SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1998
CNB BANCSHARES, INC. 0-11510
(Exact name of registrant as specified in its charter) (Commission file number)
INDIANA 35-1568731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
20 N.W. THIRD STREET, EVANSVILLE, INDIANA 47739
(Address of principal executive office) (Zip Code)
(812) 456-3400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------- -------
As of April 30, 1998, there were 33,515,542 outstanding shares, without
par value, of the registrant.
Exhibit index is on page 23.
INDEX
Page No.
---------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet..............................1
Consolidated Statement of Income........................2
Consolidated Condensed Statement of
Changes in Shareholders' Equity.......................3
Consolidated Statement of Cash Flows....................4
Notes to Consolidated Financial Statements..............5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........10-19
PART II. Other Information...........................................20-21
Signatures................................................................22
Exhibit Index.............................................................23
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CNB BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except for share data)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
---------- ------------- -----------
<S> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 110,814 $ 106,949 $ 101,137
Federal funds sold and other short-term money market investments 13,109 13,254 7,883
---------- ------------- ----------
TOTAL CASH AND CASH EQUIVALENTS 123,923 120,203 109,020
Real estate loans held for sale 35,105 38,073 4,252
Investment securities available for sale 1,480,971 1,434,763 1,423,159
Investment securities held to maturity
(Market value $226,187 at March 31, 1998, $236,242 at
December 31, 1997, and $244,321 at March 31, 1997) 220,967 230,903 245,521
Loans, net of unearned income 2,445,940 2,479,651 2,305,271
Less: Allowance for loan losses 34,694 34,694 32,044
---------- ------------- ----------
NET LOANS 2,411,246 2,444,957 2,273,227
Premises and equipment 76,437 75,003 72,273
Intangible assets 33,923 31,216 32,589
Interest receivable 30,014 29,620 29,547
Other assets 76,252 75,485 56,308
---------- ------------- ----------
TOTAL ASSETS $4,488,838 $ 4,480,223 $4,245,896
========== ============= ==========
LIABILITIES
- -----------
Deposits:
Non-interest bearing $ 374,938 $ 365,334 $ 332,471
Interest bearing 2,866,202 2,816,113 2,759,847
---------- ------------- ----------
TOTAL DEPOSITS 3,241,140 3,181,447 3,092,318
Securities sold under repurchase agreements 476,985 517,344 522,464
Federal funds purchased and other short-term borrowings 95,959 94,220 81,705
FHLB advances and other long-term debt 287,663 308,028 196,980
Interest payable and other liabilities 46,660 44,716 35,560
---------- ------------- ----------
TOTAL LIABILITIES 4,148,407 4,145,755 3,929,027
SHAREHOLDERS' EQUITY
- --------------------
Common stock, $1 stated value
Shares authorized: 50,000,000
Shares issued: 20,431,813 at March 31, 1998, 20,404,332 at
December 31, 1997, and 19,728,353 at March 31, 1997 20,432 20,404 19,728
Capital surplus 278,652 280,873 264,192
Retained earnings 37,489 28,569 43,130
Accumulated other comprehensive income (loss) - net unrealized
gains (losses) on investment securities available for sale 3,858 4,622 (10,181)
---------- ------------- ----------
TOTAL SHAREHOLDERS' EQUITY 340,431 334,468 316,869
---------- ------------- ----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $4,488,838 $ 4,480,223 $4,245,896
========== ============= ==========
See notes to consolidated financial statements.
</TABLE>
Page 1
CNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except for share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees:
Taxable $55,552 $51,925
Tax exempt 390 369
Real estate loans held for sale 752 94
Investment securities:
Taxable 24,387 24,727
Tax exempt 3,222 2,641
Federal funds sold and other short-term
money market investments 63 255
-------- ---------
Total interest income 84,366 80,011
INTEREST EXPENSE
Deposits 32,443 31,565
Short-term borrowings 8,275 7,293
FHLB advances and other long-term debt 4,103 2,753
-------- --------
Total interest expense 44,821 41,611
-------- --------
NET INTEREST INCOME 39,545 38,400
Provision for loan losses 2,416 2,758
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 37,129 35,642
NON-INTEREST INCOME
Service charges on deposit accounts 3,887 3,163
Mortgage banking revenue 2,724 1,113
Insurance premiums and commissions 2,686 2,047
Trust and plan administration fees 2,306 1,995
Investment products fees 1,454 830
Non-interest fees on loans 961 1,220
Net securities gains 653 324
Other 3,242 2,454
-------- --------
Total non-interest income 17,913 13,146
-------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 18,757 17,345
Data processing and other services 2,995 2,931
Occupancy 2,502 2,272
Equipment 2,001 1,885
Advertising and promotion 1,240 977
Professional fees 1,187 974
Postage and freight 893 877
Printing and supplies 803 950
Other 4,238 3,116
--------- --------
Total non-interest expense 34,616 31,327
--------- --------
INCOME BEFORE INCOME TAXES 20,426 17,461
Income taxes 6,800 5,909
--------- --------
NET INCOME $13,626 $11,552
========= ========
NET INCOME PER SHARE:
BASIC $ 0.67 $ 0.55
========= ========
DILUTED $ 0.66 $ 0.54
========= ========
AVERAGE SHARES OUTSTANDING:
BASIC 20,452,992 20,805,770
========== ============
DILUTED 20,740,156 21,374,031
========== ============
See notes to consolidated financial statements.
