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
JUNE 30, 1999
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 July 30, 1999, there were 34,636,964 outstanding shares, without par
value, of the registrant.
Exhibit index is on page 29.
Page
INDEX Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet . . . . . . . . . . . . . . 1
Consolidated Statement of Income . . . . . . . . . . . 2
Consolidated Condensed Statement of
Changes in Shareholders' Equity . . . . . . . . . . 3
Consolidated Statement of Cash Flows . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . 5-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 14-26
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . 26
PART II. Other Information . . . . . . . . . . . . . . . . . . . . 27
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Page
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CNB BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except for share data)
(Unaudited)
JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 216,192 $ 193,696 $ 272,936
Federal funds sold and short-term investments 30,410 33,912 10,582
----------- ------------- ----------
TOTAL CASH AND CASH EQUIVALENTS 246,602 227,608 283,518
Loans held for sale 61,380 107,138 156,407
Investment securities available for sale 3,010,654 2,592,120 2,010,345
Investment securities held to maturity
(Market value $214,485 at June 30, 1998) 208,964
Loans 4,009,603 3,891,269 3,693,886
Less: Allowance for loan losses 58,039 56,271 53,738
----------- ------------- ----------
NET LOANS 3,951,564 3,834,998 3,640,148
Premises and equipment 106,150 101,160 98,667
Intangible assets 50,503 51,185 50,219
Interest receivable 50,228 49,475 47,694
Other assets 218,580 178,113 164,458
----------- ------------- ----------
TOTAL ASSETS $7,695,661 $ 7,141,797 $6,660,420
=========== ============= ==========
LIABILITIES
- -----------
Deposits:
Non-interest bearing $ 574,089 $ 577,108 $ 590,621
Interest bearing 4,311,412 4,381,229 4,101,184
----------- ------------- ----------
TOTAL DEPOSITS 4,885,501 4,958,337 4,691,805
Securities sold under repurchase agreements 978,948 697,960 501,708
Federal funds purchased and other short-term borrowings 339,417 105,831 113,004
FHLB advances and other long-term debt 788,164 626,759 605,861
Interest payable and other liabilities 51,095 53,364 72,602
----------- ------------- ----------
TOTAL LIABILITIES 7,043,125 6,442,251 5,984,980
Guaranteed preferred beneficial interests in the Corporation's
convertible subordinated debentures 172,500 172,500 172,500
SHAREHOLDERS' EQUITY
- --------------------
Common stock, $1 stated value
Shares authorized: 100,000,000
Shares issued: 34,764,324 at June 30, 1999, 35,482,969 at
December 31, 1998, and 33,325,213 at June 30, 1998 34,764 35,483 33,325
Capital surplus 365,002 396,795 352,356
Retained earnings 115,049 83,612 110,532
Accumulated other comprehensive income (loss) - net unrealized
gains (losses) on investment securities available for sale (34,779) 11,156 6,727
----------- ------------- ----------
TOTAL SHAREHOLDERS' EQUITY 480,036 527,046 502,940
----------- ------------- ----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $7,695,661 $ 7,141,797 $6,660,420
=========== ============= ==========
See notes to consolidated financial statements.
</TABLE>
Page 1 of 31
<TABLE>
<CAPTION>
CNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except for share data)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees:
Taxable $ 84,162 $ 86,344 $ 166,219 $ 173,452
Tax exempt 583 554 1,173 1,094
Loans held for sale 2,008 1,023 4,091 1,775
Investment securities:
Taxable 38,789 30,178 73,681 60,919
Tax exempt 6,220 4,481 12,254 8,146
Federal funds sold and other
short-term investments 242 165 373 282
----------- ------------ ----------- -----------
Total interest income 132,004 122,745 257,791 245,668
INTEREST EXPENSE
Deposits 44,682 46,469 89,890 93,761
Short-term borrowings 12,659 9,237 22,952 18,275
FHLB advances and other long-term debt 9,162 8,985 17,653 18,463
----------- ------------ ----------- -----------
Total interest expense 66,503 64,691 130,495 130,499
----------- ------------ ----------- -----------
NET INTEREST INCOME 65,501 58,054 127,296 115,169
Provision for loan losses 3,420 1,761 4,951 5,077
----------- ------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 62,081 56,293 122,345 110,092
NON-INTEREST INCOME
Service charges on deposit accounts 8,545 6,393 16,184 11,813
Mortgage banking revenue 4,731 5,317 9,339 8,931
Trust and plan administration fees 3,480 2,947 6,594 5,499
Insurance premiums and commissions 3,398 2,868 6,598 6,113
Non-interest fees on loans 2,297 2,001 3,998 3,509
Investment products fees 2,271 1,920 4,043 3,495
Net securities gains 550 590 916 1,223
Other 5,669 4,469 12,242 8,723
----------- ------------ ----------- -----------
Total non-interest income 30,941 26,505 59,914 49,306
----------- ------------ ----------- -----------
NON-INTEREST EXPENSE
Salaries and employee benefits 27,973 25,261 55,271 50,221
Data processing and other services 4,838 3,782 9,156 7,355
Occupancy 3,623 3,489 7,513 7,152
Equipment 3,038 2,824 6,114 5,947
Professional fees 2,276 1,588 4,413 3,389
Advertising and promotion 2,076 1,923 3,680 3,558
Postage and freight 1,471 1,257 2,822 2,617
Telecommunication 1,341 1,167 2,539 2,321
Amortization of intangible assets 1,163 1,160 2,326 2,317
Printing and supplies 1,161 1,194 2,430 2,388
Other 5,196 4,265 9,137 8,531
Name change and merger related expenses 2,434 41,346 2,434 41,346
----------- ------------ ----------- -----------
Total non-interest expense 56,590 89,256 107,835 137,142
----------- ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 36,432 (6,458) 74,424 22,256
Income taxes 10,901 423 22,609 9,556
----------- ------------ ----------- -----------
25,531 (6,881) 51,815 12,700
Distribution pertaining to guaranteed preferred
beneficial interests in the Corporation's
convertible subordinated debentures, net of tax 1,640 132 3,281 132
----------- ------------ ----------- -----------
NET INCOME (LOSS) $ 23,891 $ (7,013) $ 48,534 $ 12,568
=========== ============ =========== ===========
NET INCOME (LOSS) PER SHARE:
BASIC $ .68 ($.20) $ 1.38 $ .36
=========== ============ =========== ===========
DILUTED $ .66 ($.20) $ 1.34 $ .36
=========== ============ =========== ===========
AVERAGE SHARES OUTSTANDING:
BASIC 34,891,066 35,133,419 35,084,321 35,181,989
=========== ============ =========== ===========
DILUTED 38,562,156 35,818,551 38,737,747 35,726,316
=========== ============ =========== ===========
See notes to consolidated financial statements.
