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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
{X} Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended DECEMBER 31, 1998
OR
{ } Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to ______.
CNB BANCSHARES, INC. 0-11510
(Exact name of registrant as specified in its charter) (Commission file number)
INDIANA 35-1568731
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
20 N.W. THIRD STREET, EVANSVILLE, INDIANA 47739
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) 456-3400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- --------------------
COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. { }
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $1,259,576,000 as of March 5, 1999.
The number of shares outstanding of the registrant's common stock, without
par value, as of March 5, 1999 was 35,206,103 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1998. (Part I, Part II and Part IV)
(2) Portions of the Registrant's Proxy Statement for Annual Meeting of
Shareholders to be held April 21, 1999. (Part III)
Exhibit index is on pages 20 and 21.
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PART I
ITEM 1. BUSINESS
OVERVIEW
CNB Bancshares, Inc. (the Corporation) is a regional, bank holding company
headquartered in Evansville, Indiana. Incorporated on May 26, 1983, under the
laws of the State of Indiana, the Corporation began operating in 1984 as a one-
bank holding company for The Citizens National Bank of Evansville, which was
chartered in 1874. Since that time, the Corporation has acquired additional
financial subsidiaries and 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 (Citizens). Citizens operated 144
offices in Indiana, Kentucky, Illinois and Michigan and had total assets and
shareholders' equity of $7,134,268,000 and $571,140,000, respectively at
December 31, 1998. The Corporation also owns a consumer finance company and a
leasing company. As of December 31, 1998, the Corporation had consolidated
total assets of $7,141,797,000 and total shareholders' equity of $527,046,000.
Citizens offers a broad range of commercial and retail banking and other
financial products and services to its customers. Deposit products include
certificates of deposit, individual retirement accounts and other time deposits,
checking and other demand deposit accounts, including interest bearing checking
accounts, savings and money market accounts and cash management services. Loans
include commercial and industrial, real estate mortgage and servicing, consumer,
agricultural and leasing services. Other products and services include deposit
and investment brokerage, trust and asset management, credit-related insurance,
automatic teller machines and safe deposit boxes. Citizens is the Corporation's
principal subsidiary.
The Corporation also has four non-banking subsidiaries. Citizens Life
Assurance Company underwrites credit life and disability insurance sold through
the Corporation's banking subsidiary. Citizens Insurance of Evansville provides
risk management, employee benefits and personal insurance. Small Parker &
Blossom is a third party administrator of employee benefit plans. Wedgewood
Partners is a full service broker/dealer and asset management firm.
The Corporation operates with a super community bank philosophy--
decentralizing day-to-day customer services such as pricing and lending
decisions, while centralizing data processing systems, product development and
back office support functions. The Corporation's operations in each market are
managed by a president under the guidance of a regional board of directors. By
keeping the decision-making process close to the customer, the Corporation
believes it has a competitive advantage over super regional companies, while
providing the necessary scale to manage expenses. Management believes that the
Corporation's size gives it a considerable advantage over community banks
through a much more diverse product offering and greater access to resources,
especially technology. The Corporation has operations in six of the ten largest
Indiana counties. Based upon the most recently available FDIC deposit data, 78%
of its deposits come from markets where the Corporation ranks first, second or
third in deposit market share.
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The Corporation continues to explore new products and services to meet the
needs and demands of its growing customer base and to remain competitive with
other financial institutions operating in its market areas.
PENDING AND RECENTLY COMPLETED ACQUISITIONS
The Corporation has grown significantly through 33 acquisitions of banks and
non-banks since 1986. The future growth of the Corporation will be dependent in
part upon the ability of the Corporation to acquire businesses at favorable
prices, terms and conditions and to properly manage and integrate their
operations. The Corporation's ability to expand successfully through
acquisitions depends upon many factors, including the successful identification
and acquisition of financial institutions and other related businesses and
management's ability to effectively integrate the acquired businesses. Future
acquisitions by the Corporation may involve the issuance of its common stock
which would have the effect of diluting the ownership interests of the existing
shareholders of the Corporation.
Acquisitions entail risks that business judgments will prove inaccurate with
respect to anticipated market growth, projected revenue enhancements and
expected operating expense savings. Acquisitions also entail the risks of the
diversion of management's attention and the conversion of the operations and
assimilation of personnel of the acquired companies, each of which could
adversely affect the Corporation's results of operations. In addition, the
success of any acquisition will depend in part upon the Corporation's ability to
effectively integrate the acquired company into the Corporation's operations and
implement its business style and philosophy. There can be no assurance that
future acquisition opportunities, if any, can be consummated on favorable terms,
that the Corporation will be successful in acquiring any businesses or that any
such acquisitions will enhance the earnings of the Corporation.
On August 3, 1998, the Corporation issued 1,143,389 shares and assumed the
terms of stock options that allow 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 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. 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, a full service broker/dealer and
asset management firm based in St. Louis, Missouri. Goodwill of $2,345,000
related to this acquisition is being amortized on a straight-line basis over 15
years. The acquisition was accounted for under the purchase method of
accounting; and, accordingly, the consolidated financial statements include the
assets and liabilities and results of operations from the January 1, 1998
transaction date forward.
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COMPETITION
The business of the Corporation and its subsidiaries is highly competitive.
There are numerous banks and bank holding companies located in southern
Illinois, Indiana, Kentucky, Michigan and Tennessee, which offer substantial
competition in the acquisition and operation of banks, savings associations and
non-bank financial institutions. The banking and financial subsidiaries and the
Corporation's non-banking subsidiaries encounter substantial competition in all
of their banking and related activities and expect such competition to intensify
as the financial industry expands due to more non-bank competitors offering
financial services. In addition, recent changes in laws relating to interstate
banking have permitted some local institutions to become part of larger regional
and national organizations.
The Corporation competes with other commercial banks, savings associations
and credit unions for loans and deposits and with money market funds for
deposits. Consumer and commercial finance companies, mortgage banks, securities
brokerage companies, investment banking firms and insurance companies also
compete for various types of loans and financial services. Some of these
entities and institutions are not subject to the same regulatory restrictions as
financial institution holding companies and their subsidiary banks and savings
associations and, therefore enjoy certain competitive advantages. The principal
methods of competition in banking activities are price, service and convenience.
REGULATIONS AND SUPERVISION
The United States banking industry is highly regulated, with federal and
state agencies having supervisory authority regarding the chartering,
supervision and examination of banks, savings banks and their bank holding
companies. There are numerous laws and regulations which limit how a bank
holding company and its subsidiaries conduct their businesses, including minimum
capital levels, limitations on the payment of dividends and regulation of
acquisitions and mergers.
As a bank holding company, the Corporation is subject to regulation under the
Bank Holding Company Act of 1956, as amended (the BHC Act), which is
administered by the Board of Governors of the Federal Reserve System (Federal
Reserve Board). The Corporation is required to file reports with the Federal
Reserve Board and various other federal and state agencies and to provide such
additional information as may be required.
A bank holding company must obtain Federal Reserve Board approval before
acquiring, directly or indirectly, ownership or control of any voting shares of
any bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares (unless it already owns or controls a
majority of such shares). Federal Reserve Board approval must also be obtained
before any bank holding company acquires all or substantially all of the assets
of another bank or bank holding company or merges or consolidates with another
bank holding company.
The BHC Act also prohibits a bank holding company, with certain limited
exceptions, from acquiring or retaining direct or indirect ownership or control
of more than 5% of the voting shares of any company which is not a bank or bank
holding company, or from engaging in any activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain activities which the
Federal Reserve Board has
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determined to be so closely related to the business of banking or managing or
controlling banks as to be a proper incident thereto.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)
was signed into law on September 30, 1996. EGRPRA streamlined the non-banking
activities application process for well-capitalized and well-managed bank
holding companies. Under EGRPRA, qualified bank holding companies may commence
a regulatorily approved non-banking activity without prior notice to the Federal
Reserve Board; written notice is required within 10 days after commencing the
activity. Under EGRPRA, the prior notice period is reduced to 12 days in the
event of any non-banking acquisition or share purchase, assuming the size of the
acquisition does not exceed 10% of risk-weighted assets of the acquiring bank
holding company and the consideration does not exceed 15% of Tier 1 capital.
The Federal Reserve Board has adopted comprehensive amendments to its
regulations under the BHC Act that implement the foregoing provisions of the
EGRPRA, including provisions allowing the 12-day prior notice for acquisitions
that exceed the 10% of risk-weighted assets limit, under certain circumstances,
and that also streamline the application/notice process for acquisitions of
banks and bank holding companies and eliminate regulatory provisions that the
Federal Reserve Board considered unnecessary.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Act) was signed into law, authorizing, among
other things, interstate acquisitions by bank holding companies, interstate
mergers of banks and "agency banking" with affiliates in different states. The
Interstate Act amended the BHC Act to allow an adequately capitalized and
managed bank holding company to acquire banks located in any state, beginning
September 29, 1995, subject to state deposit caps and a 10% nationwide deposit
cap. Adequately capitalized banks were permitted to merge across state lines
without regard to whether the merger is prohibited by the laws of any state
(except for states that "opted-out" of the interstate branching authorization,
specifically Texas and Montana) beginning June 1, 1997. The Interstate Act's
"agency banking" provisions, effective September 29, 1995, permit affiliated
banks to act as agent for each other in the conduct of most core banking
activities. Affiliated banks may receive deposits, renew time deposits, close
loans, service loans and receive payments on loans and other obligations on
behalf of each other, without being treated as branches.
Subsidiary banks of a bank holding company are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or the
lease or sale of any property or the furnishing of services. Bank holding
companies and their non-bank subsidiaries that engage in electronic benefit
transfer services are also subject to certain anti-tying restrictions.
Subsidiary banks of a bank holding company are also subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, or investments in stock or
other securities thereof, and on the taking of such stock or other securities as
collateral for loans.
The Federal Reserve Board has prescribed capital adequacy guidelines for use
in its examination and regulation of bank holding companies. If the capital of
a bank holding company falls below the minimum levels established by these
guidelines, it may be denied approval to acquire or establish additional banks
or non-bank businesses. The guidelines established by the Federal Reserve Board
set a minimum leverage ratio of 3.0% for the most highly rated bank holding
companies that do not anticipate significant growth. All other institutions are
required to maintain a ratio of 4.0% to 5.0% depending on their particular
circumstances and risk profile. This ratio is defined as shareholders' equity
less non-qualifying intangible assets plus perpetual preferred stock, as a
percentage of the sum of quarter-to-date total average assets less non-
qualifying intangible assets. The Federal Reserve Board has also adopted
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risk-based capital guidelines which assign various risk weightings to assets and
off-balance sheet items and set minimum capital requirements. Under the current
rules, banks are required to have core capital (Tier 1) of at least 4.0% of
risk-weighted assets and total capital of 8.0% of risk-weighted assets. Tier 1
capital consists primarily of shareholders' equity, less intangible assets plus
perpetual preferred stock; and total capital consists of Tier 1 capital, certain
long-term debt and convertible debentures and a portion of the allowance for
loan losses. The $172,500,000 of trust preferred securities issued by the
Corporation in June 1998 qualify as Tier 1 capital. At December 31, 1998, the
Corporation's leverage, Tier 1 and total capital ratios were 9.3%, 14.8% and
16.0%, respectively, all well above regulatory minimums.
The Federal Reserve Board has issued a policy statement on the payment of
cash dividends by bank holding companies. In the statement, the Federal Reserve
Board expressed its view that a holding company experiencing earnings weaknesses
should not pay cash dividends exceeding its net income nor pay a dividend which
can only be funded in a way that weakens the holding company's financial health,
such as by borrowing. The Federal Reserve Board periodically examines bank
holding companies and possesses cease and desist powers over bank holding
companies and their non-bank subsidiaries if their actions represent unsafe or
unsound practices.
The Corporation's banking subsidiary is subject to supervision and regulation
by its chartering authority. The primary supervisory authorities of the
Corporation's banking subsidiary are the Federal Reserve Board and the Michigan
Financial Institutions Bureau. These regulators regularly examine such areas as
reserves, loans, investments, management practices and other aspects of bank
operations, and has the authority to prevent a bank from engaging in an unsafe
or an unsound practice in conducting its business. In addition, the
Corporation's banking subsidiary is a member of, and subject to regulation by,
the Federal Deposit Insurance Corporation (FDIC).
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments it may make, the reserves
against deposits it must maintain, loans a bank makes and collateral it takes,
minimum capital levels, activities with respect to mergers and consolidations,
and the establishment of branches.
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) was enacted. FDICIA contains various provisions relating to
the supervision, regulation, and operation of banks and bank holding companies.
Various regulations implementing FDICIA have been promulgated by bank
regulators. FDICIA, among other things, identifies the following capital
standards for depository institutions: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below any such measure, and critically
undercapitalized if it fails to meet any critical capital level set forth in the
regulations. FDICIA requires a bank that is determined to be undercapitalized
to submit a capital restoration plan, and the bank's holding company, subject to
certain limitations, must guarantee that the bank will meet its capital plan.
