jr.; and
(b) Change of Control Agreement, effective June 9, 1997,
between the Corporation and James R. Dodd; and
(c) Change of Control Agreement, effective May 23, 1997,
between the Corporation and Douglas R. Hanks; and
(d) Change of Control Agreement, effective May 23, 1997,
between the Corporation and David M. Viar.
13 - Portions of the Annual Report to Shareholders for the year
ended December 31, 1997.
21 - Subsidiaries of the Corporation.
23 - Consent of KPMG Peat Marwick LLP
27 - Financial Data Schedule
(2) The following exhibit will be submitted at a later date:
The annual financial statements and independent auditors' report
thereon for Citizens Incentive Savings Plan for the year ended
December 31, 1997, will be filed as an amendment to the 1997 Annual
Report on Form 10-K no later than June 29, 1998.
* The documents identified herein as 10-(1)(a) and 10-(1)(b), 10-(2)(a) and
10-(2)(b), 10-(3), 10-(4)(a) through 10-(4)(e) and 10-(5)(a) through 10-(5)(d)
constitute all management contracts and compensatory plans and arrangements
required to be filed as an exhibit to this Form, pursuant to Item 14(c) of this
Report.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 17th day of
March, 1998.
CNB BANCSHARES, INC.
By /s/ James J. Giancola
----------------------------------
James J. Giancola, President and
Chief Executive Officer
(chief executive officer)
By /s/ John R. Spruill
----------------------------------
John R. Spruill, Executive Vice President
and Chief Financial Officer
(principal financial officer)
By /s/ Ralph L. Alley
----------------------------------
Ralph L. Alley, Senior Vice President,
Controller and Treasurer
(principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ H. Lee Cooper Director March 17, 1998
- ----------------------------------
H. Lee Cooper
/s/ John D. Engelbrecht Director March 17, 1998
- ----------------------------------
John D. Engelbrecht
/s/ James J. Giancola Director March 17, 1998
- ----------------------------------
James J. Giancola
/s/ Edmund L. Hafer Director March 17, 1998
- ----------------------------------
Edmund L. Hafer
/s/ Robert L. Koch, II Director March 17, 1998
- ----------------------------------
Robert L. Koch, II
/s/ Larry J. Kremer Director March 17, 1998
- ----------------------------------
Larry J. Kremer
<PAGE>
/s/ Burkley F. McCarthy Director March 17, 1998
- ----------------------------------
Burkley F. McCarthy
/s/ Robert K. Ruxer Director March 17, 1998
- ----------------------------------
Robert K. Ruxer
Director
- ----------------------------------
Thomas W. Traylor
<PAGE>
EXHIBIT INDEX
Reg. S-K
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
<S> <C> <C>
3(i) Articles of Incorporation of the Corporation filed as Exhibit
3(i) to the Corporation's 1994 Annual Report on Form 10-K is
incorporated herein by reference.
3(ii) Bylaws of the Corporation, filed as Exhibit 3(ii) to the
Corporation's 1995 Annual Report on Form 10-K, is incorporated
herein by reference.
10* - (1) The following Executive Compensation Plans and Arrangements, filed as
Exhibits 10(1)(c) and (d) to the Corporation's 1992 Annual Report on Form
10-K, are incorporated herein by reference:
(a) CNB Bancshares, Inc. 1992 Incentive Stock Option Plan.
(b) Citizens Incentive Savings Plan.
10(2) The following Management Contract and Executive Compensation
Plans filed as Exhibits 10(3)(b) and 10(3)(c) to the
Corporation's 1994 Annual Report on Form 10-K are incorporated
herein by reference:
(a) CNB Bancshares, Inc. Savings Equalization Plan dated May 1, 1994.
(b) CNB Bancshares, Inc. Pension Equalization Plan dated May 1, 1994.
10(3) The CNB Bancshares, Inc. 1995 Incentive Stock Option Plan is
incorporated by reference to the Corporation's filing with the
Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-8, Registration No. 33-60431.
10(4) The following Management Contracts are incorporated herein by
reference to the Corporation's filing with the Securities and
Exchange Commission as exhibits (10)(a) through (10)(e) to a
Registration Statement on Form S-4, Registration No. 333-46837:
(a) Change of Control Agreement, effective August 8, 1997,
between the Corporation and M. Lynn Cooper; and
(b) Change of Control Agreement, effective June 3, 1997,
between the Corporation and James J. Giancola; and
(c) Change of Control Agreement, effective June 3, 1997,
between the Corporation and Marvin Huff, Jr.; and
(d) Change of Control Agreement, effective May 28, 1997 between
the Corporation and David L. Knapp; and
(e) Change of Control Agreement, effective May 23, 1997 between
the Corporation and John R. Spruill.
10(5) (a) Change of Control Agreement, effective May 23, 1997, between the
Corporation and John N. Daniel, Jr.; and
(b) Change of Control Agreement, effective June 9, 1997, between the
Corporation and James R. Dodd; and
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(c) Change of Control Agreement, effective May 23, 1997,
between the Corporation and Douglas R. Hanks; and
(d) Change of Control Agreement, effective May 23, 1997,
between the Corporation and David M. Viar.
13 Portions of the Annual Report to Shareholders for the Year Ended
December 31, 1997......................................................
-----
21 Subsidiaries of the Corporation........................................
-----
23 Consent of KPMG Peat Marwick LLP ......................................
-----
27 Financial Data Schedule................................................
-----
</TABLE>
<PAGE>
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is entered into by and between CNB BANCSHARES, INC., an
Indiana corporation ("Company"), and JOHN N. DANIEL JR. ("Executive").
Background
A. Executive is an officer and key management employee of Company.
B. Company's Board of Directors ("Board") has determined that it is in
the best interests of Company and its shareholders to assure Executive's
continued dedication and undivided time, attention, and loyalty, notwithstanding
the possibility, threat, or occurrence of a Change of Control (as defined in
Section 2 below).
C. In furtherance of that goal, the Board wishes to provide Executive
with certain benefits, if his employment should terminate as a result of a
Change of Control.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Company on the terms agreed to by Executive and Company from
time to time.
In consideration of the premises, Company and Executive agree as
follows:
Agreement
1. Duration Of Agreement. This Agreement shall be effective May 23,
1997 ("Effective Date"), and shall continue until the end of the Term (as
defined in Section 2).
2. Definitions. The following words and phrases, when capitalized,
shall have the following meanings for purposes of this Agreement:
(a) Affiliate. "Affiliate" means an employer required to be
aggregated with Company pursuant to Section 414 (b) or (c) of the
Internal Revenue Code.
<PAGE>
(b) Anniversary Date. "Anniversary Date" means each anniversary of
the Effective Date occurring during the Term.
(c) Cause. "Cause" means and shall be limited to the
following:
(1) Executive's willful and continued failure to perform (other
than a failure resulting from Executive's illness or disability) his
employment duties after a demand for substantial performance is
delivered to Executive on behalf of the Board that specifically
identifies the manner in which it alleges that Executive has failed
to perform his duties and Executive's failure to take appropriate
actions to correct such failure within thirty (30) days; or
(2) Executive's willful engaging in misconduct that has caused
demonstrable and material injury, monetary or otherwise, to Company
or an Affiliate.
For purposes of this Subsection (c), no act or failure to act on
Executive's part shall be considered "willful" unless done, or omitted
to be done, by Executive not in good faith and without reasonable
belief that his action or omission was in the best interests of
Company. Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until the Board has
delivered to him a copy of a notice of termination, and after
reasonable notice to him and an opportunity for him, together with
counsel, to be heard before the Board, at least two-thirds of the Board
finds, in its reasonable opinion, that Executive was guilty of conduct
set forth above in clause (1) or (2) and specifying the particulars
thereof in detail.
(d) Change of Control. "Change of Control" shall be deemed to have
occurred upon the happening of any one or more of the following:
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<PAGE>
(1) any person, as that term is used in Section
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended from time to time, becomes a beneficial owner,
directly or indirectly, of securities of Company representing
twenty percent (20%) or more of the combined voting power of
Company's then outstanding securities;
(2) less than fifty-one percent (51%) of the members
of the Board are Incumbent Directors;
(3) any corporation or group of associated persons
acting in concert, owns more than twenty-five percent (25%) of
the outstanding shares of voting stock of Company coupled with
or followed by the exercise of the voting power of such shares
by the election of two (2) or more directors of Company in any
one election at the instance of such corporation or group;
(4) Company becomes a party to an agreement of
merger, consolidation, or other reorganization pursuant to
which Company will be a constituent corporation, and either
(A) Company is not the surviving or resulting corporation, or
(B) the transaction will result in less than eighty percent
(80%) of the outstanding voting securities of the surviving or
resulting entity being owned by the former shareholders of
Company;
(5) Company becomes a party to an agreement providing
for Company's sale or other disposition of all or
substantially all of its assets to any individual,
partnership, joint venture, association, trust, corporation,
or other entity or person which is not an Affiliate; or
(6) the occurrence of another event that the Board
designates a Change of Control.
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<PAGE>
(e) Change of Control Date. "Change of Control Date" means the
date as of which a Change of Control occurs.
(f) Change Period. "Change Period" means the period beginning
six months before the Change of Control Date and continuing for the
number of months specified in Appendix A after the Change of Control
Date. Notwithstanding the preceding sentence, if a Change of Control
described in Paragraph (d)(4) or (d)(5) occurs, the Change Period shall
begin when Company becomes a party to a legally binding agreement
described in paragraph (d)(4) or (d)(5) but shall not end until the
number of months specified in Appendix A after the effective date of
the Change of Control transaction described in Paragraph (4) or (5).
(g) Confidential Information. "Confidential Information" means
any information not in the public domain and not previously disclosed
to the public by the Board or management of the Company or an Affiliate
with respect to the products, facilities, and methods; trade secrets
and other intellectual property; systems, procedures, manuals,
confidential reports, customer lists, financial information, business
plans, prospects, or opportunities of the Company or an Affiliate; or
any information which the Company or an Affiliate has designated as
Confidential Information.
(h) Disability. "Disability" means Executive's inability to
perform the material duties of his employment because of physical or
mental illness, which inability is likely to last for a period of one
year or longer.
(i) Effective Date. "Effective Date" means the effective date
of this Agreement, as specified in Section 1.
-4-
<PAGE>
(j) Full Incentive Compensation. "Full Incentive Compensation"
means incentive compensation for a calendar year (including incentive
compensation in the amount of zero), provided that such compensation is
not reduced because Executive was employed by the Company for less than
the entire calendar year.
(k) Good Reason. "Good Reason" means, (i) with respect to a
Change of Control described in Section 2(d)(4) in which Company is the
surviving or resulting corporation, and which results in less than
eighty percent (80%) but more than fifty percent (50%) of the
outstanding voting securities of the resulting or surviving corporation
being owned by former shareholders of the Company, a material change in
position, title, compensation, status, responsibilities, or working
conditions in effect immediately before the Change of Control or
relocation of the Executive's place of employment to a location more
than fifty (50) miles from the Executive's place of employment
immediately before the Change of Control, and, (ii) with respect to any
Change of Control not described in Clause (i), Executive's
determination, in his sole judgment, that the duties of his employment,
compensation therefor, or the benefits or status associated therewith
have been reduced during the Change Period or that he is unable to
continue to perform the duties of his employment effectively because of
circumstances that changed during the Change Period directly or
indirectly as a result of the Change of Control.
(l) Incumbent Director. "Incumbent Director" means a director
serving on the Board who (i) was a director on the Effective Date or
(ii) was later elected as a director (except a director whose initial
assumption of office was in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors) and whose appointment, election,
or
-5-
<PAGE>
nomination for election was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were
directors on the Effective Date hereof or whose appointment, election,
or nomination for election was previously so approved or recommended.
(m) Payment Period. "Payment Period" means the period
beginning on the later of the Change of Control Date or the date of
Executive's termination of employment during the Change Period and
continuing for the number of months specified in Appendix A; provided,
however, if Executive's employment terminates after a Change of Control
(or, in the case of a transaction described in Paragraph 2(d)(4) or
2(d)(5), the later effective date of such transaction), the number of
months in the Payment Period shall be reduced by one for each full
calendar month before the effective date of Executive's termination of
employment occurring after the most recent Change of Control Date (or,
in the case of a transaction described in Paragraph 2(d)(3) or (4), the
later effective date of such transaction) before such termination date.
(n) Term. "Term" means the period beginning on the Effective
Date and ending on the second anniversary of the Effective Date, as
extended pursuant to the provisions of this Subsection. The period
referred to in the preceding sentence shall automatically be extended
for one additional year on each Anniversary Date, unless the Company
has notified the Executive not fewer than thirty (30) days before that
Anniversary Date that the Term will not automatically be extended
further. Notwithstanding any provision of this Agreement, if one or
more Changes of Control occur during the Term (as determined pursuant
to the preceding provisions of this Subsection or as extended pursuant
to this sentence to reflect a prior Change of Control),
-6-
<PAGE>
the Term shall not end before the end of the Payment Period with
respect to the latest Change of Control occurring during the Term.
(o) Termination Compensation. "Termination Compensation" has the
meaning specified in Paragraph 3(a)(1).
3. Termination of Executive's Employment During Change Period.
(a) If Executive terminates his employment for Good Reason during
the Change Period, or if Company terminates Executive's employment
during the Change Period for a reason other than Cause or Executive's
death or Disability, Executive shall be entitled to the following
benefits:
(1) An amount equal to Executive's Termination Compensation
multiplied by the number of months in the Payment Period.
Executive's Termination Compensation shall be equal to the sum of
(i) his highest rate of base monthly salary (unreduced by any
elective salary deferrals or redirections) during the twelve (12)
month period immediately preceding his termination of employment
plus (ii) one-twelfth of his average annual incentive compensation
with respect to the shortest of (A) the three calendar years
immediately preceding the Payment Period, provided Executive
received Full Incentive Compensation for all such years, (B) the
calendar years immediately preceding the Payment Period with
respect to which Executive received Full Incentive Compensation, or
(C) the total period of Executive's employment by Company. This
amount shall be paid to Executive in a lump sum between sixty (60)
and ninety (90) days after the later of (A) his termination of
employment or (B) the Change of Control Date. Executive may, in his
discretion, elect to reduce the amount payable to
-7-
<PAGE>
him pursuant to this Paragraph 3 to the extent necessary to
avoid excise taxes in Code Section 4999 of the Internal
Revenue Code.
(2) Throughout the Payment Period, Company shall provide
to Executive and his family medical, life insurance, and other
welfare benefits substantially similar to those provided to
active executive employees of the Company, provided Executive
pays any premiums charged by Company to active executive
employees receiving similar coverage. Beginning at the end of
the Payment Period, Company shall provide medical coverage to
Executive and his family that is substantially similar to the
coverage provided to active employees of the Company, provided
that Executive pays Company the same premium as he would have
been required to pay if such coverage had been provided
pursuant to the Consolidated Omnibus Budget Reconciliation Act
of 1985. Executive may elect to purchase single coverage or
family coverage pursuant to the preceding sentence. Subject to
Executive's payment of the required premiums, post-Payment
Period medical coverage for Executive and his spouse shall
continue until the earliest of the following events: (i) the
Executive's (or in the case of coverage for the Executive's
spouse, his spouse's) Medicare eligibility, (ii) the
Executive's (or in the case of coverage for the Executive's
spouse, his spouse's) death, or (iii) medical coverage for the
Executive (or in the case of coverage for the Executive's
spouse, his spouse) through another employer.
(b) The payment or provision of benefits to Executive pursuant
to this Agreement shall not affect the obligations of Company or its
successor under any plan, agreement, or arrangement generally
applicable to Company's retired
-8-
<PAGE>
management employees pursuant to which Executive is entitled to
any retirement benefits, welfare benefits, stock, or other fringe
benefits.
4. Non-Competition. Executive shall not, while employed or
during the Payment Period, become an officer, director, or employee of,
consultant to, or majority shareholder in any bank or bank holding company that
substantially competes with Company, its subsidiaries, or Affiliates, or its
successor or successors within one hundred (100) miles from Evansville, Indiana,
or fifty (50) miles from the nearest banking office of Company or a subsidiary
thereof.
5. Non-Disclosure of Confidential Information. Executive
acknowledges that, by virtue of his employment, he has obtained or will obtain
Confidential Information, the use or disclosure of which could cause Company
immeasurable and substantial loss and damages for which no remedy at law would
be adequate. Accordingly, Executive covenants and agrees with Company that,
except as necessary to perform his obligations to Company or with the prior
written consent of Company's Board, he will not at any time directly or
indirectly disclose any Confidential Information that he may acquire or has
acquired by reason of his association with Company. Without limiting the rights
or remedies, both legal and equitable, available to Company in the event of an
actual or threatened breach of Executive's obligations under this Section,
Company shall be entitled to seek and obtain a temporary restraining order
and/or a preliminary or permanent injunction against Executive, which shall
prevent Executive from engaging in any activities prohibited by this Section, or
to seek and obtain such other relief against Executive as may be required to
enforce Executive's obligations hereunder. Executive's obligations set forth in
this Section and Company's rights and remedies, whether legal or equitable, with
respect thereto, shall extend indefinitely.
-9-
<PAGE>
6. Expenses. If Executive determines, in his absolute judgment,
that it is necessary or advisable for him to incur reasonable legal and/or
accounting expenses, including but not limited to reasonable attorneys' and/or
accountants' fees, to obtain full and effective enforcement of his rights under
this Agreement or to determine the appropriate tax treatment of amounts paid
pursuant to this Agreement, Company shall reimburse Executive for all such
reasonable expenses and costs on a periodic basis. Company's obligation to
reimburse Executive for these reasonable expenses or costs pursuant to this
Section shall survive expiration of the Term and shall survive the termination
of any later employment agreements between Executive and Company. Any
reimbursement required by this Section shall be paid promptly to Executive after
he submits a copy of the service provider's invoice for the covered expense.
7. Company's Obligation to Provide Information. After
termination of Executive's employment, Company shall promptly provide Executive
with reasonably requested information relating to his retirement, benefits and
payments under this Agreement, and other post-employment benefits.
8. Binding Effect And Assignment. This Agreement shall inure to
the benefit of and shall be binding upon the parties to this Agreement and their
respective executors, administrators, heirs, personal representatives,
successors, and assigns, but neither this Agreement nor any right created by
this Agreement may be assigned or transferred by either party. Notwithstanding
the foregoing, the Company shall assign this Agreement to any person or entity
succeeding to substantially all of the business and assets of the Company upon a
Change in Control, and upon such a Change in Control, the Company shall obtain
the assumption of this Agreement by its successor.
-10-
<PAGE>
9. Notices. Any notice to a party required or permitted to be
given by this Agreement shall be in writing and shall be deemed given when
mailed by registered or certified mail to the party at the party's address as
specified in this Section:
If to the Company, to: CNB Bancshares, Inc.
Attention: Corporate Secretary
20 N.W. Third Street
Evansville, Indiana 47708
or such other address designated by Company in writing to Executive as provided
in this Section.
If to Executive, to: 3166 Summit Court
Newburgh, IN 47630
or such other address designated by the Executive in writing to the Company as
provided in this Section.
10. Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants, and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated.
11. Amendments. This Agreement may not be modified, amended,
altered, or supplemented except upon the execution and delivery of a written
agreement executed by Company and Executive.
12. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Indiana.
13. Arbitration. Any dispute, claim, or controversy concerning
the terms, meaning, application, or enforcement of any provision of this
Agreement that cannot be resolved through direct discussion or mediation shall
be submitted to final and binding
-11-
<PAGE>
arbitration before a neutral arbitrator pursuant to the arbitration procedures
set out in this Section ("Procedures") under the auspices of the American
Arbitration Association (AAA) at Evansville, Indiana. The AAA Employment Dispute
Resolution Rules in effect at the time of the arbitration shall govern
arbitration proceedings, except insofar as these Procedures, as they may be
amended from time to time, specifically provide otherwise. Executive may
initiate a claim or case only by a written notice to Company as provided in this
Agreement. Company may likewise initiate a claim or case by a written notice
delivered to Executive, as provided in this Agreement. The written notice must
set forth the matter in dispute in sufficient detail to advise the non-
initiating party of the nature and amount of the dispute or claim, the date(s)
of the underlying occurrence(s), and the relief requested. It shall also be the
initiating party's responsibility to submit the claim and other required
documents and fees to AAA in a timely manner; provided, however, if Executive is
fully or partially successful, Company shall reimburse Executive for arbitration
fees reasonably incurred. In conducting arbitration proceedings, the AAA-
appointed arbitrator shall be authorized to award any relief available under the
laws of the United States or the State of Indiana applicable to the claim,
dispute, or controversy submitted, where such relief is warranted based on the
evidence and the law. Any arbitration award shall be final and binding, and
enforceable by an action in any court of competent jurisdiction. No award shall
be set aside, or denied enforcement, by any court in any action unless the court
finds that the arbitrator purported to resolve claims, disputes, or
controversies not within the scope of these Procedures. Adherence to these
Procedures, and the agreement of the parties to this Agreement to follow them,
shall be enforceable in an action to compel or stay arbitration pursuant to the
Federal Arbitration Act or the Indiana Uniform Arbitration Act in a court of
competent jurisdiction.
-12-
<PAGE>
14. Integration. This Agreement supersedes all prior agreements
between the parties with respect to the matters covered herein.
15. Counterparts. This Agreement may be signed in two
counterparts, each of which shall be deemed to be an original but which together
shall constitute one and the same instrument.
Effect Of Headings. The section headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
IN WITNESS WHEREOF, CNB Bancshares, Inc. has caused this Agreement
to be executed on this 23rd day of May, 1997, and Executive has executed this
Agreement on the date specified below.
ATTEST: CNB BANCSHARES, INC.
/s/ Sallie A. Gore By /s/ James J.Giancola
- ----------------------------- -------------------------------------
(Signature)
5/23/97
----------------------------------------
(Date)
EXECUTIVE
/s/ John N. Daniel Jr.
----------------------------------------
(Signature)
5/23/97
----------------------------------------
(Date)
-13-
<PAGE>
APPENDIX A
The Payment Period shall consist of 18 months.
ATTEST: CNB BANCSHARES, INC.
/s/ Sallie A. Gore By /s/ James J. Giancola
- ----------------------------- -------------------------------------
(Signature)
5/23/97
----------------------------------------
(Date)
EXECUTIVE
/s/ John N. Daniel Jr.
----------------------------------------
(Signature)
5/23/97
----------------------------------------
(Date)
-14-
<PAGE>
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is entered into by and between CNB BANCSHARES, INC., an
Indiana corporation ("Company"), and JAMES R. DODD ("Executive").
Background
----------
A. Executive is an officer and key management employee of Company.
B. Company's Board of Directors ("Board") has determined that it is in
the best interests of Company and its shareholders to assure Executive's
continued dedication and undivided time, attention, and loyalty, notwithstanding
the possibility, threat, or occurrence of a Change of Control (as defined in
Section 2 below).
C. In furtherance of that goal, the Board wishes to provide Executive
with certain benefits, if his employment should terminate as a result of a
Change of Control.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Company on the terms agreed to by Executive and Company from
time to time.
In consideration of the premises, Company and Executive agree as
follows:
Agreement
---------
1. Duration Of Agreement. This Agreement shall be effective June 9,
1997 ("Effective Date"), and shall continue until the end of the Term (as
defined in Section 2).
2. Definitions. The following words and phrases, when capitalized,
shall have the following meanings for purposes of this Agreement:
(a) Affiliate. "Affiliate" means an employer required to be
aggregated with Company pursuant to Section 414 (b) or (c) of the
Internal Revenue Code.
<PAGE>
(b) Anniversary Date. "Anniversary Date" means each
anniversary of the Effective Date occurring during the Term.
(c) Cause. "Cause" means and shall be limited to the
following:
(1) Executive's willful and continued failure to
perform (other than a failure resulting from Executive's illness or
disability) his employment duties after a demand for substantial
performance is delivered to Executive on behalf of the Board that
specifically identifies the manner in which it alleges that
Executive has failed to perform his duties and Executive's failure
to take appropriate actions to correct such failure within thirty
(30) days; or
(2) Executive's willful engaging in misconduct that has caused
demonstrable and material injury, monetary or otherwise, to Company
or an Affiliate.
For purposes of this Subsection (c), no act or failure to act on
Executive's part shall be considered "willful" unless done, or omitted
to be done, by Executive not in good faith and without reasonable
belief that his action or omission was in the best interests of
Company. Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until the Board has
delivered to him a copy of a notice of termination, and after
reasonable notice to him and an opportunity for him, together with
counsel, to be heard before the Board, at least two-thirds of the Board
finds, in its reasonable opinion, that Executive was guilty of conduct
set forth above in clause (1) or (2) and specifying the particulars
thereof in detail.