</TABLE>
Page 2
CNB BANCSHARES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
---- ----
<S> <C> <C>
BEGINNING BALANCE $334,468 $325,414
Comprehensive income:
Net income 13,626 11,552
Other comprehensive income (764) (8,928)
------------ --------
Comprehensive income 12,862 2,624
Cash dividends declared (4,706) (4,202)
Issuance of common stock for:
Dividend reinvestment plan 949
Stock options exercised 2,371 358
Exercise and conversion of stock purchase
contracts and debentures 143
Acquisitions 3,126
Employee incentive plans 1,530
Other 549
Purchase and retirement of common stock (9,769) (8,417)
------------ ---------
ENDING BALANCE $340,431 $316,869
============ =========
See notes to consolidated financial statements.
</TABLE>
Page 3
CNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 13,626 $ 11,552
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,509 3,222
Provision for loan losses 2,416 2,758
Amortization of premiums and discounts on securities 1,055 1,036
Net gains on securities (653) (324)
Loans originated for sale (100,340) (18,022)
Proceeds from sale of loans 103,308 20,227
Decrease (increase) in interest receivable and other assets, net of amortization (14) 5,111
Increase (decrease) in interest payable and other liabilities 4,002 (4,272)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,909 21,288
----------- -----------
INVESTING ACTIVITIES:
Cash and cash equivalents of subsidiaries acquired, net of purchase price 876
Principal payments received on investment securities available for sale 238,766 40,088
Proceeds from the sale of investment securities available for sale 342,049 135,442
Purchase of investment securities available for sale (628,388) (233,941)
Proceeds from the maturity of investment securities held to maturity 9,843 2,421
Net decrease (increase) in loans 28,879 (33,203)
Purchase of premises and equipment (3,320) (2,623)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (11,295) (91,816)
----------- -----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 59,466 (22,527)
Net increase (decrease) in short-term borrowings (38,891) 43,899
Payment and maturity of long-term debt (76,132) (36,819)
Proceeds of long-term borrowings 55,767 57,210
Cash dividends paid (4,706) (4,202)
Proceeds from common stock issued for dividend reinvestment plan 949
Proceeds from exercise of stock options 2,371 358
Purchase and retirement of common stock (9,769) (8,417)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,894) 30,451
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,720 (40,077)
CASH AND CASH EQUIVALENTS AT JANUARY 1, 120,203 149,097
----------- -----------
CASH AND CASH EQUIVALENTS AT MARCH 31, $ 123,923 $ 109,020
=========== ===========
Supplemental disclosure:
Cash paid for:
Interest $ 43,125 $ 40,529
Income taxes 1,018 60
Non-cash investing and financing activities:
Common stock issued for acquisitions 3,126
Stock issued in exchange of debentures and pursuant
to employee incentive plans 1,530 150
See notes to consolidated financial statements.
</TABLE>
Page 4
CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except for share data)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of CNB
Bancshares, Inc. (Corporation) and its wholly-owned subsidiaries, after
elimination of all material intercompany accounts and transactions.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and do not include all the information and
footnotes required for a complete presentation of consolidated financial
statements. The Corporation's accounting and reporting policies for interim
financial reporting are consistent with those followed for annual financial
reporting. In the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the results of
operations for the periods reported have been included in the foregoing
interim consolidated financial statements. The interim results of operations
presented are not necessarily indicative of the results that may be expected
for the full year. A complete description of the Corporation's accounting
policies and footnotes is contained in the 1997 Annual Report to Shareholders.
NOTE 2: BUSINESS COMBINATIONS
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 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 were not material to
the Corporation's financial results.
On April 17, 1998, the Corporation issued 13,116,166 shares and assumed
the terms of stock options to allow the purchase of 123,901 shares of its
common stock in exchange for all of the outstanding shares of Pinnacle
Financial Services, Inc. (Pinnacle), headquartered in St. Joseph, Michigan.
At March 31, 1998, Pinnacle had total assets and shareholders' equity of
$2,079,447 and $184,204, respectively. The acquisition will be accounted for
under the pooling of interests method of accounting. The financial
information contained herein does not reflect this April 1998 merger. Pro
forma unaudited results of operations assuming the merger had occurred on
January 1, 1997, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Net interest income $57,366 $56,530
Net income 19,582 17,548
Basic net income per share .58 .53
Diluted net income per share .58 .52
</TABLE>
Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2: BUSINESS COMBINATIONS, CONTINUED
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 March 31, 1998,
National Bancorp had total assets and shareholders' equity of $188,549 and
$18,228, respectively.
NOTE 3: INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available for Sale at March 31, 1998:
Federal agencies:
Bonds and notes $ 191,843 $ 172 $ (352) $ 191,663
Mortgage-backed securities 1,055,592 6,774 (1,313) 1,061,053
State and municipal 129,436 2,632 (478) 131,590
Collateralized mortgage obligations 60,713 483 (1,996) 59,200
Other securities 37,030 486 (51) 37,465
- ----------------------------------------------------------------------------------------
Total $1,474,614 $10,547 $(4,190) $1,480,971
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Held to Maturity at March 31, 1998:
Federal agencies:
Mortgage-backed securities $ 65,684 $ 105 $(640) $ 65,149
State and municipal 137,221 5,950 (110) 143,061
Collateralized mortgage obligations 18,062 (85) 17,977
- -------------------------------------------------------------------------------------
Total $220,967 $6,055 $(835) $226,187
======================================================================================
</TABLE>
The amortized cost and estimated market value of investment securities at
March 31, 1998, by contractual maturity, are shown in the following table.