FDICIA also prohibits banks from making any capital distribution or paying any
management fee if the bank would thereafter be undercapitalized. Under these
rules, institutions must have a leverage ratio of 5.0% or above, Tier 1 capital
to risk-based assets of 6.0% or above, and total capital to risk-based assets of
10.0% or above in order to qualify as well capitalized. The Corporation's
banking subsidiary was well
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capitalized for purposes of FDICIA and exceeded all other regulatory capital
requirements at year-end 1998.
FDICIA grants the FDIC authority to impose special assessments on insured
depository institutions to repay FDIC borrowings from the United States Treasury
or other sources and to establish semiannual assessment rates on Bank Insurance
Fund (BIF) and Savings Association Insurance Fund (SAIF) member banks so as to
maintain the funds at the designated reserve ratios defined in FDICIA. FDICIA
also required the FDIC to implement a risk-based insurance assessment system
pursuant to which the premiums paid by a depository institution are based on the
probability that the BIF or SAIF will incur a loss in respect of such
institution. At December 31, 1998, the Corporation's banking subsidiary was in
the category of institutions that paid deposit assessments at the lowest rates.
Because of concerns relating to competitiveness and the safety and soundness
of the banking industry, Congress is considering a number of wide-ranging
proposals for altering the structure, regulation and competitive relationships
of the nation's financial institutions. Among such bills are new proposals to
merge the BIF and the SAIF insurance funds, to eliminate the federal thrift
charter, to alter the statutory separation of commercial and investment banking,
to allow a wider variety of financial services companies to affiliate with banks
and to further expand the powers of banks, bank holding companies and
competitors of banks. It cannot be predicted whether or in what form any of
these proposals will be adopted or the extent to which the business of the
Corporation may be affected thereby.
GOVERNMENT POLICIES
The policies of federal and state agencies including the Federal Reserve
Board, the FDIC and other regulatory authorities may have a significant effect
on the operating results of the Corporation and the banking industry. An
important function of the Federal Reserve Board is to regulate aggregate money
supply and credit conditions and interest rates in order to influence general
economic conditions. The Federal Reserve Board, primarily through open market
operations of U.S. Government securities, and by varying the discount rate for
member bank borrowings and changing reserve requirements against member bank
deposits, can exercise significant influence on the overall growth and
distribution of bank loans and deposits and interest rates charged on loans and
earned on investments or paid for time and savings deposits. The general
effect, if any, of such policies upon the future business and earnings of the
Corporation and its financial subsidiaries cannot be determined.
FORWARD LOOKING STATEMENTS
Statements contained in this Report and in future filings by the Corporation
with the Securities and Exchange Commission, in the Corporation's press releases
and in oral statements made with the approval of an authorized executive
officer, which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended). There can be no assurance that such forward-looking statements will
in fact transpire. The 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
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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.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of all executive officers of
the Corporation, including all positions and offices with the Corporation held
by each such person, the term of office and the period during which he has
served as such.
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
<S> <C> <C>
H. Lee Cooper 60 Chairman of the Board of the Corporation since 1986.
Previously, Mr. Cooper also served as Chief Executive
Officer and President of the Corporation and in
various capacities as a senior executive officer of
both the Corporation and Citizens.
James J. Giancola 50 President and Chief Executive Officer of the
Corporation. Mr. Giancola has been President since
1994 and was named Chief Executive Officer in 1996.
Prior to joining the Corporation in 1992, Mr.
Giancola was President of Gainer Bank of
Merrillville, Indiana.
M. Lynn Cooper 48 Executive Vice President of the Corporation since
1994. Prior to 1994, Mr. Cooper served as Chairman
of the Board, President and Chief Executive Officer
of the Kentucky Division of Citizens.
Anthony L. Guerrerio 51 Executive Vice President of the Corporation since
1999. Mr. Guerrerio has been President and Chief
Executive Officer of Wedgewood Partners, Inc. since
1988. The Corporation acquired Wedgewood in 1998.
Marvin Huff, Jr. 65 Executive Vice President of the Corporation since
1996 and President of the CIS/Operations Division of
Citizens since 1994. Previously, Mr. Huff served in
various capacities as an officer of Citizens.
David L. Knapp 59 Executive Vice President of the Corporation since
1986. Mr. Knapp was named Chief Banking Officer in
1999. Previously, Mr. Knapp served as President and
Chief Executive Officer of the Evansville Division of
Citizens and in various other capacities as a senior
executive officer of both the Corporation and
Citizens.
John R. Spruill 56 Executive Vice President and Chief Administrative
Officer of the Corporation since 1999. Previously
Mr. Spruill served as Executive Vice President and
Chief Financial Officer of the Corporation. Prior to
joining the Corporation in 1995, Mr. Spruill served
as Executive Vice President and Chief Financial
Officer of Southern National Corporation in North
Carolina.
</TABLE>
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<TABLE>
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David M. Viar 49 Executive Vice President and Treasurer of the
Corporation since 1996. Previously, Mr. Viar served
as Senior Vice President and Treasury Officer of the
Corporation. Prior to joining the Corporation in
1993, Mr. Viar was Senior Vice President--Funds
Management of Dominion Bancshares in Virginia.
Ralph L. Alley 47 Senior Vice President and Controller of the
Corporation and Senior Vice President and Controller
of Citizens since 1985. Previously, Mr. Alley served
in various capacities as an officer of Citizens.
Thomas E. Bajusz 45 Senior Vice President and Chief Credit Officer of the
Corporation since 1999. Previously, Mr. Bajusz
served as Senior Vice President--Commercial Lending
of the Northern Division of Citizens. Prior to
joining the Corporation in 1998, Mr. Bajusz served as
First Vice President--Commercial Lending of NBD.
John N. Daniel, Jr. 53 Senior Vice President of the Corporation and
President of the Evansville Division of Citizens
since 1999. Previously, Mr. Daniel served as Senior
Vice President and Chief Credit Officer of the
Corporation. Prior to 1997, Mr. Daniel served as
Senior Vice President--Commercial Lending of the
Evansville Division of Citizens.
James R. Dodd 53 Senior Vice President of the Corporation since 1993.
In 1996, Mr. Dodd was named President of the Trust
Division of Citizens. Prior to joining the
Corporation in 1993, he was President of BancOklahoma
Trust Company.
Douglas R. Hanks 52 Senior Vice President and Director of Marketing of
the Corporation since 1994. Prior to joining the
Corporation in 1994, Mr. Hanks served as Vice
President--Director of Field Marketing for BancOne
Corporation.
John M. Oberhelman 57 Senior Vice President of Human Resources for the
Corporation and Citizens since 1992. Previously, Mr.
Oberhelman served in various capacities as an officer
of Citizens.
</TABLE>
There are no family relationships between any of the named persons. Each
executive officer is elected by the Corporation's Board of Directors to serve
until the close of the next annual meeting of the shareholders following his
election and until the election of his successor. No executive officer of the
Corporation was selected to his position pursuant to any arrangement or
understanding with any other person.
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STATISTICAL DISCLOSURE
The statistical disclosures of the Corporation on a consolidated basis,
included on pages 18 to 37 of the Corporation's Annual Report to Shareholders
for the year ended December 31, 1998, are hereby incorporated by reference
herein.
ITEM 2. PROPERTIES
Citizens owns a modern, 15-story office building which houses the
Corporation's principal offices and the main banking offices of Citizens. The
building is located at 20 Northwest Third Street, Evansville, Indiana, and is in
excellent condition. The Corporation and Citizens presently occupy approximately
85% of the building and the remainder is leased to various tenants. The
Corporation and Citizens also utilize four other buildings in close proximity to
the main banking office in downtown Evansville which are also owned and are
available for future office needs of the Corporation. A portion of this space is
also currently being leased by various tenants. The Corporation's subsidiaries
own 112 of the 172 remaining offices in which they conduct their businesses. The
net investment, as of December 31, 1998, of the Corporation and its subsidiaries
in property and equipment was $101,160,000. Two properties are security for real
estate mortgages payable which balances totaled $1,866,000 at December 31, 1998.
None of the other properties are subject to material liens or other
encumbrances.
Management of the Corporation believes that, as a group, the facilities are in
satisfactory condition and repair and will be adequate to meet its foreseeable
needs.
ITEM 3. LEGAL PROCEEDINGS
The Corporation presently is engaged in routine litigation incidental to its
business and management does not believe such litigation will materially
adversely affect the Corporation's consolidated financial position or
operations.
ITEM 4. SUBMISSION MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
Pages 1 and 65 of the Corporation's Annual Report to Shareholders for the year
ended December 31, 1998, are hereby incorporated by reference herein.
ITEM 6. SELECTED FINANCIAL DATA
Page 18 of the Corporation's Annual Report to Shareholders for the year ended
December 31, 1998, is hereby incorporated by reference herein.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Pages 19 to 37 of the Corporation's Annual Report to Shareholders for the
year ended December 31, 1998, are hereby incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Managing interest rate risk is fundamental to the financial services
industry. The Corporation's policies are designed to manage the inherently
different maturity and repricing characteristics of its loan and deposit
portfolios to achieve a desired interest sensitivity position and to limit
exposure to interest rate risk. By using a combination of on- and off-balance
sheet financial instruments, the Corporation manages interest rate sensitivity
while seeking to optimize net interest income within the constraints of prudent
capital adequacy and liquidity needs. Principal maturities and repricing
profiles are monitored through static gap analysis and future operating results
are simulated through computer modeling.
The management of interest rate sensitivity includes monitoring the
maturities and repricing opportunities of interest earning assets and interest
bearing liabilities. The Corporation's interest rate sensitivity analysis as of
December 31, 1998 is summarized in the Liquidity and Interest Rate Sensitivity
section of Management's Discussion and Analysis in the Corporation's Annual
Report to Shareholders on pages 34 and 35. A rate sensitivity position is
computed for various repricing intervals by calculating rate sensitivity gaps.
Interest earning assets and interest bearing liabilities have been distributed
based on their repricing opportunities. The maturities of certain investments,
loans and deposits have been adjusted based on projected prepayment patterns or
historical relationships to changes in market interest rates. The repricing of
certain liabilities has been adjusted to reflect the expected benefit of
interest rate contracts in place at year-end. Although rate sensitivity gaps
constantly change as funds are acquired and invested, the Corporation's positive
gap of $23,089,000 at one year or less as of December 31, 1998, was
approximately .3% of total assets. This, in the opinion of management,
represented a relatively balanced position and was well within the current
Board-approved policy limits of plus or minus 10% of total assets.
The Corporation utilizes a simulation model to measure and evaluate the
impact of changing interest rates on net interest income. The simulation
techniques involve assumptions regarding changes in interest rate relationships,
asset and liability mixes, prepayment options inherent in financial instruments
and directional changes in prevailing interest rates. These assumptions are
inherently uncertain; and, consequently, the model cannot precisely measure net
interest income or predict the impact of fluctuations in interest rates on net
interest income. Actual results may differ from simulated results due to
timing, magnitude and frequency of interest rate changes as well as changes in
market conditions or changes in customer preferences.
The Corporation's Asset/Liability Management Committee, which includes
Board members and senior management representatives, monitors and manages
interest rate risk within Board-approved policy limits. The Corporation's
current interest rate risk policy limits are determined by measuring the
anticipated change in net interest income over a twelve month horizon assuming a
200 basis point uniform and gradual increase or decrease in all interest rates.
Current policy limits this exposure to plus or minus 3% of net interest income
over a twelve month horizon.
12
<PAGE>
The table below illustrates the projected change in the Corporation's net
interest income during the next twelve months if all market rates were to
uniformly and gradually increase or decrease by as much as 200 basis points
compared to the results of a flat rate environment. These projections, based
upon the Corporation's balance sheet as of December 31, 1998, were prepared
using the modeling techniques and assumptions which were then used for
asset/liability management purposes.
<TABLE>
<CAPTION>
Increase (Decrease)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Basis point change in interest rates from
current level (200) (100) 100 200
Change in net interest income (1.5)% (1.1)% .5% 0%
</TABLE>
The table indicates that if rates were to gradually increase or decrease by
200 basis points, net interest income would be expected to remain substantially
the same or decrease by 1.5%, respectively, compared to a flat rate environment.
These estimated changes in net interest income are well within the policy
guidelines established by the Board of Directors. This model is based solely on
gradual, uniform changes in market rates and does not reflect the levels of
interest rate risk that may arise from other factors such as changes in the
spreads between key market rates or the shape of the Treasury yield curve.
To assist in achieving the desired level of interest rate sensitivity, the
Corporation has entered into interest rate swaps as a hedge against changing
interest rates. The Corporation's interest rate swaps represent an exchange of
interest payments requiring the Corporation to pay a fixed rate of interest
ranging from 5.32% to 5.60% and receive a variable rate based on one-month or
three-month LIBOR. At December 31, 1998, the notional values of the interest
rate swaps totaled $440,000,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 26 and 38 to 62 of the Corporation's Annual Report to Shareholders
for the year ended December 31, 1998, are hereby incorporated by reference
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the headings "Information Regarding Nominees for
Class II Directors" and "Information Regarding Directors Continuing in Office"
on pages 3 and 4 of the Corporation's Proxy Statement for its Annual Meeting of
Shareholders to be held April 21, 1999, is hereby incorporated by reference
herein. The information on Executive Officers is included in Part I, Item 1 of
this Annual Report on Form 10-K.