(d) Change of Control. "Change of Control" shall be deemed to
have occurred upon the happening of any one or more of the following:
-2-
<PAGE>
(1) any person, as that term is used in Section 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended from
time to time, becomes a beneficial owner, directly or indirectly, of
securities of Company representing twenty percent (20%) or more of
the combined voting power of Company's then outstanding securities;
(2) less than fifty-one percent (51%) of the members of the
Board are Incumbent Directors;
(3) any corporation or group of associated persons acting in
concert, owns more than twenty-five percent (25%) of the outstanding
shares of voting stock of Company coupled with or followed by the
exercise of the voting power of such shares by the election of two
(2) or more directors of Company in any one election at the instance
of such corporation or group;
(4) Company becomes a party to an agreement of merger,
consolidation, or other reorganization pursuant to which Company
will be a constituent corporation, and either (A) Company is not the
surviving or resulting corporation, or (B) the transaction will
result in less than eighty percent (80%) of the outstanding voting
securities of the surviving or resulting entity being owned by the
former shareholders of Company;
(5) Company becomes a party to an agreement providing for
Company's sale or other disposition of all or substantially all of
its assets to any individual, partnership, joint venture,
association, trust, corporation, or other entity or person which is
not an Affiliate; or
(6) the occurrence of another event that the Board designates a
Change of Control.
-3-
<PAGE>
(e) Change of Control Date. "Change of Control Date" means the
date as of which a Change of Control occurs.
(f) Change Period. "Change Period" means the period beginning
six months before the Change of Control Date and continuing for the
number of months specified in Appendix A after the Change of Control
Date. Notwithstanding the preceding sentence, if a Change of Control
described in Paragraph (d)(4) or (d)(5) occurs, the Change Period shall
begin when Company becomes a party to a legally binding agreement
described in paragraph (d)(4) or (d)(5) but shall not end until the
number of months specified in Appendix A after the effective date of
the Change of Control transaction described in Paragraph (4) or (5).
(g) Confidential Information. "Confidential Information" means
any information not in the public domain and not previously disclosed
to the public by the Board or management of the Company or an Affiliate
with respect to the products, facilities, and methods; trade secrets
and other intellectual property; systems, procedures, manuals,
confidential reports, customer lists, financial information, business
plans, prospects, or opportunities of the Company or an Affiliate; or
any information which the Company or an Affiliate has designated as
Confidential Information.
(h) Disability. "Disability" means Executive's inability to
perform the material duties of his employment because of physical or
mental illness, which inability is likely to last for a period of one
year or longer.
(i) Effective Date. "Effective Date" means the effective date
of this Agreement, as specified in Section 1.
-4-
<PAGE>
(j) Full Incentive Compensation. "Full Incentive Compensation"
means incentive compensation for a calendar year (including incentive
compensation in the amount of zero), provided that such compensation is
not reduced because Executive was employed by the Company for less than
the entire calendar year.
(k) Good Reason. "Good Reason" means, (i) with respect to a
Change of Control described in Section 2(d)(4) in which Company is the
surviving or resulting corporation, and which results in less than
eighty percent (80%) but more than fifty percent (50%) of the
outstanding voting securities of the resulting or surviving corporation
being owned by former shareholders of the Company, a material change in
position, title, compensation, status, responsibilities, or working
conditions in effect immediately before the Change of Control or
relocation of the Executive's place of employment to a location more
than fifty (50) miles from the Executive's place of employment
immediately before the Change of Control, and, (ii) with respect to any
Change of Control not described in Clause (i), Executive's
determination, in his sole judgment, that the duties of his employment,
compensation therefor, or the benefits or status associated therewith
have been reduced during the Change Period or that he is unable to
continue to perform the duties of his employment effectively because of
circumstances that changed during the Change Period directly or
indirectly as a result of the Change of Control.
(l) Incumbent Director. "Incumbent Director" means a director
serving on the Board who (i) was a director on the Effective Date or
(ii) was later elected as a director (except a director whose initial
assumption of office was in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors) and whose appointment, election,
or
-5-
<PAGE>
nomination for election was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were
directors on the Effective Date hereof or whose appointment, election,
or nomination for election was previously so approved or recommended.
(m) Payment Period. "Payment Period" means the period beginning on
the later of the Change of Control Date or the date of Executive's
termination of employment during the Change Period and continuing for
the number of months specified in Appendix A; provided, however, if
Executive's employment terminates after a Change of Control (or, in the
case of a transaction described in Paragraph 2(d)(4) or 2(d)(5), the
later effective date of such transaction), the number of months in the
Payment Period shall be reduced by one for each full calendar month
before the effective date of Executive's termination of employment
occurring after the most recent Change of Control Date (or, in the case
of a transaction described in Paragraph 2(d)(3) or (4), the later
effective date of such transaction) before such termination date.
(n) Term. "Term" means the period beginning on the Effective
Date and ending on the second anniversary of the Effective Date, as
extended pursuant to the provisions of this Subsection. The period
referred to in the preceding sentence shall automatically be extended
for one additional year on each Anniversary Date, unless the Company
has notified the Executive not fewer than thirty (30) days before that
Anniversary Date that the Term will not automatically be extended
further. Notwithstanding any provision of this Agreement, if one or
more Changes of Control occur during the Term (as determined pursuant
to the preceding provisions of this Subsection or as extended pursuant
to this sentence to reflect a prior Change of Control),
-6-
<PAGE>
the Term shall not end before the end of the Payment Period with
respect to the latest Change of Control occurring during the Term.
(o) Termination Compensation. "Termination Compensation" has
the meaning specified in Paragraph 3(a)(1).
3. Termination of Executive's Employment During Change Period.
(a) If Executive terminates his employment for Good Reason
during the Change Period, or if Company terminates Executive's
employment during the Change Period for a reason other than Cause or
Executive's death or Disability, Executive shall be entitled to the
following benefits:
(1) An amount equal to Executive's Termination Compensation
multiplied by the number of months in the Payment Period.
Executive's Termination Compensation shall be equal to the sum of
(i) his highest rate of base monthly salary (unreduced by any
elective salary deferrals or redirections) during the twelve (12)
month period immediately preceding his termination of employment
plus (ii) one-twelfth of his average annual incentive compensation
with respect to the shortest of (A) the three calendar years
immediately preceding the Payment Period, provided Executive
received Full Incentive Compensation for all such years, (B) the
calendar years immediately preceding the Payment Period with respect
to which Executive received Full Incentive Compensation, or (C) the
total period of Executive's employment by Company. This amount shall
be paid to Executive in a lump sum between sixty (60) and ninety
(90) days after the later of (A) his termination of employment or
(B) the Change of Control Date. Executive may, in his discretion,
elect to reduce the amount payable to
-7-
<PAGE>
him pursuant to this Paragraph 3 to the extent necessary to
avoid excise taxes in Code Section 4999 of the Internal
Revenue Code.
(2) Throughout the Payment Period, Company shall
provide to Executive and his family medical, life insurance,
and other welfare benefits substantially similar to those
provided to active executive employees of the Company,
provided Executive pays any premiums charged by Company to
active executive employees receiving similar coverage.
Beginning at the end of the Payment Period, Company shall
provide medical coverage to Executive and his family that is
substantially similar to the coverage provided to active
employees of the Company, provided that Executive pays Company
the same premium as he would have been required to pay if such
coverage had been provided pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985. Executive may elect
to purchase single coverage or family coverage pursuant to the
preceding sentence. Subject to Executive's payment of the
required premiums, post-Payment Period medical coverage for
Executive and his spouse shall continue until the earliest of
the following events: (i) the Executive's (or in the case of
coverage for the Executive's spouse, his spouse's) Medicare
eligibility, (ii) the Executive's (or in the case of coverage
for the Executive's spouse, his spouse's) death, or (iii)
medical coverage for the Executive (or in the case of coverage
for the Executive's spouse, his spouse) through another
employer.
(b) The payment or provision of benefits to Executive pursuant
to this Agreement shall not affect the obligations of Company or its
successor under any plan, agreement, or arrangement generally applicable to
Company's retired
-8-
<PAGE>
management employees pursuant to which Executive is entitled
to any retirement benefits, welfare benefits, stock, or other
fringe benefits.
4. Non-Competition. Executive shall not, while employed or
---------------
during the Payment Period, become an officer, director, or employee of,
consultant to, or majority shareholder in any bank or bank holding company
that substantially competes with Company, its subsidiaries, or Affiliates,
or its successor or successors within one hundred (100) miles from
Evansville, Indiana, or fifty (50) miles from the nearest banking office of
Company or a subsidiary thereof.
5. Non-Disclosure of Confidential Information. Executive
------------------------------------------
acknowledges that, by virtue of his employment, he has obtained or will
obtain Confidential Information, the use or disclosure of which could cause
Company immeasurable and substantial loss and damages for which no remedy
at law would be adequate. Accordingly, Executive covenants and agrees with
Company that, except as necessary to perform his obligations to Company or
with the prior written consent of Company's Board, he will not at any time
directly or indirectly disclose any Confidential Information that he may
acquire or has acquired by reason of his association with Company. Without
limiting the rights or remedies, both legal and equitable, available to
Company in the event of an actual or threatened breach of Executive's
obligations under this Section, Company shall be entitled to seek and
obtain a temporary restraining order and/or a preliminary or permanent
injunction against Executive, which shall prevent Executive from engaging
in any activities prohibited by this Section, or to seek and obtain such
other relief against Executive as may be required to enforce Executive's
obligations hereunder. Executive's obligations set forth in this Section
and Company's rights and remedies, whether legal or equitable, with respect
thereto, shall extend indefinitely.
-9-
<PAGE>
6. Expenses. If Executive determines, in his absolute
--------
judgment, that it is necessary or advisable for him to incur reasonable
legal and/or accounting expenses, including but not limited to reasonable
attorneys' and/or accountants' fees, to obtain full and effective
enforcement of his rights under this Agreement or to determine the
appropriate tax treatment of amounts paid pursuant to this Agreement,
Company shall reimburse Executive for all such reasonable expenses and
costs on a periodic basis. Company's obligation to reimburse Executive for
these reasonable expenses or costs pursuant to this Section shall survive
expiration of the Term and shall survive the termination of any later
employment agreements between Executive and Company. Any reimbursement
required by this Section shall be paid promptly to Executive after he
submits a copy of the service provider's invoice for the covered expense.
7. Company's Obligation to Provide Information. After
-------------------------------------------
termination of Executive's employment, Company shall promptly provide
Executive with reasonably requested information relating to his retirement,
benefits and payments under this Agreement, and other post-employment
benefits.
8. Binding Effect And Assignment. This Agreement shall
-----------------------------
inure to the benefit of and shall be binding upon the parties to this
Agreement and their respective executors, administrators, heirs, personal
representatives, successors, and assigns, but neither this Agreement nor
any right created by this Agreement may be assigned or transferred by
either party. Notwithstanding the foregoing, the Company shall assign this
Agreement to any person or entity succeeding to substantially all of the
business and assets of the Company upon a Change in Control, and upon such
a Change in Control, the Company shall obtain the assumption of this
Agreement by its successor.
-10-
<PAGE>
9. Notices. Any notice to a party required or permitted to
-------
be given by this Agreement shall be in writing and shall be deemed given
when mailed by registered or certified mail to the party at the party's
address as specified in this Section:
If to the Company, to: CNB Bancshares, Inc.
Attention: Corporate Secretary
20 N.W. Third Street
Evansville, Indiana 47708
or such other address designated by Company in writing to Executive as
provided in this Section.
If to Executive, to: James R. Dodd
3155 Deer Pointe Drive
Newburgh, IN 47630
or such other address designated by Company in writing to Executive as
provided in this Section.
10. Severability. If any term, provision, covenant, or
------------
restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, void, or unenforceable, the remainder of the terms,
provisions, covenants, and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired, or
invalidated.
11. Amendments. This Agreement may not be modified,
----------
amended, altered, or supplemented except upon the execution and delivery of
a written agreement executed by Company and Executive.
12. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the State of Indiana.
13. Arbitration. Any dispute, claim, or controversy
-----------
concerning the terms, meaning, application, or enforcement of any provision
of this Agreement that cannot be
-11-
<PAGE>
resolved through direct discussion or mediation shall be submitted to final
and binding arbitration before a neutral arbitrator pursuant to the
arbitration procedures set out in this Section ("Procedures") under the
auspices of the American Arbitration Association (AAA) at Evansville,
Indiana. The AAA Employment Dispute Resolution Rules in effect at the time
of the arbitration shall govern arbitration proceedings, except insofar as
these Procedures, as they may be amended from time to time, specifically
provide otherwise. Executive may initiate a claim or case only by a written
notice to Company as provided in this Agreement. Company may likewise
initiate a claim or case by a written notice delivered to Executive, as
provided in this Agreement. The written notice must set forth the matter in
dispute in sufficient detail to advise the non-initiating party of the
nature and amount of the dispute or claim, the date(s) of the underlying
occurrence(s), and the relief requested. It shall also be the initiating
party's responsibility to submit the claim and other required documents and
fees to AAA in a timely manner; provided, however, if Executive is fully or
partially successful, Company shall reimburse Executive for arbitration
fees reasonably incurred. In conducting arbitration proceedings, the AAA-
appointed arbitrator shall be authorized to award any relief available
under the laws of the United States or the State of Indiana applicable to
the claim, dispute, or controversy submitted, where such relief is
warranted based on the evidence and the law. Any arbitration award shall be
final and binding, and enforceable by an action in any court of competent
jurisdiction. No award shall be set aside, or denied enforcement, by any
court in any action unless the court finds that the arbitrator purported to
resolve claims, disputes, or controversies not within the scope of these
Procedures. Adherence to these Procedures, and the agreement of the parties
to this Agreement to follow them, shall be enforceable in an action to
compel or stay arbitration pursuant to the Federal Arbitration Act or the
Indiana Uniform Arbitration Act in a court of competent jurisdiction.
-12-
<PAGE>
14. Integration. This Agreement supersedes all prior
-----------
agreements between the parties with respect to the matters covered herein.
15. Counterparts. This Agreement may be signed in two
------------
counterparts, each of which shall be deemed to be an original but which
together shall constitute one and the same instrument. Effect Of Headings.
The section headings in this Agreement are for convenience only and shall
not affect the construction of this Agreement.
IN WITNESS WHEREOF, CNB Bancshares, Inc. has caused this
Agreement to be executed on this 9th day of June, 1997, and Executive has
executed this Agreement on the date specified below.
ATTEST: CNB BANCSHARES, INC.
/s/ David L. Knapp By /s/ James J. Giancola
---------------------------- -------------------------------
(Signature)
June 9, 1997
-----------------------------------
(Date)
EXECUTIVE
/s/ James R. Dodd
-----------------------------------
(Signature)
June 9, 1997
-----------------------------------
(Date)
-13-
<PAGE>
APPENDIX A
The Payment Period shall consist of 18 months.
ATTEST: CNB BANCSHARES, INC.
/s/ David L. Knapp By /s/ James J. Giancola
------------------------------ -------------------------------
(Signature)
June 9, 1997
-----------------------------------
(Date)
EXECUTIVE
/s/ James R. Dodd
-----------------------------------
(Signature)
June 9, 1997
-----------------------------------
(Date)
-14-
<PAGE>
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is entered into by and between CNB BANCSHARES, INC., an
Indiana corporation ("Company"), and DOUGLAS R. HANKS ("Executive").
Background
----------
A. Executive is an officer and key management employee of Company.
B. Company's Board of Directors ("Board") has determined that it is in
the best interests of Company and its shareholders to assure Executive's
continued dedication and undivided time, attention, and loyalty, notwithstanding
the possibility, threat, or occurrence of a Change of Control (as defined in
Section 2 below).
C. In furtherance of that goal, the Board wishes to provide Executive
with certain benefits, if his employment should terminate as a result of a
Change of Control.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Company on the terms agreed to by Executive and Company from
time to time.
In consideration of the premises, Company and Executive agree as
follows:
Agreement
---------
1. Duration Of Agreement. This Agreement shall be effective May
---------------------
23, 1997 ("Effective Date"), and shall continue until the end of the Term (as
defined in Section 2).
2. Definitions. The following words and phrases, when capitalized,
-----------
shall have the following meanings for purposes of this Agreement:
(a) Affiliate. "Affiliate" means an employer required to be
---------
aggregated with Company pursuant to Section 414 (b) or (c) of the
Internal Revenue Code.
<PAGE>
(b) Anniversary Date. "Anniversary Date" means each anniversary
----------------
of the Effective Date occurring during the Term.
(c) Cause. "Cause" means and shall be limited to the
following:
(1) Executive's willful and continued failure to perform
(other than a failure resulting from Executive's illness or
disability) his employment duties after a demand for substantial
performance is delivered to Executive on behalf of the Board that
specifically identifies the manner in which it alleges that
Executive has failed to perform his duties and Executive's failure
to take appropriate actions to correct such failure within thirty
(30) days; or
(2) Executive's willful engaging in misconduct that has caused
demonstrable and material injury, monetary or otherwise, to
Company or an Affiliate.
For purposes of this Subsection (c), no act or failure to act on
Executive's part shall be considered "willful" unless done, or omitted
to be done, by Executive not in good faith and without reasonable
belief that his action or omission was in the best interests of
Company. Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until the Board has
delivered to him a copy of a notice of termination, and after
reasonable notice to him and an opportunity for him, together with
counsel, to be heard before the Board, at least two-thirds of the Board
finds, in its reasonable opinion, that Executive was guilty of conduct
set forth above in clause (1) or (2) and specifying the particulars
thereof in detail.
(d) Change of Control. "Change of Control" shall be deemed to
-----------------
have occurred upon the happening of any one or more of the following:
-2-
<PAGE>
(1) any person, as that term is used in Section 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended from time
to time, becomes a beneficial owner, directly or indirectly, of
securities of Company representing twenty percent (20%) or more of the
combined voting power of Company's then outstanding securities;
(2) less than fifty-one percent (51%) of the members of the
Board are Incumbent Directors;
(3) any corporation or group of associated persons acting in
concert, owns more than twenty-five percent (25%) of the outstanding
shares of voting stock of Company coupled with or followed by the
exercise of the voting power of such shares by the election of two (2)
or more directors of Company in any one election at the instance of
such corporation or group;
(4) Company becomes a party to an agreement of merger,
consolidation, or other reorganization pursuant to which Company will
be a constituent corporation, and either (A) Company is not the
surviving or resulting corporation, or (B) the transaction will result
in less than eighty percent (80%) of the outstanding voting securities
of the surviving or resulting entity being owned by the former
shareholders of Company;
(5) Company becomes a party to an agreement providing for
Company's sale or other disposition of all or substantially all of its
assets to any individual, partnership, joint venture, association,
trust, corporation, or other entity or person which is not an
Affiliate; or
(6) the occurrence of another event that the Board designates
a Change of Control.
-3-
<PAGE>
(e) Change of Control Date. "Change of Control Date" means the
----------------------
date as of which a Change of Control occurs.
(f) Change Period. "Change Period" means the period beginning
-------------
six months before the Change of Control Date and continuing for the
number of months specified in Appendix A after the Change of Control
Date. Notwithstanding the preceding sentence, if a Change of Control
described in Paragraph (d)(4) or (d)(5) occurs, the Change Period shall
begin when Company becomes a party to a legally binding agreement
described in paragraph (d)(4) or (d)(5) but shall not end until the
number of months specified in Appendix A after the effective date of
the Change of Control transaction described in Paragraph (4) or (5).
(g) Confidential Information. "Confidential Information" means
------------------------
any information not in the public domain and not previously disclosed
to the public by the Board or management of the Company or an Affiliate
with respect to the products, facilities, and methods; trade secrets
and other intellectual property; systems, procedures, manuals,
confidential reports, customer lists, financial information, business
plans, prospects, or opportunities of the Company or an Affiliate; or
any information which the Company or an Affiliate has designated as
Confidential Information.
(h) Disability. "Disability" means Executive's inability to
----------
perform the material duties of his employment because of physical or
mental illness, which inability is likely to last for a period of one
year or longer.
(i) Effective Date. "Effective Date" means the effective date
--------------
of this Agreement, as specified in Section 1.
-4-
<PAGE>
(j) Full Incentive Compensation. "Full Incentive Compensation"
---------------------------
means incentive compensation for a calendar year (including incentive
compensation in the amount of zero), provided that such compensation is
not reduced because Executive was employed by the Company for less than
the entire calendar year.
(k) Good Reason. "Good Reason" means, (i) with respect to a
-----------
Change of Control described in Section 2(d)(4) in which Company is the
surviving or resulting corporation, and which results in less than
eighty percent (80%) but more than fifty percent (50%) of the
outstanding voting securities of the resulting or surviving corporation
being owned by former shareholders of the Company, a material change in
position, title, compensation, status, responsibilities, or working
conditions in effect immediately before the Change of Control or
relocation of the Executive's place of employment to a location more
than fifty (50) miles from the Executive's place of employment
immediately before the Change of Control, and, (ii) with respect to any
Change of Control not described in Clause (i), Executive's
determination, in his sole judgment, that the duties of his employment,
compensation therefor, or the benefits or status associated therewith
have been reduced during the Change Period or that he is unable to
continue to perform the duties of his employment effectively because of
circumstances that changed during the Change Period directly or
indirectly as a result of the Change of Control.
(l) Incumbent Director. "Incumbent Director" means a director
------------------
serving on the Board who (i) was a director on the Effective Date or
(ii) was later elected as a director (except a director whose initial
assumption of office was in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors) and whose appointment, election,
or
-5-
<PAGE>
nomination for election was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were
directors on the Effective Date hereof or whose appointment, election,
or nomination for election was previously so approved or recommended.
(m) Payment Period. "Payment Period" means the period
--------------
beginning on the later of the Change of Control Date or the date of
Executive's termination of employment during the Change Period and
continuing for the number of months specified in Appendix A; provided,
however, if Executive's employment terminates after a Change of Control
(or, in the case of a transaction described in Paragraph 2(d)(4) or
2(d)(5), the later effective date of such transaction), the number of
months in the Payment Period shall be reduced by one for each full
calendar month before the effective date of Executive's termination of
employment occurring after the most recent Change of Control Date (or,
in the case of a transaction described in Paragraph 2(d)(3) or (4), the
later effective date of such transaction) before such termination date.
(n) Term. "Term" means the period beginning on the Effective
----
Date and ending on the second anniversary of the Effective Date, as
extended pursuant to the provisions of this Subsection. The period
referred to in the preceding sentence shall automatically be extended
for one additional year on each Anniversary Date, unless the Company
has notified the Executive not fewer than thirty (30) days before that
Anniversary Date that the Term will not automatically be extended
further. Notwithstanding any provision of this Agreement, if one or
more Changes of Control occur during the Term (as determined pursuant
to the preceding provisions of this Subsection or as extended pursuant
to this sentence to reflect a prior Change of Control),
-6-
<PAGE>
the Term shall not end before the end of the Payment Period with
respect to the latest Change of Control occurring during the Term.
(o) Termination Compensation. "Termination Compensation" has
------------------------
the meaning specified in Paragraph 3(a)(1).
3. Termination of Executive's Employment During Change Period.
----------------------------------------------------------
(a) If Executive terminates his employment for Good Reason
during the Change Period, or if Company terminates Executive's
employment during the Change Period for a reason other than Cause or
Executive's death or Disability, Executive shall be entitled to the
following benefits:
(1) An amount equal to Executive's Termination
Compensation multiplied by the number of months in the Payment
Period. Executive's Termination Compensation shall be equal to
the sum of (i) his highest rate of base monthly salary
(unreduced by any elective salary deferrals or redirections)
during the twelve (12) month period immediately preceding his
termination of employment plus (ii) one-twelfth of his average
annual incentive compensation with respect to the shortest of
(A) the three calendar years immediately preceding the Payment
Period, provided Executive received Full Incentive
Compensation for all such years, (B) the calendar years
immediately preceding the Payment Period with respect to which
Executive received Full Incentive Compensation, or (C) the
total period of Executive's employment by Company. This amount
shall be paid to Executive in a lump sum between sixty (60)
and ninety (90) days after the later of (A) his termination of
employment or (B) the Change of Control Date. Executive may,
in his discretion, elect to reduce the amount payable to
-7-
<PAGE>
him pursuant to this Paragraph 3 to the extent necessary to
avoid excise taxes in Code Section 4999 of the Internal
Revenue Code.
(2) Throughout the Payment Period, Company shall
provide to Executive and his family medical, life insurance,
and other welfare benefits substantially similar to those
provided to active executive employees of the Company,
provided Executive pays any premiums charged by Company to
active executive employees receiving similar coverage.
Beginning at the end of the Payment Period, Company shall
provide medical coverage to Executive and his family that is
substantially similar to the coverage provided to active
employees of the Company, provided that Executive pays Company
the same premium as he would have been required to pay if such
coverage had been provided pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985. Executive may elect
to purchase single coverage or family coverage pursuant to the
preceding sentence. Subject to Executive's payment of the
required premiums, post-Payment Period medical coverage for
Executive and his spouse shall continue until the earliest of
the following events: (i) the Executive's (or in the case of
coverage for the Executive's spouse, his spouse's) Medicare
eligibility, (ii) the Executive's (or in the case of coverage
for the Executive's spouse, his spouse's) death, or (iii)
medical coverage for the Executive (or in the case of coverage
for the Executive's spouse, his spouse) through another
employer.