Expected maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3: INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY,
CONTINUED
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Maturity distribution
at March 31, 1998:
Due in one year or less $ 4,851 $ 4,924 $ 848 $ 853
Due after one year through five years 13,687 13,972 24,125 24,893
Due after five years through ten years 197,247 197,339 53,949 56,242
Due after ten years 105,746 107,260 58,299 61,073
Mortgage-backed securities 1,055,592 1,061,053 65,684 65,149
Collateralized mortgage obligations 60,713 59,200 18,062 17,977
- -----------------------------------------------------------------------------------------------------
Total debt securities 1,437,836 1,443,748 220,967 226,187
Equity securities 36,778 37,223
- -----------------------------------------------------------------------------------------------------
Total $ 1,474,614 $ 1,480,971 $ 220,967 $226,187
======================================================================================================
</TABLE>
Proceeds from sales of investment securities available for sale during
the three months ended March 31, 1998 and 1997 were $342,049 and $135,442,
respectively. Gross gains and (losses) realized on those sales were $957 and
($304), respectively, for the three months ended March 31, 1998 and $534 and
($210) for the three months ended March 31, 1997, respectively.
NOTE 4: IMPAIRED LOANS
At March 31, 1998, impaired loans totaled $19,876. An allowance for loan
losses of $1,614 was recorded for impaired loans totaling $6,115. At December
31, 1997, impaired loans totaled $25,597. An allowance of $2,259 was recorded
for impaired loans totaling $9,535. The average balance for impaired loans
was $22,957 for the three months ended March 31, 1998.
NOTE 5: INTEREST RATE CONTRACTS
Through the purchase of interest rate cap agreements (caps), the
Corporation has reduced the impact of increased interest rates on its costs to
acquire certain deposits, repurchase agreements and long-term borrowings being
hedged. These caps entitle the Corporation to receive periodic payments from
counterparties based upon the notional amount of the caps and the excess of
the index rate over the strike price. Amortization of premiums paid for
interest rate caps totaled $498 and $524 for the three months ended March 31,
1998 and 1997, respectively. This expense was offset by counterparty
reimbursements of $143 and $145 for the three months ended March 31, 1998 and
1997, respectively.
At March 31, 1998, the notional amount of the interest rate caps was
$185,000. The caps are indexed to LIBOR with contract strike prices ranging
from 5.50% to 6.00% and mature through the third quarter of 1999. The
carrying value and estimated market value of the caps at March 31, 1998, was
$1,367 and $192, respectively.
Page 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5: INTEREST RATE CONTRACTS, CONTINUED
The Corporation has entered into interest rate swaps as a hedge against
the interest costs of certain deposits, repurchase agreements and 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 March 31, 1998, the Corporation had swaps
with a notional value of $305,000. The agreements require the Corporation to
pay a fixed rate of interest ranging from 5.33% to 6.12% and receive a
variable rate based on one-month or three-month LIBOR. The agreements
terminate on or prior to February 15, 2005. The Corporation realized $13 in
net receipts from these agreements during the three months ended March 31,
1998.
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.
NOTE 6: LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
--------- ------------ ----------
<S> <C> <C> <C>
Parent Company:
Convertible subordinated debentures, 7.50%, redeemed October 1997
$ 5,879
Notes payable, unsecured:
9.81%, paid in 1997 2,400
Variable rate adjusted with changes in LIBOR,
payable $250 quarterly through 2000 (6.19%,
6.47% and 6.04% at March 31, 1998, December 31,
1997, and March 31, 1997, respectively) $ 3,250 $ 3,500 4,250
Variable rate adjusted with changes in LIBOR, due
1999 (6.19%, 6.47% and 6.04% at March 31, 1998,
December 31, 1997, and March 31, 1997,
respectively) 40,000 35,000 10,000
Subsidiaries:
Federal Home Loan Bank advances, due at various
dates through 2016 (weighted average rates of 5.45%,
5.70% and 5.58% at March 31, 1998, December 31,
1997, and March 31, 1997, respectively) 238,605 263,614 168,640
Other, including capitalized leases 5,808 5,914 5,811
- -------------------------------------------------------------------------------------------------------
Total $287,663 $308,028 $196,980
========================================================================================================
</TABLE>
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.
Page 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7: NET INCOME PER SHARE
All share data included in the consolidated financial statements, notes
and Management's Discussion and Analysis has been adjusted for stock
dividends.
The following table reconciles the numerators and denominators for basic
and diluted net income per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
NUMERATOR:
For basic net income per share - Net income $13,626 $11,552
Effect of dilutive securities:
7.50% Convertible subordinated debentures 70
- --------------------------------------------------------------------------------------------
For diluted net income per share - Net income
after assumed conversions $13,626 $11,622
=============================================================================================
DENOMINATOR (IN THOUSANDS):
For basic net income per share - Average shares outstanding 20,453 20,806
Effect of dilutive securities:
7.50% Convertible subordinated debentures 350
Stock options 287 218
- --------------------------------------------------------------------------------------------
For diluted net income per share - Average shares outstanding
after assumed conversions 20,740 21,374
=============================================================================================
</TABLE>
NOTE 8: COMPREHENSIVE INCOME
The Corporation adopted Financial Accounting Standards Board Statement
No. 130, Reporting Comprehensive Income, effective January 1, 1998, which
established standards for the reporting and display of comprehensive income
and its components.
The Corporation's other comprehensive income included the following
components:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized losses on available for sale securities $(376) $(8,735)
Less: Adjustment for net securities gains realized in net
income, net of tax of $265 in 1998 and $131 in 1997 (388) (193)
- ----------------------------------------------------------------------------------------------
Other comprehensive income $(764) $(8,928)
===============================================================================================
</TABLE>
Page 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except for share data)
OVERVIEW
- --------
Net income of $13,626 for the first quarter of 1998 increased over 1997
fourth and first quarter results of $13,290 and $11,552, respectively.