13
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation" on pages 7 to 13
of the Corporation's Proxy Statement for its Annual Meeting of Shareholders to
be held April 21, 1999, is hereby incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding beneficial ownership of the Common Stock of the
Corporation set forth under the headings "Certain Beneficial Ownership,"
"Information Regarding Nominees for Class II Directors," "Information Regarding
Directors Continuing in Office" and "Security Ownership of Management," on pages
2 through 6 of the Corporation's Proxy Statement for its Annual Meeting of
Shareholders to be held April 21, 1999, is hereby incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Transactions with Directors, Officers
and Associates" on pages 14 and 15 of the Corporation's Proxy Statement for its
Annual Meeting of Shareholders to be held April 21, 1999, is hereby incorporated
by reference herein.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
(1) The following consolidated financial statements of the Corporation,
included on pages 38 through 62 of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1998, are hereby
incorporated by reference herein:
. Consolidated Balance Sheet at December 31, 1998 and 1997.
. Consolidated Statement of Income, years ended December 31, 1998,
1997 and 1996.
. Consolidated Statement of Changes in Shareholders' Equity, years
ended December 31, 1998, 1997 and 1996.
. Consolidated Statement of Cash Flows, years ended December 31,
1998, 1997 and 1996.
. Notes to Consolidated Financial Statements.
. Independent Auditors' Report.
(2) All schedules are omitted because they are not applicable or not
required, or because the required information is included in the
consolidated financial statements or related notes.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
(1) Exhibits required to be filed by Item 601(a) of Regulation S-K are
included as exhibits to or incorporated by reference in this Report as
follows:
3(i) - Restated Articles of Incorporation of the Corporation, filed
as Exhibit 3(a) to the Corporation's Registration Statement
on Form S-8 POS dated May 18, 1998, Registration Statement
No. 333-46837, is incorporated herein by reference.
3(ii)- Amended Bylaws of the Corporation, filed as Exhibit 3(ii) to
the Corporation's 1995 Annual Report on Form 10-K, is
incorporated herein by reference.
4 - No long-term debt instrument issued by the Corporation
exceeds 10% of the consolidated total assets of the
Corporation and its subsidiaries. In accordance with
paragraph 4 (iii) of Item 601(b) of Regulation S-K, the
Corporation will furnish to the Securities and Exchange
Commission upon request copies of long-term debt instruments
and related agreements.
10* - (1) The following Executive Compensation Plans and
Arrangements, filed as Exhibits 10(1)(c) and (d) to the
Corporation's 1992 Annual Report on Form 10-K, are
incorporated herein by reference:
(a) CNB Bancshares, Inc. 1992 Incentive Stock Option
Plan; and
15
<PAGE>
(b) Citizens Incentive Savings Plan.
(2) The following Management Contract and Executive
Compensation Plans, filed as exhibits 10 (3)(b) and 10
(3)(c) to the Corporation's 1994 Annual Report on Form
10-K, are incorporated herein by reference.
(a) CNB Bancshares, Inc. Savings Equalization Plan, dated
May 1, 1994.
(b) CNB Bancshares, Inc. Pension Equalization Plan, dated
May 1, 1994.
(3) The CNB Bancshares, Inc. 1995 Incentive Stock Option Plan
is incorporated herein by reference to the Corporation's
filing with the Securities and Exchange Commission as an
exhibit to a Registration Statement on Form S-8,
Registration No. 33-60431.
(4) The following Management Contracts are incorporated
herein by reference to the Corporation's filing with the
Securities and Exchange Commission as exhibits (10) (a)
through (10) (e) to a Registration Statement on Form S-4,
Registration No. 333-46837:
(a) Change of Control Agreement, effective August 8,
1997, between the Corporation and M. Lynn Cooper; and
(b) Change of Control Agreement, effective June 3, 1997,
between the Corporation and James J. Giancola; and
(c) Change of Control Agreement, effective June 3, 1997,
between the Corporation and Marvin Huff, Jr.; and
(d) Change of Control Agreement, effective May 28, 1997,
between the Corporation and David L. Knapp; and
(e) Change of Control Agreement, effective May 23, 1997,
between the Corporation and John R. Spruill.
(5) The following Management Contracts filed as exhibits
10(5)(a) through 10(5)(d) to the Corporation's 1997
Annual Report on Form 10-K, are incorporated herein by
reference:
(a) Change of Control Agreement, effective May 23, 1997,
between the Corporation and John N. Daniel, Jr.; and
(b) Change of Control Agreement, effective June 9, 1997,
between the Corporation and James R. Dodd; and
(c) Change of Control Agreement, effective May 23, 1997,
between the Corporation and Douglas R. Hanks; and
(d) Change of Control Agreement, effective May 23, 1997,
between the Corporation and David M. Viar.
16
<PAGE>
(6)(a) Change of Control Agreement, effective February 16,
1998, between the Corporation and Roger Forystek; and
(b) Change of Control Agreement, effective January 12,
1998, between the Corporation and Thomas A. Galovic;
and
(c) Change of Control Agreement, effective January 1,
1998, between the Corporation and Anthony L.
Guerrerio; and
(d) Change of Control Agreement, effective January 1,
1998, between the Corporation and David A. Rolfe; and
(e) Employment and Non-Compete Agreement, effective
January 1, 1998, among the Corporation, Wedgewood and
Anthony L. Guerrerio; and
(f) Employment and Non-Compete Agreement, effective
January 1, 1998, among the Corporation, Wedgewood and
David A. Rolfe.
13 - Portions of the Annual Report to Shareholders for the year
ended December 31, 1998.
21 - Significant Subsidiaries of the Corporation.
23 - Consent of KPMG LLP
27 - Financial Data Schedule
(2) The following exhibit will be submitted at a later date:
The annual financial statements and independent auditors' report
thereon for Citizens Incentive Savings Plan for the year ended
December 31, 1998, will be filed as an amendment to the 1998 Annual
Report on Form 10-K no later than June 29, 1999.
* The documents identified herein as 10-(1)(a) and 10-(1)(b), 10-(2)(a) and 10-
(2)(b), 10-(3), 10-(4)(a) through 10-(4)(e), 10-(5)(a) through 10-(5)(d) and 10-
(6)(a) through 10-(6)(f) constitute all management contracts and compensatory
plans and arrangements required to be filed as an exhibit to this Form, pursuant
to Item 14(c) of this Report.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 16th day of
March, 1999.
CNB BANCSHARES, INC.
By /s/ James J. Giancola
------------------------------------------
James J. Giancola, President and Chief
Executive Officer
(chief executive officer)
By /s/ John R. Spruill
------------------------------------------
John R. Spruill, Executive Vice President and
Chief Administrative Officer
(principal financial officer)
By /s/ Ralph L. Alley
------------------------------------------
Ralph L. Alley, Senior Vice President and
Controller
(principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ H. Lee Cooper Director March 16, 1999
- -----------------------------
H. Lee Cooper
/s/ John D. Engelbrecht Director March 16, 1999
- -----------------------------
John D. Engelbrecht
/s/ Terrence A. Friedman Director March 16, 1999
- -----------------------------
Terrence A. Friedman
/s/ James J. Giancola Director March 16, 1999
- -----------------------------
James J. Giancola
/s/ Edmund L. Hafer Director March 16, 1999
- -----------------------------
Edmund L. Hafer
/s/ James E. Hutton Director March 16, 1999
- -----------------------------
James E. Hutton
18
<PAGE>
/s/ Robert L. Koch, II Director March 16, 1999
- -----------------------------
Robert L. Koch, II
/s/ Larry J. Kremer Director March 16, 1999
- -----------------------------
Larry J. Kremer
Director
- -----------------------------
Burkley F. McCarthy
/s/Robert K. Ruxer Director March 16, 1999
- -----------------------------
Robert K. Ruxer
/s/Thomas W. Traylor Director March 16, 1999
- -----------------------------
Thomas W. Traylor
/s/Alton C. Wendzel Director March 16, 1999
- -----------------------------
Alton C. Wendzel
19
<PAGE>
EXHIBIT INDEX
Reg. S-K
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
<S> <C>
3(i) Restated Articles of Incorporation of the Corporation, filed as Exhibit
3(a) to the Corporation's Registration Statement on Form S-8 POS dated
May 18, 1998, Registration Statement No. 333-46837, is incorporated
herein by reference.
3(ii) Amended Bylaws of the Corporation, filed as Exhibit 3(ii) to the
Corporation's 1995 Annual Report on Form 10-K, is incorporated herein by
reference.
10* - (1) The following Executive Compensation Plans and Arrangements, filed as
Exhibits 10(1)(c) and (d) to the Corporation's 1992 Annual Report on Form
10-K, are incorporated herein by reference:
(a) CNB Bancshares, Inc. 1992 Incentive Stock Option Plan.
(b) Citizens Incentive Savings Plan.
10(2) The following Management Contract and Executive Compensation Plans filed as
Exhibits 10(3)(b) and 10(3)(c) to the Corporation's 1994 Annual Report on
Form 10-K are incorporated herein by reference:
(a) CNB Bancshares, Inc. Savings Equalization Plan dated May 1, 1994.
(b) CNB Bancshares, Inc. Pension Equalization Plan dated May 1, 1994.
10(3) The CNB Bancshares, Inc. 1995 Incentive Stock Option Plan is incorporated by
reference to the Corporation's filing with the Securities and Exchange
Commission as an exhibit to a Registration Statement on Form S-8,
Registration No. 33-60431.
10(4) The following Management Contracts are incorporated herein by reference to
the Corporation's filing with the Securities and Exchange Commission as
exhibits (10)(a) through (10)(e) to a Registration Statement on Form S-4,
Registration No. 333-46837:
(a) Change of Control Agreement, effective August 8, 1997, between the
Corporation and M. Lynn Cooper; and
(b) Change of Control Agreement, effective June 3, 1997, between the
Corporation and James J. Giancola; and
(c) Change of Control Agreement, effective June 3, 1997, between the
Corporation and Marvin Huff, Jr.; and
(d) Change of Control Agreement, effective May 28, 1997, between the
Corporation and David L. Knapp; and
(e) Change of Control Agreement, effective May 23, 1997, between the
Corporation and John R. Spruill.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
10(5) The following Management Contracts filed as exhibits 10(5)(a) through
10(5)(d) to the Corporation's 1997 Annual Report on Form 10-K, are
incorporated herein by reference:
(a) Change of Control Agreement, effective May 23, 1997, between the
Corporation and John N. Daniel, Jr.; and
(b) Change of Control Agreement, effective June 9, 1997, between the
Corporation and James R. Dodd; and
(c) Change of Control Agreement, effective May 23, 1997, between the
Corporation and Douglas R. Hanks; and
(d) Change of Control Agreement, effective May 23, 1997, between the
Corporation and David M. Viar.
10(6) (a) Change of Control Agreement, effective February 16, 1998, between the
Corporation and Roger Forystek; and
(b) Change of Control Agreement, effective January 12, 1998, between the
Corporation and Thomas A. Galovic; and
(c) Change of Control Agreement, effective January 1, 1998, between the
Corporation and Anthony L. Guerrerio; and
(d) Change of Control Agreement, effective January 1, 1998, between the
Corporation and David A. Rolfe; and
(e) Employment and Non-Compete Agreement, effective January 1, 1998, among
the Corporation, Wedgewood and Anthony L. Guerrerio; and
(f) Employment and Non-Compete Agreement, effective January 1, 1998, among
the Corporation, Wedgewood and David A. Rolfe.
13 Portions of the Annual Report to Shareholders for the Year Ended December 31,
1998.......................................................................... ----
21 Significant Subsidiaries of the Corporation................................... ----
23 Consent of KPMG LLP........................................................... ----
27 Financial Data Schedule....................................................... ----
</TABLE>
21
<PAGE>
EXHIBIT 10(6)(A)
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is entered into by and between CNB BANCSHARES, INC., an
Indiana corporation ("Company"), and ROGER FORYSTEK ("Executive").
BACKGROUND
----------
A. Executive is an officer and key management employee of Company.
B. Company's Board of Directors ("Board") has determined that it is in the
best interests of Company and its shareholders to assure Executive's continued
dedication and undivided time, attention, and loyalty, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined in Section
2 below).
C. In furtherance of that goal, the Board wishes to provide Executive with
certain benefits, if his employment should terminate as a result of a Change of
Control.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Company on the terms agreed to by Executive and Company and its
subsidiaries from time to time.
In consideration of the premises, Company and Executive agree as follows:
AGREEMENT
---------
1. DURATION OF AGREEMENT. This Agreement shall be effective February 16,
---------------------
1998 ("Effective Date"), and shall continue until the end of the Term (as
defined in Section 2).