</TABLE>
Page 2 of 31
<TABLE>
<CAPTION>
CNB BANCSHARES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BEGINNING BALANCE $517,629 $524,635 $527,046 $515,463
Comprehensive income:
Net income (loss) 23,891 (7,013) 48,534 12,568
Other comprehensive income (loss) (37,889) 1,080 (45,935) 78
--------- --------- --------- ---------
Comprehensive income (loss) (13,998) (5,933) 2,599 12,646
Cash dividends declared (8,405) (4,699) (16,904) (12,378)
Issuance of common stock for:
Stock options exercised 1,136 484 1,675 3,319
Acquisitions 3,126
Purchase and retirement of common stock (16,168) (11,682) (35,199) (21,476)
Other (158) 135 819 2,240
--------- --------- --------- ---------
ENDING BALANCE $480,036 $502,940 $480,036 $502,940
========= ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
Page 3 of 31
<TABLE>
<CAPTION>
CNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 48,534 $ 12,568
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 9,825 16,655
Provision for loan losses 4,951 5,077
Amortization of premiums and discounts on securities 4,050 3,937
Net securities gains (916) (1,223)
Loans originated for sale (360,274) (397,161)
Proceeds from sale of loans 406,032 388,039
Increase in interest receivable and other assets, net of
amortization (14,311) (14,291)
Increase (decrease) in interest payable and other liabilities (1,354) 15,722
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 96,537 29,323
------------ ------------
INVESTING ACTIVITIES:
Cash and cash equivalents of subsidiaries acquired, net of
purchase price 876
Principal payments received on investment securities available
for sale 295,306 397,299
Proceeds from the sale of investment securities available for sale 606,297 794,602
Purchase of investment securities available for sale (1,397,384) (1,350,371)
Principal payments received on investment securities held
to maturity 21,748
Net decrease (increase) in loans (123,434) 185,152
Purchase of premises and equipment (10,568) (6,749)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (629,783) 42,557
------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (73,010) 76,348
Net increase (decrease) in short-term borrowings 514,414 (66,840)
Payment and maturity of long-term debt (112,543) (346,729)
Proceeds from long-term borrowings 273,807 225,932
Proceeds pertaining to guaranteed preferred beneficial interests in
the Corporation's convertible subordinated debentures 172,500
Cash dividends paid (16,904) (12,378)
Proceeds from exercise of stock options 1,675 3,319
Purchase and retirement of common stock (35,199) (21,476)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 552,240 30,676
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,994 102,556
CASH AND CASH EQUIVALENTS AT JANUARY 1, 227,608 180,962
------------ ------------
CASH AND CASH EQUIVALENTS AT JUNE 30, $ 246,602 $ 283,518
============ ============
Supplemental disclosure:
Cash paid for:
Interest $ 129,991 $ 131,899
Income taxes 22,056 17,568
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 977 1,530
See notes to consolidated financial statements.
</TABLE>
Page 4 of 31
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. Certain
prior year amounts have been reclassified to conform with current
classifications.
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 1998 Annual Report to Shareholders.
NOTE 2: BUSINESS COMBINATIONS
On August 3, 1998, the Corporation issued 1,143,389 shares and assumed the
terms of stock options that allowed the purchase of 30,846 shares of its common
stock in exchange for all of the outstanding shares of National Bancorp
(National) of Tell City, Indiana. The acquisition was accounted for under the
pooling of interests method of accounting without restatement of prior periods,
as the amounts involved were not material to the Corporation's financial
results.
On April 17, 1998, the Corporation issued 13,771,974 shares and assumed the
terms of stock options that allowed the purchase of 130,096 shares of its common
stock in exchange for all of the outstanding shares of Pinnacle Financial
Services, Inc. (Pinnacle), headquartered in St. Joseph, Michigan. The
acquisition was accounted for under the pooling of interests method of
accounting and, accordingly, all financial data of the Corporation for prior
periods has been restated to include the financial position and operating
results of Pinnacle.
On January 1, 1998, the Corporation issued 115,290 shares of its 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 was recorded and 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.
On December 31, 1998, the Corporation combined the charters of its eight
subsidiary banks into one Michigan state bank charter under the name of Citizens
Bank of MidAmerica. Effective April 22, 1999, the name of the bank was changed
to Civitas Bank.
On March 31, 1999, the Corporation and First Indiana Bank announced the
signing of a definitive agreement whereby the Corporation will acquire deposits
totaling approximately $130 million and the five First Indiana Bank offices
located in the Evansville, Indiana, area. The transaction will be accounted for
under the purchase method of accounting and is expected to be completed on
August 13, 1999.
Page 5 of 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3: INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available for Sale at June 30, 1999:
U.S. Treasury $ 31,548 $ 36 $ (859) $ 30,725
Federal agencies:
Bonds and notes 207,257 64 (1,840) 205,481
Mortgage-backed securities 2,186,100 1,681 (50,032) 2,137,749
State and municipal 513,210 5,415 (9,750) 508,875
Collateralized mortgage obligations 27,620 210 (661) 27,169
Equity securities 99,759 258 (268) 99,749
Other securities 896 10 906
- -----------------------------------------------------------------------------------------
Total $3,066,390 $7,674 $(63,410) $3,010,654
=========================================================================================
The carrying value of investment securities at June 30, 1999, 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.
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
Maturity distribution
At June 30, 1999:
Due in one year or less $ 10,383 $ 10,487
Due after one year through five years 66,200 66,188
Due after five years through ten years 325,964 327,021
Due after ten years 350,364 342,291
Mortgage-backed securities 2,186,100 2,137,749
Collateralized mortgage obligations 27,620 27,169
- ---------------------------------------------------------------------
Total debt securities 2,966,631 2,910,905
Equity securities 99,759 99,749
- ---------------------------------------------------------------------
Total $3,066,390 $3,010,654
=====================================================================
</TABLE>
Proceeds from sales of investment securities available for sale during the
six months ended June 30, 1999 and 1998 were $606,297 and $794,602,
respectively. Gross gains and (losses) realized on those sales were $2,048 and
($1,132), respectively, for the six months ended June 30, 1999 and $1,946 and
($723) for the six months ended June 30, 1998, respectively.
Page 6 of 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4: IMPAIRED LOANS
At June 30, 1999, impaired loans totaled $37,069. An allowance for loan
losses of $3,429 was recorded for impaired loans totaling $12,158. At December
31, 1998, impaired loans totaled $39,823 and an allowance of $2,506 was recorded
for impaired loans totaling $13,868. The average balance for impaired loans was
$37,946 for the six months ended June 30, 1999.
NOTE 5: LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Parent Company:
Notes payable, unsecured:
Variable rate adjusted with changes in LIBOR,
payable $250 quarterly through 2000 (5.44%,
6.13% and 6.16% at June 30, 1999, December
31, 1998, and June 30, 1998, respectively) $ 2,000 $ 2,500 $ 3,000
Subsidiaries:
Federal Home Loan Bank advances, due at
various dates through 2018 (weighted average
rates of 5.44%, 5.46% and 5.56% at June 30,
1999, December 31, 1998, and June 30, 1998,
respectively) 775,637 614,201 594,842
Other, including capitalized leases 10,527 10,058 8,019
- ----------------------------------------------------------------------------------------------
Total $ 788,164 $ 626,759 $ 605,861
==============================================================================================
Qualifying, unencumbered mortgage assets up to 160% of the aggregate amount
of advances and Federal Home Loan Bank stock have been pledged as collateral for
the Federal Home Loan Bank advances.
NOTE 6: GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S
CONVERTIBLE SUBORDINATED DEBENTURES
In June 1998, the Corporation issued $172,500 of Guaranteed Preferred
Beneficial Interests in the Corporation's Convertible Subordinated Debentures
(trust preferred securities) through CNB Capital Trust I, a Delaware statutory
business trust created and controlled by the Corporation. The trust preferred
securities have a liquidation amount of $25 per share with a cumulative annual
distribution rate of 6.0%, or $.375 per share, payable quarterly, and mature on
June 30, 2028. The trust preferred securities are convertible at the conversion
ratio of .4835 shares of common stock of the Corporation for each trust
preferred security (equivalent to a conversion price of $51.71), subject to
certain adjustments.
Page 7 of 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6: GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S
CONVERTIBLE SUBORDINATED DEBENTURES, CONTINUED
The sole assets of CNB Capital Trust I are $177,835 of convertible
subordinated debentures of the Corporation with the interest rate, maturity date
and conversion rate substantially identical to those of the trust preferred
securities. The back-up obligations of the Corporation with respect to the
trust preferred securities constitute, in the aggregate, a full and
unconditional guarantee by the Corporation of the obligations of CNB Capital
Trust I under the trust preferred securities.
The Corporation may redeem the convertible subordinated debentures and
thereby cause a redemption of the trust preferred securities in whole (or in
part from time to time) on or after June 23, 2001, or in whole (but not in part)
within 90 days following the occurrence and continuance of certain adverse
federal income tax or capital treatment events.
Costs associated with the issuance of the trust preferred securities
totaling $4,847 were capitalized and are being amortized through the maturity
date of the securities. The unamortized balance is included in other assets on
the Corporation's Consolidated Balance Sheet.
The Corporation records distributions payable on the trust preferred
securities similar to a minority interest distribution, net of tax, in its
Consolidated Statement of Income.