Diluted net income per share was $.66 for the first quarter of 1998 compared
to $.64 and $.54 for the fourth and first quarters of 1997, respectively. The
increased earnings was primarily due to growth in earning assets and
non-interest income. Net interest income increased $1,145, or 3.0%, over the
first three months of 1997 due to growth in earning assets of 5.6%. The net
interest margin, however, declined from 4.03% for the first quarter of 1997 to
3.92% for the first quarter of 1998, primarily due to stable loan yields
coupled with an increase in the cost of funds. Non-interest income increased
$4,767, or 36.3%, from first quarter 1997 while non-interest expenses
increased $3,289 or 10.5% for the same period.
The Corporation's average assets for the three months ended March 31,
1998, were $4,445,507, which were $17,032 greater than the average of
$4,428,475 for the quarter ended December 31, 1997, and $253,129, or 6.0%,
greater than average assets for the three month period ended March 31, 1997.
Total average loans were $2,460,229 for the quarter ended March 31, 1998. This
represented a decrease of $1,291 from the three months ended December 31,
1997, and an increase of $170,770 from the quarter ended March 31, 1997.
Annualized returns on average assets and average shareholders' equity for
the quarter ended March 31, 1998, were 1.23% and 16.51%, respectively,
compared with 1.10% and 14.27% for the same period of 1997.
Cash dividends of $.23 per share were declared during the first quarter
of 1998, representing an increase of 10% from the $.21 per share for the same
period of 1997. Total dividends declared for the first quarters of 1998 and
1997 were $4,706 and $4,202, respectively.
NET INTEREST INCOME
- ---------------------
Net interest income is the Corporation's largest component of income and
represents the difference between interest and fees earned on loans and
investments and the interest paid on interest bearing liabilities. Net
interest income was $39,545 for the three months ended March 31, 1998,
compared with $38,400 for the same period in 1997. The increased net interest
income was the result of a 5.6% increase in average earning assets compared to
the first quarter of 1997, partially offset by an 11 basis point decline in
the net interest margin over the same period. Net interest income for the
most recent quarter was $624 less than the $40,169 recorded in the fourth
quarter of 1997 due to the effects of a reduced net interest margin partially
offset by a $14.8 million increase in average earning assets.
Page 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET INTEREST INCOME, CONTINUED
- ---------------------------------
The net interest margin is a percentage computed by dividing net interest
income on a fully taxable equivalent basis (FTE) by average earning assets and
represents a measure of basic earnings on interest bearing assets held by the
Corporation. The annualized net interest margins were 3.92% and 4.03%,
respectively, for the three months ended March 31, 1998 and 1997. Average
earning assets for the three months ended March 31, 1998, increased to
$4,174,827 from $3,952,287 for the same period in 1997. Average loans
increased $171 million to $2,460,229 for the first quarter of 1998 compared to
1997 and represented 58.9% of earning assets compared to 57.9% in 1997.
Average investment securities increased $34 million during the first three
months of 1998 compared to 1997 and represented 40.1% and 41.5% of earning
assets for similar periods of 1998 and 1997, respectively.
NET INTEREST MARGIN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
<S> <C> <C> <C>
Yields (FTE)
Loans 9.16% 9.23% 9.17%
Securities 6.95 7.03 6.97
Other earning assets 7.91 7.98 6.05
---- ---- -----
Total earning assets 8.26 8.34 8.24
Cost of funds
Interest bearing deposits 4.66 4.67 4.64
Other interest bearing liabilities 5.51 5.43 5.34
---- ---- -----
Total interest bearing liabilities 4.86 4.86 4.81
---- ---- -----
Total interest expense to earning assets 4.34 4.35 4.21
- ------------------------------------------------------------------------------------------
Net interest margin 3.92% 3.99% 4.03%
===========================================================================================
</TABLE>
A flat yield curve, combined with increased competition and pre-payments,
resulted in yields on loans and securities falling from the fourth quarter
which reduced the yield on earning assets by 8 basis points (b.p.) with little
change in average interest-bearing expense rates. The average yield on
earning assets increased 2 b.p. from first quarter 1997 despite the May 30,
1997 sale of the credit card portfolio which resulted in about a 4 b.p.
reduction of the yield on earning assets. The reduced net interest margin
from first quarter 1997 resulted from the 13 b.p. increase in the cost to fund
earning assets, primarily due to a shift in the funding mix to marginally
higher-costing funds.
An ongoing objective of the Corporation's asset/liability management
policy is to match rate-adjustable assets and liabilities at similar maturity
horizons so that changes in interest rates will not result in wide
fluctuations in net interest income. The rate sensitivity position is
computed for various repricing intervals by calculating rate sensitivity gaps.
The Corporation had a cumulative one-year positive gap on March 31, 1998, of
$10,047 which represented 0.2% of the $4,196,092 in earning assets at that
date. Net interest income at financial institutions with positive gaps tends
to increase in periods of rising interest rates and decrease as interest rates
Page 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET INTEREST INCOME, CONTINUED
- ---------------------------------
decline. Management also utilizes a simulation model to measure the
Corporation's net interest income volatility to changes in the level of
interest rates, interest rate spreads, the shape of the yield curve and
changing product growth patterns and investment strategies. Results of the
simulation model indicate that the Corporation's net interest income would be
affected by less than 1.0% should interest rates increase or decrease by up to
200 basis points.
NON-INTEREST INCOME
- --------------------
During the first three months of 1998, non-interest income was $17,913
compared to $13,146 reported for the same period in 1997. Net securities
gains of $653 were recorded during the first quarter of 1998 compared to $324
for the same period of 1997. Excluding securities gains, non-interest income
for the three months ended March 31, 1998, totaled $17,260, which represented
an increase of 34.6% compared to the same period of 1997. First quarter 1998
non-interest income was $1,116 greater than fourth quarter 1997 due to
increased mortgage banking revenue, insurance commissions and investment
products fees.