2. DEFINITIONS. The following words and phrases, when capitalized, shall
-----------
have the following meanings for purposes of this Agreement:
(a) AFFILIATE. "Affiliate" means an employer required to be aggregated
---------
with Company pursuant to Section 414 (b) or (c) of the Internal Revenue Code.
(b) ANNIVERSARY DATE. "Anniversary Date" means each anniversary of the
----------------
Effective Date occurring during the Term.
(c) CAUSE. "Cause" means and shall be limited to the following:
-----
<PAGE>
(1) Executive's willful and continued failure to perform (other than a
failure resulting from Executive's illness or disability) his employment duties
after a demand for substantial performance is delivered to Executive on behalf
of the Board that specifically identifies the manner in which it alleges that
Executive has failed to perform his duties and Executive's failure to take
appropriate actions to correct such failure within thirty (30) days; or
(2) Executive's willful engaging in misconduct that has caused
demonstrable and material injury, monetary or otherwise, to Company or an
Affiliate.
For purposes of this Subsection (c), no act or failure to act on
Executive's part shall be considered "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that his
action or omission was in the best interests of Company. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until the Board has delivered to him a copy of a notice of
termination, and after reasonable notice to him and an opportunity for him,
together with counsel, to be heard before the Board, at least two-thirds of the
Board finds, in its reasonable opinion, that Executive was guilty of conduct set
forth above in clause (1) or (2) and specifying the particulars thereof in
detail.
(d) CHANGE OF CONTROL. "Change of Control" shall be deemed to have
-----------------
occurred upon the happening of any one or more of the following:
(1) any person, as that term is used in Section 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time,
becomes a beneficial owner, directly or indirectly, of securities of Company
representing twenty percent (20%) or more of the combined voting power of
Company's then outstanding securities;
(2) less than fifty-one percent (51%) of the members of the Board
are Incumbent Directors;
(3) any corporation or group of associated persons acting in
concert, owns more than twenty-five percent (25%) of the outstanding shares of
voting stock of Company
-2-
<PAGE>
coupled with or followed by the exercise of the voting power of such shares by
the election of two (2) or more directors of Company in any one election at the
instance of such corporation or group;
(4) Company becomes a party to an agreement of merger,
consolidation, or other reorganization pursuant to which Company will be a
constituent corporation, and either (A) Company is not the surviving or
resulting corporation, or (B) the transaction will result in less than eighty
percent (80%) of the outstanding voting securities of the surviving or resulting
entity being owned by the former shareholders of Company;
(5) Company becomes a party to an agreement providing for
Company's sale or other disposition of all or substantially all of its assets to
any individual, partnership, joint venture, association, trust, corporation, or
other entity or person which is not an Affiliate; or
(6) the occurrence of another event that the Board designates a
Change of Control.
(e) CHANGE OF CONTROL DATE. "Change of Control Date" means the date
----------------------
as of which a Change of Control occurs.
(f) CHANGE PERIOD. "Change Period" means the period beginning six
-------------
months before the Change of Control Date and continuing for the number of months
specified in Appendix A after the Change of Control Date. Notwithstanding the
preceding sentence, if a Change of Control described in Paragraph (d)(4) or
(d)(5) occurs, the Change Period shall begin when Company becomes a party to a
legally binding agreement described in paragraph (d)(4) or (d)(5) but shall not
end until the number of months specified in Appendix A after the effective date
of the Change of Control transaction described in Paragraph (4) or (5).
(g) CONFIDENTIAL INFORMATION. "Confidential Information" means any
------------------------
information not in the public domain and not previously disclosed to the public
by the Board or management of the Company or an Affiliate with respect to the
products, facilities, and methods;
-3-
<PAGE>
trade secrets and other intellectual property; systems, procedures, manuals,
confidential reports, customer lists, financial information, business plans,
prospects, or opportunities of the Company or an Affiliate; or any information
which the Company or an Affiliate has designated as Confidential Information.
(h) DISABILITY. "Disability" means Executive's inability to perform
----------
the material duties of his employment because of physical or mental illness,
which inability is likely to last for a period of one year or longer.
(i) EFFECTIVE DATE. "Effective Date" means the effective date of this
--------------
Agreement, as specified in Section 1.
(j) FULL INCENTIVE COMPENSATION. "Full Incentive Compensation" means
---------------------------
incentive compensation for a calendar year (including incentive compensation in
the amount of zero), provided that such compensation is not reduced because
Executive was employed by the Company for less than the entire calendar year.
(k) GOOD REASON. "Good Reason" means, (i) with respect to a Change of
-----------
Control described in Section 2(d)(4) in which Company is the surviving or
resulting corporation, and which results in less than eighty percent (80%) but
more than fifty percent (50%) of the outstanding voting securities of the
resulting or surviving corporation being owned by former shareholders of the
Company, a material change in position, title, compensation, status,
responsibilities, or working conditions in effect immediately before the Change
of Control or relocation of the Executive's place of employment to a location
more than fifty (50) miles from the Executive's place of employment immediately
before the Change of Control, and (ii) with respect to any Change of Control not
described in Clause (i), Executive's determination, in his sole judgment, that
the duties of his employment, compensation therefor, or the benefits or status
associated therewith have been reduced during the Change Period or that he is
unable to continue to perform the duties of his employment effectively because
of circumstances that changed during the Change Period directly or indirectly as
a result of the Change of Control.
-4-
<PAGE>
(l) INCUMBENT DIRECTOR. "Incumbent Director" means a director serving
------------------
on the Board who (i) was a director on the Effective Date or (ii) was later
elected as a director (except a director whose initial assumption of office was
in connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors) and
whose appointment, election, or nomination for election was approved or
recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on the Effective Date hereof or whose
appointment, election, or nomination for election was previously so approved or
recommended.
(m) PAYMENT PERIOD. "Payment Period" means the period beginning on
--------------
the later of the Change of Control Date or the date of Executive's termination
of employment during the Change Period and continuing for the number of months
specified in Appendix A; provided, however, if Executive's employment terminates
after a Change of Control (or, in the case of a transaction described in
Paragraph 2(d)(4) or 2(d)(5), the later effective date of such transaction), the
number of months in the Payment Period shall be reduced by one for each full
calendar month before the effective date of Executive's termination of
employment occurring after the most recent Change of Control Date (or, in the
case of a transaction described in Paragraph 2(d)(3) or (4), the later effective
date of such transaction) before such termination date.
(n) TERM. "Term" means the period beginning on the Effective Date and
----
ending on the second anniversary of the Effective Date, as extended pursuant to
the provisions of this Subsection. The period referred to in the preceding
sentence shall automatically be extended for one additional year on each
Anniversary Date, unless the Company has notified the Executive not fewer than
thirty (30) days before that Anniversary Date that the Term will not
automatically be extended further. Notwithstanding any provision of this
Agreement, if one or more Changes of Control occur during the Term (as
determined pursuant to the preceding provisions of this Subsection or as
extended pursuant to this sentence to reflect a prior Change of Control), the
-5-
<PAGE>
Term shall not end before the end of the Payment Period with respect to the
latest Change of Control occurring during the Term.
(o) TERMINATION COMPENSATION. "Termination Compensation" has the
------------------------
meaning specified in Paragraph 3(a)(1).
3. TERMINATION OF EXECUTIVE'S EMPLOYMENT DURING CHANGE PERIOD.
----------------------------------------------------------
(a) If Executive terminates his employment for Good Reason during the
Change Period, or if Company terminates Executive's employment during the Change
Period for a reason other than Cause or Executive's death or Disability,
Executive shall be entitled to the following benefits:
(1) An amount equal to Executive's Termination Compensation multiplied
by the number of months in the Payment Period. Executive's Termination
Compensation shall be equal to the sum of (i) his highest rate of base monthly
salary (unreduced by any elective salary deferrals or redirections) during the
twelve (12) month period immediately preceding his termination of employment
plus (ii) one-twelfth of his average annual incentive compensation with respect
to the shortest of (A) the three calendar years immediately preceding the
Payment Period, provided Executive received Full Incentive Compensation for all
such years, (B) the calendar years immediately preceding the Payment Period with
respect to which Executive received Full Incentive Compensation, or (C) the
total period of Executive's employment by Company. This amount shall be paid to
Executive in a lump sum between sixty (60) and ninety (90) days after the later
of (A) his termination of employment or (B) the Change of Control Date.
Executive may, in his discretion, elect to reduce the amount payable to him
pursuant to this Paragraph 3 to the extent necessary to avoid excise taxes in
Code Section 4999 of the Internal Revenue Code.
(2) Throughout the Payment Period, Company shall provide to Executive
and his family medical, life insurance, and other welfare benefits substantially
similar to those provided to active executive employees of the Company, provided
Executive pays any premiums
-6-
<PAGE>
charged by Company to active executive employees receiving similar coverage.
Beginning at the end of the Payment Period, Company shall provide medical
coverage to Executive and his family that is substantially similar to the
coverage provided to active employees of the Company, provided that Executive
pays Company the same premium as he would have been required to pay if such
coverage had been provided pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985. Executive may elect to purchase single coverage or
family coverage pursuant to the preceding sentence. Subject to Executive's
payment of the required premiums, post-Payment Period medical coverage for
Executive and his spouse shall continue until the earliest of the following
events: (i) the Executive's (or in the case of coverage for the Executive's
spouse, his spouse's) Medicare eligibility, (ii) the Executive's (or in the case
of coverage for the Executive's spouse, his spouse's) death, or (iii) medical
coverage for the Executive (or in the case of coverage for the Executive's
spouse, his spouse) through another employer.
(b) The payment or provision of benefits to Executive pursuant to this
Agreement shall not affect the obligations of Company or its successor under any
plan, agreement, or arrangement generally applicable to Company's retired
management employees pursuant to which Executive is entitled to any retirement
benefits, welfare benefits, stock, or other fringe benefits.
4. NON-COMPETITION. Executive shall not, while employed or during the
---------------
Payment Period, become an officer, director, or employee of, consultant to, or
majority shareholder in any bank or bank holding company that substantially
competes with Company, its subsidiaries, or Affiliates, or its successor or
successors within one hundred (100) miles from Evansville, Indiana, or fifty
(50) miles from the nearest banking office of Company or a subsidiary thereof.
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive acknowledges
------------------------------------------
that, by virtue of his employment, he has obtained or will obtain Confidential
Information, the use or disclosure of which could cause Company immeasurable and
substantial loss and damages for which no remedy at law would be adequate.
Accordingly, Executive covenants and agrees with
-7-
<PAGE>
Company that, except as necessary to perform his obligations to Company or with
the prior written consent of Company's Board, he will not at any time directly
or indirectly disclose any Confidential Information that he may acquire or has
acquired by reason of his association with Company. Without limiting the rights
or remedies, both legal and equitable, available to Company in the event of an
actual or threatened breach of Executive's obligations under this Section,
Company shall be entitled to seek and obtain a temporary restraining order
and/or a preliminary or permanent injunction against Executive, which shall
prevent Executive from engaging in any activities prohibited by this Section, or
to seek and obtain such other relief against Executive as may be required to
enforce Executive's obligations hereunder. Executive's obligations set forth in
this Section and Company's rights and remedies, whether legal or equitable, with
respect thereto, shall extend indefinitely.
6. EXPENSES. If Executive determines, in his absolute judgment, that it
--------
is necessary or advisable for him to incur reasonable legal and/or accounting
expenses, including but not limited to reasonable attorneys' and/or accountants'
fees, to obtain full and effective enforcement of his rights under this
Agreement or to determine the appropriate tax treatment of amounts paid pursuant
to this Agreement, Company shall reimburse Executive for all such reasonable
expenses and costs on a periodic basis. Company's obligation to reimburse
Executive for these reasonable expenses or costs pursuant to this Section shall
survive expiration of the Term and shall survive the termination of any later
employment agreements between Executive and Company. Any reimbursement required
by this Section shall be paid promptly to Executive after he submits a copy of
the service provider's invoice for the covered expense.
7. COMPANY'S OBLIGATION TO PROVIDE INFORMATION. After termination of
-------------------------------------------
Executive's employment, Company shall promptly provide Executive with reasonably
requested information relating to his retirement, benefits and payments under
this Agreement, and other post-employment benefits.
-8-
<PAGE>
8. BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to the
-----------------------------
benefit of and shall be binding upon the parties to this Agreement and their
respective executors, administrators, heirs, personal representatives,
successors, and assigns, but neither this Agreement nor any right created by
this Agreement may be assigned or transferred by either party. Notwithstanding
the foregoing, the Company shall assign this Agreement to any person or entity
succeeding to substantially all of the business and assets of the Company upon a
Change in Control, and upon such a Change in Control, the Company shall obtain
the assumption of this Agreement by its successor.
9. NOTICES. Any notice to a party required or permitted to be given by
-------
this Agreement shall be in writing and shall be deemed given when mailed by
registered or certified mail to the party at the party's address as specified in
this Section:
If to the Company, to: CNB Bancshares, Inc.