(b) The payment or provision of benefits to Executive pursuant
to this Agreement shall not affect the obligations of Company or its
successor under any plan, agreement, or arrangement generally applicable to
Company's retired
-8-
<PAGE>
management employees pursuant to which Executive is entitled to any
retirement benefits, welfare benefits, stock, or other fringe benefits.
4. Non-Competition. Executive shall not, while employed or
---------------
during the Payment Period, become an officer, director, or employee of,
consultant to, or majority shareholder in any bank or bank holding company
that substantially competes with Company, its subsidiaries, or Affiliates,
or its successor or successors within one hundred (100) miles from
Evansville, Indiana, or fifty (50) miles from the nearest banking office of
Company or a subsidiary thereof.
5. Non-Disclosure of Confidential Information. Executive
------------------------------------------
acknowledges that, by virtue of his employment, he has obtained or will
obtain Confidential Information, the use or disclosure of which could cause
Company immeasurable and substantial loss and damages for which no remedy
at law would be adequate. Accordingly, Executive covenants and agrees with
Company that, except as necessary to perform his obligations to Company or
with the prior written consent of Company's Board, he will not at any time
directly or indirectly disclose any Confidential Information that he may
acquire or has acquired by reason of his association with Company. Without
limiting the rights or remedies, both legal and equitable, available to
Company in the event of an actual or threatened breach of Executive's
obligations under this Section, Company shall be entitled to seek and
obtain a temporary restraining order and/or a preliminary or permanent
injunction against Executive, which shall prevent Executive from engaging
in any activities prohibited by this Section, or to seek and obtain such
other relief against Executive as may be required to enforce Executive's
obligations hereunder. Executive's obligations set forth in this Section
and Company's rights and remedies, whether legal or equitable, with respect
thereto, shall extend indefinitely.
-9-
<PAGE>
6. Expenses. If Executive determines, in his absolute
--------
judgment, that it is necessary or advisable for him to incur reasonable
legal and/or accounting expenses, including but not limited to reasonable
attorneys' and/or accountants' fees, to obtain full and effective
enforcement of his rights under this Agreement or to determine the
appropriate tax treatment of amounts paid pursuant to this Agreement,
Company shall reimburse Executive for all such reasonable expenses and
costs on a periodic basis. Company's obligation to reimburse Executive for
these reasonable expenses or costs pursuant to this Section shall survive
expiration of the Term and shall survive the termination of any later
employment agreements between Executive and Company. Any reimbursement
required by this Section shall be paid promptly to Executive after he
submits a copy of the service provider's invoice for the covered expense.
7. Company's Obligation to Provide Information. After
-------------------------------------------
termination of Executive's employment, Company shall promptly provide
Executive with reasonably requested information relating to his retirement,
benefits and payments under this Agreement, and other post-employment
benefits.
8. Binding Effect And Assignment. This Agreement shall
-----------------------------
inure to the benefit of and shall be binding upon the parties to this
Agreement and their respective executors, administrators, heirs, personal
representatives, successors, and assigns, but neither this Agreement nor
any right created by this Agreement may be assigned or transferred by
either party. Notwithstanding the foregoing, the Company shall assign this
Agreement to any person or entity succeeding to substantially all of the
business and assets of the Company upon a Change in Control, and upon such
a Change in Control, the Company shall obtain the assumption of this
Agreement by its successor.
-10-
<PAGE>
9. Notices. Any notice to a party required or permitted to
-------
be given by this Agreement shall be in writing and shall be deemed given
when mailed by registered or certified mail to the party at the party's
address as specified in this Section:
If to the Company, to: CNB Bancshares, Inc.
Attention: Corporate Secretary
20 N.W. Third Street
Evansville, Indiana 47708
or such other address designated by Company in writing to Executive as
provided in this Section.
If to Executive, to: Douglas R. Hanks
1840 E. Boonville-New Harmony Road
Evansville, IN 47711
or such other address designated by Company in writing to Executive as
provided in this Section.
10. Severability. If any term, provision, covenant, or
------------
restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, void, or unenforceable, the remainder of the terms,
provisions, covenants, and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired, or
invalidated.
11. Amendments. This Agreement may not be modified,
----------
amended, altered, or supplemented except upon the execution and delivery of
a written agreement executed by Company and Executive.
12. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the State of Indiana.
13. Arbitration. Any dispute, claim, or controversy
-----------
concerning the terms, meaning, application, or enforcement of any provision
of this Agreement that cannot be
-11-
<PAGE>
resolved through direct discussion or mediation shall be submitted to final
and binding arbitration before a neutral arbitrator pursuant to the
arbitration procedures set out in this Section ("Procedures") under the
auspices of the American Arbitration Association (AAA) at Evansville,
Indiana. The AAA Employment Dispute Resolution Rules in effect at the time
of the arbitration shall govern arbitration proceedings, except insofar as
these Procedures, as they may be amended from time to time, specifically
provide otherwise. Executive may initiate a claim or case only by a written
notice to Company as provided in this Agreement. Company may likewise
initiate a claim or case by a written notice delivered to Executive, as
provided in this Agreement. The written notice must set forth the matter in
dispute in sufficient detail to advise the non-initiating party of the
nature and amount of the dispute or claim, the date(s) of the underlying
occurrence(s), and the relief requested. It shall also be the initiating
party's responsibility to submit the claim and other required documents and
fees to AAA in a timely manner; provided, however, if Executive is fully or
partially successful, Company shall reimburse Executive for arbitration
fees reasonably incurred. In conducting arbitration proceedings, the AAA-
appointed arbitrator shall be authorized to award any relief available
under the laws of the United States or the State of Indiana applicable to
the claim, dispute, or controversy submitted, where such relief is
warranted based on the evidence and the law. Any arbitration award shall be
final and binding, and enforceable by an action in any court of competent
jurisdiction. No award shall be set aside, or denied enforcement, by any
court in any action unless the court finds that the arbitrator purported to
resolve claims, disputes, or controversies not within the scope of these
Procedures. Adherence to these Procedures, and the agreement of the parties
to this Agreement to follow them, shall be enforceable in an action to
compel or stay arbitration pursuant to the Federal Arbitration Act or the
Indiana Uniform Arbitration Act in a court of competent jurisdiction.
-12-
<PAGE>
14. Integration. This Agreement supersedes all prior
-----------
agreements between the parties with respect to the matters covered herein.
15. Counterparts. This Agreement may be signed in two
------------
counterparts, each of which shall be deemed to be an original but which
together shall constitute one and the same instrument. Effect Of Headings.
The section headings in this Agreement are for convenience only and shall
not affect the construction of this Agreement.
IN WITNESS WHEREOF, CNB Bancshares, Inc. has caused this
Agreement to be executed on this 23rd day of May, 1997, and Executive has
executed this Agreement on the date specified below.
ATTEST: CNB BANCSHARES, INC.
/s/ Sallie A. Gore By /s/ James J. Giancola
---------------------------- -------------------------------
(Signature)
5/23/97
-----------------------------------
(Date)
EXECUTIVE
/s/ Douglas R. Hanks
-----------------------------------
(Signature)
May 23, 1997
-----------------------------------
(Date)
-13-
<PAGE>
APPENDIX A
The Payment Period shall consist of 18 months.
ATTEST: CNB BANCSHARES, INC.
/s/ Sallie A. Gore By /s/ James J. Giancola
------------------------------ -------------------------------
(Signature)
5/23/97
-----------------------------------
(Date)
EXECUTIVE
/s/ Douglas R. Hanks
-----------------------------------
(Signature)
May 23, 1997
-----------------------------------
(Date)
-14-
<PAGE>
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is entered into by and between CNB BANCSHARES, INC., an
Indiana corporation ("Company"), and DAVID M. VIAR ("Executive").
Background
----------
A. Executive is an officer and key management employee of Company.
B. Company's Board of Directors ("Board") has determined that it is in
the best interests of Company and its shareholders to assure Executive's
continued dedication and undivided time, attention, and loyalty, notwithstanding
the possibility, threat, or occurrence of a Change of Control (as defined in
Section 2 below).
C. In furtherance of that goal, the Board wishes to provide Executive
with certain benefits, if his employment should terminate as a result of a
Change of Control.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Company on the terms agreed to by Executive and Company from
time to time.
In consideration of the premises, Company and Executive agree as
follows:
Agreement
---------
1. Duration Of Agreement. This Agreement shall be effective May
23, 1997 ("Effective Date"), and shall continue until the end of the Term (as
defined in Section 2).
2. Definitions. The following words and phrases, when capitalized,
shall have the following meanings for purposes of this Agreement:
(a) Affiliate. "Affiliate" means an employer required to be
aggregated with Company pursuant to Section 414 (b) or (c) of the
Internal Revenue Code.
<PAGE>
(b) Anniversary Date. "Anniversary Date" means each anniversary of
the Effective Date occurring during the Term.
(c) Cause. "Cause" means and shall be limited to the following:
(1) Executive's willful and continued failure to
perform (other than a failure resulting from Executive's illness or
disability) his employment duties after a demand for substantial
performance is delivered to Executive on behalf of the Board that
specifically identifies the manner in which it alleges that Executive
has failed to perform his duties and Executive's failure to take
appropriate actions to correct such failure within thirty (30) days; or
(2) Executive's willful engaging in misconduct that has caused
demonstrable and material injury, monetary or otherwise, to Company or
an Affiliate.
For purposes of this Subsection (c), no act or failure to act on
Executive's part shall be considered "willful" unless done, or omitted
to be done, by Executive not in good faith and without reasonable
belief that his action or omission was in the best interests of
Company. Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until the Board has
delivered to him a copy of a notice of termination, and after
reasonable notice to him and an opportunity for him, together with
counsel, to be heard before the Board, at least two-thirds of the Board
finds, in its reasonable opinion, that Executive was guilty of conduct
set forth above in clause (1) or (2) and specifying the particulars
thereof in detail.
(d) Change of Control. "Change of Control" shall be deemed to
have occurred upon the happening of any one or more of the following:
-2-
<PAGE>
(1) any person, as that term is used in Section 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended from time
to time, becomes a beneficial owner, directly or indirectly, of
securities of Company representing twenty percent (20%) or more of the
combined voting power of Company's then outstanding securities;
(2) less than fifty-one percent (51%) of the members of the
Board are Incumbent Directors;
(3) any corporation or group of associated persons acting in
concert, owns more than twenty-five percent (25%) of the outstanding
shares of voting stock of Company coupled with or followed by the
exercise of the voting power of such shares by the election of two (2)
or more directors of Company in any one election at the instance of
such corporation or group;
(4) Company becomes a party to an agreement of merger,
consolidation, or other reorganization pursuant to which Company will
be a constituent corporation, and either (A) Company is not the
surviving or resulting corporation, or (B) the transaction will result
in less than eighty percent (80%) of the outstanding voting securities
of the surviving or resulting entity being owned by the former
shareholders of Company;
(5) Company becomes a party to an agreement providing for
Company's sale or other disposition of all or substantially all of its
assets to any individual, partnership, joint venture, association,
trust, corporation, or other entity or person which is not an
Affiliate; or
(6) the occurrence of another event that the Board designates a
Change of Control.
-3-
<PAGE>
(e) Change of Control Date. "Change of Control Date" means the
date as of which a Change of Control occurs.
(f) Change Period. "Change Period" means the period beginning
six months before the Change of Control Date and continuing for the
number of months specified in Appendix A after the Change of Control
Date. Notwithstanding the preceding sentence, if a Change of Control
described in Paragraph (d)(4) or (d)(5) occurs, the Change Period shall
begin when Company becomes a party to a legally binding agreement
described in paragraph (d)(4) or (d)(5) but shall not end until the
number of months specified in Appendix A after the effective date of
the Change of Control transaction described in Paragraph (4) or (5).
(g) Confidential Information. "Confidential Information" means
any information not in the public domain and not previously disclosed
to the public by the Board or management of the Company or an Affiliate
with respect to the products, facilities, and methods; trade secrets
and other intellectual property; systems, procedures, manuals,
confidential reports, customer lists, financial information, business
plans, prospects, or opportunities of the Company or an Affiliate; or
any information which the Company or an Affiliate has designated as
Confidential Information.
(h) Disability. "Disability" means Executive's inability to
perform the material duties of his employment because of physical or
mental illness, which inability is likely to last for a period of one
year or longer.
(i) Effective Date. "Effective Date" means the effective date
of this Agreement, as specified in Section 1.
-4-
<PAGE>
(j) Full Incentive Compensation. "Full Incentive Compensation"
means incentive compensation for a calendar year (including incentive
compensation in the amount of zero), provided that such compensation is
not reduced because Executive was employed by the Company for less than
the entire calendar year.
(k) Good Reason. "Good Reason" means, (i) with respect to a
Change of Control described in Section 2(d)(4) in which Company is the
surviving or resulting corporation, and which results in less than
eighty percent (80%) but more than fifty percent (50%) of the
outstanding voting securities of the resulting or surviving corporation
being owned by former shareholders of the Company, a material change in
position, title, compensation, status, responsibilities, or working
conditions in effect immediately before the Change of Control or
relocation of the Executive's place of employment to a location more
than fifty (50) miles from the Executive's place of employment
immediately before the Change of Control, and, (ii) with respect to any
Change of Control not described in Clause (i), Executive's
determination, in his sole judgment, that the duties of his employment,
compensation therefor, or the benefits or status associated therewith
have been reduced during the Change Period or that he is unable to
continue to perform the duties of his employment effectively because of
circumstances that changed during the Change Period directly or
indirectly as a result of the Change of Control.
(l) Incumbent Director. "Incumbent Director" means a director
serving on the Board who (i) was a director on the Effective Date or
(ii) was later elected as a director (except a director whose initial
assumption of office was in connection with an actual or threatened
election contest, including but not limited to a consent solicitation,
relating to the election of directors) and whose appointment, election,
or
-5-
<PAGE>
nomination for election was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were
directors on the Effective Date hereof or whose appointment, election,
or nomination for election was previously so approved or recommended.
(m) Payment Period. "Payment Period" means the period
beginning on the later of the Change of Control Date or the date of
Executive's termination of employment during the Change Period and
continuing for the number of months specified in Appendix A; provided,
however, if Executive's employment terminates after a Change of Control
(or, in the case of a transaction described in Paragraph 2(d)(4) or
2(d)(5), the later effective date of such transaction), the number of
months in the Payment Period shall be reduced by one for each full
calendar month before the effective date of Executive's termination of
employment occurring after the most recent Change of Control Date (or,
in the case of a transaction described in Paragraph 2(d)(3) or (4), the
later effective date of such transaction) before such termination date.
(n) Term. "Term" means the period beginning on the Effective
Date and ending on the second anniversary of the Effective Date, as
extended pursuant to the provisions of this Subsection. The period
referred to in the preceding sentence shall automatically be extended
for one additional year on each Anniversary Date, unless the Company
has notified the Executive not fewer than thirty (30) days before that
Anniversary Date that the Term will not automatically be extended
further. Notwithstanding any provision of this Agreement, if one or
more Changes of Control occur during the Term (as determined pursuant
to the preceding provisions of this Subsection or as extended pursuant
to this sentence to reflect a prior Change of Control),
-6-
<PAGE>
the Term shall not end before the end of the Payment Period with
respect to the latest Change of Control occurring during the Term.
(o) Termination Compensation. "Termination Compensation" has
the meaning specified in Paragraph 3(a)(1).
3. Termination of Executive's Employment During Change Period.
(a) If Executive terminates his employment for Good Reason
during the Change Period, or if Company terminates Executive's
employment during the Change Period for a reason other than Cause or
Executive's death or Disability, Executive shall be entitled to the
following benefits:
(1) An amount equal to Executive's Termination
Compensation multiplied by the number of months in the Payment Period.
Executive's Termination Compensation shall be equal to the sum of (i)
his highest rate of base monthly salary (unreduced by any elective
salary deferrals or redirections) during the twelve (12) month period
immediately preceding his termination of employment plus (ii) one-
twelfth of his average annual incentive compensation with respect to
the shortest of (A) the three calendar years immediately preceding the
Payment Period, provided Executive received Full Incentive Compensation
for all such years, (B) the calendar years immediately preceding the
Payment Period with respect to which Executive received Full Incentive
Compensation, or (C) the total period of Executive's employment by
Company. This amount shall be paid to Executive in a lump sum between
sixty (60) and ninety (90) days after the later of (A) his termination
of employment or (B) the Change of Control Date. Executive may, in his
discretion, elect to reduce the amount payable to
-7-
<PAGE>
him pursuant to this Paragraph 3 to the extent necessary to
avoid excise taxes in Code Section 4999 of the Internal
Revenue Code.
(2) Throughout the Payment Period, Company shall
provide to Executive and his family medical, life insurance,
and other welfare benefits substantially similar to those
provided to active executive employees of the Company,
provided Executive pays any premiums charged by Company to
active executive employees receiving similar coverage.
Beginning at the end of the Payment Period, Company shall
provide medical coverage to Executive and his family that is
substantially similar to the coverage provided to active
employees of the Company, provided that Executive pays Company
the same premium as he would have been required to pay if such
coverage had been provided pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985. Executive may elect
to purchase single coverage or family coverage pursuant to the
preceding sentence. Subject to Executive's payment of the
required premiums, post-Payment Period medical coverage for
Executive and his spouse shall continue until the earliest of
the following events: (i) the Executive's (or in the case of
coverage for the Executive's spouse, his spouse's) Medicare
eligibility, (ii) the Executive's (or in the case of coverage
for the Executive's spouse, his spouse's) death, or (iii)
medical coverage for the Executive (or in the case of coverage
for the Executive's spouse, his spouse) through another
employer.
(b) The payment or provision of benefits to Executive pursuant
to this Agreement shall not affect the obligations of Company or its
successor under any plan, agreement, or arrangement generally applicable to
Company's retired
-8-
<PAGE>
management employees pursuant to which Executive is entitled
to any retirement benefits, welfare benefits, stock, or other
fringe benefits.
4. Non-Competition. Executive shall not, while employed or
---------------
during the Payment Period, become an officer, director, or employee of,
consultant to, or majority shareholder in any bank or bank holding company
that substantially competes with Company, its subsidiaries, or Affiliates,
or its successor or successors within one hundred (100) miles from
Evansville, Indiana, or fifty (50) miles from the nearest banking office of
Company or a subsidiary thereof.
5. Non-Disclosure of Confidential Information. Executive
------------------------------------------
acknowledges that, by virtue of his employment, he has obtained or will
obtain Confidential Information, the use or disclosure of which could cause
Company immeasurable and substantial loss and damages for which no remedy
at law would be adequate. Accordingly, Executive covenants and agrees with
Company that, except as necessary to perform his obligations to Company or
with the prior written consent of Company's Board, he will not at any time
directly or indirectly disclose any Confidential Information that he may
acquire or has acquired by reason of his association with Company. Without
limiting the rights or remedies, both legal and equitable, available to
Company in the event of an actual or threatened breach of Executive's
obligations under this Section, Company shall be entitled to seek and
obtain a temporary restraining order and/or a preliminary or permanent
injunction against Executive, which shall prevent Executive from engaging
in any activities prohibited by this Section, or to seek and obtain such
other relief against Executive as may be required to enforce Executive's
obligations hereunder. Executive's obligations set forth in this Section
and Company's rights and remedies, whether legal or equitable, with respect
thereto, shall extend indefinitely.
-9-
<PAGE>
6. Expenses. If Executive determines, in his absolute
--------
judgment, that it is necessary or advisable for him to incur reasonable
legal and/or accounting expenses, including but not limited to reasonable
attorneys' and/or accountants' fees, to obtain full and effective
enforcement of his rights under this Agreement or to determine the
appropriate tax treatment of amounts paid pursuant to this Agreement,
Company shall reimburse Executive for all such reasonable expenses and
costs on a periodic basis. Company's obligation to reimburse Executive for
these reasonable expenses or costs pursuant to this Section shall survive
expiration of the Term and shall survive the termination of any later
employment agreements between Executive and Company. Any reimbursement
required by this Section shall be paid promptly to Executive after he
submits a copy of the service provider's invoice for the covered expense.
7. Company's Obligation to Provide Information. After
-------------------------------------------
termination of Executive's employment, Company shall promptly provide
Executive with reasonably requested information relating to his retirement,
benefits and payments under this Agreement, and other post-employment
benefits.
8. Binding Effect And Assignment. This Agreement shall
-----------------------------
inure to the benefit of and shall be binding upon the parties to this
Agreement and their respective executors, administrators, heirs, personal
representatives, successors, and assigns, but neither this Agreement nor
any right created by this Agreement may be assigned or transferred by
either party. Notwithstanding the foregoing, the Company shall assign this
Agreement to any person or entity succeeding to substantially all of the
business and assets of the Company upon a Change in Control, and upon such
a Change in Control, the Company shall obtain the assumption of this
Agreement by its successor.
-10-
<PAGE>
9. Notices. Any notice to a party required or permitted to
-------
be given by this Agreement shall be in writing and shall be deemed given
when mailed by registered or certified mail to the party at the party's
address as specified in this Section:
If to the Company, to: CNB Bancshares, Inc.
Attention: Corporate Secretary
20 N.W. Third Street
Evansville, Indiana 47708
or such other address designated by Company in writing to Executive as
provided in this Section.
If to Executive, to: ____________________
____________________
____________________
or such other address designated by Company in writing to Executive as
provided in this Section.
10. Severability. If any term, provision, covenant, or
------------
restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, void, or unenforceable, the remainder of the terms,
provisions, covenants, and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired, or
invalidated.
11. Amendments. This Agreement may not be modified,
----------
amended, altered, or supplemented except upon the execution and delivery of
a written agreement executed by Company and Executive.
12. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the State of Indiana.
13. Arbitration. Any dispute, claim, or controversy
-----------
concerning the terms, meaning, application, or enforcement of any provision
of this Agreement that cannot be
-11-
<PAGE>
resolved through direct discussion or mediation shall be submitted to final
and binding arbitration before a neutral arbitrator pursuant to the
arbitration procedures set out in this Section ("Procedures") under the
auspices of the American Arbitration Association (AAA) at Evansville,
Indiana. The AAA Employment Dispute Resolution Rules in effect at the time
of the arbitration shall govern arbitration proceedings, except insofar as
these Procedures, as they may be amended from time to time, specifically
provide otherwise. Executive may initiate a claim or case only by a written
notice to Company as provided in this Agreement. Company may likewise
initiate a claim or case by a written notice delivered to Executive, as
provided in this Agreement. The written notice must set forth the matter in
dispute in sufficient detail to advise the non-initiating party of the
nature and amount of the dispute or claim, the date(s) of the underlying
occurrence(s), and the relief requested. It shall also be the initiating
party's responsibility to submit the claim and other required documents and
fees to AAA in a timely manner; provided, however, if Executive is fully or
partially successful, Company shall reimburse Executive for arbitration
fees reasonably incurred. In conducting arbitration proceedings, the AAA-
appointed arbitrator shall be authorized to award any relief available
under the laws of the United States or the State of Indiana applicable to
the claim, dispute, or controversy submitted, where such relief is
warranted based on the evidence and the law. Any arbitration award shall be
final and binding, and enforceable by an action in any court of competent
jurisdiction. No award shall be set aside, or denied enforcement, by any
court in any action unless the court finds that the arbitrator purported to
resolve claims, disputes, or controversies not within the scope of these
Procedures. Adherence to these Procedures, and the agreement of the parties
to this Agreement to follow them, shall be enforceable in an action to
compel or stay arbitration pursuant to the Federal Arbitration Act or the
Indiana Uniform Arbitration Act in a court of competent jurisdiction.
-12-
<PAGE>
14. Integration. This Agreement supersedes all prior
-----------
agreements between the parties with respect to the matters covered herein.
15. Counterparts. This Agreement may be signed in two
------------
counterparts, each of which shall be deemed to be an original but which
together shall constitute one and the same instrument. Effect Of Headings.
The section headings in this Agreement are for convenience only and shall
not affect the construction of this Agreement.
IN WITNESS WHEREOF, CNB Bancshares, Inc. has caused this
Agreement to be executed on this 23rd day of May, 1997, and Executive has
executed this Agreement on the date specified below.
ATTEST: CNB BANCSHARES, INC.
/s/ Sallie A. Gore By /s/ James J. Giancola
---------------------------- -------------------------------
(Signature)
5/23/97
-----------------------------------
(Date)
EXECUTIVE
/s/ David M. Viar
-----------------------------------
(Signature)
May 23, 1997
-----------------------------------
(Date)
-13-
<PAGE>
APPENDIX A
The Payment Period shall consist of 18 months.
ATTEST: CNB BANCSHARES, INC.