NON-INTEREST INCOME
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE
1998 1997 (DECREASE)
<S> <C> <C> <C>
Service charges on deposit accounts $3,887 $ 3,163 $ 724
Mortgage banking revenue 2,724 1,113 1,611
Insurance premiums and commissions 2,686 2,047 639
Trust and plan administration fees 2,306 1,995 311
Investment products fees 1,454 830 624
Non-interest fees on loans 961 1,220 (259)
Net securities gains 653 324 329
Other 3,242 2,454 788
- ------------------------------------------------------------------------------
Total non-interest income $17,913 $13,146 $4,767
===============================================================================
</TABLE>
Service charges on deposit accounts increased $724 or 22.9% due to 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 assessed fees. Mortgage banking revenues increased by $1,611
during the first three months of 1998 compared to the same period of 1997 due
to the strong demand for new and refinanced residential mortgages and
increased loan sales. Insurance commissions increased $639 for the quarter
ended March 31, 1998, compared to 1997. Income from the sale of life, health
and disability insurance increased $286 or 32.8%. Casualty insurance premiums
increased $23 or 2.5%. Profit sharing bonuses received from insurance
underwriters during the first three months of 1998, which are experience
related and associated with policies written during the prior year, were $330
more than payments received in 1997. Trust and plan administration fees
increased $311 or 15.6% compared to the first quarter of 1997 primarily due to
an increase in trust assets under management. Investment product fees
increased $624 from the same period of 1997. The increase was due to the
January 1998 acquisition of Wedgewood Partners, Inc., which added $459, and
increased sales of annuities, mutual funds and brokered CD's by brokerage
representatives of the Corporation's banking subsidiaries. Non-interest fees
on loans decreased $259 during the first three months of 1998 compared to
1997, due to the May 30,
Page 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST INCOME, CONTINUED
- --------------------------------
1997 sale of the credit card portfolio. Other income increased to $3,242
during the quarter ended March 31, 1998, from $2,454 for the comparable period
of 1997. During the first three months of 1998, the Corporation received $169
of shared credit card revenues under terms of a joint marketing arrangement
entered into upon the sale of its credit card portfolio. The remaining
increase is due in part to increased revenues of $272 from net securities
trading account gains, $222 from the corporate-owned life insurance program,
$46 from increased debit card volume and $38 from non-customer ATM access
fees.
NON-INTEREST EXPENSE
- ---------------------
Non-interest expense, which includes personnel, occupancy costs,
equipment and other operating expenses was $34,616 for the three months ended
March 31, 1998, compared to $31,327 for the same period of 1997, an increase
of 10.5%. Non-interest expense increased $620, or 7.3% on an annualized
basis, from the fourth quarter of 1997. The January 1, 1998 acquisition of
Wedgewood Partners, Inc. accounted for $545 of the increases.
NON-INTEREST EXPENSE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, INCREASE
1998 1997 (DECREASE)
<S> <C> <C> <C>
Salaries and employee benefits $18,757 $17,345 $1,412
Data processing and other services 2,995 2,931 64
Occupancy 2,502 2,272 230
Equipment 2,001 1,885 116
Advertising and promotion 1,240 977 263
Professional fees 1,187 974 213
Postage and freight 893 877 16
Printing and supplies 803 950 (147)
Other 4,238 3,116 1,122
- -----------------------------------------------------------------------------
Total non-interest expense $34,616 $31,327 $3,289
==============================================================================
</TABLE>
Salaries and employee benefits increased $1,412 or 8.1% for the three
month period in 1998 over 1997. Performance-based incentives and commissions
increased $336 to $1,798 during the first three months of 1998 and represented
9.6% of salaries and employee benefits expense compared to 8.4% for the same
period of 1997. The Corporation continues to emphasize performance-based
awards tied to net income per share and sales of fee-based services. The
Wedgewood acquisition accounted for $268 of the increase in salaries and
employee benefits. The remaining increase is generally due to normal salary
increases and related expenses associated with increased business activity.
Occupancy and equipment expenses increased 10.1% and 6.2%, respectively,
during the first quarter of 1998 as the Corporation was operating two
additional banking offices and the newly acquired Wedgewood subsidiary during
1998 compared to 1997. Advertising and promotion increased $263 or 26.9% due
to increased marketing efforts related to loan and deposit promotions and
non-traditional banking services. Professional fees increased $213 during the
first three months of 1998 compared to the same period one year ago due to
increased fees in lieu of salaries as certain staff functions have been
outsourced. Printing and supplies
Page 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST EXPENSE, CONTINUED
- ---------------------------------
decreased $147 from 1997 due to cost-containment efforts. Other expenses
increased $1,122 during the first quarter of 1998 compared to the same period
of 1997. The increase was generally due to operating an additional non-bank
subsidiary as previously discussed, increased foreclosed property expenses,
and increased travel and communications pertaining to pending acquisitions.
Operating expenses as a percentage of revenues, commonly referred to as the
efficiency ratio, improved from 60% during the first quarter of 1997 to 58%
during the first quarter of 1998 and the fourth quarter of 1997.
INCOME TAX EXPENSE
- --------------------
Income tax expense was $6,800 for the quarter ended March 31, 1998,
compared with $5,909 for the same period in 1997. The effective tax rate was
33.3% and 33.8% for the quarters ended March 31, 1998 and 1997, respectively.
The decline in the effective tax rate is attributable to an increase in income
from tax exempt sources, including municipal investments and corporate
owned-life insurance. Tax exempt interest income from municipal securities
increased $581 during the first three months of 1998 as additional investments
were made. Investments in corporate-owned life insurance policies on certain
officers generated $222 of additional income during the first three months of
1998 compared to the same period one year ago.