Attention: Corporate Secretary
20 N.W. Third Street
Evansville, Indiana 47708
or such other address designated by Company in writing to Executive as provided
in this Section.
If to Executive, to: 5922 Laurel Ridge
Newburgh, Indiana 47630
or such other address designated by the Executive in writing to the Company as
provided in this Section.
10. SEVERABILITY. If any term, provision, covenant, or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated.
11. AMENDMENTS. This Agreement may not be modified, amended, altered, or
----------
supplemented except upon the execution and delivery of a written agreement
executed by Company and Executive.
-9-
<PAGE>
12. GOVERNING LAW. This Agreement shall be construed in accordance with
-------------
the laws of the State of Indiana.
13. ARBITRATION. Any dispute, claim, or controversy concerning the terms,
-----------
meaning, application, or enforcement of any provision of this Agreement that
cannot be resolved through direct discussion or mediation shall be submitted to
final and binding arbitration before a neutral arbitrator pursuant to the
arbitration procedures set out in this Section ("Procedures") under the auspices
of the American Arbitration Association (AAA) at Evansville, Indiana. The AAA
Employment Dispute Resolution Rules in effect at the time of the arbitration
shall govern arbitration proceedings, except insofar as these Procedures, as
they may be amended from time to time, specifically provide otherwise.
Executive may initiate a claim or case only by a written notice to Company as
provided in this Agreement. Company may likewise initiate a claim or case by a
written notice delivered to Executive, as provided in this Agreement. The
written notice must set forth the matter in dispute in sufficient detail to
advise the non-initiating party of the nature and amount of the dispute or
claim, the date(s) of the underlying occurrence(s), and the relief requested.
It shall also be the initiating party's responsibility to submit the claim and
other required documents and fees to AAA in a timely manner; provided, however,
if Executive is fully or partially successful, Company shall reimburse Executive
for arbitration fees reasonably incurred. In conducting arbitration
proceedings, the AAA-appointed arbitrator shall be authorized to award any
relief available under the laws of the United States or the State of Indiana
applicable to the claim, dispute, or controversy submitted, where such relief is
warranted based on the evidence and the law. Any arbitration award shall be
final and binding, and enforceable by an action in any court of competent
jurisdiction. No award shall be set aside, or denied enforcement, by any court
in any action unless the court finds that the arbitrator purported to resolve
claims, disputes, or controversies not within the scope of these Procedures.
Adherence to these Procedures, and the agreement of the parties to this
Agreement to follow them, shall be enforceable in an action to compel or stay
arbitration pursuant to the Federal Arbitration Act or the Indiana Uniform
Arbitration Act in a court of competent jurisdiction.
-10-
<PAGE>
14. INTEGRATION. This Agreement supersedes all prior agreements between
-----------
the parties with respect to the matters covered herein.
15. COUNTERPARTS. This Agreement may be signed in two counterparts, each
------------
of which shall be deemed to be an original but which together shall constitute
one and the same instrument.
16. EFFECT OF HEADINGS. The section headings in this Agreement are for
------------------
convenience only and shall not affect the construction of this Agreement.
IN WITNESS WHEREOF, CNB Bancshares, Inc. has caused this Agreement to be
executed on this 16th day of February, 1998, and Executive has executed this
Agreement on the date specified below.
ATTEST: CNB BANCSHARES, INC.
/s/ John M. Oberhelman By /s/ James J. Giancola
- ---------------------- ------------------------
(Signature)
February 16, 1998
---------------------------
(Date)
EXECUTIVE
/s/ Roger Forystek
---------------------------
(Signature)
February 16, 1998
---------------------------
(Date)
-11-
<PAGE>
APPENDIX A
The Payment Period shall consist of 18 months.
ATTEST: CNB BANCSHARES, INC.
/s/ John M. Oberhelman By /s/ James J. Giancola
- ---------------------- ------------------------
(Signature)
February 16, 1998
---------------------------
(Date)
EXECUTIVE
/s/ Roger Forystek
---------------------------
(Signature)
February 16, 1998
---------------------------
(Date)
-12-
<PAGE>
EXHIBIT 10(6)(B)
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is entered into by and between CNB BANCSHARES, INC., an
Indiana corporation ("Company"), and THOMAS GALOVIC ("Executive").
BACKGROUND
----------
A. Executive is an officer and key management employee of Company.
B. Company's Board of Directors ("Board") has determined that it is in
the best interests of Company and its shareholders to assure Executive's
continued dedication and undivided time, attention, and loyalty, notwithstanding
the possibility, threat, or occurrence of a Change of Control (as defined in
Section 2 below).
C. In furtherance of that goal, the Board wishes to provide Executive
with certain benefits, if his employment should terminate as a result of a
Change of Control.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Company on the terms agreed to by Executive and Company from
time to time.
In consideration of the premises, Company and Executive agree as
follows:
AGREEMENT
---------
1. DURATION OF AGREEMENT. This Agreement shall be effective January 12,
---------------------
1998 ("Effective Date"), and shall continue until the end of the Term (as
defined in Section 2).
2. DEFINITIONS. The following words and phrases, when capitalized, shall
-----------
have the following meanings for purposes of this Agreement:
(a) AFFILIATE. "Affiliate" means an employer required to be
---------
aggregated with Company pursuant to Section 414 (b) or (c) of the Internal
Revenue Code.
(b) ANNIVERSARY DATE. "Anniversary Date" means each anniversary of
----------------
the Effective Date occurring during the Term.
(c) CAUSE. "Cause" means and shall be limited to the following:
-----
<PAGE>
(1) Executive's willful and continued failure to perform (other than a
failure resulting from Executive's illness or disability) his employment duties
after a demand for substantial performance is delivered to Executive on behalf
of the Board that specifically identifies the manner in which it alleges that
Executive has failed to perform his duties and Executive's failure to take
appropriate actions to correct such failure within thirty (30) days; or
(2) Executive's willful engaging in misconduct that has caused
demonstrable and material injury, monetary or otherwise, to Company or an
Affiliate.
For purposes of this Subsection (c), no act or failure to act on
Executive's part shall be considered "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that his
action or omission was in the best interests of Company. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until the Board has delivered to him a copy of a notice of
termination, and after reasonable notice to him and an opportunity for him,
together with counsel, to be heard before the Board, at least two-thirds of the
Board finds, in its reasonable opinion, that Executive was guilty of conduct set
forth above in clause (1) or (2) and specifying the particulars thereof in
detail.
(d) CHANGE OF CONTROL. "Change of Control" shall be deemed to have
-----------------
occurred upon the happening of any one or more of the following:
(1) any person, as that term is used in Section 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time,
becomes a beneficial owner, directly or indirectly, of securities of Company
representing twenty percent (20%) or more of the combined voting power of
Company's then outstanding securities;
(2) less than fifty-one percent (51%) of the members of the Board
are Incumbent Directors;
(3) any corporation or group of associated persons acting in
concert, owns more than twenty-five percent (25%) of the outstanding shares of
voting stock of Company
-2-
<PAGE>
coupled with or followed by the exercise of the voting power of such shares by
the election of two (2) or more directors of Company in any one election at the
instance of such corporation or group;
(4) Company becomes a party to an agreement of merger,
consolidation, or other reorganization pursuant to which Company will be a
constituent corporation, and either (A) Company is not the surviving or
resulting corporation, or (B) the transaction will result in less than eighty
percent (80%) of the outstanding voting securities of the surviving or resulting
entity being owned by the former shareholders of Company;
(5) Company becomes a party to an agreement providing for
Company's sale or other disposition of all or substantially all of its assets to
any individual, partnership, joint venture, association, trust, corporation, or
other entity or person which is not an Affiliate; or
(6) the occurrence of another event that the Board designates a
Change of Control.
(e) CHANGE OF CONTROL DATE. "Change of Control Date" means the date
----------------------
as of which a Change of Control occurs.
(f) CHANGE PERIOD. "Change Period" means the period beginning six
-------------
months before the Change of Control Date and continuing for the number of months
specified in Appendix A after the Change of Control Date. Notwithstanding the
preceding sentence, if a Change of Control described in Paragraph (d)(4) or
(d)(5) occurs, the Change Period shall begin when Company becomes a party to a
legally binding agreement described in paragraph (d)(4) or (d)(5) but shall not
end until the number of months specified in Appendix A after the effective date
of the Change of Control transaction described in Paragraph (4) or (5).
(g) CONFIDENTIAL INFORMATION. "Confidential Information" means any
------------------------
information not in the public domain and not previously disclosed to the public
by the Board or management of the Company or an Affiliate with respect to the
products, facilities, and methods;
-3-
<PAGE>
trade secrets and other intellectual property; systems, procedures, manuals,
confidential reports, customer lists, financial information, business plans,
prospects, or opportunities of the Company or an Affiliate; or any information
which the Company or an Affiliate has designated as Confidential Information.
(h) DISABILITY. "Disability" means Executive's inability to perform
----------
the material duties of his employment because of physical or mental illness,
which inability is likely to last for a period of one year or longer.
(i) EFFECTIVE DATE. "Effective Date" means the effective date of this
--------------
Agreement, as specified in Section 1.
(j) FULL INCENTIVE COMPENSATION. "Full Incentive Compensation" means
---------------------------
incentive compensation for a calendar year (including incentive compensation in
the amount of zero), provided that such compensation is not reduced because
Executive was employed by the Company for less than the entire calendar year.
(k) GOOD REASON. "Good Reason" means, (i) with respect to a Change of
-----------
Control described in Section 2(d)(4) in which Company is the surviving or
resulting corporation, and which results in less than eighty percent (80%) but
more than fifty percent (50%) of the outstanding voting securities of the
resulting or surviving corporation being owned by former shareholders of the
Company, a material change in position, title, compensation, status,
responsibilities, or working conditions in effect immediately before the Change
of Control or relocation of the Executive's place of employment to a location
more than fifty (50) miles from the Executive's place of employment immediately
before the Change of Control, and (ii) with respect to any Change of Control not
described in Clause (i), Executive's determination, in his sole judgment, that
the duties of his employment, compensation therefor, or the benefits or status
associated therewith have been reduced during the Change Period or that he is
unable to continue to perform the duties of his employment effectively because
of circumstances that changed during the Change Period directly or indirectly as
a result of the Change of Control.
-4-
<PAGE>
(l) INCUMBENT DIRECTOR. "Incumbent Director" means a director serving
------------------
on the Board who (i) was a director on the Effective Date or (ii) was later
elected as a director (except a director whose initial assumption of office was
in connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors) and
whose appointment, election, or nomination for election was approved or
recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on the Effective Date hereof or whose
appointment, election, or nomination for election was previously so approved or
recommended.
(m) PAYMENT PERIOD. "Payment Period" means the period beginning on
--------------
the later of the Change of Control Date or the date of Executive's termination
of employment during the Change Period and continuing for the number of months
specified in Appendix A; provided, however, if Executive's employment terminates
after a Change of Control (or, in the case of a transaction described in
Paragraph 2(d)(4) or 2(d)(5), the later effective date of such transaction), the
number of months in the Payment Period shall be reduced by one for each full
calendar month before the effective date of Executive's termination of
employment occurring after the most recent Change of Control Date (or, in the
case of a transaction described in Paragraph 2(d)(3) or (4), the later effective
date of such transaction) before such termination date.
(n) TERM. "Term" means the period beginning on the Effective Date and
----
ending on the second anniversary of the Effective Date, as extended pursuant to
the provisions of this Subsection. The period referred to in the preceding
sentence shall automatically be extended for one additional year on each
Anniversary Date, unless the Company has notified the Executive not fewer than
thirty (30) days before that Anniversary Date that the Term will not
automatically be extended further. Notwithstanding any provision of this
Agreement, if one or more Changes of Control occur during the Term (as
determined pursuant to the preceding provisions of this Subsection or as
extended pursuant to this sentence to reflect a prior Change of Control), the
-5-
<PAGE>
Term shall not end before the end of the Payment Period with respect to the
latest Change of Control occurring during the Term.
(o) TERMINATION COMPENSATION. "Termination Compensation" has the
------------------------
meaning specified in Paragraph 3(a)(1).
3. TERMINATION OF EXECUTIVE'S EMPLOYMENT DURING CHANGE PERIOD.
----------------------------------------------------------
(a) If Executive terminates his employment for Good Reason during the
Change Period, or if Company terminates Executive's employment during the Change
Period for a reason other than Cause or Executive's death or Disability,
Executive shall be entitled to the following benefits:
(1) An amount equal to Executive's Termination Compensation multiplied
by the number of months in the Payment Period. Executive's Termination
Compensation shall be equal to the sum of (i) his highest rate of base monthly
salary (unreduced by any elective salary deferrals or redirections) during the
twelve (12) month period immediately preceding his termination of employment
plus (ii) one-twelfth of his average annual incentive compensation with respect
to the shortest of (A) the three calendar years immediately preceding the
Payment Period, provided Executive received Full Incentive Compensation for all
such years, (B) the calendar years immediately preceding the Payment Period with
respect to which Executive received Full Incentive Compensation, or (C) the
total period of Executive's employment by Company. This amount shall be paid to
Executive in a lump sum between sixty (60) and ninety (90) days after the later
of (A) his termination of employment or (B) the Change of Control Date.