Page 8 of 31
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>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMERATOR:
For basic net income (loss) per share - Net
income (loss) $23,891 $(7,013) $48,534 $12,568
Effect of dilutive securities:
Trust preferred securities 1,640 132 3,281 132
- ------------------------------------------------------------------------------------------
For diluted net income (loss) per share - Net
income (loss) after assumed conversions $25,531 $(6,881) $51,815 $12,700
==========================================================================================
DENOMINATOR (SHARES IN THOUSANDS):
For basic net income (loss) per share -
Average shares outstanding 34,891 35,133 35,084 35,182
Effect of dilutive securities:
Trust preferred securities and stock options 3,671 686 3,654 544
- ------------------------------------------------------------------------------------------
For diluted net income (loss) per share -
Average shares outstanding after assumed
conversions 38,562 35,819 38,738 35,726
==========================================================================================
</TABLE>
NOTE 8: COMPREHENSIVE INCOME
The Corporation's other comprehensive income included the following
components:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net realized and unrealized gains (losses)
on available for sale securities $(37,546) $1,431 $(45,363) $ 805
Less: Adjustment for net securities gains
realized in net income (loss), net of
tax 343 351 572 727
- --------------------------------------------------------------------------------------
Other comprehensive income (loss) $(37,889) $1,080 $(45,935) $ 78
======================================================================================
</TABLE>
Page 9 of 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9: INTEREST RATE CONTRACTS
The Corporation has entered into interest rate swaps (swaps) as a hedge
against changing interest rates. Swaps represent an exchange of interest
payments and the underlying principal balances of the assets or liabilities are
not affected. At June 30, 1999, the Corporation had swaps with a notional value
of $520,000 of which $470,000 require the Corporation to pay a fixed rate of
interest ranging from 5.22% to 5.60% and receive a variable rate based on
one-month or three-month LIBOR. Swaps with a notional amount of $50,000 require
the Corporation to pay a variable rate of interest based on the prime rate of
interest and receive a 7.72% fixed rate. The swaps terminate on or prior to
April 28, 2005. The Corporation recorded $478 and $840 in net expense from
swaps during the three and six months ended June 30, 1999, respectively. The
estimated market gain of the swaps at June 30, 1999, was $1,426.
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 10: SEGMENT INFORMATION
As previously discussed in Note 2, the Corporation combined its eight
subsidiary banks into one charter effective December 31, 1998. As a result of
that combination, the Bank restructured its former subsidiary banks into
divisions that establish more logical banking regions and place common markets
together, without regard to state lines. Management uses loan and deposit
average balances, net contribution and related growth rates and financial ratios
to measure performance of each division. The following table shows the
financial information of the Corporation's reportable segments for the periods
ended June 30, 1999 and June 30, 1998.
The 1998 "Merger and Related Charges" columns relate to the merger of
Pinnacle into the Corporation; and accordingly, most expenses would be allocated
to the Northern Division, but to show meaningful comparisons, they are displayed
separately. The 1999 "Name Change Expenses" columns relate to the Corporation's
bank subsidiary changing its name from "Citizens" to "Civitas" and would affect
each division to different extents, but for comparison purposes are also
displayed separately. The "Other" columns include the Parent Company, all
segments not required to be disclosed separately and all intercompany
elimination entries.
The financial ratios exclude the merger and related charges and the name
change expenses to allow meaningful comparisons.
Page 10 of 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10: SEGMENT INFORMATION, CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
Name Change
Evansville Northern Central Western Treasury Other Expenses Consolidated
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income $ 21,663 $ 15,915 $ 10,466 $ 6,859 $ 7,417 $ 3,181 $ 65,501
Provision for loan losses 1,369 (678) 1,170 198 1,361 3,420
Non-interest income 6,238 4,576 4,253 2,374 3,442 10,058 30,941
Non-interest expense 15,336 12,094 8,578 5,413 425 12,310 $ 2,434 56,590
Income taxes 3,927 3,281 1,732 1,213 3,965 (2,302) (915) 10,901
Distribution on trust
preferred securities 1,640 1,640
Net contribution 7,269 5,794 3,239 2,409 6,469 230 (1,519) 23,891
AVERAGE BALANCES:
Loans $1,402,243 $ 971,390 $ 617,612 $351,223 $607,612 $3,950,080
Assets 2,128,423 1,557,593 1,035,569 717,496 $2,153,705 (185,892) 7,406,894
Deposits 1,813,465 1,443,191 932,327 618,406 83,792 53,535 4,944,716
FINANCIAL RATIOS:
Return on assets 1.37% 1.49% 1.25% 1.34% 1.37%
Efficiency ratio 55 59 58 59 54
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
Merger &
Evansville Northern Central Western Treasury Other Related Charges Consolidated
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income $ 17,375 $ 16,267 $ 9,144 $ 5,926 $ 4,170 $ 5,172 $ 58,054
Provision for loan losses 3,174 927 997 865 (4,202) 1,761
Non-interest income 5,930 5,861 3,348 1,864 2,516 6,986 26,505
Non-interest expense 12,150 11,996 7,339 5,160 379 10,886 $ 41,346 89,256
Income taxes 2,650 3,372 1,443 560 2,401 1,129 (11,132) 423
Distribution on trust
preferred securities 132 132
Net contribution 5,331 5,833 2,713 1,205 3,906 4,213 (30,214) (7,013)
AVERAGE BALANCES:
Loans $1,089,881 $1,141,622 $590,936 $333,156 $ 100,924 $593,748 $3,850,267
Assets 1,839,135 1,585,118 926,449 664,566 1,725,536 (194,692) 6,546,113
Deposits 1,580,604 1,480,821 847,557 593,146 100,521 35,597 4,638,246
FINANCIAL RATIOS:
Return on assets 1.16% 1.47% 1.17% .73% 1.42%
Efficiency ratio 52 54 59 66 55
</TABLE>
Page 11 of 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10: SEGMENT INFORMATION, CONTINUED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
Name Change
Evansville Northern Central Western Treasury Other Expenses Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income $ 41,213 $ 31,002 $ 20,060 $ 13,177 $ 14,435 $ 7,409 $ 127,296
Provision for loan losses 2,420 554 1,024 378 575 4,951
Non-interest income 12,328 9,469 8,115 4,386 6,804 18,812 59,914
Non-interest expense 29,939 23,824 16,842 10,772 780 23,244 $2,434 107,835
Income taxes 7,468 5,881 3,679 2,217 7,774 (3,495) (915) 22,609
Distribution on trust
preferred securities 3,281 3,281
Net contribution 13,714 10,212 6,630 4,196 12,685 2,616 (1,519) 48,534
AVERAGE BALANCES:
Loans $1,367,138 $ 974,504 $ 610,822 $351,897 $ 606,963 $3,911,324
Assets 2,117,844 1,543,072 1,013,490 711,871 $2,062,891 (202,725) 7,246,443
Deposits 1,813,670 1,432,187 912,741 612,614 86,902 46,022 4,904,136
FINANCIAL RATIOS:
Return on assets 1.30% 1.32% 1.31% 1.18% 1.38%
Efficiency ratio 56 59 60 61 54
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
Merger &
Evansville Northern Central Western Treasury Other Related Charges Consolidated
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income $ 34,107 $ 32,009 $ 18,060 $ 11,799 $ 10,050 $ 9,144 $ 115,169
Provision for loan losses 5,557 2,266 2,107 1,614 (6,467) 5,077
Non-interest income 11,001 9,018 6,169 3,760 4,946 14,412 49,306
Non-interest expense 24,853 24,268 14,369 10,304 717 21,285 $ 41,346 137,142
Income taxes 4,998 5,276 2,738 1,207 5,430 1,039 (11,132) 9,556
Distribution on trust
preferred securities 132 132
Net contribution 9,700 9,217 5,015 2,434 8,849 7,567 (30,214) 12,568
AVERAGE BALANCES:
Loans $1,091,290 $1,212,109 $593,750 $335,796 $ 98,558 $ 566,118 $3,897,621
Assets 1,791,726 1,595,871 923,145 664,318 1,681,175 (117,616) 6,538,619
Deposits 1,569,883 1,487,457 843,112 592,349 98,666 32,171 4,623,638
FINANCIAL RATIOS:
Return on assets 1.08% 1.16% 1.09% .73% 1.31%
Efficiency ratio 55 59 59 66 56
</TABLE>
Page 12 of 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11: NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement No. 133,
Accounting for Derivative Instruments and Hedge Activities, which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. The provisions of this statement were to
become effective for fiscal years beginning after June 15, 1999. The effective
date of the statement has been delayed by Statement No. 137 to fiscal years
beginning after June 15, 2000. The Corporation has not yet determined the
financial impact to its financial condition or results of operations but plans
to adopt it on January 1, 2001.