/s/ Sallie A. Gore By /s/ James J. Giancola
------------------------------ -------------------------------
(Signature)
5/23/97
-----------------------------------
(Date)
EXECUTIVE
/s/ David M. Viar
-----------------------------------
(Signature)
May 23, 1997
-----------------------------------
(Date)
-14-
<PAGE>
EXHIBIT 13
Financial Highlights
<TABLE>
<CAPTION>
1997 1996 Change
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share-
Basic net income (1) $ 2.42 $ 1.81 33.7%
Diluted net income (1) 2.37 1.78 33.1
Cash dividends paid (2) .86 .78 10.3
Book value at year-end 16.39 15.58 5.2
Closing market price 48.19 39.76 21.2
Earnings (In thousands)
Net interest income $ 157,996 $ 148,928 6.1%
Provision for loan losses 11,566 10,602 9.1
Non-interest income 60,571 55,833 8.5
Non-interest expense 132,213 136,994 (3.5)
Net income 49,658 37,595 32.1
Average Balances (In thousands)
Total assets $ 4,316,616 $ 3,936,946 9.6%
Earning assets 4,061,464 3,701,675 9.7
Loans, net of unearned interest 2,376,766 2,132,023 11.5
Deposits 3,090,166 2,947,613 4.8
Interest bearing liabilities 3,627,085 3,268,862 11.0
Shareholders' equity 322,877 317,480 1.7
Financial Ratios
Return on assets 1.15% .95%
Return on shareholders' equity 15.38 11.84
Net interest margin 4.03 4.15
Efficiency ratio (3) 59 63
Allowance for loan losses to loans 1.40 1.37
Net charge-offs to average loans .34 .50
Equity to assets at year-end 7.47 7.72
Tangible equity to assets at year-end 6.90 7.07
Risk-based capital ratios at year-end
Tier 1 capital 10.70 11.83
Total capital 11.93 13.31
Other Data (4)
Average shares outstanding -- basic 20,552,677 20,788,427
Average shares outstanding -- diluted 21,040,127 21,309,458
Common shareholders of record 9,845 9,826
Full-time equivalent associates 1,924 1,947
Banking offices 95 95
Consumer finance offices 33 34
</TABLE>
Notes: (1) 1996 included a one-time SAIF assessment which reduced net income by
$3,045, or $.14 per share on a basic and diluted basis.
(2) Dividends per share is for CNB Bancshares, Inc. only, not restated
for poolings of interests.
(3) Efficiency ratio excludes foreclosed property expenses, securities
gains/losses and other non-recurring items, as originally reported,
not restated for poolings of interests.
(4) Other data is as of year-end, except for average shares.
CNB BANCSHARES, INC 1
<PAGE>
Selected Statistical Information
(Dollars in thousands, except for share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
Net interest income $ 157,996 $ 148,928 $ 136,585 $ 124,376 $ 114,406
Provision for loan losses 11,566 10,602 6,927 7,156 4,119
Non-interest income 60,571 55,833 46,628 47,055 43,524
Non-interest expense 132,213 136,994 118,448 115,138 105,252
Income taxes 25,130 19,570 21,212 17,395 16,492
Income before change in accounting 49,658 37,595 36,626 31,742 32,067
Change in accounting for income taxes 1,868
Net income 49,658 37,595 36,626 31,742 33,935
===============================================================================
Per Share Data
Basic net income (1) $ 2.42 $ 1.81 $ 1.78 $ 1.56 $ 1.59
Diluted net income (1) 2.37 1.78 1.74 1.51 1.55
Cash dividends declared (2) (3) .86 .78 .53 .68 .64
Cash dividends paid .86 .78 .70 .67 .62
Book value at year-end 16.39 15.58 15.20 13.81 14.11
Closing market price 48.19 39.76 25.85 25.59 24.73
===============================================================================
At Year-End
Total assets $ 4,480,223 $ 4,216,575 $ 3,734,963 $ 3,535,728 $3,219,071
Earning assets 4,196,644 3,944,134 3,474,303 3,298,431 2,987,390
Loans, net of unearned interest (4) 2,479,651 2,275,089 2,016,960 2,160,916 1,877,944
Allowance for loan losses 34,694 31,262 29,406 29,102 24,043
Non-interest bearing deposits 365,334 359,146 327,645 311,832 283,943
Total deposits 3,181,447 3,114,730 2,881,828 2,657,541 2,651,764
Shareholders' equity 334,468 325,414 311,331 285,489 284,024
===============================================================================
Average Balances
Total assets $ 4,316,616 $ 3,936,946 $ 3,611,831 $ 3,353,800 $3,111,437
Earning assets 4,061,464 3,701,675 3,388,298 3,128,550 2,887,419
Loans, net of unearned interest (4) 2,376,766 2,132,023 2,183,258 1,989,287 1,754,500
Non-interest bearing deposits 326,363 314,463 295,585 292,194 268,187
Total deposits 3,090,166 2,947,613 2,751,215 2,676,695 2,593,000
Shareholders' equity 322,877 317,480 299,124 289,381 262,925
Shares outstanding:
Basic 20,552,677 20,788,427 20,527,108 20,356,253 20,147,649
Diluted 21,040,127 21,309,458 21,222,480 21,219,960 21,090,215
===============================================================================
Financial Ratios (1)
Return on assets 1.15% .95% 1.01% .95% 1.03%
Return on shareholders' equity 15.38 11.84 12.24 10.97 12.20
Net interest margin 4.03 4.15 4.13 4.08 4.08
Efficiency ratio (5) 59 63 64 66 67
Equity to assets at year-end 7.47 7.72 8.34 8.07 8.82
Cash dividend payout (3) 35 42 28 39 35
===============================================================================
</TABLE>
(1) Net income per share and financial ratios are based on income before the
accounting change in 1993 and include a SAIF assessment in 1996 which
reduced net income by $3,045, or $.14 per share on a basic and diluted
basis.
(2) Dividends per share is for CNB Bancshares, Inc. only, not restated for
pooling transactions.
(3) Declaration date for fourth quarter 1995 dividend was
changed from December 1995 to January 1996.
(4) Excludes loans held for sale.
(5) Excludes foreclosed property expenses, securities gains/losses and other
non-recurring items, as originally reported, not restated for poolings of
interests.
18 CNB BANCSHARES, INC.
<PAGE>
Management's Discussion and Analysis
This section presents management's review of the operating results and financial
condition of CNB Bancshares, Inc. (the Corporation) and its subsidiaries. It
provides information which is not otherwise apparent from the consolidated
financial statements and related footnotes and is intended to assist readers in
evaluating the Corporation's performance. The following analysis should be read
in conjunction with the consolidated financial statements and accompanying
notes, as well as the average balance sheet and selected statistical information
presented in other sections of the report. All dollar amounts throughout this
discussion and report are presented in thousands, except for per share data, and
all share data has been adjusted for common stock dividends. All per share
income has been restated in accordance with Statement of Financial Accounting
Standards No. 128, Earnings per Share, which requires the presentation of basic
and diluted income per share in lieu of primary income per share previously
reported by the Corporation.
The Corporation's financial data for periods prior to mergers accounted
for as poolings of interests, and having a material impact on the Corporation's
financial results, has been restated.
Results of Operations
Net income for the year ended December 31, 1997, was $49,658, an increase of
32.1% over the $37,595 earned in 1996. Diluted net income per share of $2.37 in
1997 represented an increase of 33.1% over 1996. The results of 1996 included a
one-time, special assessment required of all financial institutions with
deposits insured by the Savings Association Insurance Fund (SAIF), which reduced
net income and diluted income per share by $3,045 and $.14, respectively.
Excluding the SAIF assessment, net income was $40,640, or $1.92 per diluted
share, for 1996. The improved 1997 operating performance, excluding the SAIF
assessment, resulted from growth in earning assets and fee income while
operating expenses changed little from 1996. The growth in earning assets,
particularly loans and mortgage-backed securities, partially offset by a decline
in net interest margin, produced an increase in net interest income on a fully
taxable equivalent basis of $10,178, or 6.6%, from 1996. Non-interest income
increased $4,738, or 8.5%, compared to 1996 which benefited from loan
securitization gains of $4,914. The provision for loan losses increased in 1997
by $964 from 1996 principally due to loan growth.
Net income increased 2.6% in 1996 from the $36,626 earned in 1995
primarily due to increased net interest income. Growth in earning assets and an
improved net interest margin resulted in increased net interest income on a
fully taxable equivalent basis of
[BAR GRAPH APPEARS HERE]
Operating Income
(in millions)
As originally reported As restated
---------------------- -----------
1993 $23.2 $32.1
1994 $26.9 $31.7
1995 $35.7 $36.6
1996 $40.7 $40.6
1997 $49.7
Operating income before cumulative effect of change in accounting for income
taxes in 1993 and SAIF assessment in 1996.
[BAR GRAPH APPEARS HERE]
Operating Diluted Income Per Share
1993 $1.55
1994 $1.51
1995 $1.74
1996 $1.92
1997 $2.37
Operating diluted income per share before cumulative effect of change in
accounting for income taxes of $.09 in 1993 and SAIF assessment of $.14 in 1996.
CNB BANCSHARES, INC. 19
<PAGE>
Management's Discussion and Analysis
$13,689 from 1995. Non-interest income increased $9,205 due in large part to
gains of $4,914 resulting from loan securitizations. Non-interest expenses
increased $18,546 during 1996 as the Corporation recorded a $4,963 SAIF
recapitalization charge and $4,434 of expenses related to closed offices,
obsolete equipment, continued centralization of back-office functions and other
one-time expenses. The provision for loan losses increased in 1996 by $3,675
from 1995 due to loan growth and increased net charge-offs, particularly in the
consumer loan portfolio.
Operating expenses as a percentage of revenues, commonly referred to as
the efficiency ratio, continued to decline, improving from 64% in 1995 to 63% in
1996 and 59% in 1997.
The following table reconciles the changes in diluted net income per share
from 1995 to 1997 by major income statement components which are further
discussed below.
Changes in Diluted Net Income Per Share
1997 1996
- -----------------------------------------------------------------------------
Diluted net income per share, previous year $ 1.78 $1.74
Increase (decrease) attributable to:
Taxable equivalent net interest income .48 .64
Provision for loan losses (.05) (.17)
Non-interest income .22 .43
Non-interest expense .23 (.87)
Income tax effect (.31) .02
Change in diluted shares outstanding .02 (.01)
-------------------
Diluted net income per share, current year $ 2.37 $1.78
===================
The Corporation's earnings in 1997 resulted in returns on average assets
and shareholders' equity of 1.15% and 15.38%, respectively, compared with a
return on assets of .95% and return on equity of 11.84% in 1996. Excluding the
SAIF recapitalization charge, returns on average assets and shareholders' equity
were 1.03% and 12.80%, respectively, in 1996.
[BAR GRAPH APPEARS HERE]
Return on Assets
----------------
1993 1.03%
1994 .95%
1995 1.01%
1996 1.03%
1997 1.15%
Based on operating income before cumulative effect of change in accounting for
income taxes in 1993 and SAIF assessment in 1996.
[BAR GRAPH APPEARS HERE]
Return on Equity
----------------
1993 12.20%
1994 10.97%
1995 12.24%
1996 12.80%
1997 15.38%
Based on operating income before cumulative effect of change in accounting for
income taxes in 1993 and SAIF assessment in 1996.
20 CNB BANCSHARES, INC.
<PAGE>
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. In this
discussion, net interest income is presented on a fully taxable equivalent basis
(FTE) whereby tax exempt income, such as interest on securities of state and
political subdivisions, has been increased to an amount that would have been
earned had such income been taxable. This adjustment places taxable and
nontaxable income on a common basis and permits comparisons of rates and yields.
A detailed analysis of net interest income, with average balances and related
interest rates for the past three years, appears on page 35 of this report.
In 1997, net interest income increased $10,178, or 6.6%, to $163,836,
compared to $153,658 in 1996, due to an increased level of earning assets but
partially offset by a declining net interest margin. Net interest income in 1996
increased $13,689 or 9.8% over the $139,969 recorded in 1995. The amount of net
interest income is affected by changes in the volume and mix of earning assets
and interest bearing deposits and liabilities, and the interest rates on these
assets and liabilities. An analysis of how changes in volumes and rates have
affected net interest income for the years ended December 31, 1997 and 1996 is
presented below.
Analysis of Changes in Net Interest Income*
<TABLE>
<CAPTION>
1997 over 1996 1996 over 1995
Volume Rate Total Volume Rate Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Federal funds sold and other
short-term money market
investments $ (1,150) $ 3 $ (1,147) $ 294 $ (176) $ 118
Real estate loans held for sale (3,576) 189 (3,387) 2,852 (90) 2,762
Investment securities 12,546 1,212 13,758 22,130 2,091 24,221
Loans 22,883 (1,200) 21,683 (4,724) 2,830 (1,894)
--------------------------------------------------------------
Total interest income 30,703 204 30,907 20,552 4,655 25,207
--------------------------------------------------------------
Interest Expense:
Interest bearing checking accounts (155) (2,073) (2,228) 182 (1,197) (1,015)
Money market savings accounts 2,722 2,197 4,919 1,581 346 1,927
Other savings accounts (479) (471) (950) (343) (350) (693)
Certificates of deposit and other time 4,903 1,052 5,955 7,844 792 8,636
Short-term borrowings 9,246 1,158 10,404 6,811 (1,906) 4,905
FHLB advances and other
long-term debt 2,834 (205) 2,629 (916) (1,326) (2,242)
--------------------------------------------------------------
Total interest expense 19,071 1,658 20,729 15,159 (3,641) 11,518
--------------------------------------------------------------
Changes in net interest income $ 11,632 $ (1,454) $ 10,178 $ 5,393 $ 8,296 $ 13,689
==============================================================
</TABLE>
* Fully taxable equivalent
Note: The change in interest which cannot be attributed to only a change
in volume or a change in rate, but instead represents a combination of
the two factors, has been allocated to the rate variance.
Average earning assets, which includes loans, investment securities and
other assets that earn interest, increased $359,789 during 1997 to $4,061,464.
Loans, including loans held for sale, increased $200,374, or 9.2%, and
investment securities grew $180,522, or 12.2%. This asset growth was funded
primarily by short-term borrowings, increasing $180,417, and interest bearing
deposits, increasing $130,653, or 5.0%. Interest bearing liabilities increased
$358,223 to $3,627,085 in 1997 from 1996. Average earning assets were $3,701,675
and interest bearing liabilities were $3,268,862 in 1996, increases of $313,377
and $286,305, respectively, from 1995. As the preceding analysis indicates, this
increased volume resulted in $11,632 and $5,393 of additional net interest
income in 1997 and 1996, respectively, over the previous years'.
CNB BANCSHARES, INC. 21
<PAGE>
Management's Discussion and Analysis
The net interest margin is a percentage computed by dividing FTE net
interest income by average earning assets and represents a basic measure of
interest earned on interest bearing assets held by the Corporation, less the
interest expense to fund such assets. The net interest margin decreased 12 basis
points to 4.03% in 1997 from 4.15% in 1996, which increased 2 basis points from
1995.
The earning asset yield increased 2 basis points to 8.36% in 1997,
partially offsetting a 14 basis point increase, to 4.33%, in the cost to fund
earning assets. The strong loan growth experienced in 1997 was at marginally
lower rates and consequently, average loan yields declined from 9.35% in 1996 to
9.30% in 1997. The cost to fund earning assets increased 14 basis points from
4.19% to 4.33% as a result of competitive pricing to attract deposits, customers
shifting to higher priced deposit products and non-deposit funding at marginally
higher rates to support the 9.7% growth in earning assets. In addition, the sale
of the credit card portfolio in May 1997 and the additional investment in
corporate-owned life insurance, which income is recorded as non-interest income,
resulted in a lower net interest margin.
As the prime rate and other short-term interest rates fell in 1995 and
1996, the rates paid on interest bearing liabilities repriced downward to a
greater extent than did rates earned on loans, investment securities and other
earning assets. Interest income as a percentage of average earning assets
decreased 2 basis points from 1995 to 8.34%. Loan securitizations and
implementation of a corporate-owned life insurance program negatively impacted
the margin 4 basis points in 1996. Both transactions resulted in a shift of
certain revenues from interest income to non-interest income. Interest expense
as a percentage of average earning assets decreased 4 basis points to 4.19%.
To reduce the impact of changing interest rates on its costs to acquire
liabilities that fund certain earning assets, the Corporation has entered into
interest rate contracts. Amortization of premiums paid for interest rate caps
totaled $2,055, $1,637, and $1,286 in 1997, 1996 and 1995, respectively. This
expense was offset by counterparty reimbursements of $364, $767 and $1,335,
respectively, during the same periods. In addition, certain fixed-rate loans
have been funded with variable-rate Federal Home Loan Bank (FHLB) advances, the
interest cost of which was hedged by the purchase of interest rate swap
agreements. These agreements represent an exchange of interest payments and
require the Corporation to pay a fixed rate and receive a LIBOR-based,
variable-rate payment.
[BAR GRAPH APPEARS HERE]
Market Capitalization
(in millions)
1993 $361
1994 $409
1995 $510
1996 $800
1997 $983
Non-Interest Income
Non-interest income represented 27.0% of net fully tax equivalent revenues in
1997 as compared to 26.7% and 25.0% in 1996 and 1995, respectively. The
following table summarizes non-interest income for the three years ended
December 31, 1997.
Non-Interest Income
<TABLE>
<CAPTION>
Change from Prior Year
Amount 1997 1996
1997 1996 1995 Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 14,513 $ 12,747 $ 11,017 $ 1,766 13.9% $ 1,730 15.7%
Trust and plan administration fees 8,926 6,931 5,171 1,995 28.8 1,760 34.0
Insurance premiums
and commissions 8,146 7,916 7,059 230 2.9 857 12.1
Mortgage banking revenue 6,406 10,064 7,662 (3,658) (36.3) 2,402 31.3
Non-interest fees on loans 5,383 5,560 5,142 (177) (3.2) 418 8.1
Investment products fees 3,902 3,337 3,035 565 16.9 302 10.0
Net securities gains 1,310 1,496 2,281 (186) (12.4) (785) (34.4)
Other non-interest income 11,985 7,782 5,261 4,203 54.0 2,521 47.9
------------------------------------------------------------------------
Total non-interest income $ 60,571 $ 55,833 $ 46,628 $ 4,738 8.5% $ 9,205 19.7%
========================================================================
</TABLE>
22 CNB BANCSHARES, INC.
<PAGE>
Service charges on deposit accounts increased 13.9% in 1997 compared to an
increase of 15.7% in 1996. Growth in these fees resulted from an increased
number of deposit accounts and chargeable services, higher activity fees and new
fee sources combined with improved efforts to collect a greater percentage of
assessable fees.
Trust and plan administration fees increased $1,995 to $8,926 in 1997. The
May 31, 1996, acquisition of Small Parker & Blossom, a third party administrator
of employee benefit plans, accounted for $1,301 of this increase. Trust fee
income, based primarily on the market value of assets under management or
custody, increased 12.1% in 1997 compared to 10.8% in 1996. The Corporation
continues to increase its trust customer base and fee revenues through product
expansion and cross-selling of services.
Revenues from insurance premiums and commissions increased 2.9% to $8,146
in 1997. Income from the sale of credit life and disability insurance offered by
the Corporation's banking subsidiaries to consumer loan customers increased $152
or 4.1% in 1997. Casualty insurance premiums written by the Corporation's agency
increased $134, or 3.5%. Profit sharing bonuses received from insurance
underwriters during 1997, which are experience related and associated with prior
year property and casualty policies written, were $56 less than payments
received in 1996. Insurance revenues increased 12.1% in 1996 compared to 1995 as
credit and casualty insurance commissions increased 12.9% and 9.1%,
respectively.
Mortgage banking revenue decreased $3,658 in 1997 due primarily to gains
recorded in 1996 from the securitization of large pools of residential mortgage
loans. During the first and third quarters of 1996, a total of $235 million of
mortgage loans were securitized at gains of $4,914. Mortgage banking revenues
for 1995 included $1,891 of gains from the sale of mortgage servicing rights on
a $220 million out-of-market servicing portfolio. Excluding these gains,
mortgage banking revenues increased 24.4% from 1996 to 1997 after declining
10.8% from 1995 to 1996. Mortgage loan originations and sales decreased in 1996
due to discontinuing operations of two out-of-market mortgage banking
subsidiaries acquired in a 1995 merger.Most residential mortgage loans
originated in 1997 were sold in the secondary market enabling the Corporation to
generate fee income and limit its long-term interest rate exposure. The
Corporation continues to service most of these sold loans. Income of $2,112 and
$2,256 in 1997 and 1996, respectively, related to the on-going servicing of sold
loans. At year-end, the Corporation was servicing $867,772 of residential
mortgage loans which had been sold compared to $878,593 at December 31, 1996.
Non-interest fees on loans decreased $177, or 3.2%, from 1996 primarily
due to reduced credit card revenues as a result of the sale of the credit card
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
continues to receive a portion of credit card revenues generated from its
customers without any credit risk associated with the outstanding balances. The
decline in credit card fees was partially offset by increased merchant credit
card transactions. Merchant transactions generated revenues of $3,545 in 1997
compared to $3,262 in 1996. Non-interest fees on loans increased $418, or 8.1%,
to $5,560 in 1996 due to increased credit card transaction volumes and loan
application and processing fees.
Investment product fees increased 16.9% and 10.0% in 1997 and 1996,
respectively, as the Corporation continued to place greater emphasis on the sale
of annuities, mutual funds and other non-traditional banking products. The
January 1998 acquisition of Wedgewood Partners complements the Corporation's
efforts to expand the sale of investment products and continues its strategic
plans to expand fee-based products.
Net securities gains decreased from $1,496 in 1996 to $1,310 in 1997.
Certain securities were sold through covered call option contracts and to take
advantage of market opportunities.
Other income increased $4,203 in 1997 compared to 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 was
principally due to increased revenues of $1,789 from a corporate-owned life
insurance program, $481 from the expiration of interest rate option contracts,
$412 from net securities trading account gains and $472 from non-customer ATM
access fees. Other income increased $2,521 in 1996
[BAR GRAPH APPEARS HERE]
Revenue
(taxable equivalent basis in millions)
Total Net Interest Income and Non-Interest Income
-------------------------------------------------
1993 $161
1994 $175
1995 $187
1996 $209
1997 $224
CNB BANCSHARES, INC. 23
<PAGE>
Mangement's Discussion and Analysis
compared with 1995. This increase was due in part to $680 of revenue from
expired interest rate option contracts, $548 of additional income from a
corporate-owned life insurance program, increased administrative service
revenues of $218 and non-customer ATM access fees of $487.
Non-Interest Expense
Non-interest expenses decreased $4,781, or 3.5%, in 1997 compared with 1996, as
1996 expenses included a $4,963 SAIF assessment and $4,434 in charges related to
the continued centralization of back-office functions and closed offices.
Excluding these charges, non-interest expenses increased 3.6% due largely to
expenses associated with expanded business and merger activities, offset by
reduced FDIC assessments and the positive results of consolidated back-office
activities and other cost-containment efforts. Non-interest expenses increased
15.7% from 1995 to 1996, primarily due to the SAIF assessment and other one-time
charges previously mentioned. Excluding these one-time expenses, 1996
non-interest expenses increased 7.7%.
Non-Interest Expense
<TABLE>
<CAPTION>
Change from Prior Year
Amount 1997 1996
1997 1996 1995 Amount % Amount %
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $72,093 $68,704 $59,430 $3,389 4.9% $ 9,274 15.6%
Data processing and
other services 12,057 12,092 11,653 (35) (.3) 439 3.8
Occupancy 9,161 8,860 8,138 301 3.4 722 8.9
Equipment 7,801 7,324 6,956 477 6.5 368 5.3
Advertising and promotion 4,536 4,490 3,497 46 1.0 993 28.4
Professional fees 4,293 3,997 3,818 296 7.4 179 4.7
Postage and freight 3,493 3,523 3,045 (30) (.9) 478 15.7
Printing and supplies 3,449 3,723 3,712 (274) (7.4) 11 .3
Amortization of intangible assets 2,446 2,213 1,760 233 10.5 453 25.7
FDIC assessments 245 1,480 4,076 (1,235) (83.4) (2,596) (63.7)
SAIF assessment 4,963 (4,963) 4,963
Other non-interest expense 12,639 15,625 12,363 (2,986) (19.1) 3,262 26.4
-----------------------------------------------------------------------------
Total non-interest expense $132,213 $136,994 $118,448 $(4,781) (3.5)% $ 18,546 15.7%
=============================================================================
</TABLE>
The largest category of non-interest expense relates to salaries and
employee benefits, which in 1997 accounted for 54.5% of total non-interest
expense compared to 50.2% for 1996 and 1995. Incentive compensation increased
$1,748 to $9,673 in 1997 and represented 13.4% of salaries and employee benefits
expense compared to 11.5% in 1996. The Corporation continues to emphasize
performance-based awards tied to net income per share and product sales.
Salaries increased $1,133 in 1997, a portion which was due to increased staff
from May 1996 acquisitions where prior periods were not restated. The remaining
increase was due to normal salary increases and related expenses associated with
increased business activities. Salaries and benefits expense increased 15.6% in
1996 to $68,704 from 1995 due primarily to severance payments and increased
incentive commissions resulting from additional sales activity.