YEAR 2000
- ----------
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 cost 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. 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.
LOANS
- -----
Loans totaled $2,445,940 at March 31, 1998, compared to $2,479,651 at
December 31, 1997, and $2,305,271 at March 31, 1997. The loan portfolio
decreased $33,711 from year-end 1997 and increased $140,669 from one year ago.
Growth was experienced in most loan categories during the first quarter of
1998 compared to year-end 1997 and one year prior, except 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 portfolio. Loans, excluding residential mortgages, at
March 31, 1998 increased by $13,511 and $226,762 from December 31, 1997 and
March 31, 1997, respectively.
Page 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LOANS, CONTINUED
- -----------------
LOANS OUTSTANDING
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
<S> <C> <C> <C>
Commercial, industrial and agricultural production loans $ 758,999 $ 751,437 $ 681,247
Tax exempt loans 24,590 24,830 22,411
Real estate mortgage loans:
Commercial and agricultural 251,896 254,198 191,759
Construction 109,080 106,362 69,314
Residential 658,600 705,822 744,693
Consumer loans 642,775 637,002 595,847
- -----------------------------------------------------------------------------------------------
Total loans $2,445,940 $ 2,479,651 $2,305,271
================================================================================================
</TABLE>
Commercial loans increased to $758,999 at March 31, 1998, compared to
$751,437 at December 31, 1997 and $681,247 at March 31, 1997. Commercial
loans accounted for 31.0% of the loan portfolio at March 31, 1998 compared to
29.6% at March 31, 1997.
Real estate mortgage loans, which consist of residential, commercial and
agricultural loans secured by real estate and construction loans, totaled
$1,019,576 at March 31, 1998, compared to $1,005,766 one year prior.
Residential mortgage loans decreased $47,222 from year-end 1997 and $86,093
from one year ago. Residential mortgage loans were 26.9% of total loans at
March 31, 1998, compared to 32.3% one year prior. Demand for new residential
mortgage loans remained strong throughout 1997 and thus far in 1998.
Consistent with management's plan to reduce the concentration in the
residential mortgage loan portfolio to 25% of total loans, the Corporation
sold a significant portion of that production. The Corporation originated
$100 million of residential mortgage loans in the first quarter of 1998 which
were sold or securitized. The Corporation generally continues to service
these loans. At March 31, 1998, $904,103 of residential mortgage loans
originated by the Corporation's subsidiary banks and subsequently sold in the
secondary market were being serviced. The Corporation had capitalized
servicing rights of $4,424 relating to $460,860 of those loans. In addition
to residential real estate mortgages reported as loans, the Corporation held
$35,105, $38,073 and $4,252 of real estate loans for sale at March 31, 1998,
December 31, 1997, and March 31, 1997, respectively.
Consumer loans, which include installment, home equity and credit card
loans, increased $5,773 from December 31, 1997, and $46,928 from one year ago.
As previously discussed, the Corporation sold its credit card
portfolio effective May 30, 1997. These loans totaled $31,423 at March 31,
1997. Excluding credit card loans, consumer loans increased $78,351 from
March 31, 1997. Indirect installment loan balances acquired through various
automobile dealerships increased $3,286 from year-end and $46,261 from one
year ago to $247,501 at March 31, 1998. Direct installment loan activity was
promoted more heavily during the second half of 1997 and at March 31, 1998 had
increased $16,166 or 6.0% from March 31, 1997 to $279,263. Home equity and
other lines of credit outstandings totaled $116,011 at March 31, 1998, an
increase of $15,924 from one year ago, or 15.9%.
Page 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LOANS, CONTINUED
- -----------------
The Corporation's loan portfolio contains no loans to foreign
governments, foreign enterprises, foreign operations of domestic companies,
nor any concentrations to borrowers engaged in the same or similar industries
that exceed 10% of total loans.
ASSET QUALITY
- --------------
The allowance for loan losses is maintained at a level considered
adequate by management to absorb potential loan losses by evaluations of the
loan portfolio on a continuing basis. This evaluation by management includes
consideration of past loan loss experience, changes in the composition of the
portfolio, the volume and condition of loans outstanding, expected cash flows
or the observable market price of the loans or the fair value of the
collateral for impaired loans, as well as the financial condition of specific
borrowers and current economic conditions.
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
1998 1997
<S> <C> <C>
Beginning balance $34,694 $31,262
Provision for loan losses 2,416 2,758
Loans charged-off (3,078) (2,499)
Recoveries 662 523
- ------------------------------------------------------------
Ending balance $34,694 $32,044
============================================================
Percent to total loans 1.42% 1.39%
============================================================
</TABLE>
The allowance for loan losses was $34,694 at March 31, 1998 and December
31, 1997, representing 1.42% and 1.40% of total loans, respectively. The
allowance was $32,044 at March 31, 1997, which represented 1.39% of total
loans. Annualized net charge-offs to average loans was .39% during the first
three months of 1998 compared to .35% for the same period of 1997. The
provision for loan losses to average loans was .39% and .48% for the three
months ended March 31, 1998 and 1997, respectively. The allowance for loan
losses to non-performing loans was 213% at March 31, 1998, compared to 204% at
December 31, 1997, and 165% at March 31, 1997.
Risk assets consist of non-performing loans, foreclosed properties and
loans 90 days or more past due but accruing. Although these assets have more
than a normal risk of loss, they will not necessarily result in a higher level
of future charge-offs or losses.