NOTE 12: PENDING MERGER
On June 16, 1999, the Corporation signed a definitive agreement under which
Fifth Third Bancorp (Fifth Third) of Cincinnati, Ohio will acquire all of the
outstanding shares of the Corporation. The transaction will be a tax-free,
stock-for-stock fixed exchange of .8825 shares of Fifth Third common stock for
each outstanding share of the Corporation's common stock. It will be accounted
for under the pooling-of-interests method of accounting and is subject to
approval by the shareholders of the Corporation and applicable regulatory
agencies. The Corporation's trust preferred securities will remain outstanding
after closing and will become convertible into .4267 shares of Fifth Third
common stock. Although the merger is expected to be completed during the fourth
quarter of 1999, there can be no assurances that the merger will be completed.
The signing of the agreement constitutes a "change of control," as defined
by agreements between the Corporation and certain employees which provide for
specified benefits to be paid at the discretion of the employees or the
Corporation. The contingent liability under these agreements is $12,829.
Page 13 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollar amounts in thousands, except for share data)
OVERVIEW
- --------
Net income for the three months ended June 30, 1999, was $23,891, or $.66
per diluted share, compared to a net loss of $7,013, or $.20 per share, for the
three months ended June 30, 1998. Net income for the six months ended June 30,
1999, was $48,534, or $1.34 per diluted share, versus net income of $12,568, or
$.36 per diluted share, for the same period of 1998. On April 22, 1999, the
Corporation's bank subsidiary changed its name from "Citizens Bank" to "Civitas
Bank." Costs associated with the name change amounted to $1,519, net of tax, or
$.04 per diluted share. In the second quarter of 1998, the Corporation merged
Pinnacle into the Corporation and, as a result, incurred charges of $30,214, net
of tax. Excluding these charges, net income and diluted earnings per share for
the quarter ended June 30, 1999, would have been $25,410 and $.70, respectively,
compared to $23,201 and $.65 for the same quarter of 1998, increases of 9.5% and
7.7%, respectively. Net income for the first quarter of 1999 was $24,643, or
$.68 per diluted share. On a year-to-date basis through June 30, 1999, net
income, excluding the above charges, would have been $50,053, or $1.38 per
share, compared to $42,782 and $1.20 per share for 1998, increases of 17.0% and
15.0%, respectively.
The Corporation's average assets for the three months ended June 30, 1999,
were $7,406,894, an increase of $322,686 over the $7,084,208 average for the
quarter ended March 31, 1999, and an increase of $860,781 from the average of
$6,546,113 for the quarter ended June 30, 1998.
Excluding the name change and merger related charges, the annualized
returns on average assets and shareholders' equity for the quarter ended June
30, 1999, were 1.37% and 19.95%, respectively, compared to 1.39% and 19.32%,
respectively, for the first quarter of 1999, and 1.42% and 17.87%, respectively,
for the second quarter of 1998.
Cash dividends of $.24 per share were declared during the second quarter of
1999, representing an increase of 9.1% from the $.22 per share for the same
period of 1998. Total dividends declared for the first six months of 1999 and
1998 were $16,904 and $12,378, 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 $65,501 for the three months ended June 30, 1999, compared with
$58,054 for the same period in 1998. The increased net interest income was
primarily the result of average earning assets increasing $837,536, or 13.8%.
Net interest income for the most recent quarter was $3,706 more than the $61,795
recorded in the first quarter of 1999 due to an increased net interest margin
and a $314,136 increase in average earning assets. Net interest income for the
six months ended June 30, 1999, increased $12,127, or 10.5%, due to a $678,059
increase in average earning assets. The growth in earning assets from the three
and six month periods ended June 30, 1998, occurred both in investment
securities and loans and was funded primarily by the issuance of the trust
preferred securities and increased deposits and repurchase agreements.
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 3.96%, 3.92%, and 3.96%,
respectively, for the three months ended June 30, 1999, March 31, 1999, and June
30, 1998. Loans comprised 57.1% of average earning assets for the most recent
quarter compared to 63.3% for 1998 second quarter. Average investment
securities increased $712,137 and represented 41.4% of earning assets for the
quarter ended June 30, 1999, compared to 35.3% for the same quarter of 1998.
Page 14 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET INTEREST INCOME, CONTINUED
- ------------------------------
The yield on earning assets decreased 4 basis points (b.p.) to 7.80% from
first quarter 1999 which was offset by an 8 b.p. decline in the cost to fund
earning assets. The average cost of interest bearing deposits fell 15 b.p. as
many certificates of deposit have repriced after interest rate reductions by the
Federal Reserve in fourth quarter 1998. The net interest margin for the current
quarter did not change from the 3.96% for the same quarter of 1998. The funding
benefit provided by the issuance of the trust preferred securities was offset by
pressure on earning asset yields caused by the interest rate reductions
discussed above.
<TABLE>
NET INTEREST MARGIN
- ---------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED
JUNE 30, MARCH 31, JUNE 30,
1999 1999 1998
<S> <C> <C> <C>
Yields (FTE)
Loans 8.56% 8.60% 9.02%
Securities 6.72 6.71 6.85
Other earning assets 8.40 7.90 5.85
----- ----- -----
Total earning assets 7.80 7.84 8.22
Cost of funds
Interest bearing deposits 4.08 4.23 4.49
Other interest bearing liabilities 5.02 5.08 5.46
----- ----- -----
Total interest bearing liabilities 4.35 4.45 4.74
----- ----- -----
Total interest expense to earning assets 3.84 3.92 4.26
- ---------------------------------------------------------------------------------
Net interest margin 3.96% 3.92% 3.96%
=================================================================================
</TABLE>
An ongoing objective of the Corporation's asset/liability management policy
is to match rate-adjustable assets and liabilities at similar maturity horizons
so that changes in interest rates will not result in wide fluctuations in net
interest income. The rate sensitivity position is computed for various
repricing intervals by calculating rate sensitivity gaps. The Corporation had a
cumulative one-year negative gap on June 30, 1999, of $446,426 which represented
6.3% of the $7,112,047 in earning assets at that date. Net interest income at
financial institutions with negative gaps tends to increase in periods of
falling interest rates and decline as interest rates rise. Management also
utilizes a simulation model to measure the Corporation's net interest income
sensitivity 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% should interest rates increase
or decrease by up to 200 basis points over a twelve-month period.
NON-INTEREST INCOME
- -------------------
Non-interest income continues to be an increasingly significant portion of
revenue for the Corporation and represented 30.9% of net FTE revenues for the
six months ended June 30, 1999, compared to 29.2% for the same period of 1998.
Non-interest income for the six months ended June 30, 1999, was $59,914 which
increased $10,608 from the same period of 1998. Excluding securities gains,
non-interest income for the first two quarters
Page 15 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST INCOME, CONTINUED
- ------------------------------
of 1999 totaled $58,998, which represented a 22.7% increase over the first two
quarters of 1998. Non-interest income, excluding securities gains, for the most
recent quarter increased $1,784 from the first quarter of 1999, and $4,476, or
17.3%, from the second quarter of 1998.