[BAR GRAPH APPEARS HERE]
Trust Assets Under Management at Year-End
-----------------------------------------
(in millions)
1993 $1,028
1994 $1,031
1995 $1,214
1996 $1,699
1997 $2,397
24 CNB BANCSHARES, INC.
<PAGE>
Data processing and other services decreased .3% in 1997. Credit card
processing fees decreased $343 due to the sale of the credit card portfolio, as
discussed earlier. This was partially offset by an increased volume of merchant
credit card transactions resulting in processing expenses increasing $246. The
contracted operation of the data processing facility has permitted the
Corporation to process the increased transaction volumes of acquired
institutions and internally-generated business with minimal incremental cost.
Data processing expenses increased 3.8% in 1996 compared to 1995 due to
increased business activity, particularly credit card transactions.
Occupancy and equipment expenses increased 3.4% and 6.5%, respectively, in
1997 compared to 1996. A full year of expenses was incurred in 1997 for
facilities acquired in May 1996. These expenses increased 8.9% and 5.3%,
respectively, in 1996 as the Corporation was operating two additional banking
offices, five additional finance offices and two new non-banking subsidiaries at
year-end 1996 compared to year-end 1995.
Advertising and promotion expense increased only 1.0% to $4,536 in 1997
due to reduced credit card promotions. Management chose not to offer any
significant credit card solicitations during 1997 in light of the increase in
credit card delinquencies experienced nationally by the credit card industry and
the pending sale of its portfolio, which became effective May 30, as previously
discussed. Advertising expense increased 28.4% in 1996 due to increased
marketing efforts related to loan and deposit promotions, non-traditional
banking services and corporate identity promotions.
Professional fees increased $296 or 7.4% in 1997 compared to 1996 due to
increased legal fees and fees in lieu of salaries as certain staff functions
have been outsourced. Postage and freight and printing and supplies decreased
.9% and 7.4%, respectively, in 1997 due to benefits of technological investments
and cost-containment efforts. Professional fees, postage and freight and
printing and supplies increased in 1996 due to acquisitions and generally higher
levels of business activity.
Amortization of intangible assets increased 10.5% and 25.7% in 1997 and
1996, respectively. During May 1996, the Corporation completed three
acquisitions accounted for under the purchase method of accounting. Goodwill
resulting from these acquisitions totaled $6.4 million and is being amortized on
a straight-line basis over periods not exceeding 15 years.
Federal Deposit Insurance Corporation (FDIC) assessments decreased in both
1996 and 1997 due to assessment rate modifications in each year. However, the
FDIC assessment decrease in 1996 was offset by a special, one-time assessment of
$4,963 on deposits insured by the Savings Association Insurance Fund.
Other expense decreased 19.1%, or $2,986 in 1997 after increasing 26.4%,
or $3,262 in 1996. Charges of $1,983, primarily related to the closure of five
offices recorded during the first quarter 1996 and charges of $922 for equipment
write-offs and other one-time operational charges recorded during the third
quarter, accounted for the majority of these changes.
Most computer programs were originally designed to recognize calendar
years by only their last two digits. Consequently, these programs cannot
differentiate the year 2000 and beyond from the year 1900. This programming
issue will affect many data processing systems including those used by the
Corporation and its commercial customers. Management has formed a committee
which meets weekly to analyze the business and operational issues associated
with the year 2000 and to plan for and monitor the status of corrective
measures. The Corporation has outsourced most data processing activities and
those vendors are responsible for modifying their programs to be compliant with
year 2000 processing. The committee has found that where outside vendors are not
responsible, most programs and equipment are fully depreciated and no write-off
of costs will be necessary. Certifications from remaining vendors as to their
year 2000 compliance are expected by mid-1998 and all systems are expected to be
upgraded by December 31, 1998. Based on the foregoing, the Corporation does not
expect to spend any significant amounts with outside contractors related to the
year 2000. Commercial customers are being contacted and efforts made to ensure
their readiness for year 2000 also. At this time, management does not anticipate
any material impact to the Corporation's operations, cash flows or financial
condition as a result of year 2000.
[BAR GRAPH APPEARS HERE]
Efficiency Ratio
----------------
1993 67%
1994 66%
1995 64%
1996 63%
1997 59%
Excludes foreclosed property expenses, securities gains/losses, and other
non-recurring items, as originally reported, not restated for poolings of
Interests.
CNB BANCSHARES, INC. 25
<PAGE>
Management's Discussion and Analysis
Income Taxes
Income tax expense for 1997 was $25,130, compared to $19,570 in 1996 and $21,212
in 1995. The effective tax rate decreased to 33.6% from 34.2% and 36.7% in 1996
and 1995, 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 increased by
$2,524 in 1997 as additional investments in municipal securities were made. In
addition, investments in corporate-owned life insurance policies on certain
officers generated $1,789 of additional income in 1997 compared with 1996.
Quarterly Results of Operations
<TABLE>
<CAPTION>
Mar. 31 June 30 Sept. 30 Dec. 31 Total
- -------------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C>
Net interest income $ 38,400 $ 39,859 $ 39,568 $ 40,169 $ 157,996
Provision for loan losses 2,758 3,221 2,575 3,012 11,566
Net securities gains 324 181 405 400 1,310
Non-interest income 12,822 14,545 15,497 16,397 59,261
Non-interest expense 31,327 33,232 33,658 33,996 132,213
-----------------------------------------------------------------------------
Income before income taxes 17,461 18,132 19,237 19,958 74,788
Income taxes 5,909 6,066 6,487 6,668 25,130
-----------------------------------------------------------------------------
Net income $ 11,552 $ 12,066 $ 12,750 $ 13,290 $ 49,658
=============================================================================
Net income per share:
Basic $ .55 $ .59 $ .63 $ .65 $ 2.42
=============================================================================
Diluted $ .54 $ .58 $ .61 $ .64 $ 2.37
=============================================================================
1996
Net interest income $ 35,157 $ 36,913 $ 38,231 $ 38,627 $ 148,928
Provision for loan losses 1,662 2,045 3,171 3,724 10,602
Net securities gains 406 162 134 794 1,496
Non-interest income 13,630 11,590 15,981 13,136 54,337
Non-interest expense 32,123 31,015 41,151 32,705 136,994
-----------------------------------------------------------------------------
Income before income taxes 15,408 15,605 10,024 16,128 57,165
Income taxes 5,564 5,465 2,946 5,595 19,570
-----------------------------------------------------------------------------
Net income $ 9,844 $ 10,140 $ 7,078 $ 10,533 $ 37,595
=============================================================================
Net income per share:
Basic $ .48 $ .49 $ .34 $ .50 $ 1.81
=============================================================================
Diluted $ .47 $ .48 $ .33 $ .50 $ 1.78
=============================================================================
</TABLE>
26 CNB BANCSHARES, INC.
<PAGE>
Financial Condition
The financial condition of the Corporation at December 31, 1997, is presented in
the comparative balance sheet of the consolidated financial statements. The
following discussion addresses loans and other components of earning assets,
sources of funds, capital resources, and liquidity and interest rate
sensitivity.
Loans
Loans at December 31, 1997, excluding real estate loans held for sale, grew 9.0%
to $2,479,651 compared to $2,275,089 at the previous year-end. Growth was
experienced in all loan categories during 1997 except for residential mortgage
loans. Based upon projected growth in the commercial and consumer loan sectors,
management intends to reduce the residential mortgage loan portfolio to
approximately 25% of total loans by year-end 1998 by selling or securitizing new
production. Residential mortgage loans have historically averaged a lower
interest rate than other loan types and management believes overall loan yields
can be increased and additional fee income generated by changing the mix of the
loan portfolio. Average loans were $2,376,766 during 1997, which represented an
11.5% increase from 1996.
Commercial loans increased 10.6% to $751,437 and accounted for 30.3% of
the loan portfolio at December 31, 1997 compared with $679,609, or 29.9% of
total loans, at December 31, 1996. Average commercial loan balances increased
$89,453, or 14.6%, to $703,807 in 1997.
Real estate mortgage loans, including residential, commercial and
agricultural loans secured by real estate, and construction loans, increased
8.8% from 1996 and accounted for 43.0% of the total loan portfolio at December
31, 1997. Residential mortgage loans were 28.5% of total loans at December 31,
1997 as compared to 32.6% at December 31, 1996. The aggregate of commercial and
agricultural mortgage, and construction loans represented 14.5% of total loans
at year-end 1997 as compared to 10.5% at the end of last year. Demand for new
residential mortgage loans remained strong throughout 1996 and 1997, and
consistent with the plan to reduce the concentration in the residential mortgage
loan portfolio, the Corporation sold a significant portion of that production.
The Corporation originated $324 million of residential mortgages in 1997
compared to $305 million in 1996 with loan sales and securitizations of $166
million and $326 million, respectively. All fixed-rate mortgage loans with
original maturities exceeding 15 years are sold while other residential 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. Through normal prepayments and the sale or securitization of most
residential mortgage loan production, the Corporation anticipates this portfolio
declining to approximately 25% of total loans, as previously discussed. While
the Corporation may sell certain loans, servicing rights are generally retained.
At December 31, 1997, $867,772 of residential mortgage loans originated by the
Corporation's banks and subsequently sold in the secondary market were being
serviced. At year-end 1997, real estate loans held for sale totaled $38,073
compared to $6,457 one-year prior.
Consumer loans, which include installment, home equity and credit card
loans, increased 7.3% to $637,002 at December 31, 1997. As previously mentioned,
the Corporation sold its credit card portfolio effective May 30, 1997. These
loans totaled $34,523 at December 31, 1996. Excluding credit card loans,
consumer loans increased $77,842. Indirect installment loan balances increased
$47,688, or 24.3%, during 1997 to $244,215 due to increased indirect automobile
loan originations. Home equity and other revolving lines of credit outstandings
increased $16,853 during 1997, which represented an increase of 17.3% over 1996.
[BAR GRAPH APPEARS HERE]
Total Loans
(Excluding Residential Real Estate)
(in millions)
1993 1994 1995 1996 1997
$1,163 $1,318 $1,334 $1,534 $1,774
[BAR GRAPH APPEARS HERE]
Average Total Assets
(in millions)
As originally reported As restated
---------------------- -----------
1993 $2,251 $3,111
1994 $2,497 $3,354
1995 $3,530 $3,612
1996 $3,833 $3,937
1997 $4,317
CNB BANCSHARES, INC. 27
<PAGE>
Management's Discussion and Analysis
The Corporation's loan portfolio contains no loans to foreign governments,
foreign enterprises, foreign operations of domestic companies, or
highly-leveraged transactions, nor any concentrations to borrowers engaged in
the same or similar industries that exceed 10% of total loans.
<TABLE>
<CAPTION>
Loans Outstanding at December 31,
1997 1996 1995 1994 1993
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural production $ 751,437 $ 679,609 $ 576,444 $ 339,533 $ 302,813
Tax exempt 24,830 21,756 23,406 25,290 26,854
Real estate mortgage:
Commercial and agricultural 254,198 171,715 136,941 340,792 307,516
Construction 106,362 67,679 48,959 69,220 43,192
Residential 705,822 740,647 683,021 843,184 714,926
Consumer 637,002 593,683 548,189 542,897 482,643
-----------------------------------------------------------------------------
Total $ 2,479,651 $ 2,275,089 $ 2,016,960 $ 2,160,916 $ 1,877,944
=============================================================================
</TABLE>
Note: Owner-occupied commercial real estate loans were reclassified to
commercial, industrial and agricultural production loans from real estate
mortgage loans at December 31, 1995. Prior years' balances have not been
reclassified.
<TABLE>
<CAPTION>
Loan Maturities at December 31, 1997
Within 1-5 Over 5
1 Year Years Years Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, industrial, agricultural
production and tax exempt $ 244,779 $ 375,835 $ 155,653 $ 776,267
Real estate mortgage 153,525 429,848 483,009 1,066,382
Consumer 126,891 496,093 14,018 637,002
-------------------------------------------------------------
Total $ 525,195 $ 1,301,776 $ 652,680 $ 2,479,651
=============================================================
</TABLE>
Of the loans with maturities of over one year, $982,142 had floating
interest rates and the remainder had fixed interest rates.
Risk Management and Allowance for Loan Losses
An allowance for loan losses is maintained at a level considered adequate by
management to absorb potential loan losses as determined 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
loan portfolio, the volume and condition of the loan portfolio, 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.
Loans with principal or interest payments contractually due but not yet
paid are reviewed weekly by management and are placed on nonaccrual status when
scheduled payments remain unpaid for 90 days or more, unless the loan is both
well secured and in the process of collection. Interest income on nonaccrual
loans is recorded when actually received (cash basis) in contrast to the accrual
basis, which records income over the period in which it is earned, regardless of
when it is received. Loans are charged to the allowance for loan losses when
deemed uncollectible by management, unless sufficient collateral exists to
adequately secure the loan.
The allowance for loan losses at December 31, 1997, was $34,694 or 1.40%
of loans compared to $31,262 and 1.37% of loans at the end of 1996. The
allowance for loan losses equaled 204% and 144% of total non-performing loans at
December 31, 1997 and 1996, respectively.
28 CNB BANCSHARES, INC.
<PAGE>
The provision for loan losses represents a charge against income and a
corresponding increase to the allowance for loan losses. The 1997 provision was
increased by $964 to $11,566 compared to 1996 due to the growth in the loan
portfolio as the allowance was maintained at a similar percentage of loans. Net
charge-offs to average loans decreased to .34% in 1997 from .50% in 1996. The
most significant decrease in net charge-offs was in the consumer loan portfolio,
due in part to the May 30 sale of the credit card portfolio and improving credit
quality of the consumer loan portfolio. Management has continued efforts to
better monitor the underwriting of consumer loans and has implemented a credit
scoring system for consumer loan applications. Additionally, efforts have been
made to improve the collection of past due and previously charged-off loans.
Consumer loans 30 days or more delinquent decreased from $10.4 million, or 1.76%
of total consumer loans, at December 31, 1996, to $8.4 million, or 1.32%, at
December 31, 1997.
[BAR GRAPH APPEARS HERE]
Non-Performing Allowance for
Loans Loan Losses
-------------- -------------
1993 .74% 1.28%
1994 .61% 1.35%
1995 1.04% 1.46%
1996 .96% 1.37%
1997 .69% 1.40%
A summary of loan loss experience and management's allocation of the
allowance for loan losses to the various loan categories for the years indicated
follow.
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Balance at January 1, $ 31,262 $ 29,406 $ 29,102 $ 24,043 $ 22,935
Allowance of subsidiaries at acquisition date 1,872 769 1,118 924
Adjustment to conform year-ends 561
Loan charge-offs:
Commercial, agricultural and tax exempt 3,192 4,538 2,850 1,730 2,288
Real estate mortgage 786 1,123 208 550 1,393
Consumer 7,008 8,328 6,471 3,449 2,813
-----------------------------------------------------------
Total charge-offs 10,986 13,989 9,529 5,729 6,494
-----------------------------------------------------------
Loan recoveries:
Commercial, agricultural and tax exempt 1,204 1,800 957 802 1,000
Real estate mortgage 203 335 137 217 503
Consumer 1,445 1,236 1,043 934 1,056
-----------------------------------------------------------
Total recoveries 2,852 3,371 2,137 1,953 2,559
-----------------------------------------------------------
Net charge-offs 8,134 10,618 7,392 3,776 3,935
-----------------------------------------------------------
Provision for loan losses 11,566 10,602 6,927 7,156 4,119
-----------------------------------------------------------
Balance at December 31, $ 34,694 $ 31,262 $ 29,406 $ 29,102 $ 24,043
-----------------------------------------------------------
Ratio of net charge-offs to average
loans outstanding .34% .50% .34% .19% .22%
-----------------------------------------------------------
Ratio of provision for loan losses to
average loans outstanding .49 .50 .32 .36 .23
-----------------------------------------------------------
Ratio of allowance for loan losses to
total loans outstanding at year-end 1.40 1.37 1.46 1.35 1.28
-----------------------------------------------------------
</TABLE>
CNB BANCSHARES, INC. 29
<PAGE>
Management's Discussion and Analysis
Management's Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
Amount % of Loans to Total Loans
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
agricultural
and tax exempt $ 11,860 $ 12,584 $ 9,974 $ 8,178 $ 7,023 31% 31% 30% 17% 17%
Real estate mortgage 6,602 7,227 8,871 9,870 6,789 43 43 43 58 57
Consumer 12,673 9,652 8,592 9,137 7,878 26 26 27 25 26
Unallocated 3,559 1,799 1,969 1,917 2,353
---------------------------------------------------------------------------------------------
Total $ 34,694 $ 31,262 $ 29,406 $ 29,102 $ 24,043 100% 100% 100% 100% 100%
---------------------------------------------------------------------------------------------
</TABLE>
Note: Owner-occupied commercial real estate loans were reclassified to
commercial, industrial and agricultural production loans from real estate
mortgage loans at December 31, 1995. Prior years' balances have not been
reclassified.
Risk assets consist of loans on nonaccrual status, loans classified as
troubled debt restructurings, foreclosed properties and loans 90 days or more
past due but continuing to accrue interest. Although these assets have more than
a normal risk of loss, they will not necessarily result in a higher level of
losses in the future. The following table presents risk assets for the past five
years. In addition to the loans classified as non-performing, there were other
loans totaling $9,397 at December 31, 1997, where the borrowers were
experiencing difficulties, and where management was closely monitoring the
borrowers' abilities to comply with payment terms. However, conditions at this
time do not warrant their classification as non-performing loans. Management is
not aware of any loans that have not been disclosed that represent or result
from trends or uncertainties which may have a material impact on the
Corporation's future operating results, liquidity or capital resources.
<TABLE>
<CAPTION>
Asset Quality at December 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual:
Commercial, agricultural and tax exempt $ 4,998 $ 10,112 $ 10,401 $ 3,962 $ 3,866
Real estate mortgage 9,211 8,437 6,389 6,121 3,827
Consumer 1,597 1,960 3,211 1,988 1,710
----------------------------------------------------------
Total nonaccrual 15,806 20,509 20,001 12,071 9,403
Restructured:
Commercial, agricultural and tax exempt 837 657 479 892 4,218
Real estate mortgage 390 558 464 168 261
Consumer 42 5 5
----------------------------------------------------------
Total restructured 1,227 1,257 948 1,065 4,479
----------------------------------------------------------
Total non-performing loans 17,033 21,766 20,949 13,136 13,882
Foreclosed properties 2,130 1,721 1,727 3,959 7,021
----------------------------------------------------------
Total non-performing assets 19,163 23,487 22,676 17,095 20,903
90 days or more past due and accruing:
Commercial, agricultural and tax exempt 246 267 344 243 371
Real estate mortgage 999 2,033 1,468 1,530 1,403
Consumer 1,199 1,457 626 1,244 946
----------------------------------------------------------
Total 90 days or more past due and accruing 2,444 3,757 2,438 3,017 2,720
----------------------------------------------------------
Total risk assets $ 21,607 $ 27,244 $ 25,114 $ 20,112 $ 23,623
==========================================================
Non-performing loans to loans .69% .96% 1.04% .61% .74%
==========================================================
Non-performing assets to loan-related assets .77 1.03 1.12 .79 1.11
==========================================================
Risk assets to loan-related assets .87 1.20 1.24 .93 1.25
==========================================================
</TABLE>
30 CNB BANCSHARES, INC.
<PAGE>
Investment Securities
Total investment securities available for sale and held to maturity represented
40.8% of average earning assets in 1997 compared to 39.9% in 1996. The portfolio
has continued to shift toward investments in mortgage-backed securities,
predominantly 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
primarily 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 some of the underlying mortgages are refinanced at
lower rates. Conversely, the average lives of these securities generally are
extended as interest rates increase. Mortgage-backed securities represented
72.2% and 72.8% of total investment securities at December 31, 1997 and 1996,
respectively.The estimated average lives of these securities and the overall
portfolio were 4.4 years and 5.4 years, respectively, at December 31, 1997,
based on current prepayment expectations. Additional state and municipal
securities were also purchased in 1996 and 1997 due to their higher tax
equivalent yields.
<TABLE>
<CAPTION>
Investment Securities Available For Sale at December 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury $ 752 $ 23,005
Federal agencies:
Bonds and notes $ 202,457 217,314 168,753
Mortgage-backed securities 1,043,892 1,006,674 627,216
Collateralized mortgage obligations 64,499 71,050 108,798
State and municipal 96,936 58,701 48,811
Other securities 26,979 25,381 22,817
-----------------------------------------
Total $ 1,434,763 $1,379,872 $ 999,400
=========================================
<CAPTION>
Investment Securities Held to Maturity at December 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
Federal agencies:
Bonds and notes $ 4
Mortgage-backed securities $ 68,867 $ 78,263 89,462
Collateralized mortgage obligations 24,535 29,626 30,263
State and municipal 137,501 140,199 78,511
-----------------------------------------
Total $ 230,903 $ 248,088 $ 198,240
=========================================
</TABLE>
Sources of Funds
The Corporation relies on customers' deposits, securities sold under repurchase
agreements, federal funds purchased and other borrowed funds along with
shareholders' equity, to fund its earning assets. Certain of the Corporation's
banks are members of the Federal Home Loan Bank (FHLB). As members, the banks
may obtain FHLB advances with various maturities and interest rate options by
pledging qualifying assets. These advances totaled $263,614 and $158,640 at
December 31, 1997, and 1996, respectively. The Corporation expects to continue
utilizing the FHLB as a funding source for its banking subsidiaries as
circumstances warrant.
Average total deposits increased 4.8% to $3,090,166 in 1997 compared to
1996. Average non-interest bearing checking deposits increased 3.8% in 1997 and
6.4% in 1996 while interest bearing deposits grew 5.0% in 1997 and 7.2% in 1996.
During 1996 and 1997, the mix of interest bearing deposits shifted to money
market savings accounts and certificates of deposit as competitive pricing on
these products modified customers' previous preferences of interest bearing
checking and savings accounts.
CNB BANCSHARES, INC. 31
<PAGE>
Management's Discussion and Analysis
Average Deposits
<TABLE>
<CAPTION>
1997 1996 1995
Amount Rate Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing checking $ 326,363 $ 314,463 $ 295,585
Interest bearing checking 405,760 1.66% 412,917 2.17% 405,517 2.46%
Money market savings 374,177 4.52 305,082 3.94 263,691 3.82
Other savings 221,944 2.31 240,933 2.52 253,784 2.67
Certificates of deposit and other time 1,761,922 5.65 1,674,218 5.59 1,532,638 5.54
------------ ----------- -----------
Total $ 3,090,166 4.15% $ 2,947,613 4.09% $ 2,751,215 4.06%
======================================================================
</TABLE>
Maturities of Certificates of Deposit of $100 or More at December 31,
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3 months or less $ 150,395 $ 129,957
3-6 months 37,624 45,548
6-12 months 38,090 45,380
Over 12 months 13,428 24,496
----------------------------
Total $ 239,537 $ 245,381
============================
</TABLE>
Securities sold under repurchase agreements are acquired in national
markets as well as from the Corporation's commercial customers as a part of a
cash management service. Repurchase agreements generally provide the Corporation
with a lower interest cost than similar sources of funds and were $517,344 at
December 31, 1997, compared to $530,261 at year-end 1996. A portion of these
repurchase agreements, acquired to fund certain fixed-rate earning assets, are
being hedged by interest rate caps. Securities sold under repurchase agreements
averaged $581,516 in 1997 compared to $406,678 in 1996.
Federal funds purchased and other short-term borrowings increased $64,612
to $94,220 at December 31, 1997. At December 31, 1997, the Corporation had
$25,000 of term federal funds purchased, which represent funds purchased from
other financial institutions for a term in excess of one night. Other short-term
borrowings, principally U.S. Treasury demand notes, totaled $11,840 and $7,878
at December 31, 1997 and 1996, respectively. These demand notes are subject to
call by the Federal Reserve and carry a variable interest rate.
[BAR GRAPH APPEARS HERE]
Average Deposits
(in millions)
1993 1994 1995 1996 1997
$2,593 $2,677 $2,751 $2,948 $3,090
Capital Resources
The Corporation continues to maintain a strong capital position which supports
its current needs and provides a sound foundation to support further expansion.
At December 31, 1997, shareholders' equity had increased to $334,468. The amount
of net earnings retained after the payment of cash dividends was $32,034 for
1997 compared to $21,710 in the prior year. The dividend payout ratio was 35% in
1997 compared to 42% in 1996 and was consistent with management's policy of
maintaining an appropriate balance between earnings distributed to shareholders
in the form of dividends and earnings retained to provide for internal capital
growth. Book value per share at year-end 1997 increased to $16.39 from $15.58
one year earlier, an increase of 5.2%. Shareholders' equity averaged $322,877
during 1997, an increase of 1.7% from 1996.
In order to maintain its capital position at a desired level, the
Corporation maintains a stock repurchase program whereby 5% of its outstanding
shares may be repurchased annually for specific corporate purposes, including
but not limited to an annual stock dividend. During 1997, 1996 and 1995, the
Corporation repurchased $37,552, $16,278 and $25,307, respectively, of its
common stock under this program.