Executive may, in his discretion, elect to reduce the amount payable to him
pursuant to this Paragraph 3 to the extent necessary to avoid excise taxes in
Code Section 4999 of the Internal Revenue Code.
(2) Throughout the Payment Period, Company shall provide to Executive
and his family medical, life insurance, and other welfare benefits substantially
similar to those provided to active executive employees of the Company, provided
Executive pays any premiums
-6-
<PAGE>
charged by Company to active executive employees receiving similar coverage.
Beginning at the end of the Payment Period, Company shall provide medical
coverage to Executive and his family that is substantially similar to the
coverage provided to active employees of the Company, provided that Executive
pays Company the same premium as he would have been required to pay if such
coverage had been provided pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985. Executive may elect to purchase single coverage or
family coverage pursuant to the preceding sentence. Subject to Executive's
payment of the required premiums, post-Payment Period medical coverage for
Executive and his spouse shall continue until the earliest of the following
events: (i) the Executive's (or in the case of coverage for the Executive's
spouse, his spouse's) Medicare eligibility, (ii) the Executive's (or in the case
of coverage for the Executive's spouse, his spouse's) death, or (iii) medical
coverage for the Executive (or in the case of coverage for the Executive's
spouse, his spouse) through another employer.
(b) The payment or provision of benefits to Executive pursuant to this
Agreement shall not affect the obligations of Company or its successor under any
plan, agreement, or arrangement generally applicable to Company's retired
management employees pursuant to which Executive is entitled to any retirement
benefits, welfare benefits, stock, or other fringe benefits.
4. NON-COMPETITION. Executive shall not, while employed or during the
---------------
Payment Period, become an officer, director, or employee of, consultant to, or
majority shareholder in any bank or bank holding company that substantially
competes with Company, its subsidiaries, or Affiliates, or its successor or
successors within one hundred (100) miles from Evansville, Indiana, or fifty
(50) miles from the nearest banking office of Company or a subsidiary thereof.
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive acknowledges
------------------------------------------
that, by virtue of his employment, he has obtained or will obtain Confidential
Information, the use or disclosure of which could cause Company immeasurable and
substantial loss and damages for which no remedy at law would be adequate.
Accordingly, Executive covenants and agrees with
-7-
<PAGE>
Company that, except as necessary to perform his obligations to Company or with
the prior written consent of Company's Board, he will not at any time directly
or indirectly disclose any Confidential Information that he may acquire or has
acquired by reason of his association with Company. Without limiting the rights
or remedies, both legal and equitable, available to Company in the event of an
actual or threatened breach of Executive's obligations under this Section,
Company shall be entitled to seek and obtain a temporary restraining order
and/or a preliminary or permanent injunction against Executive, which shall
prevent Executive from engaging in any activities prohibited by this Section, or
to seek and obtain such other relief against Executive as may be required to
enforce Executive's obligations hereunder. Executive's obligations set forth in
this Section and Company's rights and remedies, whether legal or equitable, with
respect thereto, shall extend indefinitely.
6. EXPENSES. If Executive determines, in his absolute judgment, that it
--------
is necessary or advisable for him to incur reasonable legal and/or accounting
expenses, including but not limited to reasonable attorneys' and/or accountants'
fees, to obtain full and effective enforcement of his rights under this
Agreement or to determine the appropriate tax treatment of amounts paid pursuant
to this Agreement, Company shall reimburse Executive for all such reasonable
expenses and costs on a periodic basis. Company's obligation to reimburse
Executive for these reasonable expenses or costs pursuant to this Section shall
survive expiration of the Term and shall survive the termination of any later
employment agreements between Executive and Company. Any reimbursement required
by this Section shall be paid promptly to Executive after he submits a copy of
the service provider's invoice for the covered expense.
7. COMPANY'S OBLIGATION TO PROVIDE INFORMATION. After termination of
-------------------------------------------
Executive's employment, Company shall promptly provide Executive with reasonably
requested information relating to his retirement, benefits and payments under
this Agreement, and other post-employment benefits.
-8-
<PAGE>
8. BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to the
-----------------------------
benefit of and shall be binding upon the parties to this Agreement and their
respective executors, administrators, heirs, personal representatives,
successors, and assigns, but neither this Agreement nor any right created by
this Agreement may be assigned or transferred by either party. Notwithstanding
the foregoing, the Company shall assign this Agreement to any person or entity
succeeding to substantially all of the business and assets of the Company upon a
Change in Control, and upon such a Change in Control, the Company shall obtain
the assumption of this Agreement by its successor.
9. NOTICES. Any notice to a party required or permitted to be given by
-------
this Agreement shall be in writing and shall be deemed given when mailed by
registered or certified mail to the party at the party's address as specified in
this Section:
If to the Company, to: CNB Bancshares, Inc.
Attention: Corporate Secretary
20 N.W. Third Street
Evansville, Indiana 47708
or such other address designated by Company in writing to Executive as provided
in this Section.
If to Executive, to: Thomas Galovic
56 S. Washington St
Valparaiso, IN 46385
or such other address designated by the Executive in writing to the Company as
provided in this Section.
10. SEVERABILITY. If any term, provision, covenant, or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated.
11. AMENDMENTS. This Agreement may not be modified, amended, altered, or
----------
supplemented except upon the execution and delivery of a written agreement
executed by Company and Executive.
-9-
<PAGE>
12. GOVERNING LAW. This Agreement shall be construed in accordance with
-------------
the laws of the State of Indiana.
13. ARBITRATION. Any dispute, claim, or controversy concerning the terms,
-----------
meaning, application, or enforcement of any provision of this Agreement that
cannot be resolved through direct discussion or mediation shall be submitted to
final and binding arbitration before a neutral arbitrator pursuant to the
arbitration procedures set out in this Section ("Procedures") under the auspices
of the American Arbitration Association (AAA) at Evansville, Indiana. The AAA
Employment Dispute Resolution Rules in effect at the time of the arbitration
shall govern arbitration proceedings, except insofar as these Procedures, as
they may be amended from time to time, specifically provide otherwise.
Executive may initiate a claim or case only by a written notice to Company as
provided in this Agreement. Company may likewise initiate a claim or case by a
written notice delivered to Executive, as provided in this Agreement. The
written notice must set forth the matter in dispute in sufficient detail to
advise the non-initiating party of the nature and amount of the dispute or
claim, the date(s) of the underlying occurrence(s), and the relief requested.
It shall also be the initiating party's responsibility to submit the claim and
other required documents and fees to AAA in a timely manner; provided, however,
if Executive is fully or partially successful, Company shall reimburse Executive
for arbitration fees reasonably incurred. In conducting arbitration
proceedings, the AAA-appointed arbitrator shall be authorized to award any
relief available under the laws of the United States or the State of Indiana
applicable to the claim, dispute, or controversy submitted, where such relief is
warranted based on the evidence and the law. Any arbitration award shall be
final and binding, and enforceable by an action in any court of competent
jurisdiction. No award shall be set aside, or denied enforcement, by any court
in any action unless the court finds that the arbitrator purported to resolve
claims, disputes, or controversies not within the scope of these Procedures.
Adherence to these Procedures, and the agreement of the parties to this
Agreement to follow them, shall be enforceable in an action to compel or stay
arbitration pursuant to the Federal Arbitration Act or the Indiana Uniform
Arbitration Act in a court of competent jurisdiction.
-10-
<PAGE>
14. INTEGRATION. This Agreement supersedes all prior agreements between
-----------
the parties with respect to the matters covered herein.
15. COUNTERPARTS. This Agreement may be signed in two counterparts, each
------------
of which shall be deemed to be an original but which together shall constitute
one and the same instrument.
16. EFFECT OF HEADINGS. The section headings in this Agreement are for
------------------
convenience only and shall not affect the construction of this Agreement.
IN WITNESS WHEREOF, CNB Bancshares, Inc. has caused this Agreement to be
executed on this 12th day of January, 1998, and Executive has executed this
Agreement on the date specified below.
ATTEST: CNB BANCSHARES, INC.
/s/ John M. Oberhelman By /s/ James J. Giancola
- ---------------------- ---------------------
(Signature)
January 12, 1998
----------------
(Date)
EXECUTIVE
/s/ Thomas Galovic
------------------
(Signature)
January 12, 1998
----------------
(Date)
-11-
<PAGE>
APPENDIX A
The Payment Period shall consist of 36 months.
ATTEST: CNB BANCSHARES, INC.
/s/ John M. Oberhelman By /s/ James J. Giancola
- ---------------------- ---------------------
(Signature)
January 12, 1998
----------------
(Date)
EXECUTIVE
/s/ Thomas Galovic
------------------
(Signature)
January 12, 1998
----------------
(Date)
-12-
<PAGE>
EXHIBIT 10(6)(C)
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is entered into by and between CNB BANCSHARES, INC., an
Indiana corporation ("Company"), and ANTHONY L. GUERRERIO ("Executive").
BACKGROUND
----------
A. Executive is an officer and key management employee of a subsidiary of
Company.
B. Company's Board of Directors ("Board") has determined that it is in the
best interests of Company and its shareholders to assure Executive's continued
dedication and undivided time, attention, and loyalty, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined in Section
2 below).
C. In furtherance of that goal, the Board wishes to provide Executive with
certain benefits, if his employment should terminate as a result of a Change of
Control.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Company on the terms agreed to by Executive and Company and its
subsidiaries from time to time.
In consideration of the premises, Company and Executive agree as follows:
AGREEMENT
---------
1. DURATION OF AGREEMENT. This Agreement shall be effective January 1,
---------------------
1998 ("Effective Date"), and shall continue until the end of the Term (as
defined in Section 2).
2. DEFINITIONS. The following words and phrases, when capitalized, shall
-----------
have the following meanings for purposes of this Agreement:
(a) AFFILIATE. "Affiliate" means an employer required to be aggregated
---------
with Company pursuant to Section 414 (b) or (c) of the Internal Revenue Code.
<PAGE>
(b) ANNIVERSARY DATE. "Anniversary Date" means each anniversary of the
----------------
Effective Date occurring during the Term.
(c) CAUSE. "Cause" means and shall be limited to the following:
-----
(1) Executive's willful and continued failure to perform (other
than a failure resulting from Executive's illness or disability) his employment
duties after a demand for substantial performance is delivered to Executive on
behalf of the Board that specifically identifies the manner in which it alleges
that Executive has failed to perform his duties and Executive's failure to take
appropriate actions to correct such failure within thirty (30) days; or
(2) Executive's willful engaging in misconduct that has caused
demonstrable and material injury, monetary or otherwise, to Company or an
Affiliate.
For purposes of this Subsection (c), no act or failure to act on
Executive's part shall be considered "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that his
action or omission was in the best interests of Company. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until the Board has delivered to him a copy of a notice of
termination, and after reasonable notice to him and an opportunity for him,
together with counsel, to be heard before the Board, at least two-thirds of the
Board finds, in its reasonable opinion, that Executive was guilty of conduct set
forth above in clause (1) or (2) and specifying the particulars thereof in
detail.
(d) CHANGE OF CONTROL. "Change of Control" shall be deemed to have
-----------------
occurred upon the happening of any one or more of the following:
(1) any person, as that term is used in Section 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time,
becomes a beneficial owner,
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<PAGE>
directly or indirectly, of securities of Company representing twenty percent
(20%) or more of the combined voting power of Company's then outstanding
securities;
(2) less than fifty-one percent (51%) of the members of the Board are
Incumbent Directors;
(3) any corporation or group of associated persons acting in concert,
owns more than twenty-five percent (25%) of the outstanding shares of voting
stock of Company coupled with or followed by the exercise of the voting power of
such shares by the election of two (2) or more directors of Company in any one
election at the instance of such corporation or group;
(4) Company becomes a party to an agreement of merger, consolidation,
or other reorganization pursuant to which Company will be a constituent
corporation, and either (A) Company is not the surviving or resulting
corporation, or (B) the transaction will result in less than eighty percent
(80%) of the outstanding voting securities of the surviving or resulting entity
being owned by the former shareholders of Company (provided that the Company's
pending acquisition of Pinnacle Financial Services, Inc shall not constitute a
Change of Control for purposes of this Agreement);
(5) Company becomes a party to an agreement providing for Company's
sale or other disposition of all or substantially all of its assets to any
individual, partnership, joint venture, association, trust, corporation, or
other entity or person which is not an Affiliate; or
(6) the occurrence of another event that the Board designates a
Change of Control.
-3-
<PAGE>
(e) CHANGE OF CONTROL DATE. "Change of Control Date" means the date
----------------------
as of which a Change of Control occurs.