NON-INTEREST INCOME
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, INCREASE
1999 1998 (DECREASE)
<S> <C> <C> <C>
Service charges on deposit accounts $16,184 $11,813 $ 4,371
Mortgage banking revenue 9,339 8,931 408
Trust and plan administration fees 6,594 5,499 1,095
Insurance premiums and commissions 6,598 6,113 485
Non-interest fees on loans 3,998 3,509 489
Investment products fees 4,043 3,495 548
Net securities gains 916 1,223 (307)
Other 12,242 8,723 3,519
- ------------------------------------------------------------------------
Total non-interest income $59,914 $49,306 $ 10,608
========================================================================
</TABLE>
Service charges on deposit accounts increased $4,371, or 37.0%, from 1998
due to an increased number of deposit accounts acquired through aggressive
marketing and sales efforts and higher activity fees combined with improved
efforts to collect a greater percentage of assessable fees. Service charges on
deposit accounts for the second quarter were $8,545 compared to $6,393 for the
second quarter of 1998, a 33.7% increase. Mortgage banking revenue through the
first six months of 1999 was $9,339, an increase of $408, or 4.6%, from 1998.
The Corporation continues to see strong demand for new residential mortgages,
but refinancings in the most recent quarter were less than that of 1998's second
quarter. The Corporation sold or securitized the majority of its mortgage loan
production during the quarter. Mortgage banking revenue for 1999's second
quarter was $586 less than the second quarter of 1998 when additional mortgages
at Pinnacle were sold to conform its balance sheet to that of the Corporation.
Trust and plan administration fees of $6,594 were $1,095, or 19.9% higher than
the first six months of 1998, due to a higher market value of assets under
management and new plans under administration. Insurance premiums and
commissions increased $485 from the six months ended June 30, 1998, due to
increased sales of credit life and disability insurance partially offset by
lower experience-related profit sharing bonuses received from insurance
underwriters in the first quarter of each year. Excluding those bonuses,
insurance premiums and commissions increased $766, or 14.3%. Non-interest fees
on loans increased $489 from the first half of 1998, primarily due to increased
letter of credit fees. Investment products fees increased $548, or 15.7%,
primarily due to an increased number of sales representatives and increased
efforts to cross sell these products to the Corporation's expanded customer
base. Investment products fees earned during the most recent quarter increased
$351, or 18.3%, from the same period of 1998. Other income increased $3,519
during the first six months of 1999 over the same period of 1998. Other income
includes gains of $750 on the sale of the credit card portfolios acquired with
recent bank acquisitions recorded in first quarter 1999. Categories of other
income showing increases were bank-owned life insurance income, fees on covered
call options, debit card fees and customer check sales.
Page 16 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NON-INTEREST EXPENSE
- --------------------
Non-interest expense, which includes personnel, occupancy costs, equipment
and other operating expenses was $107,835 for the six months ended June 30,
1999, compared to $137,142 for the same period of 1998. Expenses associated
with the April 22, 1999, name change totaled $2,434. These expenses included
consulting fees, supplies, customer communications and the write-off of signage
and other items associated with previous bank names. Expenses totaling $41,346
for severance payments, professional fees, write-downs of data processing
equipment and closed offices and other accounting conformity adjustments were
recorded in second quarter 1998 related to the merger of Pinnacle into the
Corporation. Excluding these charges, non-interest expenses for the six months
ended June 30, 1999 were $105,401, an increase of $9,605, or 10.0%, over 1998's
$95,796. Second quarter 1999 expenses, excluding the above charges, were
$54,156, a 13.0% increase from second quarter 1998 and a $2,911 increase from
first quarter 1999.
NON-INTEREST EXPENSE
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, INCREASE
1999 1998 (DECREASE)
<S> <C> <C> <C>
Salaries and employee benefits $ 55,271 $ 50,221 $ 5,050
Data processing and other services 9,156 7,355 1,801
Occupancy 7,513 7,152 361
Equipment 6,114 5,947 167
Professional fees 4,413 3,389 1,024
Advertising and promotion 3,680 3,558 122
Postage and freight 2,822 2,617 205
Telecommunication 2,539 2,321 218
Amortization of intangible assets 2,326 2,317 9
Printing and supplies 2,430 2,388 42
Other 9,137 8,531 606
Name change and merger related expenses 2,434 41,346 (38,912)
- ---------------------------------------------------------------------------
Total non-interest expense $107,835 $137,142 $ (29,307)
===========================================================================
</TABLE>
Salaries and employee benefits increased $5,050, or 10.1%, from the same
period of 1998. The increase was due to an increased number of associates,
increased performance-based commissions and awards and normal merit increases.
Data processing and other services increased $1,801 for the six-month period
over 1998's like period due to increased expenses associated with computer
software, merchant card processing and the operation of additional ATM's.
Occupancy expense increased $361, or 5.0%, principally due to operating
additional office locations. Professional fees increased $1,024, or 30.2%, for
the first two quarters of 1999 compared to 1998 due to increases in legal fees,
outsourcing of certain functions and expenses associated with potential
acquisitions by the Corporation which failed to materialize. Postage and
freight increased $205, or 7.8%, from the first six months of 1998 due to
increases in rates and number of customers. Telecommunication expenses have
risen 9.4% to $2,539 due to the installation of a wide-area network and the
expanded distance in the Corporation's branch network as a result of
acquisitions completed over the last year. Other expenses increased $606 for
the six months ended June 30, 1999, from the same period of 1998. Included in
this increase were higher provisions for credit insurance reserves partially
offset by lower costs associated with examination fees, operating losses and
insurance.
Page 17 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INCOME TAX EXPENSE
- ------------------
Income tax expense was $22,609 for the six months ended June 30, 1999,
compared with $9,556 for the same period in 1998. The effective tax rate was
30.4% for the six months ended June 30, 1999, and 42.9% for the six months ended
June 30, 1998. The higher effective tax rate in 1998 was primarily due to the
non-deductibility of various merger expenses incurred in the second quarter.
The effective tax rate in 1998, excluding those charges was 32.5%. The reduced
effective tax rate in 1999 was primarily due to the state income tax savings
achieved when the Corporation combined the charters of its eight subsidiary
banks into one Michigan state bank charter on December 31, 1998. The decline in
the effective tax rate was also aided by an increase in income from tax exempt
sources, including municipal investments and bank-owned life insurance.
LOANS
- -----
Loans totaled $4,009,603 at June 30, 1999, compared to $3,891,269 at
December 31, 1998, and $3,693,886 at June 30, 1998. The loan portfolio
increased $118,334 from year-end 1998 and $315,717 from one year ago. The
Corporation continues to reduce its residential mortgage loan portfolio by
selling or securitizing most new production. This allows the Corporation to
generate fee income by the sales and retained servicing.
<TABLE>
LOANS OUTSTANDING
- ----------------------------------------------------------------------------------------
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1998
<S> <C> <C> <C>
Commercial, industrial and agricultural
production loans $ 1,392,206 $ 1,344,110 $ 1,241,728
Tax exempt loans 39,214 40,122 36,553
Real estate mortgage loans:
Commercial and agricultural 494,206 435,129 386,270
Construction 193,450 155,756 129,123
Residential 914,238 976,586 1,015,385
Consumer loans 976,289 939,566 884,827
- ---------------------------------------------------------------------------------------
Total loans $ 4,009,603 $ 3,891,269 $ 3,693,886
=======================================================================================
</TABLE>
Commercial loans totaled $1,392,206 at June 30, 1999, compared to
$1,344,110 at December 31, 1998, and $1,241,728 at June 30, 1998. Included in
this category are lines of credit to mortgage companies which are secured by
mortgage loans with agreements to resell. These mortgage lines have declined by
$46,639 since December 31, 1998, primarily due to management applying more
stringent underwriting standards. Excluding these mortgage lines, commercial
loans increased $94,735 from year-end. Commercial loans accounted for 34.7% of
the loan portfolio at June 30, 1999, compared to 33.6% at June 30, 1998.