32 CNB BANCSHARES, INC.
<PAGE>
[BAR GRAPH APPEARS HERE]
Cash Dividend Paid
(per share)
1993 1994 1995 1996 1997
$.62 $.67 $.70 $.78 $.86
After adjusting for stock dividends, dividends paid per share were $.86
for 1997, an increase of 10.3% over 1996. The indicated annual dividend rate is
currently $.92 per share. The Corporation's return on average shareholders'
equity was 15.38% for 1997 compared to 11.84% in 1996 and 12.24% in 1995.
Liquidity and Interest Rate Sensitivity
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. Interest rate sensitivity involves the relationship
between rate sensitive assets and liabilities and is an indication of the
probable effects of interest rate movements on the Corporation's net interest
income. The Corporation manages both its liquidity and interest sensitivity
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
December 31, 1997, the Corporation had $254,595 or 5.7% of total assets in
investment securities maturing within one year. In addition, the Corporation had
$219,000 available from unused federal funds purchased agreements and in excess
of $181,000 of available borrowing capacity from the Federal Home Loan Bank.
Management believes that maturing investment securities and unused borrowing
sources will be adequate to meet the liquidity needs for the foreseeable future.
[BAR GRAPH APPEARS HERE]
Book Value Per Share
at Year-End
1993 1994 1995 1996 1997
$14.11 $13.81 $15.20 $15.58 $16.39
The Parent Company's liquidity includes its cash and short-term
investments and is generally provided by dividends and management fees received
from the subsidiary banks. Approximately $43,411 was available to the Parent at
December 31, 1997, from dividends by banking subsidiaries without prior
regulatory approval. Cash dividends received from the subsidiaries in 1997 were
$26,718 compared to $26,305 in 1996. The Parent Company also has available a
$50,000 bank line of credit of which $15,000 at year-end was available for
future use.
Interest rate sensitive assets and liabilities are those which have yields
or rates subject to change within a future time period due to maturity or
changes in market rates. An ongoing objective of the Corporation's
asset/liability 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 Corporation manages its rate
sensitivity position through the use of variable-rate loans and by matching
funds acquired, having a specific maturity, with loans, securities or money
market investments with similar maturities. The Corporation supplements this
approach through the use of interest rate contracts and swaps to reduce the
impact of changing interest rates on its cost to acquire certain variable-rate
funds. The Corporation employs a variety of measurement techniques to identify
and manage its exposure to changing interest rates. A simulation model is used
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 1.3% or less should interest rates increase or decrease by up to 200
basis points. Additionally, a rate sensitivity position is computed for various
repricing intervals by calculating rate sensitivity gaps. The following table
shows the Corporation's interest rate sensitivity
CNB BANCSHARES, INC. 33
<PAGE>
Management's Discussion and Analysis
analysis as of December 31, 1997. Interest earning assets and interest bearing
liabilities have been distributed based on their repricing opportunities. The
maturities of certain investments, loans and deposits have been adjusted based
on projected prepayment patterns or historical relationships to changes in
market interest rates. The repricing of certain liabilities has been adjusted to
reflect the expected benefit of interest rate contracts in place at year-end.
Although rate sensitivity gaps constantly change as funds are acquired and
invested, the Corporation's negative gap of $147,517 at one year or less as of
December 31, 1997, was approximately 3.3% of total assets. This, in the opinion
of management, represented a relatively balanced position. Net interest income
at financial institutions with negative gaps tends to increase in periods of
falling interest rates and decline as interest rates rise.
Static Interest Rate Sensitivity at December 31, 1997
<TABLE>
<CAPTION>
Maturing or Repricing
-------------------------------------------------------------------------------------
Non-Sensitive
1-90 91-180 181 Days Over 1 Year and Over
Days Days to 1 Year to 5 Years 5 Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and
money market investments $ 13,203 $ 51 $ 13,254
Real estate loans held for sale 38,073 38,073
Investment securities available for sale 116,291 $ 65,492 $ 115,312 532,900 $ 604,768 1,434,763
Investment securities held to maturity 14,435 5,321 20,331 61,683 129,133 230,903
Loans, net of unearned interest 992,480 201,138 340,760 843,399 101,874 2,479,651
Non-earning assets 283,579 283,579
------------------------------------------------------------------------------------
Total assets 1,174,482 271,951 476,403 1,438,033 1,119,354 4,480,223
Liabilities and shareholders' equity
Interest bearing deposits:
Interest bearing checking accounts* 39,410 354,691 394,101
Money market and other savings* 294,486 78,000 255,665 628,151
Certificates of deposit and other time 433,625 326,391 357,195 659,450 17,200 1,793,861
------------------------------------------------------------------------------------
Total interest bearing deposits 767,521 326,391 357,195 737,450 627,556 2,816,113
Securities sold under
repurchase agreements 267,444 19,458 109,958 120,484 517,344
Federal funds purchased and other
short-term borrowings 94,220 94,220
Long-term debt 127,212 318 636 175,080 4,782 308,028
Non-interest bearing deposits* 365,334 365,334
Non-interest bearing liabilities
and shareholders' equity 379,184 379,184
------------------------------------------------------------------------------------
Total liabilities and equity 1,256,397 346,167 467,789 1,033,014 1,376,856 $ 4,480,223
------------------------------------------------------------------------------------
Interest sensitivity gap $ (81,915) $ (74,216) $ 8,614 $ 405,019 $ (257,502)
====================================================================
Cumulative interest sensitivity gap $ (81,915) $ (156,131) $ (147,517) $ 257,502
======================================================
Cumulative gap as a percentage
of total assets (1.8)% (3.5)% (3.3)% 5.7%
======================================================
</TABLE>
* The Corporation's experience with interest bearing checking accounts, money
market and savings and non-interest bearing deposits has been that, although
these deposits are subject to immediate withdrawal or repricing, a portion of
the balances has remained relatively constant in periods of both rising and
falling rates. Therefore a portion of these deposits is included in the "Non-
Sensitive" category.
34 CNB BANCSHARES, INC.
<PAGE>
Average Balance Sheet and Net Interest Analysis
(In thousands on fully taxable equivalent basis)
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ---------------------------- ---------------------------
Average Average Average Average Average Average
Balances Interest Rates Balances Interest Rates Balances Interest Rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and other short-
term money market investments $ 14,919 $ 817 5.48% $ 36,026 $ 1,964 5.45% $ 31,071 $ 1,846 5.94%
Real estate loans held for sale 13,440 1,274 9.48 57,809 4,661 8.06 23,113 1,899 8.22
Investment securities:
Taxable 1,455,274 100,167 6.88 1,321,555 89,865 6.80 1,060,019 70,256 6.63
Tax exempt /(1)/ 201,065 16,146 8.03 154,262 12,690 8.23 90,837 8,078 8.89
---------------------------------------------------------------------------------------------
Total investment securities 1,656,339 116,313 7.02 1,475,817 102,555 6.95 1,150,856 78,334 6.81
Loans: /(2)/, /(3)/
Commercial and industrial 703,807 63,671 9.05 614,354 55,820 9.09 346,118 33,666 9.73
Tax exempt /(1)/ 23,982 2,346 9.78 21,286 2,168 10.19 23,982 2,536 10.57
Real estate mortgage 1,042,937 89,566 8.59 930,047 79,912 8.59 1,271,119 108,785 8.56
Consumer 606,040 65,475 10.80 566,336 61,475 10.85 542,039 56,282 10.38
--------------------------------------------------------------------------------------------
Total loans 2,376,766 221,058 9.30 2,132,023 199,375 9.35 2,183,258 201,269 9.22
--------------------------------------------------------------------------------------------
Total earning assets 4,061,464 339,462 8.36 3,701,675 308,555 8.34 3,388,298 283,348 8.36
Less: Allowance for loan losses 32,884 30,145 29,518
Cash and due from banks 90,742 94,410 100,413
Premises and equipment 73,855 70,138 68,958
Other assets 123,439 100,868 83,680
---------------------------------------------------------------------------------------------
Total assets $ 4,316,616 $3,936,946 $ 3,611,831
=============================================================================================
Liabilities
Interest bearing deposits:
Interest bearing checking accounts $ 405,760 $ 6,741 1.66% $ 412,917 $ 8,969 2.17% $ 405,517 $ 9,984 2.46%
Money market savings accounts 374,177 16,924 4.52 305,082 12,005 3.94 263,691 10,078 3.82
Other savings accounts 221,944 5,127 2.31 240,933 6,077 2.52 253,784 6,770 2.67
Certificates of deposit and
other time 1,761,922 99,566 5.65 1,674,218 93,611 5.59 1,532,638 84,975 5.54
---------------------------------------------------------------------------------------------
Total interest bearing deposits 2,763,803 128,358 4.64 2,633,150 120,662 4.58 2,455,630 111,807 4.55
Securities sold under repurchase
agreements 581,516 30,786 5.29 406,678 20,828 5.12 302,004 16,678 5.52
Federal funds purchased and
other short-term borrowings 54,401 3,019 5.55 48,822 2,573 5.27 31,139 1,818 5.84
FHLB advances and other long-term debt 227,365 13,463 5.92 180,212 10,834 6.01 193,784 13,076 6.75
---------------------------------------------------------------------------------------------
Total interest bearing
liabilities 3,627,085 175,626 4.84 3,268,862 154,897 4.74 2,982,557 143,379 4.81
Non-interest bearing deposits 326,363 314,463 295,585
Other liabilities 40,291 36,141 34,565
---------------------------------------------------------------------------------------------
Total liabilities 3,993,739 3,619,466 3,312,707
Shareholders' equity 322,877 317,480 299,124
---------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 4,316,616 $3,936,946 $3,611,831
=============================================================================================
Recap: /(4)/
Interest income $ 339,462 8.36% $308,555 8.34% $283,348 8.36%
Interest expense 175,626 4.33 154,897 4.19 143,379 4.23
---------------------------------------------------------------------------------------------
Net interest income/margin $ 163,836 4.03% $153,658 4.15% $139,969 4.13%
=============================================================================================
</TABLE>
(1) Tax exempt securities and loans have been adjusted to a fully tax equivalent
basis using a marginal tax rate of 35%.
(2) Nonaccrual loans have been included in the average balances.
(3) Loan income includes interest and fees on loans.
(4) Average rates have been computed by dividing by total earning assets.
35
<PAGE>
Consolidated Balance Sheet
(In thousands, except for share data)
<TABLE>
<CAPTION>
December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 106,949 $ 114,469
Federal funds sold and other short-term money market investments 13,254 34,628
------------------------------
Total cash and cash equivalents 120,203 149,097
Real estate loans held for sale 38,073 6,457
Investment securities available for sale 1,434,763 1,379,872
Investment securities held to maturity (market value $236,242 in 1997
and $249,150 in 1996) 230,903 248,088
Loans, net of unearned income 2,479,651 2,275,089
Less: Allowance for loan losses 34,694 31,262
------------------------------
Net loans 2,444,957 2,243,827
Premises and equipment 75,003 71,468
Intangible assets 31,216 32,847
Interest receivable 29,620 30,863
Other assets 75,485 54,056
------------------------------
Total Assets $ 4,480,223 $ 4,216,575
Liabilities
Deposits:
Non-interest bearing $ 365,334 $ 359,146
Interest bearing 2,816,113 2,755,584
------------------------------
Total deposits 3,181,447 3,114,730
Securities sold under repurchase agreements 517,344 530,261
Federal funds purchased and other short-term borrowings 94,220 29,608
FHLB advances and other long-term debt 308,028 176,730
Interest payable and other liabilities 44,716 39,832
------------------------------
Total Liabilities 4,145,755 3,891,161
Shareholders' Equity
Common stock, $1 stated value
Shares authorized: 50,000,000
Shares issued: 20,404,332 in 1997 and 19,887,107 in 1996 20,404 19,887
Capital surplus 280,873 271,001
Retained earnings 28,569 35,779
Net unrealized gains (losses) on investment securities available for sale 4,622 (1,253)
------------------------------
Total Shareholders' Equity 334,468 325,414
------------------------------
Total Liabilities and Shareholders' Equity $ 4,480,223 $ 4,216,575
==============================
</TABLE>
See notes to consolidated financial statements.
36 CNB BANCSHARES, INC.
<PAGE>
Consolidated Statement of Income
(In thousands, except for share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans, including fees:
Taxable $ 218,712 $ 197,207 $ 198,733
Tax exempt 1,590 1,463 1,708
Real estate loans held for sale 1,274 4,661 1,899
Investment securities:
Taxable 100,167 89,865 70,256
Tax exempt 11,062 8,665 5,522
Federal funds sold and other short-term money market investments 817 1,964 1,846
-------------------------------------------------
Total interest income 333,622 303,825 279,964
-------------------------------------------------
Interest Expense
Deposits 128,358 120,662 111,807
Short-term borrowings 33,805 23,401 18,496
FHLB advances and other long-term debt 13,463 10,834 13,076
-------------------------------------------------
Total interest expense 175,626 154,897 143,379
-------------------------------------------------
Net Interest Income 157,996 148,928 136,585
Provision for loan losses 11,566 10,602 6,927
-------------------------------------------------
Net Interest Income After Provision for Loan Losses 146,430 138,326 129,658
-------------------------------------------------
Non-Interest Income
Service charges on deposit accounts 14,513 12,747 11,017
Trust and plan administration fees 8,926 6,931 5,171
Insurance premiums and commissions 8,146 7,916 7,059
Mortgage banking revenue 6,406 10,064 7,662
Non-interest fees on loans 5,383 5,560 5,142
Investment products fees 3,902 3,337 3,035
Net securities gains 1,310 1,496 2,281
Other non-interest income 11,985 7,782 5,261
-------------------------------------------------
Total non-interest income 60,571 55,833 46,628
-------------------------------------------------
Non-Interest Expense
Salaries and employee benefits 72,093 68,704 59,430
Data processing and other services 12,057 12,092 11,653
Occupancy 9,161 8,860 8,138
Equipment 7,801 7,324 6,956
Advertising and promotion 4,536 4,490 3,497
Professional fees 4,293 3,997 3,818
Postage and freight 3,493 3,523 3,045
Printing and supplies 3,449 3,723 3,712
Amortization of intangible assets 2,446 2,213 1,760
FDIC assessments 245 1,480 4,076
SAIF assessment 4,963
Other non-interest expense 12,639 15,625 12,363
-------------------------------------------------
Total non-interest expense 132,213 136,994 118,448
-------------------------------------------------
Income Before Income Taxes 74,788 57,165 57,838
Income taxes 25,130 19,570 21,212
-------------------------------------------------
Net Income $ 49,658 $ 37,595 $ 36,626
=================================================
Net Income Per Share:
Basic $ 2.42 $ 1.81 $ 1.78
=================================================
Diluted $ 2.37 $ 1.78 $ 1.74
=================================================
Average Shares Outstanding:
Basic 20,552,677 20,788,427 20,527,108
=================================================
Diluted 21,040,127 21,309,458 21,222,480
=================================================
</TABLE>
See notes to consolidated financial statements.
CNB BANCSHARES, INC. 37
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity
(In thousands, except for share data)
<TABLE>
<CAPTION>
Common Stock Capital Retained Unrealized
Shares Amount Surplus Earnings Gains/Losses Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 17,858,295 $ 17,858 $ 244,506 $ 32,148 $ (9,023) $ 285,489
Net income for 1995 36,626 36,626
Cash dividends (10,346) (10,346)
Stock dividend 878,823 879 25,042 (25,921)
Issuance of common stock for:
Dividend reinvestment plan 108,984 109 2,984 3,093
Stock options exercised 193,037 193 1,552 1,745
Exercise and conversion of stock
purchase contracts and debentures 17,538 18 295 313
Acquisitions 387,491 387 2,053 4,178 6,618
Other 6,992 7 353 360
Purchase and retirement of common stock (871,762) (872) (24,435) (25,307)
Change in unrealized gains/losses on
investment securities available for sale 12,740 12,740
------------------------------------------------------------------------------------
Balances, December 31, 1995 18,579,398 18,579 252,350 36,685 3,717 311,331
Net income for 1996 37,595 37,595
Cash dividends (15,885) (15,885)
Stock dividend 950,040 950 26,553 (27,503)
Issuance of common stock for:
Dividend reinvestment plan 127,090 127 3,433 3,560
Stock options exercised 98,423 98 843 941
Exercise and conversion of stock
purchase contracts and debentures 171,655 172 2,466 2,638
Acquisitions 499,200 499 900 4,887 6,286
Other 6,926 7 189 196
Purchase and retirement of common stock (545,625) (545) (15,733) (16,278)
Change in unrealized gains/losses on
investment securities available for sale (4,970) (4,970)
------------------------------------------------------------------------------------
Balances, December 31, 1996 19,887,107 19,887 271,001 35,779 (1,253) 325,414
Net income for 1997 49,658 49,658
Cash dividends (17,624) (17,624)
Stock dividend 966,741 967 38,277 (39,244)
Issuance of common stock for:
Dividend reinvestment plan 47,185 47 1,769 1,816
Stock options exercised 61,580 62 1,079 1,141
Exercise and conversion of debentures 350,436 350 5,390 5,740
Purchase and retirement of common stock (908,717) (909) (36,643) (37,552)
Change in unrealized gains/losses on
investment securities available for sale 5,875 5,875
------------------------------------------------------------------------------------
Balances, December 31, 1997 20,404,332 $ 20,404 $ 280,873 $ 28,569 $ 4,622 $ 334,468
====================================================================================
</TABLE>
See notes to consolidated financial statements.
38 CNB BANCSHARES, INC.
<PAGE>
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 49,658 $ 37,595 $ 36,626
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,052 14,027 11,166
Provision for loan losses 11,566 10,602 6,927
Amortization of premiums and discounts on securities 3,311 1,694 1,441
Deferred income tax benefit (272) (572) (1,334)
Net securities gains (1,310) (1,496) (2,281)
Loans originated for sale (197,349) (74,615) (162,121)
Proceeds from sale of loans 165,733 90,463 161,482
Increase in interest receivable and other assets, net of amortization (20,107) (21,458) (18,493)
Increase in interest payable and other liabilities 2,147 6,296 8,635
----------------------------------------------------
Net Cash Provided by Operating Activities 26,429 62,536 42,048
----------------------------------------------------
Investing Activities:
Cash and cash equivalents of subsidiaries acquired, net of purchase price 2,869 4,050
Proceeds from the maturity of investment securities available for sale 331,343 282,982 154,227
Proceeds from the sale of investment securities available for sale 976,996 597,758 289,801
Purchase of investment securities available for sale (1,355,077) (1,010,253) (472,912)
Proceeds from the maturity of investment securities held to maturity 16,756 13,315 47,680
Purchase of investment securities held to maturity (52,040) (81,339)
Net increase in loans (215,893) (263,519) (41,258)
Purchase of premises and equipment (10,908) (10,114) (7,809)
----------------------------------------------------
Net Cash Used by Investing Activities (256,783) (439,002) (107,560)
----------------------------------------------------
Financing Activities:
Net increase in deposits 65,960 158,742 171,541
Net increase (decrease) in short-term borrowings 50,406 204,490 (6,988)
Payment and maturity of long-term debt (77,838) (170,793) (199,830)
Proceeds of long-term borrowings 215,151 191,965 144,549
Payment of cash dividends (17,624) (15,885) (13,124)
Proceeds from common stock issued for dividend reinvestment plan 1,816 3,560 3,093
Proceeds from exercise of stock options 1,141 941 1,745
Purchase and retirement of common stock (37,552) (16,278) (25,307)
----------------------------------------------------
Net Cash Provided by Financing Activities 201,460 356,742 75,679
----------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (28,894) (19,724) 10,167
Cash and Cash Equivalents at January 1, 149,097 168,821 158,654
----------------------------------------------------
Cash and Cash Equivalents at December 31, $ 120,203 $ 149,097 $ 168,821
====================================================
Supplemental disclosure:
Cash paid for:
Interest $ 172,686 $ 153,738 $ 137,793
Income taxes 22,896 16,191 22,100
Non-cash investing and financing activities:
Common stock issued for acquisitions 6,286 6,618
Stock issued in exchange of debentures and equity contracts and
pursuant to employee benefit plans 6,024 2,882 545
</TABLE>
See notes to consolidated financial statements.
CNB BANCSHARES, INC. 39
<PAGE>
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except for share data)
1. Summary of Significant Accounting Policies
The accounting and reporting policies of CNB Bancshares, Inc. (Corporation) and
its subsidiaries conform to generally accepted accounting principles and
reporting practices followed by the banking industry. The more significant
policies are described below.
Basis of presentation
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries, after elimination of all material intercompany accounts
and transactions. Certain prior year amounts have been reclassified to conform
with current classifications.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Real estate loans held for sale
Real estate loans held for sale are carried at the lower of aggregate cost or
market value. Gains and losses on real estate loans sold are recorded at the
time of sale. Servicing fee income subsequent to the sale is included in
non-interest income. Mortgage servicing rights associated with mortgage loans
originated and sold, where servicing is retained, are capitalized and amortized
over the estimated lives of the loans. The carrying value of such rights is
subject to periodic adjustment based upon changing market conditions.
Investment securities
Debt securities that the Corporation has the positive intent and ability to hold
to maturity are classified as held to maturity and reported at amortized cost.
Other investment securities are classified as available for sale or trading and
reported at fair value with unrealized gains and losses included in
shareholders' equity, net of related taxes, or income, respectively.
Amortization of premiums and accretion of discounts are recorded as
adjustments to interest income using the level-yield method over the estimated
remaining period until maturity, adjusted for estimated prepayments. Gains and
losses on the sale of investment securities are determined on the specific
identification method at the time of sale.
Loans and allowance for loan losses
Loans are reported net of unearned interest, unamortized deferred fees and
costs. Interest income on loans is accrued on the principal amount of such loans
outstanding, except for leases and discounted installment loans which is
computed using the level-yield method. Certain nonrefundable loan fees and
related direct loan costs are deferred and amortized over the life of the loan
as an adjustment to interest income. Loans are placed on nonaccrual status when
the collection of the interest becomes doubtful. Interest accrued during the
current year and deemed uncollectible is reversed and charged against current
income, while uncollectible interest accrued from prior years is charged against
the allowance for loan losses. Interest income on nonaccrual loans is then
recognized only when collected. A loan remains on nonaccrual status until the
loan is current as to payment of both principal and interest, and/or the
borrower demonstrates the ability to pay and remain current.
Loans are considered impaired when it becomes probable that the Corporation
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. Impaired loans are measured by the present value of expected
future cash flows or the fair value of collateral, if the loan is collateral
dependent. Interest income on these loans is recognized as described above
depending on the accrual status of the loan.
The allowance for loan losses is increased by provisions charged to
expenses and reduced by loans charged off, net of recoveries. It is maintained
at a level considered adequate to absorb potential loan losses determined on the
basis of management's continuing review and evaluation of the loan portfolio and
its judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loan loss experience and
trends, changes in the composition of the loan portfolio, the current volume and
condition of loans outstanding and the probability of collecting all amounts
due.
Premises and equipment
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method based on
estimated useful lives. Gains and losses on dispositions are included in
operations.
40 CNB BANCSHARES, INC.
<PAGE>
Foreclosed properties
Foreclosed properties represent properties acquired through foreclosure or deed
in lieu of foreclosure and are recorded at the lower of cost or fair value less
estimated costs to sell. Losses at the time of transfer from loans are charged
to the allowance for loan losses. Subsequent adjustments to value and gains or
losses on sales are included in operations. Rental income and costs of
maintaining the properties are also included in operations.
Intangible assets
The excess of cost over the fair value of net assets and other intangibles
acquired in acquisitions accounted for as purchases are amortized using the
straight-line method over estimated lives up to 25 years. Such assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amounts of these assets may not be recoverable.
Interest rate contracts
The Corporation reduces the potential impact of changing interest rates on its
costs to acquire liabilities that fund certain loans and investments through
interest rate contracts, including interest rate swaps, interest rate caps and
optional forward purchase contracts.
The net settlements received or paid on interest rate swaps are reported as
adjustments to interest expense of the related liabilities being hedged.
Premiums paid for interest rate caps are included in the carrying amounts of
those liabilities being hedged. These amounts are amortized as an adjustment to
interest expense of the related liabilities on a straight-line method over the
contractual terms of the caps. Interest expense is reduced on a current basis as
amounts are earned from counterparties when the index rate exceeds the rate
contractually specified in the cap agreements.
Optional forward purchase contracts provide the option buyer with the right
to sell to, or purchase from, another party some financial instrument at a
stated price on or prior to a specified future date. Fees received from the sale
of written options are deferred until the option expires, is terminated, or is
exercised, at which point the fees are included in current operations.
Gains or losses on the termination of interest rate contracts used to hedge
changes in interest rates are included in the carrying amounts of those
liabilities being hedged and are amortized as an adjustment to the yield of the
hedged liability over its remaining life. Gains or losses on the early
termination of a hedged transaction are included in current operations.
Income taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax basis. The Corporation
and its subsidiaries file consolidated income tax returns.
Net income per share
Basic net income per share has been computed by dividing net income by the
weighted average number of common shares outstanding during each period. The
diluted net income per share computation is as above, adjusted for the effects
of options and convertible subordinated debentures. Diluted net income has been
adjusted for the elimination of interest expense, net of tax, on convertible
subordinated debentures and average shares have been increased for the assumed
conversion of outstanding options and convertible subordinated debentures into
common shares. All share data included in the consolidated financial statements
has been adjusted for stock dividends.