Non-performing loans consist of loans classified as troubled debt
restructurings and loans on non-accrual status. As indicated in the following
table, the Corporation's non-performing loans as of March 31, 1998, totaled
$16,281, a decrease of $752 from December 31, 1997. The non-performing loans
to total loans ratio was .67% on March 31, 1998, as compared to .69% on
December 31, 1997, and .84% on March 31, 1997. Total risk assets
Page 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ASSET QUALITY, CONTINUED
- --------------------------
equaled .94% of loan-related assets at March 31, 1998, compared to .87% at
December 31, 1997. In addition to loans classified as risk assets, there were
other loans totaling $7,316 at March 31, 1998, where the borrowers were
experiencing difficulties and management is closely monitoring the borrowers'
abilities to comply with payment terms. However, conditions at this time do
not warrant classification as risk assets.
NON-PERFORMING AND RISK ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1997
<S> <C> <C> <C>
Non-accrual loans:
Commercial, agricultural and tax exempt $ 7,223 $ 4,998 $ 8,108
Real estate mortgage 6,851 9,211 7,750
Consumer 1,578 1,597 2,110
----------- -------------- -----------
Total non-accrual 15,652 15,806 17,968
Restructured loans 629 1,227 1,435
----------- -------------- -----------
Total non-performing loans 16,281 17,033 19,403
Foreclosed properties 3,848 2,130 1,914
----------- -------------- -----------
Total non-performing assets 20,129 19,163 21,317
90 days or more past due:
Commercial, agricultural and tax exempt 110 246 651
Real estate mortgage 1,526 999 1,686
Consumer 1,202 1,199 1,454
----------- -------------- -----------
Total 90 days or more past due 2,838 2,444 3,791
----------- -------------- -----------
Total risk assets $22,967 $21,607 $25,108
==================================================================================
Risk assets to loan-related assets .94% .87% 1.09%
==================================================================================
</TABLE>
INVESTMENT SECURITIES
- ----------------------
Total investment securities available for sale and held to maturity
represented 40.6% of earning assets at March 31, 1998, compared to 39.7% and
41.9% at December 31, 1997, and March 31, 1997, respectively. The portfolio
has continued to shift toward investments in mortgage-backed securities,
predominately underwritten to the standards of, and guaranteed by government
sponsored enterprises. These securities generally yield 70-100 basis points
more than comparable U.S. Treasury securities. Mortgage-backed securities
differ from traditional debt securities in that they have uncertain maturity
dates and are priced based on estimated prepayment rates on the underlying
mortgages. Prepayment rates generally can be expected to increase during
periods of lower interest rates as the underlying mortgages are refinanced at
lower market rates. Conversely, the average lives of these securities
generally are extended as interest rates increase. The estimated average life
of these securities and the overall portfolio was 4.7 years and 5.8 years,
respectively, at March 31, 1998.
Page 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DEPOSITS AND OTHER SOURCES OF FUNDS
- ----------------------------------------
Total deposits were $3,241,140 at March 31, 1998, compared to $3,181,447
and $3,092,318 at December 31, 1997, and March 31, 1997, respectively. Since
December 31, 1997, non-interest bearing deposits and interest bearing
deposits increased by $9,604 and $50,089, respectively. Money market deposit
accounts increased $91,771 from year-end to $514,852 and savings accounts
increased $4,098 to $209,168 while large certificates of deposit declined
$19,299 during this period to $220,238 and interest checking accounts declined
$9,088 to $385,013. Non-interest bearing deposits increased from March 31,
1997, by $42,467 and interest bearing deposits increased by $106,355.
Securities sold under repurchase agreements are acquired in national
markets as well as from the Corporation's commercial customers as part of a
cash management service. With the increase in deposits, the Corporation
reduced its funding through repurchase agreements and advances from the
Federal Home Loan Bank (FHLB). Repurchase agreements were $476,985, $517,344
and $522,464 at March 31, 1998, December 31, 1997, and March 31, 1997,
respectively. A portion of these repurchase agreements, acquired to fund
certain fixed rate earning assets, is being hedged by interest rate caps and
swaps.
Long-term debt totaled $287,663 at March 31, 1998, compared to $308,028
at December 31, 1997, and $196,980 at March 31, 1997. Advances from the FHLB
accounted for $238,605 of total long-term debt at March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
Liquidity is a measure of the Corporation's ability to meet its
customers' present and future deposit withdrawals and/or increased loan demand
without unduly penalizing earnings. The Corporation manages its liquidity
needs through a coordinated asset/liability management program directed by the
Funds Management and Investment Committee.
Liquidity is provided by projecting credit demand and other financial
needs and then maintaining sufficient funding sources and assets readily
convertible into cash to meet these requirements. The Corporation has
provided for its liquidity needs by maintaining adequate balances in money
market assets, through growth in core deposits, maturing loans and investments
in its securities portfolio and by maintaining various short-term borrowing
sources. At March 31, 1998, the Corporation had $243,001 in investment
securities maturing within one year. The Corporation additionally has federal
funds lines and other borrowing sources available to it and its subsidiary
banks. Investment securities maturing within one year and unused borrowing
sources are considered by management to provide adequate liquidity in view of
projected needs. The Parent Company's liquidity is provided by dividends from
its subsidiaries and a $50,000 bank line of credit of which $40,000 was being
used at March 31, 1998.
Page 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
- ----------------------------------------------
The Corporation continues to maintain a strong capital position which
supports its current needs and provides a sound foundation to support further
expansion. Total shareholders' equity at March 31, 1998, was $340,431,
compared to $334,468 at December 31, 1997 and $316,869 at March 31, 1997. The
Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its banking subsidiaries must meet specific
capital guidelines that involve quantitative measures of their respective
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. Capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and its banking subsidiaries to maintain
minimum amounts and ratios of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as defined). Management believes, that as of March 31, 1998,
the Corporation and its banking subsidiaries exceeded all regulatory capital
adequacy requirements to which they were subject.