Real estate mortgage loans, which consist of residential, commercial and
agricultural loans secured by real estate and construction loans, totaled
$1,601,894 at June 30, 1999, compared to $1,530,778 one year prior. Residential
mortgage loans decreased $62,348 from year-end 1998 and $101,147 from one year
ago. Residential mortgage loans were 22.8% of total loans at June 30, 1999,
compared to 27.5% one year prior. Demand for new residential mortgage loans
remains strong, but refinancings have slowed from the high 1998 levels. The
Corporation originated $324 million of residential mortgage loans in the first
two quarters of 1999, most of which
Page 18 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LOANS, CONTINUED
- ----------------
was sold or securitized. The Corporation generally continues to service these
loans. At June 30, 1999, $1,167,301 of residential mortgage loans originated by
the Corporation and subsequently sold in the secondary market were being
serviced. The Corporation had capitalized servicing rights of $9,105 relating
to $898,832 of those loans.
Consumer loans, which include installment, home equity and other lines of
credit, increased $91,462 from one year ago, and $36,723 from December 31, 1998.
These increases have been spurred by a sales incentive program and a direct mail
campaign both initiated in the latter part of the first quarter. In first
quarter 1999, the Corporation sold its credit card portfolios acquired through
recent bank mergers totaling $6,837. Excluding credit cards, consumer loans
have increased $97,222 and $44,127, respectively, from June 30, 1998, and
December 31, 1998. Indirect installment loan balances originated through
various automobile dealerships have increased $25,234 from year-end and $70,348
from one year ago to $344,844 at June 30, 1999. At June 30, 1999, all other
installment loans had increased $4,737 from December 31 and $9,970 from June 30,
1998, to $449,351. Home equity and other lines of credit outstandings totaled
$182,134 at June 30, 1999, an increase of $14,196 from December 31 and $16,945
from one year ago, excluding the credit cards.
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 as determined by evaluations of
the loan portfolio on a continuing basis. This evaluation by management
includes the use of a model maintained by the Corporation's loan review
function. The model calculates reserves for specific loan categories classified
as "criticized" and for all remaining loans in the portfolio. The model
utilizes historical loss ratios updated annually, based on a rolling three years
of actual loss experience for "criticized" loans, and updated quarterly based on
the actual loss experience over the previous eight quarters for remaining loans.
Also considered are 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. Further adjustments may be made relative to the financial condition of
specific borrowers and current economic conditions.
SUMMARY OF ALLOWANCE FOR LOAN LOSSES
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
<S> <C> <C>
Beginning balance $56,271 $55,223
Provision for loan losses 4,951 5,077
Loan charge-offs (6,147) (9,067)
Loan recoveries 2,964 2,505
- -----------------------------------------------------------------
Ending balance $58,039 $53,738
=================================================================
Percent to total loans 1.45% 1.45%
=================================================================
</TABLE>
Page 19 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ASSET QUALITY, CONTINUED
- ------------------------
The allowance for loan losses was $58,039 at June 30, 1999, representing
1.45% of total loans, compared with $56,271 at December 31, 1998, or 1.45% of
total loans. At June 30, 1998, the allowance for loan losses was $53,738 and
represented 1.45% of total loans. Annualized net charge-offs to average loans
were .16% during the six months ended June 30, 1999, compared to .34% for the
same period of 1998. The provision for loan losses to average loans was .25%
and .26% for the six months ended June 30, 1999 and 1998, respectively. The
allowance for loan losses to non-performing loans was 161% at June 30, 1999, and
at December 31, 1998, compared to 194% at June 30, 1998.
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 nonaccrual status. As indicated in the following
table, the Corporation's non-performing loans as of June 30, 1999, totaled
$35,163, an increase of $1,140 from December 31, 1998, and $7,849 from June 30,
1998. The increase from June 30, 1998, is generally due to management's review
of criticized loans and placing on nonaccrual status in the third quarter of
1998, several smaller loans acquired with the Pinnacle merger. The
non-performing loans to total loans ratio was .90% on June 30, 1999, and on
December 31, 1998, as compared to .75% on June 30, 1998. Total risk assets
equaled 1.18% of loan-related assets at June 30, 1999, compared to 1.19% at
December 31, 1998. In addition to loans classified as risk assets, there were
other loans totaling $24,926 at June 30, 1999, 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.
Page 20 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ASSET QUALITY, CONTINUED
- ------------------------
<TABLE>
NON-PERFORMING AND RISK ASSETS
- -------------------------------------------------------------------------------------
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1998
<S> <C> <C> <C>
Nonaccrual loans:
Commercial, agricultural and tax exempt $ 15,517 $ 13,679 $ 13,351
Real estate mortgage 17,001 16,918 11,939
Consumer 2,645 3,426 2,024
-------- -------- --------
Total nonaccrual 35,163 34,023 27,314
Restructured loans 871 941 323
-------- -------- --------
Total non-performing loans 36,034 34,964 27,637
Foreclosed properties 4,958 3,769 8,186
-------- -------- --------
Total non-performing assets 40,992 38,733 35,823
90 days or more past due and accruing:
Commercial, agricultural and tax exempt 1,650 2,446 2,843
Real estate mortgage 3,328 3,814 2,811
Consumer 1,207 1,404 1,497
-------- -------- --------
Total 90 days or more past due 6,185 7,664 7,151
-------- -------- --------
Total risk assets $ 47,177 $ 46,397 $ 42,974
=====================================================================================
Risk assets to loan-related assets 1.18% 1.19% 1.16%
=====================================================================================
</TABLE>
INVESTMENT SECURITIES
- ---------------------
Total investment securities represented 42.3% of earning assets at June 30,
1999, compared to 39.1% and 36.5% at December 31, 1998, and June 30, 1998,
respectively. A net unrealized loss on investment securities of $55,736, on a
pre-tax basis, was reflected at June 30, 1999, compared to a net unrealized gain
of $4,984 at March 31, 1999. This decline in market values was the result of
increased interest rates rather than a change in credit quality. The
Corporation has increased its investment securities portfolio by $227,184 since
March 31, 1999, and $418,534 since year-end to more effectively utilize its
strong capital position. The additional investments have been primarily
mortgage-backed securities, predominately underwritten to the standards of, and
guaranteed by, government sponsored enterprises. These securities generally
yield 70-100 b.p. more than comparable U.S. Treasury securities but 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. Mortgage-backed securities represented 71.9% of total
investment securities at June 30, 1999. The estimated average life of these
securities and the overall portfolio was 4.7 years and 6.0 years, respectively,
at June 30, 1999. Additional state and municipal securities have also been
purchased due to their higher tax equivalent yields. At June 30, 1999, state
and municipal securities represented 16.9% of total investment securities.
Page 21 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
DEPOSITS AND OTHER SOURCES OF FUNDS
- -----------------------------------
Total deposits were $4,885,501 at June 30, 1999, compared to $4,958,337 and
$4,691,805 at December 31, 1998, and June 30, 1998, respectively. Since
December 31, 1998, interest bearing deposits decreased $69,817 and non-interest
bearing deposits decreased $3,019. Since changes in total deposits or deposit
categories as of a particular balance sheet date are not necessarily indicative
of an overall trend, changes in average balances can provide a more accurate
reflection of trends. Average interest bearing deposits through the first six
months of 1999 increased $210,670 from 1998. Average non-interest bearing
deposits increased $69,828, or 15.0%, from the average of the first two quarters
of 1998. The increase in non-interest bearing deposits is the result of a
corporate-wide campaign targeting interest and non-interest bearing checking
accounts. Year-to-date average interest and non-interest bearing checking
accounts have increased $115,946, or 11.4%, over 1998's averages through June
30. Customers' preference has shifted to money market deposit accounts due to
the flat yield curve over much of this time period and the competitive pricing
offered by the Corporation. Accordingly, average money market deposit accounts
for the first six months of 1999 increased $200,136 from 1998 and savings and
retail certificates of deposit account averages declined $54,827 and $26,528,
respectively. Average large certificates of deposit, primarily from the
Corporation's commercial and local government customer base, have increased
$45,771 over 1998's averages for the first six months.
Securities sold under repurchase agreements are acquired in national
markets as well as from the Corporation's commercial customers as part of a cash
management service. Repurchase agreements were $978,948, $697,960 and $501,708
at June 30, 1999, December 31, 1998, and June 30, 1998, respectively. A
substantial amount of the growth in earning assets in 1999 has been funded
through national market repurchase agreements to fund the increased leverage
associated with the expanded investment portfolio as previously discussed. A
portion of these repurchase agreements, acquired to fund certain fixed rate
earning assets, is being hedged by interest rate swaps.