Stock option plans
Prior to January 1, 1996, the Corporation accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense was recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Corporation adopted Financial Accounting Standards Board
Statement (FASB) No. 123,Accounting for Stock-Based Compensation, which permits
entities to expense the fair value of stock-based awards, as measured on the
date of grant, over their vesting period. Alternatively, FASB No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma net income per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in FASB No. 123 had been applied. The
Corporation has elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosures of FASB No. 123.
CNB BANCSHARES, INC. 41
<PAGE>
Notes to Consolidated Financial Statements
Trust assets
Assets held by the Corporation's subsidiaries in fiduciary or agency capacity
for customers are not included in the consolidated financial statements as such
items are not assets of the Corporation or its subsidiaries.
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.
2. Business Combinations
Information relating to mergers accounted for as poolings of interests for the
three year period ended December 31, 1997, includes:
<TABLE>
<CAPTION>
Merger Common Assets
Date Shares Issued Acquired
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BMC Bancshares, Inc., Mt. Carmel, Illinois February 14, 1997 754,810 $ 100,041
DuQuoin Bancorp, Inc., DuQuoin, Illinois May 17, 1996 550,368 84,357*
Southern Finance Co., Inc., Madisonville, Kentucky December 1, 1995 35,205 2,432*
Service Financial, Inc., Harriman, Tennessee December 1, 1995 40,863 1,924*
UF Bancorp, Inc., Evansville, Indiana August 4, 1995 2,613,154 564,755
Bank of Orleans, Indiana August 4, 1995 368,698 58,576*
Harrisburg Bancshares, Inc., Harrisburg, Illinois February 10, 1995 556,047 110,467
King City Federal Savings Bank, Mt. Vernon, Illinois February 1, 1995 755,288 176,494
</TABLE>
Certain of the above entities have had their name changed and/or have been
merged into other subsidiaries of the Corporation.
*Accounted for as a pooling of interests without restatement of prior periods as
the amounts involved were not material to the Corporation's financial results.
Separate operating results of the Corporation and BMC Bancshares, Inc. for
the periods prior to the merger were as follows:
1996 1995
- --------------------------------------------------------------------------------
Net interest income:
CNB Bancshares, Inc. $ 145,601 $ 133,435
BMC Bancshares, Inc. 3,327 3,150
------------------------
Combined $ 148,928 $ 136,585
========================
Net income:
CNB Bancshares, Inc. $ 37,694 $ 35,426
BMC Bancshares, Inc. (99) 1,200
------------------------
Combined $ 37,595 $ 36,626
========================
42 CNB BANCSHARES, INC.
<PAGE>
On January 1, 1998, the Corporation issued 109,800 shares of common stock
for the acquisition of Wedgewood Partners, Inc., a full service broker/dealer
and asset management firm based in St. Louis, Missouri. Goodwill of $2,345 is
being amortized on a straight-line basis over 15 years. The acquisition
was accounted for under the purchase method of accounting and, accordingly, the
consolidated financial statements will include the assets and liabilities and
results of operations from the January 1, 1998 transaction date forward. Pro
forma disclosure of the effects of this acquisition has not been presented as
the amounts involved in the transaction are not material to the Corporation's
financial results.
On May 31, 1996, the Corporation acquired $11,785 of loans from 12 offices
of Money One Credit Company, acquired a portion of the customer base from
Evansville Insurance Group and purchased Small Parker & Blossom, Inc., a third
party administrator of employee benefit plans. Goodwill resulting from these
acquisitions totaled $6,375 and is being amortized on a straight-line basis over
periods not exceeding 15 years. These acquisitions were accounted for under the
purchase method of accounting, and accordingly, the consolidated financial
statements include the assets and liabilities and results of operations from the
May 31, 1996 transaction date forward.
On August 4, 1995, the Corporation acquired the four Indiana offices of
Household Bank, f.s.b., a subsidiary of Household International and assumed
deposit liabilities of $78,897. Goodwill of $5,345 is being amortized on a
straight-line basis over 15 years. The acquisition was accounted for under the
purchase method of accounting and, accordingly, the consolidated financial
statements include the assets and liabilities and results of operations from the
August 4, 1995 transaction date forward.
On October 14, 1997, the Corporation signed a definitive agreement to
acquire all of the outstanding shares of Pinnacle Financial Services, Inc.
(Pinnacle), headquartered in St. Joseph, Michigan. Under terms of the agreement,
the Corporation will issue approximately 13 million 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 shareholders of the Corporation and
Pinnacle and applicable regulatory agencies. Although the Corporation
anticipates that the merger will be consummated during the second quarter of
1998, there can be no assurances that the acquisition will be completed. At
December 31, 1997, Pinnacle had total assets and shareholders' equity of
$2,116,449 and $181,305, respectively.
On February 13, 1998, the Corporation signed a definitive agreement to
acquire all of the outstanding shares of National Bancorp of Tell City, Indiana.
Under terms of the agreement, the Corporation will issue approximately 1,118,000
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
shareholders of National Bancorp and applicable regulatory agencies. Although
the Corporation anticipates that the merger will be consummated during the
second quarter of 1998, there can be no assurances that the acquisition will be
completed. At December 31, 1997, National Bancorp had total assets and
shareholders' equity of $191,287 and $17,850, respectively.
3. Mortgage Banking Activities
The Corporation has sold certain loans to various investors while retaining
servicing rights. Loans serviced for others totaled $867,772 and $878,593 at
December 31, 1997 and 1996, respectively, and are not included in the
accompanying consolidated financial statements. Changes in mortgage servicing
rights for the years ended December 31 were as follows:
1997 1996
- --------------------------------------------------------------------------------
Balance at January 1, $ 3,369 $ 589
Mortgage servicing rights capitalized 1,288 3,330
Amortization (839) (550)
------------------------
Balance at December 31, $ 3,818 $ 3,369
========================
The components of mortgage banking revenue were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sales and securitization of mortgage loans $ 3,306 $ 6,757 $ 1,796
Gain on sale of mortgage servicing rights 2,600
Mortgage loan fees 988 1,051 918
Mortgage servicing fees, net of amortization 2,112 2,256 2,348
---------------------------------------
Mortgage banking revenue $ 6,406 $ 10,064 $ 7,662
=======================================
</TABLE>
CNB BANCSHARES, INC. 43
<PAGE>
Notes To Consolidated Financial Statements
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>
Available for Sale at December 31, 1997:
Federal agencies:
Bonds and notes $ 202,574 $ 123 $ (240) $ 202,457
Mortgage-backed securities 1,037,760 6,926 (794) 1,043,892
Collateralized mortgage obligations 66,168 486 (2,155) 64,499
State and municipal 94,008 2,963 (35) 96,936
Other securities 26,622 419 (62) 26,979
----------------------------------------------------------
Total $ 1,427,132 $ 10,917 $ (3,286) $ 1,434,763
==========================================================
Held to Maturity at December 31, 1997:
Federal agencies:
Mortgage-backed securities $ 68,867 $ 113 $ (807) $ 68,173
Collateralized mortgage obligations 24,535 (142) 24,393
State and municipal 137,501 6,295 (120) 143,676
----------------------------------------------------------
Total $ 230,903 $ 6,408 $ (1,069) $ 236,242
==========================================================
Available for Sale at December 31, 1996:
U.S. Treasury $ 751 $ 1 $ 752
Federal agencies:
Bonds and notes 217,421 621 $ (728) 217,314
Mortgage-backed securities 1,009,903 3,849 (7,078) 1,006,674
Collateralized mortgage obligations 70,803 767 (520) 71,050
State and municipal 57,656 1,262 (217) 58,701
Other securities 25,431 81 (131) 25,381
----------------------------------------------------------
Total $ 1,381,965 $ 6,581 $ (8,674) $ 1,379,872
==========================================================
Held to Maturity at December 31, 1996:
Federal agencies:
Mortgage-backed securities $ 78,263 $ 107 $ (1,808) $ 76,562
Collateralized mortgage obligations 29,626 (408) 29,218
State and municipal 140,199 3,726 (555) 143,370
----------------------------------------------------------
Total $ 248,088 $ 3,833 $ (2,771) $ 249,150
==========================================================
</TABLE>
44 CNB BANCSHARES, INC.
<PAGE>
The amortized cost of investment securities at December 31, 1997, by
contractual maturity, except for mortgage-backed securities and collateralized
mortgage obligations which are based on estimated average lives, 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.
Maturities and Average Yields of Investment Securities Available For Sale at
December 31, 1997*
<TABLE>
<CAPTION>
1 Year or Less 1-5 Years 5-10 Years Over 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal agencies:
Bonds and notes $ 3 8.51% $ 19,696 6.79% $ 181,897 7.00% $ 861 8.53% $ 202,457 6.99%
Mortgage-backed
securities 214,315 6.97 503,081 6.96 237,482 6.93 89,014 6.96 1,043,892 6.96
Collateralized mortgage
obligations 14,890 6.94 32,025 6.83 13,162 6.71 4,422 6.53 64,499 6.81
State and municipal 5,579 9.94 10,992 9.98 9,098 8.07 71,267 7.65 96,936 8.09
Other securities 241 5.87 26,738 7.23 26,979 7.22
---------- ---------- --------- --------- -----------
Total $ 234,787 7.04% $ 565,794 7.01% $ 441,880 6.98% $ 192,302 7.25% $ 1,434,763 7.03%
===================================================================================================
Percent of total 16% 40% 31% 13% 100%
===================================================================================================
</TABLE>
Maturities and Average Yields of Investment Securities Held to Maturity at
December 31, 1997*
<TABLE>
<CAPTION>
1 Year or Less 1-5 Years 5-10 Years Over 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal agencies:
Mortgage-backed
securities $ 13,856 6.18% $ 37,418 6.10% $ 14,496 6.22% $ 3,097 6.46% $ 68,867 6.16%
Collateralized mortgage
obligations 5,255 5.03 12,574 5.03 5,046 5.06 1,660 5.11 24,535 5.04
State and municipal 697 7.78 23,192 8.81 50,582 7.90 63,030 7.90 137,501 8.05
---------- ---------- --------- --------- -----------
Total $ 19,808 5.93% $ 73,184 6.77% $ 70,124 7.35% $ 67,787 7.77% $ 230,903 7.17%
===================================================================================================
Percent of total 9% 32% 30% 29% 100%
===================================================================================================
</TABLE>
* Fully taxable equivalent yields
Specific investment securities with carrying values of $560,617 and
$632,935 were pledged at December 31, 1997 and 1996, respectively, to secure
securities sold under repurchase agreements, public deposits, trust funds and
for other purposes as required or permitted by law. In addition, investment
securities with a carrying value of $577,640 were pledged at December 31, 1997
under blanket collateral agreements to secure borrowing availability with the
Federal Home Loan Bank.
Proceeds from the sales of investment securities available for sale during
1997, 1996 and 1995 were $976,996, $597,758 and $289,801, respectively. Gross
gains and (losses), respectively, realized on those transactions were as
follows: 1997 - $3,277 and ($1,967); 1996 - $2,595 and ($1,099); and 1995 -
$3,725 and ($1,444).
CNB BANCSHARES, INC. 45
<PAGE>
Notes To Consolidated Financial Statements
5. Loans And Allowance For Loan Losses
Through its subsidiaries, the Corporation generates commercial, mortgage and
consumer loans from customers located in its primary market areas of Indiana,
Illinois, Kentucky and portions of Tennessee. Collateral, if deemed necessary,
is based on management's credit evaluation and may include business assets of
commercial borrowers as well as personal property and real estate of individual
borrowers or guarantors. The Corporation's loan portfolio is diversified with no
major concentration related to any one industry.
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Loans outstanding at December 31:
Commercial, industrial and agricultural production $ 751,437 $ 679,609
Tax exempt 24,830 21,756
Real estate mortgage:
Commercial and agricultural 254,198 171,715
Construction 106,362 67,679
Residential 705,822 740,647
Consumer 650,524 607,147
----------------------------
2,493,173 2,288,553
Less: Unearned income 13,522 13,464
----------------------------
Loans, net of unearned income $2,479,651 $2,275,089
============================
</TABLE>
Impaired loans totaled $25,597 and $18,172 at December 31, 1997 and 1996,
respectively. Included in the impaired loans total as of the same year-end dates
were $9,535 and $7,420 of impaired loans for which the related specific
allowance for loan losses were $2,259 and $1,653. The remaining $16,062 and
$10,752 of impaired loans did not require a specific reserve. Impaired loans
averaged $17,555 and $15,331 for 1997 and 1996, respectively. The Corporation
recognized $314, $178 and $76 of interest income on these impaired loans in
1997, 1996 and 1995, respectively.
Loans on which the accrual of interest was discontinued or reduced amounted
to $17,033 at December 31, 1997, and $21,766 at December 31, 1996. Additional
interest income of approximately $1,775 for 1997, $1,699 for 1996, and $1,637
for 1995, would have been recorded had income on these loans been accounted for
on the accrual basis.
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses:
Balance at January 1, $ 31,262 $ 29,406 $ 29,102
Allowance of subsidiaries at acquisition date 1,872 769
Loan charge-offs (10,986) (13,989) (9,529)
Loan recoveries 2,852 3,371 2,137
Provision for loan losses 11,566 10,602 6,927
-------------------------------------------
Balance at December 31, $ 34,694 $ 31,262 $ 29,406
===========================================
</TABLE>
6. Premises And Equipment
1997 1996
- -------------------------------------------------------------------------------
Cost at December 31:
Land $ 10,949 $ 10,166
Buildings and leasehold improvements 77,462 77,469
Equipment 50,932 49,739
---------------------------
Total cost 139,343 137,374
Accumulated depreciation (64,340) (65,906)
---------------------------
Net $ 75,003 $ 71,468
===========================
46 CNB BANCSHARES, INC.
<PAGE>
7. Deposits
1997 1996
- ---------------------------------------------------------------------------
Deposits at December 31:
Non-interest bearing checking $ 365,334 $ 359,146
Interest bearing checking 394,101 419,663
Savings 205,070 231,763
Money market 423,081 328,792
Certificates of $100 or more 239,537 245,381
Other certificates and time deposits 1,554,324 1,529,985
----------------------------
Total $3,181,447 $3,114,730
============================
The Corporation receives deposits from customers located in its primary
market areas of Indiana, Illinois and Kentucky, and generally does not accept
brokered deposits and has no significant concentrations of deposits from any one
customer or industry. The scheduled maturities of certificates and other time
deposits at December 31, 1997, was as follows: 1998 - $1,132,210; 1999 -
$414,386; 2000 - $173,220; 2001 - $30,231; 2002 - $26,613; 2003 and after -
$17,201.
Interest expense on time deposits of $100 or more was $13,163, $10,466 and
$8,324 for 1997, 1996 and 1995, respectively.
8. Short-Term Borrowings
<TABLE>
<CAPTION>
Securities
Sold Under Federal Other
Repurchase Funds Short-Term
1997 Agreements Purchased Borrowings Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31 $517,344 $ 57,380 $ 36,840 $ 611,564
Average amount outstanding during the year 581,516 45,177 9,224 635,917
Maximum amount outstanding at any month-end 665,108 74,610 36,840
Weighted average interest rate:
During year 5.29% 5.58% 5.38% 5.32%
End of year 5.43 5.94 5.65 5.49
1996
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31 $530,261 $ 21,730 $ 7,878 $ 559,869
Average amount outstanding during the year 406,678 42,717 6,105 455,500
Maximum amount outstanding at any month-end 530,261 93,850 16,252
Weighted average interest rate:
During year 5.12% 5.39% 4.46% 5.14%
End of year 5.02 5.75 4.76 5.05
1995
- ---------------------------------------------------------------------------------------------------------------
Balance at December 31 $325,271 $ 18,370 $ 7,441 $ 351,082
Average amount outstanding during the year 302,004 23,539 7,600 333,143
Maximum amount outstanding at any month-end 338,174 42,790 14,136
Weighted average interest rate:
During year 5.52% 5.92% 5.57% 5.55%
End of year 5.15 5.50 4.88 5.16
</TABLE>
CNB BANCSHARES, INC. 47
<PAGE>
Notes to Consolidated Financial Statements
The maturity distribution of securities sold under repurchase agreements at
December 31, 1997, was as follows:
- --------------------------------------------------------------------------------
Overnight $ 121,019
1-30 days 304,786
30-90 days 26,569
Over 90 days 64,970
----------
$ 517,344
==========
The market value of securities sold under repurchase agreements, all of
which were under the Corporation's control, totaled $569,497 at December 31,
1997.
9. Long-Term Debt
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt of the parent company and its subsidiaries as of December 31:
Parent Company:
Notes payable, unsecured:
Variable rate adjusted with changes in LIBOR, due in 1999
(6.47% at December 31, 1997) $ 35,000
Variable rate adjusted with changes in LIBOR, payable $250 quarterly through
2000 (6.47% and 6.16% at December 31, 1997 and 1996, respectively) 3,500 $ 4,500
9.81%, paid in 1997 2,400
Convertible subordinated debentures, 7.50%, redeemed October 1997 6,029
Subsidiaries:
Federal Home Loan Bank advances, due at various dates through 2016 (weighted
average rates of 5.70% and 5.56% at December 31, 1997 and 1996, respectively) 263,614 158,640
Other, including capitalized leases 5,914 5,161
---------------------------
Total $ 308,028 $ 176,730
===========================
</TABLE>
The scheduled principal reduction of long-term debt at December 31, 1997,
was as follows: 1998 - $77,216; 1999 - $96,334; 2000 - $81,765; 2001 - $10,280;
2002 - $35,296; 2003 and after - $7,137. Certain notes permit earlier principal
payments without penalty.
Qualifying, unencumbered mortgage assets up to 170% of the aggregate amount
of advances and Federal Home Loan Bank stock have been pledged as collateral for
the Federal Home Loan Bank advances.
At December 31, 1997, the Corporation had $219,000 available from unused
federal funds purchased agreements and in excess of $181,000 of available
borrowing capacity from the Federal Home Loan Bank. In addition, the Corporation
has an unsecured line of credit available which permits it to borrow up to
$50,000 at variable rates adjusted with changes in LIBOR through June 30, 1999.
At December 31, 1997, $15,000 remained available for future use.
10. Shareholders' Equity
The Corporation is authorized to issue 2,000,000 shares of preferred stock, no
par value, which remain unissued. In the event any preferred shares are issued,
specific voting powers, dividend preferences and other rights and restrictions
of the preferred stock will be designated by the Board of Directors.
Shareholders' equity has been adjusted to record the one-for-twenty stock
dividends declared on October 18, 1995, September 10, 1996 and August 11, 1997.
All share data has been adjusted to reflect the stock dividends.
The Corporation offers a Dividend Reinvestment and Stock Purchase Plan (the
Plan), which provides shareholders of the Corporation with a convenient method
of purchasing additional shares of common stock. The Plan provides for shares to
be purchased in the market or to be issued by the Corporation. At December 31,
1997, there were 667,976 shares of common stock reserved for issuance under the
Plan. Shares issued pursuant to the Plan totaled 49,523, 138,592, and 125,856
for 1997, 1996 and 1995, respectively.
48 CNB BANCSHARES, INC.
<PAGE>
The Corporation called its convertible subordinated debentures effective
October 3, 1997. The Corporation issued 351,547 shares in 1997, 29,687 shares in
1996 and 14,410 shares in 1995 in connection with the conversion of these
debentures.
Cancelable mandatory stock purchase contracts were called effective August
15, 1996. The Corporation issued 151,590 shares in 1996 and 5,791 shares in
1995, in connection with the exercise of these stock purchase contracts.
The Corporation has Incentive Stock Option Plans (Plans), whereby up to
1,684,000 shares of common stock can be granted to directors, officers or
employees of the Corporation or its subsidiaries. Under terms of the Plans,
options may be granted to purchase the Corporation's common stock at a price not
less than the fair market value of the common stock at the date of the grant,
for a period of up to 10 years after a six month or greater vesting period.
Options granted pursuant to the Plans generally qualify as incentive stock
options; however, certain conditions may be waived which would result in the
options being treated as non-qualified stock options. Unless terminated earlier
by the Board of Directors, the Plans will terminate on March 20, 2005. At
December 31, 1997, 312,622 shares were available for the granting of additional
options.
No expense related to the options granted has been recorded. Pro forma
information regarding net income and net income per share has been determined
under a fair value method. The fair value for these options was estimated at the
date of grant using a Black- Scholes option pricing model with the following
weighted-average assumptions:
1997 1996 1995
- -------------------------------------------------------------------------------
Risk-free interest rate 6.38% 6.83% 6.06%
Dividend yield 2.50 3.20 3.20
Volatility 20.00 14.00 16.00
Expected option life 5 years 7 years 7 years
For purposes of pro forma disclosures, if the estimated fair value of the
options is amortized to expense over the options' vesting period, the effect on
net income would be:
1997 1996 1995
- --------------------------------------------------------------------------------
Net income:
As reported $ 49,658 $ 37,595 $ 36,626
Pro forma 49,228 37,002 36,179
Basic earnings per share:
As reported $ 2.42 $ 1.81 $ 1.78
Pro forma 2.40 1.78 1.76
Diluted earnings per share:
As reported $ 2.37 $ 1.78 $ 1.74
Pro forma 2.35 1.75 1.72
A summary of the option transactions under the Plans and other options
assumed by the Corporation as a result of certain mergers is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
Average Average Average
Option Option Option Option Option Option
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 615,376 $ 22.92 547,149 $19.25 631,635 $ 13.92
Granted or assumed 467,462 39.98 176,309 25.61 138,931 25.62
Exercised (63,803) 17.87 (108,082) 8.70 (220,487) 7.91
Forfeited (10,605) 40.83 (2,930) 25.04
--------- ------- -------
Outstanding at December 31, 1,008,430 $ 30.96 615,376 $22.92 547,149 $ 19.25
=============================================================================
Exercisable at December 31, 580,660 $ 25.00 549,302 $22.67 429,811 $ 19.61
=============================================================================
</TABLE>
CNB BANCSHARES, INC. 49
<PAGE>
Notes to Consolidated Financial Statements
The following table summarizes stock options outstanding as of December 31,
1997:
Weighted Average
Range of Remaining Contractual Weighted Average
Exercise Price Outstanding Life (Years) Exercise Price
- --------------------------------------------------------------------------------
$ 6.00 - $ 18.00 23,426 4.5 $ 8.65
18.01 - 31.00 530,702 6.9 24.25
31.01 - 41.00 454,302 8.3 39.95
---------
1,008,430 7.5 30.96
=========
The following table reconciles the numerators and denominators for basic and
diluted net income per share:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
For basic net income per share - Net income $ 49,658 $ 37,595 $ 36,626
Effect of dilutive securities:
7.50% Convertible subordinated debentures 178 289 307
------------------------------------
For diluted net income per share - Net income
after assumed conversions $ 49,836 $ 37,884 $ 36,933
====================================
Denominator:
For basic net income per share - Average shares outstanding 20,553 20,788 20,527
Effect of dilutive securities:
7.50% Convertible subordinated debentures 236 368 387
Stock options 251 153 308
------------------------------------
For diluted net income per share - Average shares outstanding
after assumed conversions 21,040 21,309 21,222
====================================
</TABLE>
11. Employee Benefit Plans
The Corporation and its subsidiaries maintain noncontributory, defined-benefit
pension plans covering substantially all employees. Pension benefits are
generally based on years of service and compensation, as defined. Pension
expense was $557, $628 and $327 for 1997, 1996 and 1995, respectively, and
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service costs-benefits earned during the period $ 1,856 $ 1,728 $ 1,339
Interest costs on projected benefit obligation 2,465 2,286 2,096
Return on plan assets (3,552) (3,204) (2,884)
Net amortization and deferral (212) (182) (224)
------------------------------------
Net pension expense $ 557 $ 628 $ 327
====================================
</TABLE>
50 CNB BANCSHARES, INC.
<PAGE>
It is the Corporation's policy to make contributions to the plans that meet
or exceed the minimum funding requirements of applicable laws and regulations,
up to that allowable by federal tax regulations.
The following table sets forth the plans' funded status and the amounts
recognized in the Corporation's consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested $ 29,666 $ 27,805 $ 24,771
Nonvested 1,386 545 1,861
------------------------------------
Total $ 31,052 $ 28,350 $ 26,632
====================================
Plan assets at fair value, primarily marketable securities $ 50,433 $ 43,684 $ 37,477
Actuarial present value of projected benefit obligation (37,376) (33,502) (31,679)
------------------------------------
Excess of plan assets over projected benefit obligation 13,057 10,182 5,798
Unrecognized net transition asset (1,374) (1,571) (1,778)
Unrecognized net loss (gain) (5,277) (2,168) 1,750
Unrecognized prior service cost (933) (957) (981)
------------------------------------
Prepaid pension expense included in other assets $ 5,473 $ 5,486 $ 4,789
====================================
</TABLE>
Plan assets consist primarily of investments in U.S. Government Agency and
corporate debt obligations and collective investment and mutual funds. At
December 31, 1997, the plans held 139,085 common shares of the Corporation.