As of March 31, 1998, the most recent notification from regulatory
agencies categorized the subsidiary banks as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the
subsidiary banks' categories. The Corporation's actual and minimum required
capital amounts and ratios as mandated by the respective principal federal
regulatory authority at March 31, 1998, include:
<TABLE>
<CAPTION>
REQUIREMENTS TO BE
MINIMUM CLASSIFIED
ACTUAL REQUIREMENTS AS "WELL CAPITALIZED"
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to risk weighted assets $341,768 12.23% $223,477 8.00% $279,346 10.00%
Tier 1 Capital to risk weighted assets 307,074 11.00 111,738 4.00 167,608 6.00
Tier 1 Capital to average assets 307,074 6.95 176,637 4.00 220,796 5.00
(leverage ratio)
</TABLE>
Page 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS NONE
ITEM 2. CHANGES IN SECURITIES NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 13, 1998, the Corporation held a Special Meeting of Shareholders
to consider the merger of Pinnacle Financial Services, Inc. with and into CNB
Bancshares, Inc. There were 20,471,688 shares outstanding on the February 17,
1998, record date. The following represents the results of the approved
merger:
Affirmative Withheld
----------- --------
14,566,685 78,403
On April 21, 1998, the Corporation held its Annual Meeting of
Shareholders. There were 20,431,695 shares outstanding on the March 5, 1998,
record date.
The following directors received votes as noted and were elected to terms
to expire in 2001:
Affirmative Withheld
----------- --------
Edmund Hafer, Jr. 16,503,805 73,589
Burkley F. McCarthy 16,516,638 60,756
Thomas W. Traylor 16,520,923 56,471
Continuing directors and the date of the expiration of their term in
office is as follows:
1999 2000
---- ----
H. Lee Cooper, III James J. Giancola
John D. Engelbrecht Robert L. Koch, II
Robert K. Ruxer Lawrence J. Kremer
Additionally, shareholders voted upon and adopted an amendment to the
Restated Articles of Incorporation of the Company to increase the number of
authorized shares of common stock from 50,000,000 to 100,000,000. The
following represents the results of the approved adoption:
Affirmative Withheld
----------- --------
16,085,382 345,602
Page 20
ITEM 5. OTHER INFORMATION NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibits
--------
a. The following exhibit is submitted herewith:
27 - Financial Data Schedule
Reports on Form 8-K
-------------------
b. A report on Form 8-K dated May 1, 1998 was filed regarding the
announcement of the completion of the merger of Pinnacle Financial
Services,Inc. with CNB Bancshares, Inc.
- --------------------------------------------------------------------------------
No other information is required to be filed under Part II of the form.
Page 21
CNB BANCSHARES, INC.
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB Bancshares, Inc.
-------------------------------------
(Registrant)
Date May 12, 1998 by /s/ James J. Giancola
---------------------------- -------------------------------------
James J. Giancola,
President and Chief Executive Officer
Date May 12, 1998 by /s/ Ralph L. Alley
----------------------------- -------------------------------------
Ralph L. Alley, Senior Vice President,
Controller and Treasurer
(Principal Accounting Officer)
Page 22
EXHIBIT INDEX
Reg. S-K
Exhibit No. Description of Exhibit Page
- ----------- ----------------------
27 Financial Data Schedule 24
Page 23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from CNB
Bancshares Inc.'s consolidated balance sheet as of March 31, 1998 and 1997 and
the consolidated statement of income for the three months ended March 31, 1998
and 1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 110814 101137
<INT-BEARING-DEPOSITS> 1359 633
<FED-FUNDS-SOLD> 11750 7250
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 1480971 1423159
<INVESTMENTS-CARRYING> 220967 245521
<INVESTMENTS-MARKET> 226187 244321
<LOANS> 2481045 2309523
<ALLOWANCE> 34694 32044
<TOTAL-ASSETS> 4488838 4245896
<DEPOSITS> 3241140 3092318
<SHORT-TERM> 572944 604169
<LIABILITIES-OTHER> 46660 35560
<LONG-TERM> 287663 196980
0 0
0 0
<COMMON> 20432 19728
<OTHER-SE> 319999 297141
<TOTAL-LIABILITIES-AND-EQUITY> 4488838 4245896
<INTEREST-LOAN> 56694 52388
<INTEREST-INVEST> 27609 27368
<INTEREST-OTHER> 63 255
<INTEREST-TOTAL> 84366 80011
<INTEREST-DEPOSIT> 32443 31565
<INTEREST-EXPENSE> 44821 41611
<INTEREST-INCOME-NET> 39545 38400
<LOAN-LOSSES> 2416 2758
<SECURITIES-GAINS> 653 324
<EXPENSE-OTHER> 34616 31327
<INCOME-PRETAX> 20426 17461
<INCOME-PRE-EXTRAORDINARY> 20426 17461
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13626 11552
<EPS-PRIMARY> 0.67 0.55
<EPS-DILUTED> 0.66 0.54
<YIELD-ACTUAL> 3.92 4.03
<LOANS-NON> 15652 17968
<LOANS-PAST> 2838 3791
<LOANS-TROUBLED> 629 1435
<LOANS-PROBLEM> 7316 4879
<ALLOWANCE-OPEN> 34694 31262
<CHARGE-OFFS> 3078 2499
<RECOVERIES> 662 523
<ALLOWANCE-CLOSE> 34694 32044
<ALLOWANCE-DOMESTIC> 32966 30675
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1728 1369
</TABLE>