(f) CHANGE PERIOD. "Change Period" means the period beginning six
-------------
months before the Change of Control Date and continuing for the number of months
specified in Appendix A after the Change of Control Date. Notwithstanding the
preceding sentence, if a Change of Control described in Paragraph (d)(4) or
(d)(5) occurs, the Change Period shall begin when Company becomes a party to a
legally binding agreement described in paragraph (d)(4) or (d)(5) but shall not
end until the number of months specified in Appendix A after the effective date
of the Change of Control transaction described in Paragraph (4) or (5).
(g) CONFIDENTIAL INFORMATION. "Confidential Information" means any
------------------------
information not in the public domain and not previously disclosed to the public
by the Board or management of the Company or an Affiliate with respect to the
products, facilities, and methods; trade secrets and other intellectual
property; systems, procedures, manuals, confidential reports, customer lists,
financial information, business plans, prospects, or opportunities of the
Company or an Affiliate; or any information which the Company or an Affiliate
has designated as Confidential Information.
(h) DISABILITY. "Disability" means Executive's inability to perform
----------
the material duties of his employment because of physical or mental illness,
which inability is likely to last for a period of one year or longer.
(i) EFFECTIVE DATE. "Effective Date" means the effective date of
--------------
this Agreement, as specified in Section 1.
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<PAGE>
(j) FULL INCENTIVE COMPENSATION. "Full Incentive Compensation" means
---------------------------
incentive compensation for a calendar year (including incentive compensation in
the amount of zero), provided that such compensation is not reduced because
Executive was employed by the Company for less than the entire calendar year.
(k) GOOD REASON. "Good Reason" means, (i) with respect to a Change
-----------
of Control described in Section 2(d)(4) in which Company is the surviving or
resulting corporation, and which results in less than eighty percent (80%) but
more than fifty percent (50%) of the outstanding voting securities of the
resulting or surviving corporation being owned by former shareholders of the
Company, a material change in position, title, compensation, status,
responsibilities, or working conditions in effect immediately before the Change
of Control or relocation of the Executive's place of employment to a location
more than fifty (50) miles from the Executive's place of employment immediately
before the Change of Control, and, (ii) with respect to any Change of Control
not described in Clause (i), Executive's determination, in his sole judgment,
that the duties of his employment, compensation therefor, or the benefits or
status associated therewith have been reduced during the Change Period or that
he is unable to continue to perform the duties of his employment effectively
because of circumstances that changed during the Change Period directly or
indirectly as a result of the Change of Control.
(l) INCUMBENT DIRECTOR. "Incumbent Director" means a director
------------------
serving on the Board who (i) was a director on the Effective Date or (ii) was
later elected as a director (except a director whose initial assumption of
office was in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the election of
directors) and whose appointment, election, or nomination for election was
approved or recommended by a vote of at least two-thirds of the directors then
still in office who either
-5-
<PAGE>
were directors on the Effective Date hereof or whose appointment, election, or
nomination for election was previously so approved or recommended.
(m) PAYMENT PERIOD. "Payment Period" means the period beginning on
--------------
the later of the Change of Control Date or the date of Executive's termination
of employment during the Change Period and continuing for the number of months
specified in Appendix A; provided, however, if Executive's employment terminates
after a Change of Control (or, in the case of a transaction described in
Paragraph 2(d)(4) or 2(d)(5), the later effective date of such transaction), the
number of months in the Payment Period shall be reduced by one for each full
calendar month before the effective date of Executive's termination of
employment occurring after the most recent Change of Control Date (or, in the
case of a transaction described in Paragraph 2(d)(3) or (4), the later effective
date of such transaction) before such termination date.
(n) TERM. "Term" means the period beginning on the Effective Date
----
and ending on the second anniversary of the Effective Date, as extended pursuant
to the provisions of this Subsection. The period referred to in the preceding
sentence shall automatically be extended for one additional year on each
Anniversary Date, unless the Company has notified the Executive not fewer than
thirty (30) days before that Anniversary Date that the Term will not
automatically be extended further. Notwithstanding any provision of this
Agreement, if one or more Changes of Control occur during the Term (as
determined pursuant to the preceding provisions of this Subsection or as
extended pursuant to this sentence to reflect a prior Change of Control),
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<PAGE>
the Term shall not end before the end of the Payment Period with respect to the
latest Change of Control occurring during the Term.
(o) TERMINATION COMPENSATION. "Termination Compensation" has the
------------------------
meaning specified in Paragraph 3(a)(1).
3. TERMINATION OF EXECUTIVE'S EMPLOYMENT DURING CHANGE PERIOD.
----------------------------------------------------------
(a) If Executive terminates his employment for Good Reason during the
Change Period, or if Company terminates Executive's employment during the Change
Period for a reason other than Cause or Executive's death or Disability,
Executive shall be entitled to the following benefits:
(1) An amount equal to Executive's Termination Compensation
multiplied by the number of months in the Payment Period. Executive's
Termination Compensation shall be equal to the sum of (i) his highest rate of
base monthly salary (unreduced by any elective salary deferrals or redirections)
during the twelve (12) month period immediately preceding his termination of
employment plus (ii) one-twelfth of his average annual incentive compensation
with respect to the shortest of (A) the three calendar years immediately
preceding the Payment Period, provided Executive received Full Incentive
Compensation for all such years, (B) the calendar years immediately preceding
the Payment Period with respect to which Executive received Full Incentive
Compensation, or (C) the total period of Executive's employment by Company. This
amount shall be paid to Executive in a lump sum between sixty (60) and ninety
(90) days after the later of (A) his termination of employment or (B) the Change
of Control Date. Executive may, in his discretion, elect to reduce the amount
payable to him pursuant to this Paragraph 3 to the extent necessary to avoid
excise taxes in Code Section 4999 of the Internal Revenue Code.
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<PAGE>
(2) Throughout the Payment Period, Company shall provide to
Executive and his family medical, life insurance, and other welfare benefits
substantially similar to those provided to active executive employees of the
Company, provided Executive pays any premiums charged by Company to active
executive employees receiving similar coverage. Beginning at the end of the
Payment Period, Company shall provide medical coverage to Executive and his
family that is substantially similar to the coverage provided to active
employees of the Company, provided that Executive pays Company the same premium
as he would have been required to pay if such coverage had been provided
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985.
Executive may elect to purchase single coverage or family coverage pursuant to
the preceding sentence. Subject to Executive's payment of the required premiums,
post-Payment Period medical coverage for Executive and his spouse shall continue
until the earliest of the following events: (i) the Executive's (or in the case
of coverage for the Executive's spouse, his spouse's) Medicare eligibility, (ii)
the Executive's (or in the case of coverage for the Executive's spouse, his
spouse's) death, or (iii) medical coverage for the Executive (or in the case of
coverage for the Executive's spouse, his spouse) through another employer.
(b) The payment or provision of benefits to Executive pursuant to this
Agreement shall not affect the obligations of Company or its successor under any
plan, agreement, or arrangement generally applicable to Company's retired
management employees pursuant to which Executive is entitled to any retirement
benefits, welfare benefits, stock, or other fringe benefits.
4. NON-COMPETITION. Except as expressly provided to the contrary in any
---------------
written employment agreement between CNB and/or any of its subsidiaries and
Executive, Executive shall not, while employed or during the Payment Period,
become an officer, director, or
-8-
<PAGE>
employee of, consultant to, or majority shareholder in any bank or bank holding
company that substantially competes with Company, its subsidiaries, or
Affiliates, or its successor or successors within one hundred (100) miles from
Evansville, Indiana, or fifty (50) miles from the nearest banking office of
Company or a subsidiary thereof.
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive acknowledges
------------------------------------------
that, by virtue of his employment, he has obtained or will obtain Confidential
Information, the use or disclosure of which could cause Company immeasurable and
substantial loss and damages for which no remedy at law would be adequate.
Accordingly, except as expressly provided to the contrary in any written
employment agreement between CNB and/or any of its subsidiaries and Executive,
Executive covenants and agrees with Company that, except as necessary to perform
his obligations to Company or with the prior written consent of Company's Board,
he will not at any time directly or indirectly disclose any Confidential
Information that he may acquire or has acquired by reason of his association
with Company. Without limiting the rights or remedies, both legal and
equitable, available to Company in the event of an actual or threatened breach
of Executive's obligations under this Section, Company shall be entitled to seek
and obtain a temporary restraining order and/or a preliminary or permanent
injunction against Executive, which shall prevent Executive from engaging in any
activities prohibited by this Section, or to seek and obtain such other relief
against Executive as may be required to enforce Executive's obligations
hereunder. Executive's obligations set forth in this Section and Company's
rights and remedies, whether legal or equitable, with respect thereto, shall
extend indefinitely.
-9-
<PAGE>
6. EXPENSES. If Executive determines, in his absolute judgment, that it
--------
is necessary or advisable for him to incur reasonable legal and/or accounting
expenses, including but not limited to reasonable attorneys' and/or accountants'
fees, to obtain full and effective enforcement of his rights under this
Agreement or to determine the appropriate tax treatment of amounts paid pursuant
to this Agreement, Company shall reimburse Executive for all such reasonable
expenses and costs on a periodic basis. Company's obligation to reimburse
Executive for these reasonable expenses or costs pursuant to this Section shall
survive expiration of the Term and shall survive the termination of any later
employment agreements between Executive and Company. Any reimbursement required
by this Section shall be paid promptly to Executive after he submits a copy of
the service provider's invoice for the covered expense.
7. COMPANY'S OBLIGATION TO PROVIDE INFORMATION. After termination of
-------------------------------------------
Executive's employment, Company shall promptly provide Executive with reasonably
requested information relating to his retirement, benefits and payments under
this Agreement, and other post-employment benefits.
8. BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to the
-----------------------------
benefit of and shall be binding upon the parties to this Agreement and their
respective executors, administrators, heirs, personal representatives,
successors, and assigns, but neither this Agreement nor any right created by
this Agreement may be assigned or transferred by either party. Notwithstanding
the foregoing, the Company shall assign this Agreement to any person or entity
succeeding to substantially all of the business and assets of the Company upon a
Change in Control, and upon such a Change in Control, the Company shall obtain
the assumption of this Agreement by its successor.
-10-
<PAGE>
9. NOTICES. Any notice to a party required or permitted to be given by
-------
this Agreement shall be in writing and shall be deemed given when mailed by
registered or certified mail to the party at the party's address as specified in
this Section:
If to the Company, to: CNB Bancshares, Inc.
Attention: Corporate Secretary
20 N.W. Third Street
Evansville, Indiana 47708
or such other address designated by Company in writing to Executive as provided
in this Section.
If to the Company, to: Anthony L. Guerrerio
91 W. Glenwood
Kirkwood, Missouri 63122
or such other address designated by the Executive in writing to the Company as
provided in this Section.
10. SEVERABILITY. If any term, provision, covenant, or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated.
11. AMENDMENTS. This Agreement may not be modified, amended, altered, or
----------
supplemented except upon the execution and delivery of a written agreement
executed by Company and Executive.
12. GOVERNING LAW. This Agreement shall be construed in accordance with
-------------
the laws of the State of Indiana.
13. ARBITRATION. Any dispute, claim, or controversy concerning the terms,
-----------
meaning, application, or enforcement of any provision of this Agreement that
cannot be resolved through direct discussion or mediation shall be submitted to
final and binding arbitration before a neutral
-11-
<PAGE>
arbitrator pursuant to the arbitration procedures set out in this Section
("Procedures") under the auspices of the American Arbitration Association (AAA)
at Evansville, Indiana. The AAA Employment Dispute Resolution Rules in effect
at the time of the arbitration shall govern arbitration proceedings, except
insofar as these Procedures, as they may be amended from time to time,
specifically provide otherwise. Executive may initiate a claim or case only by
a written notice to Company as provided in this Agreement. Company may likewise
initiate a claim or case by a written notice delivered to Executive, as provided
in this Agreement. The written notice must set forth the matter in dispute in
sufficient detail to advise the non-initiating party of the nature and amount of
the dispute or claim, the date(s) of the underlying occurrence(s), and the
relief requested. It shall also be the initiating party's responsibility to
submit the claim and other required documents and fees to AAA in a timely
manner; provided, however, if Executive is fully or partially successful,
Company shall reimburse Executive for arbitration fees reasonably incurred. In
conducting arbitration proceedings, the AAA-appointed arbitrator shall be
authorized to award any relief available under the laws of the United States or
the State of Indiana applicable to the claim, dispute, or controversy submitted,
where such relief is warranted based on the evidence and the law. Any
arbitration award shall be final and binding, and enforceable by an action in
any court of competent jurisdiction. No award shall be set aside, or denied
enforcement, by any court in any action unless the court finds that the
arbitrator purported to resolve claims, disputes, or controversies not within
the scope of these Procedures. Adherence to these Procedures, and the agreement
of the parties to this Agreement to follow them, shall be enforceable in an
action to compel or stay arbitration pursuant to the Federal Arbitration Act or
the Indiana Uniform Arbitration Act in a court of competent jurisdiction.
-12-
<PAGE>
14. INTEGRATION. This Agreement supersedes all prior agreements between
-----------
the parties with respect to the matters covered herein.