Federal funds purchased and other short-term borrowings were $339,417,
$105,831, and $113,004 at June 30, 1999, December 31, 1998, and June 30, 1998,
respectively. Federal funds purchased, which represent funds acquired overnight
from other financial institutions, totaled $278,850, $99,370, and $99,195,
respectively, at June 30, 1999, December 31, 1998, and June 30, 1998.
Long-term debt totaled $788,164 at June 30, 1999, compared to $626,759 at
December 31, 1998, and $605,862 at June 30, 1998. Advances from the FHLB
accounted for $775,637 of total long-term debt at June 30, 1999, and continue to
be a flexible and relatively inexpensive source of fixed rate, longer maturity
funds.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is a measure of the Corporation's ability to meet its customers'
present and future deposit withdrawals and/or increased loan demand without
unduly penalizing earnings. The Corporation manages its liquidity needs through
a coordinated asset/liability management program directed by the Funds
Management and Investment Committee.
Liquidity is provided by projecting credit demand and other financial needs
and then maintaining sufficient funding sources and assets readily convertible
into cash to meet these requirements. The Corporation has provided for its
liquidity needs by maintaining adequate balances in money market assets, through
growth in core deposits, maturing loans and investments in its securities
portfolio and by maintaining various short-term borrowing sources. At June 30,
1999, the Corporation had $452,144 in investment securities maturing within one
year. The Corporation additionally has federal funds lines and other borrowing
sources available to it and its
Page 22 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
- ------------------------------------------
subsidiary bank. 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.
The Corporation continues to maintain a strong capital position which
supports its current needs and provides a sound foundation to support further
expansion. Total shareholders' equity at June 30, 1999, was $480,036, compared
to $527,046 at December 31, 1998, and $502,940 at June 30, 1998. In order to
maintain its capital position at a desired level, the Corporation maintains a
stock repurchase program whereby 5% of its outstanding shares are repurchased
annually for specific corporate purposes, including but not limited to an annual
stock dividend. During the first six months of 1999, the Corporation
repurchased $35,199 of its common stock under this program.
The Corporation and its bank subsidiary are subject to various regulatory
capital requirements administered by state and federal banking agencies. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its bank subsidiary 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 bank subsidiary to maintain minimum amounts and
ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital
to average assets. Management believes, that as of June 30, 1999, the
Corporation and its bank subsidiary exceeded all regulatory capital adequacy
requirements to which they were subject.
As of June 30, 1999, the most recent notification from regulatory agencies
categorized the bank subsidiary 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 bank subsidiary's
categories. The trust preferred securities, discussed in Note 6 to the
Consolidated Financial Statements, qualify as Tier 1 capital and are included as
such in the following table which shows the Corporation's actual and minimum
required capital amounts and ratios as mandated by the respective regulatory
authority at June 30, 1999:
<TABLE>
<CAPTION>
ACTUAL MINIMUM REQUIREMENTS
Amount Ratio Amount Ratio
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Total Capital to risk weighted assets $703,040 15.13% $371,701 8.00%
Tier 1 Capital to risk weighted assets 644,106 13.86 185,851 4.00
Tier 1 Capital to average assets
(leverage ratio) 644,106 8.75 294,563 4.00
</TABLE>
Page 23 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000
- ---------
The Corporation is subject to risks associated with the "Year 2000" issue,
a term which refers to uncertainties about the ability of various data
processing hardware and software systems to interpret dates correctly after the
beginning of the Year 2000. The Corporation began working on its Year 2000 plan
in 1996 and formed a project committee (committee) that meets weekly to review
the status of the plan. A full-time project leader manages the project while
senior management oversees it and regularly reports to the Board of Directors.
The committee has formulated a Comprehensive Year 2000 Plan (Plan) which follows
guidelines outlined by the Federal Financial Institutions Examination Council
(FFIEC). The FFIEC requires all banks to develop a plan that includes five
phases relating to awareness, assessment, renovation, validation and
implementation. The Plan establishes a timetable and summarizes each major phase
of the project and the estimated costs to renovate and test systems in
preparation for the Year 2000.
The awareness phase included a Corporate-wide campaign to communicate the
problem and the potential ramifications to the organization. Concurrent with
this phase, the committee began the assessment phase which included the
inventorying of systems that may be impacted. The business use of each
inventoried item was then analyzed and prioritized in varying degrees from
critical to non-critical, based upon the perceived adverse effect on the
financial condition of the Corporation in the event of a loss or interruption in
the use of each system. The Corporation has completed the awareness and
assessment phases of the project.
The Corporation has outsourced most critical data processing activities to
an industry-known leader who is responsible for modifying its programs to be
compliant with Year 2000 processing. However, oversight of the testing of those
systems is the responsibility of the committee. Focusing on these critical
systems, the committee has closely reviewed and monitored the vendor's progress.
Year 2000 compliant upgrades to these outsourced critical data processing
systems were installed in early November 1998. Other critical systems have also
been assessed as to their Year 2000 readiness. These systems have been
purchased from other industry-known vendors and are generally used in their
standard configuration or with minor modifications. The committee is closely
reviewing and monitoring less critical systems as to each vendor's progress and
testing. A test lab is being used and systems are being tested in a
non-production environment. Certification of Year 2000 compliance for these
systems has been received from all vendors including all those deemed critical.
One critical outsourced system, the human resource/payroll system, that was not
Year 2000 compliant, was replaced. The renovation, validation and
implementation phases for critical systems were successfully completed during
the first quarter of 1999. The validation of most secondary applications is
also complete. The remaining testing will be completed by August 1999. A
system is deemed validated upon completion of an appropriate test plan,
contingency plan and system testing of the Year 2000 compliant version without
problems.
The Corporation's overall costs associated with Year 2000 implementation
has been reduced due to its outsourcing arrangement previously discussed.
However, incremental direct expenses are estimated to total approximately $500
during the 1998-1999 period. Additionally, capital improvements of
approximately $5,000 will be accelerated, in part due to Year 2000. The capital
improvements include replacing older technology, fully-depreciated personal
computers and software, telecommunication systems and the new human
resource/payroll system. Implementation of this equipment and software will
resolve certain Year 2000 issues and will provide increased or improved
functionality and efficiencies. The cost of this equipment and software is
expected to be charged to expense over a 36-60 month period which commenced
first quarter 1999. The aforementioned costs include the salary of the
full-time project leader but not the time of management and staff assisting on
the project which are estimated to total 6,000 hours from fourth quarter 1998
through 1999. The total cost could vary significantly from those currently
estimated due to unforeseen circumstances which could develop in implementing
the Plan.
Page 24 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000, CONTINUED
- --------------------
Concurrent with the development and execution of the Plan is the evolution
of the Corporation's Year 2000 Contingency Plan (Contingency Plan). The
Contingency Plan addresses a wide variety of issues including: failure of a
system during Year 2000 testing, failure of electrical, telecommunication, or
water systems, failure of a system during the century date change and liquidity
plans. Special considerations have been given to the weekend of the century date
change. The Contingency Plan is intended to be a changing document based on the
ongoing results of the project and is updated on a regular basis.
The Corporation is also completing an assessment of Year 2000 risks
relating to its lines of business separate from its dependence on data
processing. This assessment includes public seminars and a review of larger
commercial customers to ascertain their overall preparedness for Year 2000. The
process requires lending and other bank officers to meet with their customers to
review and assess their overall preparedness. The failure of a commercial
customer to prepare adequately for Year 2000 could have a significant adverse
effect on such customer's operations and profitability and inhibit its ability
to repay loans in accordance with their terms or require the use of its
deposited funds. While the process of evaluating the potential adverse effects
of Year 2000 risks on these customers is substantially complete, it is not
possible to quantify the overall potential effect to the Corporation.