Assumptions used in determining the projected benefit obligations and net
pension expense were:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.25% 7.50% 7.50%
Rate of increase in compensation levels 4.25 4.25 4.25
Expected long-term rate of return on plan assets 9.00 9.00 9.00
</TABLE>
The discount rate used to compute the projected benefit obligation was
reduced in 1997 as noted above due to changes in market interest rates. The
projected benefit obligation was increased by approximately $1,509 as a result
of this change.
The Corporation and its subsidiaries also have a deferred income savings
plan (Savings Plan) with substantially all employees eligible to participate. At
the discretion of the Board of Directors, the subsidiaries match a percentage of
employee contributions and may make an additional contribution based on earnings
performance. The Corporation's expense for the Savings Plan was $1,090, $1,026
and $915 for 1997, 1996 and 1995, respectively.
The Corporation does not provide postretirement benefits other than
pensions nor does it have any material liabilities for postemployment benefits.
CNB BANCSHARES, INC. 51
<PAGE>
Notes to Consolidated Financial Statements
12. Income Taxes
1997 1996 1995
- --------------------------------------------------------------------------------
Income taxes:
Currently payable:
Federal $ 21,262 $ 16,177 $ 18,297
State 4,140 3,965 4,249
Deferred (benefit) expense:
Federal (528) (375) (1,149)
State 256 (197) (185)
------------------------------------
Total income taxes $ 25,130 $ 19,570 $ 21,212
====================================
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of federal statutory tax to actual income tax expense:
Federal income tax at applicable statutory rate (35%) $ 26,176 $ 20,008 $ 20,243
Tax exempt interest (3,793) (3,088) (2,203)
State tax, net of federal tax benefit 2,857 2,449 2,642
Other (110) 201 530
------------------------------------
Income tax expense $ 25,130 $ 19,570 $ 21,212
====================================
Effective rate 34% 34% 37%
====================================
</TABLE>
No valuation allowance was required for the years reported due to
management's belief that it is more likely than not that future operations will
generate sufficient taxable income to realize the deferred tax assets. The tax
effects of temporary differences which give rise to significant portions of the
deferred tax assets and liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Unrealized losses on securities available for sale $ 772
Allowance for loan losses $ 11,544 9,027 $ 6,553
Deferred compensation 1,984 909 374
Unearned fees and commissions 1,322 1,275 442
Accrued expenses 1,168 1,635 2,212
Other 431 833 1,297
------------------------------------
Total deferred tax assets 16,449 14,451 10,878
------------------------------------
Deferred tax liabilities:
Unrealized gains on securities available for sale 3,009 2,239
Depreciation 4,299 3,984 2,902
Prepaid pension 2,352 2,324 1,880
Leasing operations 1,359 212
Mortgage servicing rights 1,611 1,287
Other 2,065 1,381 2,177
------------------------------------
Total deferred tax liabilities 14,695 9,188 9,198
------------------------------------
Net deferred tax asset $ 1,754 $ 5,263 $ 1,680
====================================
</TABLE>
52 CNB BANCSHARES, INC.
<PAGE>
13. Commitments and Contingent Liabilities
The Corporation is committed under various operating leases for premises and
equipment. Future minimum rentals for lease commitments having initial or
remaining non-cancelable lease terms in excess of one year totaled $7,455 at
December 31, 1997. Rental expense for operating leases totaled $2,107, $1,828
and $1,473 in 1997, 1996 and 1995, respectively.
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying consolidated financial
statements. The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for commitments
to extend credit and standby letters of credit is represented by the contractual
or notional amount of those instruments. The Corporation uses the same credit
policies in making such commitments as it does for instruments that are included
in the consolidated balance sheet.
At December 31, those financial instruments whose contract amount
represents credit and/or interest rate risk are summarized in the following
table:
1997 1996
- -----------------------------------------------------------------------------
Commitments to extend credit $ 478,888 $ 577,610
Standby letters of credit 54,218 46,870
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation. Collateral held may include accounts receivable,
inventory, real property, plant and equipment and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party.
The Corporation and its subsidiaries are also subject to claims and
lawsuits which arise primarily in the ordinary course of business. Based on
information presently available and advice received from legal counsel
representing the Corporation in connection with such claims and lawsuits, it is
the opinion of management that the disposition or ultimate determination of such
claims and lawsuits will not have a material adverse effect on the consolidated
financial position of the Corporation.
The Corporation has change of control agreements with certain employees
which provide for specified benefits under certain conditions. The contingent
liability under these agreements in the event of a change in control is
approximately $5,651.
The Corporation has entered into an agreement with a third party to provide
the Corporation with certain services, including software, specified computer
equipment and the overall management and operations of its data processing
through June 2003. The agreement provides for minimum annual payments as
follows: 1998 - $4,675; 1999 - $4,607; 2000 - $4,519; 2001 - $4,519; 2002 -
$4,519; and 2003 - $2,259.
14. 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.
At December 31, 1997 and 1996, the notional amount of the interest rate
caps was $390,000 and $285,000, respectively. The caps are indexed to LIBOR with
contract strike prices ranging from 5.50% to 6.00% and mature prior to 2000. The
caps had a carrying value of $2,095 and $1,753 at December 31, 1997 and 1996,
respectively, and related market values of $989 and $934.
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 both December 31,
1997 and 1996, the Corporation had swaps with a notional value of $55,000. The
fair value of the swaps was ($39) and ($363) at December 31, 1997 and 1996,
respectively. This negative fair value represents the estimated amount
CNB BANCSHARES, INC. 53
<PAGE>
Notes to Consolidated Financial Statements
the Corporation would have to pay at each date to cancel the contracts or
transfer them to other parties. 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 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.
15. Related Party Transactions
In the ordinary course of business, the Corporation has loan, deposit and other
transactions with executive officers, directors and principal shareholders, and
with organizations and individuals with which they are financially or otherwise
closely associated. All of the transactions were entered into on substantially
the same terms as those prevailing at the time for comparable transactions with
other parties. These loans do not involve more than normal risk of
collectibility or present other unfavorable features. As defined, total loans to
executive officers, directors and principal shareholders were as follows:
- -------------------------------------------------------------------------------
Balance at January 1, 1997 $ 38,096
New loans, including renewals 15,829
Director and officer changes (3,665)
Payments, including renewals (6,357)
--------
Balance at December 31, 1997 $ 43,903
========
16. Regulatory Restrictions and Capital Requirements
The principal source of income and funds for the Corporation (Parent Company) is
dividends from its banking subsidiaries. During 1998, the amount of dividends
that the banking subsidiaries can pay to the Corporation without obtaining prior
regulatory approval is limited to the total of their 1998 net income and $43,411
(the amount available at December 31, 1997). As a practical matter, the banking
subsidiaries may restrict dividends to a lesser amount because of the need to
maintain adequate capital levels.
The banking subsidiaries are required to maintain non-interest bearing cash
reserve balances which are dependent on the amounts and types of deposits held
by the subsidiary banks. The reserves required at December 31, 1997, were
$19,922.
The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on the Corporation's consolidated financial
statements. 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. The Corporation's and its banking
subsidiaries' 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 (set forth in the following table) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined), and of Tier 1
capital to average assets (as defined). Management believes, that as of December
31, 1997, the Corporation and its banking subsidiaries met all capital adequacy
requirements to which they were subject.
As of December 31, 1997, the most recent notification from regulatory
agencies categorized the subsidiary banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the subsidiary banks must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the following table.
There are no conditions or events since that notification that management
believes have changed the subsidiary banks' categories.
The Corporation's and its significant subsidiary banks' actual and minimum
required capital amounts and ratios as mandated by the respective principal
federal regulatory authority at December 31, 1997, were as follows:
54 CNB BANCSHARES, INC.
<PAGE>
<TABLE>
<CAPTION>
Requirements
To be Classified
Actual Minimum Requirements as "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk-weighted assets):
Corporation $ 337,142 11.93% $ 226,147 8.00% $ 282,683 10.00%
The Citizens National Bank of Evansville 164,217 12.48 105,271 8.00 131,589 10.00
Citizens Bank of Kentucky 55,952 11.34 39,488 8.00 49,360 10.00
Citizens Bank of Illinois, N.A. 52,834 14.69 28,771 8.00 35,964 10.00
Citizens Bank of Central Indiana 46,641 11.14 33,487 8.00 41,859 10.00
Tier 1 Capital (to risk-weighted assets):
Corporation 302,448 10.70 113,073 4.00 169,610 6.00
The Citizens National Bank of Evansville 151,016 11.48 52,635 4.00 78,953 6.00
Citizens Bank of Kentucky 49,773 10.08 19,744 4.00 29,616 6.00
Citizens Bank of Illinois, N.A. 48,322 13.44 14,385 4.00 21,578 6.00
Citizens Bank of Central Indiana 41,948 10.02 16,744 4.00 25,115 6.00
Tier 1 Capital (to average assets):
(also known as leverage ratio)
Corporation 302,448 6.87 176,031 4.00 220,039 5.00
The Citizens National Bank of Evansville 151,016 7.06 85,555 4.00 106,944 5.00
Citizens Bank of Kentucky 49,773 6.97 28,583 4.00 35,729 5.00
Citizens Bank of Illinois, N.A. 48,322 7.26 26,639 4.00 33,299 5.00
Citizens Bank of Central Indiana 41,948 6.70 25,029 4.00 31,286 5.00
</TABLE>
17. Fair Values of Financial Instruments
The estimated fair values of the Corporation's financial instruments are
provided in the following table. A financial instrument is defined as cash,
evidence of an ownership interest in an entity, or a contract that both: a)
imposes on one entity a contractual obligation to deliver cash or another
financial instrument to a second entity and, b) conveys to a second entity a
contractual right to receive cash or another financial instrument from the first
entity. All of the Corporation's assets and liabilities are not financial
instruments, as defined, and are therefore not included in the table.
The estimated fair values of the Corporation's financial instruments at
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 120,203 $ 120,203 $ 149,097 $ 149,097
Investment securities available for sale 1,434,763 1,434,763 1,379,872 1,379,872
Investment securities held to maturity 230,903 236,242 248,088 249,150
Net loans (including loans held for sale) 2,483,030 2,524,248 2,250,284 2,275,937
Interest receivable 29,620 29,620 30,863 30,863
Financial liabilities:
Deposits (3,182,462) (3,195,828) (3,115,241) (3,119,291)
Short-term borrowings (612,644) (612,644) (561,103) (561,103)
Interest rate contracts 2,095 989 1,753 934
Long-term debt (308,028) (297,432) (176,738) (177,081)
Interest payable (20,238) (20,238) (17,298) (17,298)
Off-balance-sheet financial assets (liabilities):
Commitments to extend credit 2,799 2,827
Interest rate swaps (39) (363)
</TABLE>
CNB BANCSHARES, INC. 55
<PAGE>
Notes to Consolidated Financial Statements
The carrying amounts of cash and cash equivalents are reasonable estimates
of their fair values. Fair values for investment securities were based on quoted
market prices or dealer quotes where available. The fair values of investment
securities, where market values or dealer quotes were not available, and loans
were calculated by discounting expected cash flows to average maturities. The
discount rate was adjusted to allow for varying repricing opportunities, credit
risks and carrying costs, as deemed appropriate by management. The fair values
of demand deposits, savings accounts, money market deposits and short-term
borrowings are the carrying amounts which were payable on December 31, 1997, and
December 31, 1996, respectively. Fair values of interest rate contracts,
including interest rate swaps, were based on dealer quotes. The fair values of
fixed-maturity certificates of deposit and long-term debt were estimated using
current interest rates for similar remaining maturities. Commitments to make
loans and standby letters of credit are not recorded on the consolidated balance
sheet. The fair values of commitments to extend credit are based on fees
currently charged to enter into similar agreements with similar maturities and
interest rates.
Because no active market exists for a significant portion of the
Corporation's financial instruments, fair value estimates were based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other such
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision.
18. Condensed Financial Information of Parent Company
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Corporation (Parent Company only).
<TABLE>
<CAPTION>
December 31,
Condensed Balance Sheet 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash on deposit with subsidiaries $ 730 $ 893
Securities purchased under repurchase agreements with subsidiaries 6,500 8,000
-------------------------
Total cash and cash equivalents 7,230 8,893
Investment in subsidiaries 361,881 327,985
Premises and equipment 2,044 1,282
Other assets 6,112 3,735
-------------------------
Total assets $ 377,267 $ 341,895
=========================
Liabilities
Accrued expenses $ 4,299 $ 3,552
Long-term debt 38,500 12,929
-------------------------
Total liabilities 42,799 16,481
Shareholders' equity 334,468 325,414
-------------------------
Total liabilities and shareholders' equity $ 377,267 $ 341,895
=========================
</TABLE>
56 CNB BANCSHARES, INC.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
Condensed Statement of Income 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $ 26,718 $ 26,305 $ 46,178
Management fees from subsidiaries 7,487 7,100 5,998
Other income 361 1,459 1,151
------------------------------------
Total income 34,566 34,864 53,327
Expenses
Personnel expense 9,050 8,679 6,894
Interest expense 1,839 1,327 1,433
Other expenses 5,988 5,419 3,859
------------------------------------
Total expense 16,877 15,425 12,186
------------------------------------
Income before income tax benefit and equity
in undistributed earnings of subsidiaries 17,689 19,439 41,141
Income tax benefit 3,734 2,962 1,737
------------------------------------
Income before equity in undistributed earnings of subsidiaries 21,423 22,401 42,878
Equity in undistributed earnings of subsidiaries 28,235 15,194 (6,252)
------------------------------------
Net income $ 49,658 $ 37,595 $ 36,626
====================================
<CAPTION>
Year Ended December 31,
Condensed Statement of Cash Flows 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 49,658 $ 37,595 $ 36,626
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 346 223 143
Undistributed net income of subsidiaries (28,235) (15,194) 6,252
Increase in other assets (2,607) (591) (1,900)
Increase in other accrued expenses 747 1,647 91
------------------------------------
Net cash provided by operating activities 19,909 23,680 41,212
------------------------------------
Investing activities:
Principal payments received on notes from subsidiaries 14,657 89
Advances on notes to subsidiaries (11,200) (1,642)
Capital contributions (to) from subsidiaries 48 (674) (11,652)
Purchase of premises and equipment (996) (730) (507)
------------------------------------
Net cash provided (used) by investing activities (948) 2,053 (13,712)
------------------------------------
Financing activities:
Payment of long-term debt (3,405) (13,810) (19,100)
Proceeds from long-term debt 35,000 12,200 18,000
Payment of cash dividends (17,624) (15,885) (13,124)
Proceeds from common stock issued for dividend reinvestment plan 1,816 3,560 3,093
Proceeds from exercise of stock options and stock purchase contracts 1,141 1,137 1,964
Purchase and retirement of common stock (37,552) (16,278) (25,307)
------------------------------------
Net cash used by financing activities (20,624) (29,076) (34,474)
------------------------------------
Net decrease in cash and cash equivalents (1,663) (3,343) (6,974)
Cash and cash equivalents at January 1, 8,893 12,236 19,210
------------------------------------
Cash and cash equivalents at December 31, $ 7,230 $ 8,893 $ 12,236
====================================
Supplemental disclosure:
Non-cash investing and financing activities:
Stock issued in exchange of debentures and equity contracts $ 5,740 $ 2,686 $ 247
Common stock issued for acquisitions 6,286 6,618
Capital contribution to subsidiaries 7,650
</TABLE>
CNB BANCSHARES, INC. 57
<PAGE>
Independent Auditors' Report
To the Shareholders and Board of Directors, CNB Bancshares, Inc.:
We have audited the accompanying consolidated balance sheet of CNB Bancshares,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNB
Bancshares, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
St. Louis, Missouri
January 14, 1998
Management's Statement on Financial Reporting
The consolidated financial statements of CNB Bancshares, Inc. were prepared by
management of the Corporation, which is responsible for their integrity and
objectivity. The statements were prepared in accordance with generally accepted
accounting principles appropriate in the circumstances and properly include
amounts that are based on management's best judgements and estimates. The other
financial information included in this report is consistent with that in the
consolidated financial statements.
In meeting its responsibility, management has established and maintains
systems of internal control which are designed to provide reasonable assurance
that assets are safeguarded and that the financial records reflect the
authorized transactions of the Corporation and that its policies and procedures
are followed. These systems are augmented by the careful selection and training
of qualified personnel and a continuous program of internal audits.
KPMG Peat Marwick LLP, independent auditors, were engaged to audit the
consolidated financial statements of CNB Bancshares, Inc. and to express an
opinion thereon. The audit was conducted in accordance with generally accepted
auditing standards which included a review of the Corporation's systems of
internal controls and such tests and related procedures as they deemed necessary
to express an opinion on the fairness of the consolidated financial statements.
The Board of Directors pursues its responsibility for the Corporation's
consolidated financial statements through its Audit Committee. The Audit
Committee, comprised solely of directors who are not officers or employees of
the Corporation, is responsible for monitoring the accounting, auditing and
financial reporting practices of the Corporation and its subsidiaries. The
Committee recommends to the Board of Directors the appointment of the
independent auditors and meets regularly with them, the internal auditors, and
management. To further assure their independence, the internal auditors and the
independent auditors have direct access to the Audit Committee and the Board of
Directors.
/s/ James. J. Giancola /s/ John R. Spruill /s/ Ralph L. Alley
James J. Giancola John R. Spruill Ralph L. Alley
President and Executive Vice President Senior Vice President,
Chief Executive Officer and Chief Financial Officer Controller and Treasurer
58 CNB BANCSHARES, INC.
<PAGE>
Shareholder Information
Corporate Offices
The corporate offices of CNB Bancshares are located at: 20 N. W. Third Street,
Evansville, Indiana 47739-0001 812-456-3400.
Annual Meeting
The annual meeting of shareholders of CNB Bancshares will be held at 5:00 p.m.
on April 21, 1998, at Roberts Municipal Stadium, 2600 Division Street,
Evansville, Indiana.
Stock Prices and Dividends
The common stock of CNB trades on the New York Stock Exchange under the symbol
BNK. The table below lists the range of the closing stock price and dividend
information on a quarterly basis over the last two years. All amounts have been
adjusted for stock dividends.
1997
Stock Price
-------------------------- Dividends
Low High Close Declared
- ------------------------------------------------------------
1st Quarter $34.77 - $38.09 $37.50 $.21
2nd Quarter 37.63 - 42.38 38.57 .21
3rd Quarter 38.33 - 43.00 42.81 .21
4th Quarter 39.81 - 48.19 48.19 .23
----
$.86
1996
Stock Price
-------------------------- Dividends
Low High Close Declared
- ------------------------------------------------------------
1st Quarter $25.39 - $26.64 $26.30 $.19
2nd Quarter 25.39 - 26.30 25.97 .19
3rd Quarter 24.72 - 28.09 27.97 .19
4th Quarter 27.97 - 39.76 39.76 .21
----
$.78
Quarterly Dividend Programs
CNB offers a Dividend Reinvestment and Stock Purchase Plan to shareholders. The
Plan provides for automatic quarterly reinvestment of dividends, as well as
optional cash purchases of up to $5,000 per month.
The Corporation also offers Direct Deposit of cash dividends, whereby
quarterly dividend payments can be automatically deposited to the shareholder's
designated bank.
For information regarding CNB Bancshares' convenient dividend programs,
contact Kathryn P. Williams, Shareholder Relations Officer.
Transfer Agent
Shareholders should direct inquiries concerning dividend checks or their
shareholder records to:
Citizens National Bank of Evansville
Attention: Kathryn P. Williams
P.O. Box 778, Evansville, Indiana 47705-0778
812-456-3416
[email protected]
Internet
Information on CNB is available on the Internet at www.citizensonline.com.
Availability of Form 10-K
CNB's annual report to the Securities and Exchange Commission on Form 10-K is
available without charge upon written request to Kathryn P. Williams,
Shareholder Relations Officer, at the corporate address listed above.
[LOGO OF BNK NYSE APPEARS HERE]
CNB BANCSHARES, INC. 61
<PAGE>
EXHIBIT NO. 21 - SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
The Citizens National Bank of Evansville, Indiana United States
Citizens Trust Company of Indiana, N.A. United States
Small Parker & Blossom, Inc. State of Illinois
Citizens Bank of Kentucky, Madisonville, Kentucky State of Kentucky
Peoples Security Finance Company, Inc. State of Kentucky
Citizens Banc Leasing, Inc. State of Kentucky
Citizens Bank of Central Indiana, Greenwood, Indiana State of Indiana
IBI & Associates** General Partnership
HBI Acquisition Company *** State of Indiana
Citizens Bank of Illinois, N.A., Mt. Vernon, Illinois United States
Citizens Bank of Western Indiana, Terre Haute, Indiana State of Indiana
Citizens Bank of Jasper, Indiana State of Indiana
Citizens Realty and Insurance, Inc. State of Indiana
Citizens Information Systems, Inc. State of Indiana
Citizens Life Assurance Company State of Arizona
</TABLE>
* The indentation of an entity's name in the table above signifies its
ownership by the entity preceding it.
** IBI & Associates is a general partnership of which the registrant
has a 75% interest.
*** Corporation dissolved effective February 27, 1998.
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CNB Bancshares, Inc.:
We consent to the incorporation by reference in registration statement No.
333-14413 on Form S-3, in registration statement No. 333-46837 on Form S-4 and
in the below scheduled Form S-8 registration statements of our report dated
January 14, 1998, and appearing on page 58 of the Annual Report to Shareholders,
on the consolidated financial statements of CNB Bancshares, Inc. and
subsidiaries incorporated by reference in the Annual Report on Form 10-K for the
year ended December 31, 1997.
Commission
File
Number
------
Indiana Bancshares, Inc. 1990 Stock Option Plan 33-47898
CNB Bancshares, Inc. 1992 Incentive Stock Option Plan 33-45929
Citizens Incentive Savings Plan 33-41514
King City Federal Savings Bank 1986 Stock Option and
Incentive Plan 33-89658
King City Federal Savings Bank 1993 Stock Option and
Incentive Plan 33-89722
UF Bancorp, Inc. 1991 Stock Option and Incentive Plan 33-61685
CNB Bancshares, Inc. 1995 Stock Incentive Plan 33-60431
CNB Bancshares, Inc. Associate Stock Option Plan 333-38907
/s/ KPMG Peat Marwick, LLP
St. Louis, Missouri
March 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CNB
BANCSHARES INC.'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997, 1996 AND
1995 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997, 1996 AND 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 106,949 114,469 131,275
<INT-BEARING-DEPOSITS> 504 203 296
<FED-FUNDS-SOLD> 12,750 34,425 37,250
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 1,434,763 1,379,872 999,400
<INVESTMENTS-CARRYING> 230,903 248,088 198,240
<INVESTMENTS-MARKET> 236,242 249,150 199,966
<LOANS> 2,517,724 2,281,546 2,239,117
<ALLOWANCE> 34,694 31,262 29,406
<TOTAL-ASSETS> 4,480,223 4,216,575 3,734,963
<DEPOSITS> 3,181,447 3,114,730 2,881,828
<SHORT-TERM> 611,564 559,869 351,082
<LIABILITIES-OTHER> 44,716 39,832 32,676
<LONG-TERM> 308,028 176,730 158,046
0 0 0
0 0 0
<COMMON> 20,404 19,887 18,579
<OTHER-SE> 314,064 305,527 292,752
<TOTAL-LIABILITIES-AND-EQUITY> 4,480,223 4,216,575 3,734,963
<INTEREST-LOAN> 221,576 203,331 202,340
<INTEREST-INVEST> 111,229 98,530 75,778
<INTEREST-OTHER> 817 1,964 1,846
<INTEREST-TOTAL> 333,622 303,825 279,964
<INTEREST-DEPOSIT> 128,358 120,662 111,807
<INTEREST-EXPENSE> 175,626 154,897 143,379
<INTEREST-INCOME-NET> 157,996 148,928 136,585
<LOAN-LOSSES> 11,566 10,602 6,927
<SECURITIES-GAINS> 1,310 1,496 2,281
<EXPENSE-OTHER> 132,213 136,994 118,448
<INCOME-PRETAX> 74,788 57,165 57,838
<INCOME-PRE-EXTRAORDINARY> 74,788 57,165 57,838
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 49,658 37,595 36,626
<EPS-PRIMARY> 2.42 1.81 1.78
<EPS-DILUTED> 2.37 1.78 1.74
<YIELD-ACTUAL> 4.03 4.15 4.13
<LOANS-NON> 15,806 20,509 20,001
<LOANS-PAST> 2,444 3,757 2,438
<LOANS-TROUBLED> 1,227 1,257 948
<LOANS-PROBLEM> 9,397 9,220 8,330
<ALLOWANCE-OPEN> 31,262 29,406 29,102
<CHARGE-OFFS> 10,986 13,989 9,529
<RECOVERIES> 2,852 3,371 2,137
<ALLOWANCE-CLOSE> 34,694 31,262 29,406
<ALLOWANCE-DOMESTIC> 31,135 29,463 27,437
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 3,559 1,799 1,969
</TABLE>