The Plan also includes provisions which address the Year 2000 compliance of
environmental systems, which include items such as elevators, security systems
and heating and air conditioning systems. No significant business risks have
been revealed regarding these types of systems. The renovation, validation and
implementation phases for these systems were completed during the second quarter
of 1999.
The risks associated with the Year 2000 issue can be grouped into two
categories. The first is the risk that the Corporation will not ready its
systems for the century date change. The second is the risk of disruption of the
Corporation's operations due to an operational failure of a third party. The
first category includes those risks that are largely under the Corporation's
control. As stated above, the Corporation has and continues to take significant
steps to correct any Year 2000 related issues. At June 30, 1999, the committee
estimated that work on its Year 2000 project was 97% complete. Management
believes the risk of any internal critical system not being Year 2000 ready is
low.
The second risk category is largely outside of the Corporation's control.
The Corporation would be most seriously affected if Year 2000 failures of others
caused basic services such as electrical power, telecommunications or government
agencies to be disrupted. Although the preparation of such providers has been
reviewed, there can be no assurance that Year 2000 failures of third parties
will not have a material adverse impact on the Corporation.
Page 25 of 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FORWARD LOOKING STATEMENTS
- --------------------------
Certain of the statements contained in this Report that are not historical
facts, including, without limitation, statements of future expectations,
projections of results of operations and financial condition, statements of
future economic performance and other forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, are subject to
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Corporation to differ
materially from those contemplated in such forward-looking statements. The
words "intend," "expect," "project," "estimate," "predict," "anticipate,"
"should," "believe" and similar expressions also are intended to identify
forward-looking statements. Important factors which may cause actual results to
differ from those contemplated in such forward-looking statements include, but
are not limited to: (i) the results of the Corporation's efforts to implement
its business strategy, (ii) expected cost savings that may be associated with
future and recently completed or announced acquisitions, including Pinnacle and
National, cannot be fully realized and/or revenues following such acquisitions
are lower than expected and/or expenses following such acquisitions are higher
than expected, (iii) greater than expected deposit attrition or customer loss
following the acquisition of Pinnacle and National, (iv) costs or difficulties
related to the integration of the businesses of the Corporation and Pinnacle and
National are greater than expected, (v) changes in the interest rate environment
reduce margins, (vi) legislation or regulatory requirements or changes adversely
affecting the businesses in which the Corporation is engaged, (vii) adverse
changes in business conditions and inflation, (viii) general economic
conditions, either nationally or regionally, which are less favorable than
expected and that result in, among other things, a deterioration in credit
quality, (ix) competitive pressures among financial institutions increase
significantly, (x) changes in the securities markets, (xi) actions of the
Corporation's competitors and the Corporation's ability to respond to such
actions, (xii) the cost of the Corporation's capital, which may depend in part
on the Corporation's portfolio quality, ratings, prospects and outlook, (xiii)
changes in governmental regulation, tax rates and similar matters, (xiv) "Year
2000" computer and data processing issues, and (xv) other risks detailed in the
Corporation's other filings with the Securities and Exchange Commission. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated. All subsequent written and oral forward-looking statements
attributable to the Corporation or persons acting on its behalf are expressly
qualified in their entirety by the foregoing factors. Undue reliance should not
be placed on such statements, which speak only as of the date hereof. The
Corporation undertakes no obligation to release publicly any revisions to these
forward-looking statements after the date hereof to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that affect
the "Quantitative and Qualitative Disclosures" presented in the Corporation's
annual report on Form 10-K for the year ended December 31, 1998.
Page 26 of 31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS NONE
ITEM 2. CHANGES IN SECURITIES NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE
ITEM 5. OTHER INFORMATION NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibits
--------
a. The following exhibit is submitted herewith:
27 - Financial Data Schedule
Reports on Form 8-K
-------------------
b. A report on Form 8-K, dated June 18, 1999, was filed
regarding the signing of a definitive agreement whereby
the Corporation will be merged with and into Fifth Third
Bancorp.
- --------------------------------------------------------------------------------
No other information is required to be filed under Part II of the form.
Page 27 of 31
CNB BANCSHARES, INC.
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB Bancshares, Inc.
-------------------------------
(Registrant)
Date August 2, 1999 by /s/ James J. Giancola
---------------------------- --------------------------------
James J. Giancola,
President and Chief Executive Officer
Date August 2, 1999 by /s/ Ralph L. Alley
---------------------------- --------------------------------
Ralph L. Alley,
Senior Vice President and Controller
(Principal Accounting Officer)
Page 28 of 31
EXHIBIT INDEX
Reg. S-K
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
27 Financial Data Schedule 30-31
Page 29 of 31
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
NOTE
This schedule contains summary financial information extracted from CNB
Bancshares, Inc.'s consolidated balance sheet as of June 30, 1999, and the
consolidated statement of income for the six months ended June 30, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 216192
<INT-BEARING-DEPOSITS> 1635
<FED-FUNDS-SOLD> 28775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3010654
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 4070983
<ALLOWANCE> 58039
<TOTAL-ASSETS> 7695661
<DEPOSITS> 4885501
<SHORT-TERM> 1318365
<LIABILITIES-OTHER> 51095
<LONG-TERM> 788164
172500
0
<COMMON> 34764
<OTHER-SE> 445272
<TOTAL-LIABILITIES-AND-EQUITY> 7695661
<INTEREST-LOAN> 171483
<INTEREST-INVEST> 85935
<INTEREST-OTHER> 373
<INTEREST-TOTAL> 257791
<INTEREST-DEPOSIT> 89890
<INTEREST-EXPENSE> 130495
<INTEREST-INCOME-NET> 127296
<LOAN-LOSSES> 4951
<SECURITIES-GAINS> 916
<EXPENSE-OTHER> 107835
<INCOME-PRETAX> 71143
<INCOME-PRE-EXTRAORDINARY> 71143
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48534
<EPS-BASIC> 1.38
<EPS-DILUTED> 1.34
<YIELD-ACTUAL> 3.94
<LOANS-NON> 35163
<LOANS-PAST> 6185
<LOANS-TROUBLED> 871
<LOANS-PROBLEM> 24926
<ALLOWANCE-OPEN> 56271
<CHARGE-OFFS> 6147
<RECOVERIES> 2964
<ALLOWANCE-CLOSE> 58039
<ALLOWANCE-DOMESTIC> 58039
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
NOTE
This schedule contains summary financial information extracted from CNB
Bancshare Inc.'s consolidated balance sheet as of June 30, 1998, and the
consolidated statement of income for the six months ended June 30, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 272936
<INT-BEARING-DEPOSITS> 1907
<FED-FUNDS-SOLD> 8675
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2010345
<INVESTMENTS-CARRYING> 208964
<INVESTMENTS-MARKET> 214485
<LOANS> 3850293
<ALLOWANCE> 53738
<TOTAL-ASSETS> 6660420
<DEPOSITS> 4691805
<SHORT-TERM> 614712
<LIABILITIES-OTHER> 72602
<LONG-TERM> 605861
172500
0
<COMMON> 33325
<OTHER-SE> 469615
<TOTAL-LIABILITIES-AND-EQUITY> 6660420
<INTEREST-LOAN> 176321
<INTEREST-INVEST> 69065
<INTEREST-OTHER> 282
<INTEREST-TOTAL> 245668
<INTEREST-DEPOSIT> 93761
<INTEREST-EXPENSE> 130499
<INTEREST-INCOME-NET> 115169
<LOAN-LOSSES> 5077
<SECURITIES-GAINS> 1223
<EXPENSE-OTHER> 137142
<INCOME-PRETAX> 22124
<INCOME-PRE-EXTRAORDINARY> 22124
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12568
<EPS-BASIC> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 3.90
<LOANS-NON> 27314
<LOANS-PAST> 7151
<LOANS-TROUBLED> 323
<LOANS-PROBLEM> 18804
<ALLOWANCE-OPEN> 55223
<CHARGE-OFFS> 9067
<RECOVERIES> 2505
<ALLOWANCE-CLOSE> 53738
<ALLOWANCE-DOMESTIC> 53614
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 124
</TABLE>