15. COUNTERPARTS. This Agreement may be signed in two counterparts, each
------------
of which shall be deemed to be an original but which together shall constitute
one and the same instrument.
16. EFFECT OF HEADINGS. The section headings in this Agreement are for
------------------
convenience only and shall not affect the construction of this Agreement.
IN WITNESS WHEREOF, CNB Bancshares, Inc. has caused this Agreement to be
executed on this 1st day of January, 1998, and Executive has executed this
Agreement on the date specified below.
ATTEST: CNB BANCSHARES, INC.
/s/ David L. Knapp By /s/ James J. Giancola
- ------------------ ----------------------
(Signature)
January 1, 1998
-------------------------
(Date)
EXECUTIVE
/s/ Anthony L. Guerrerio
-------------------------
(Signature)
January 1, 1998
-------------------------
(Date)
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<PAGE>
APPENDIX A
The Payment Period shall consist of 36 months.
ATTEST: CNB BANCSHARES, INC.
/s/ David L. Knapp By /s/ James J. Giancola
- ------------------ ----------------------
(Signature)
January 1, 1998
-------------------------
(Date)
EXECUTIVE
/s/ Anthony L. Guerrerio
-------------------------
(Signature)
January 1, 1998
-------------------------
(Date)
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<PAGE>
EXHIBIT 10(6)(D)
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is entered into by and between CNB BANCSHARES, INC., an
Indiana corporation ("Company"), and DAVID A. ROLFE ("Executive").
BACKGROUND
----------
A. Executive is an officer and key management employee of a subsidiary of
Company.
B. Company's Board of Directors ("Board") has determined that it is in the
best interests of Company and its shareholders to assure Executive's continued
dedication and undivided time, attention, and loyalty, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined in Section
2 below).
C. In furtherance of that goal, the Board wishes to provide Executive with
certain benefits, if his employment should terminate as a result of a Change of
Control.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Company on the terms agreed to by Executive and Company and its
subsidiaries from time to time.
In consideration of the premises, Company and Executive agree as follows:
AGREEMENT
---------
1. DURATION OF AGREEMENT. This Agreement shall be effective January 1,
---------------------
1998 ("Effective Date"), and shall continue until the end of the Term (as
defined in Section 2).
2. DEFINITIONS. The following words and phrases, when capitalized, shall
-----------
have the following meanings for purposes of this Agreement:
(a) AFFILIATE. "Affiliate" means an employer required to be aggregated
---------
with Company pursuant to Section 414 (b) or (c) of the Internal Revenue Code.
(b) ANNIVERSARY DATE. "Anniversary Date" means each anniversary of the
----------------
Effective Date occurring during the Term.
(c) CAUSE. "Cause" means and shall be limited to the following:
-----
<PAGE>
(1) Executive's willful and continued failure to perform (other than a
failure resulting from Executive's illness or disability) his employment duties
after a demand for substantial performance is delivered to Executive on behalf
of the Board that specifically identifies the manner in which it alleges that
Executive has failed to perform his duties and Executive's failure to take
appropriate actions to correct such failure within thirty (30) days; or
(2) Executive's willful engaging in misconduct that has caused
demonstrable and material injury, monetary or otherwise, to Company or an
Affiliate.
For purposes of this Subsection (c), no act or failure to act on
Executive's part shall be considered "willful" unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that his
action or omission was in the best interests of Company. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until the Board has delivered to him a copy of a notice of
termination, and after reasonable notice to him and an opportunity for him,
together with counsel, to be heard before the Board, at least two-thirds of the
Board finds, in its reasonable opinion, that Executive was guilty of conduct set
forth above in clause (1) or (2) and specifying the particulars thereof in
detail.
(d) CHANGE OF CONTROL. "Change of Control" shall be deemed to have
-----------------
occurred upon the happening of any one or more of the following:
(1) any person, as that term is used in Section 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time,
becomes a beneficial owner, directly or indirectly, of securities of Company
representing twenty percent (20%) or more of the combined voting power of
Company's then outstanding securities;
(2) less than fifty-one percent (51%) of the members of the Board
are Incumbent Directors;
(3) any corporation or group of associated persons acting in
concert, owns more than twenty-five percent (25%) of the outstanding shares of
voting stock of Company
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<PAGE>
coupled with or followed by the exercise of the voting power of such shares by
the election of two (2) or more directors of Company in any one election at the
instance of such corporation or group;
(4) Company becomes a party to an agreement of merger, consolidation,
or other reorganization pursuant to which Company will be a constituent
corporation, and either (A) Company is not the surviving or resulting
corporation, or (B) the transaction will result in less than eighty percent
(80%) of the outstanding voting securities of the surviving or resulting entity
being owned by the former shareholders of Company (provided that Company's
pending acquistion of Pinnacle Financial Services, Inc. shall not constitute a
Change of Control for purposes of this Agreement);
(5) Company becomes a party to an agreement providing for Company's
sale or other disposition of all or substantially all of its assets to any
individual, partnership, joint venture, association, trust, corporation, or
other entity or person which is not an Affiliate; or
(6) the occurrence of another event that the Board designates a Change
of Control.
(e) CHANGE OF CONTROL DATE. "Change of Control Date" means the date as of
----------------------
which a Change of Control occurs.
(f) CHANGE PERIOD. "Change Period" means the period beginning six months
-------------
before the Change of Control Date and continuing for the number of months
specified in Appendix A after the Change of Control Date. Notwithstanding the
preceding sentence, if a Change of Control described in Paragraph (d)(4) or
(d)(5) occurs, the Change Period shall begin when Company becomes a party to a
legally binding agreement described in paragraph (d)(4) or (d)(5) but shall not
end until the number of months specified in Appendix A after the effective date
of the Change of Control transaction described in Paragraph (4) or (5).
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<PAGE>
(g) CONFIDENTIAL INFORMATION. "Confidential Information" means any
------------------------
information not in the public domain and not previously disclosed to the public
by the Board or management of the Company or an Affiliate with respect to the
products, facilities, and methods; trade secrets and other intellectual
property; systems, procedures, manuals, confidential reports, customer lists,
financial information, business plans, prospects, or opportunities of the
Company or an Affiliate; or any information which the Company or an Affiliate
has designated as Confidential Information.
(h) DISABILITY. "Disability" means Executive's inability to perform the
----------
material duties of his employment because of physical or mental illness, which
inability is likely to last for a period of one year or longer.
(i) EFFECTIVE DATE. "Effective Date" means the effective date of this
--------------
Agreement, as specified in Section 1.
(j) FULL INCENTIVE COMPENSATION. "Full Incentive Compensation" means
---------------------------
incentive compensation for a calendar year (including incentive compensation in
the amount of zero), provided that such compensation is not reduced because
Executive was employed by the Company for less than the entire calendar year.
(k) GOOD REASON. "Good Reason" means, (i) with respect to a Change of
-----------
Control described in Section 2(d)(4) in which Company is the surviving or
resulting corporation, and which results in less than eighty percent (80%) but
more than fifty percent (50%) of the outstanding voting securities of the
resulting or surviving corporation being owned by former shareholders of the
Company, a material change in position, title, compensation, status,
responsibilities, or working conditions in effect immediately before the Change
of Control or relocation of the Executive's place of employment to a location
more than fifty (50) miles from the Executive's place of employment to a
location more than fifty (50) miles from the Executives' place of employment
immediately before the Change of Control, and (ii) with respect to any Change of
Control not described in Clause (i), Executive's determination, in his
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<PAGE>
sole judgment, that the duties of his employment, compensation therefor, or the
benefits or status associated therewith have been reduced during the Change
Period or that he is unable to continue to perform the duties of his employment
effectively because of circumstances that changed during the Change Period
directly or indirectly as a result of the Change of Control.
(l) INCUMBENT DIRECTOR. "Incumbent Director" means a director serving
------------------
on the Board who (i) was a director on the Effective Date or (ii) was later
elected as a director (except a director whose initial assumption of office was
in connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors) and
whose appointment, election, or nomination for election was approved or
recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on the Effective Date hereof or whose
appointment, election, or nomination for election was previously so approved or
recommended.
(m) PAYMENT PERIOD. "Payment Period" means the period beginning on the
--------------
later of the Change of Control Date or the date of Executive's termination of
employment during the Change Period and continuing for the number of months
specified in Appendix A; provided, however, if Executive's employment terminates
after a Change of Control (or, in the case of a transaction described in
Paragraph 2(d)(4) or 2(d)(5), the later effective date of such transaction), the
number of months in the Payment Period shall be reduced by one for each full
calendar month before the effective date of Executive's termination of
employment occurring after the most recent Change of Control Date (or, in the
case of a transaction described in Paragraph 2(d)(3) or (4), the later effective
date of such transaction) before such termination date.
(n) TERM. "Term" means the period beginning on the Effective Date and
----
ending on the second anniversary of the Effective Date, as extended pursuant to
the provisions of this Subsection. The period referred to in the preceding
sentence shall automatically be extended for one additional year on each
Anniversary Date, unless the Company has notified the Executive not fewer than
thirty (30) days before that Anniversary Date that the Term will not
automatically
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<PAGE>
be extended further. Notwithstanding any provision of this Agreement, if one or
more Changes of Control occur during the Term (as determined pursuant to the
preceding provisions of this Subsection or as extended pursuant to this sentence
to reflect a prior Change of Control), the Term shall not end before the end of
the Payment Period with respect to the latest Change of Control occurring during
the Term.
(o) TERMINATION COMPENSATION. "Termination Compensation" has the meaning
------------------------
specified in Paragraph 3(a)(1).
3. TERMINATION OF EXECUTIVE'S EMPLOYMENT DURING CHANGE PERIOD.
----------------------------------------------------------
(a) If Executive terminates his employment for Good Reason during the
Change Period, or if Company terminates Executive's employment during the Change
Period for a reason other than Cause or Executive's death or Disability,
Executive shall be entitled to the following benefits:
(1) An amount equal to Executive's Termination Compensation multiplied
by the number of months in the Payment Period. Executive's Termination
Compensation shall be equal to the sum of (i) his highest rate of base monthly
salary (unreduced by any elective salary deferrals or redirections) during the
twelve (12) month period immediately preceding his termination of employment
plus (ii) one-twelfth of his average annual incentive compensation with respect
to the shortest of (A) the three calendar years immediately preceding the
Payment Period, provided Executive received Full Incentive Compensation for all
such years, (B) the calendar years immediately preceding the Payment Period with
respect to which Executive received Full Incentive Compensation, or (C) the
total period of Executive's employment by Company. This amount shall be paid to
Executive in a lump sum between sixty (60) and ninety (90) days after the later
of (A) his termination of employment or (B) the Change of Control Date.
Executive may, in his discretion, elect to reduce the amount payable to him
pursuant to this Paragraph 3 to the extent necessary to avoid excise taxes in
Code Section 4999 of the Internal Revenue Code.
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<PAGE>
(2) Throughout the Payment Period, Company shall provide to Executive
and his family medical, life insurance, and other welfare benefits substantially
similar to those provided to active executive employees of the Company, provided
Executive pays any premiums charged by Company to active executive employees
receiving similar coverage. Beginning at the end of the Payment Period, Company
shall provide medical coverage to Executive and his family that is substantially
similar to the coverage provided to active employees of the Company, provided
that Executive pays Company the same premium as he would have been required to
pay if such coverage had been provided pursuant to the Consolidated Omnibus
Budget Reconciliation Act of 1985. Executive may elect to purchase single
coverage or family coverage pursuant to the preceding sentence. Subject to
Executive's payment of the required premiums, post-Payment Period medical
coverage for Executive and his spouse shall continue until the earliest of the
following events: (i) the Executive's (or in the case of coverage for the
Executive's spouse, his spouse's) Medicare eligibility, (ii) the Executive's (or
in the case of coverage for the Executive's spouse, his spouse's) death, or
(iii) medical coverage for the Executive (or in the case of coverage for the
Executive's spouse, his spouse) through another employer.
(b) The payment or provision of benefits to Executive pursuant to this
Agreement shall not affect the obligations of Company or its successor under any
plan, agreement, or arrangement generally applicable to Company's retired
management employees pursuant to which Executive is entitled to any retirement
benefits, welfare benefits, stock, or other fringe benefits.
4. NON-COMPETITION. Except as expressly provided to the contrary in any
---------------
written employment agreement between CNB and/or any of its subsidiaries and
Executive, Executive shall not, while employed or during the Payment Period,
become an officer, director, or employee of, consultant to, or majority
shareholder in any bank or bank holding company that substantially competes with
Company, its subsidiaries, or Affiliates, or its successor or
-7-
<PAGE>
successors within one hundred (100) miles from Evansville, Indiana, or fifty
(50) miles from the nearest banking office of Company or a subsidiary thereof.
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Executive acknowledges
------------------------------------------
that, by virtue of his employment, he has obtained or will obtain Confidential
Information, the use or disclosure of which could cause Company immeasurable and
substantial loss and damages for which no remedy at law would be adequate.
Accordingly, except as expressly provided to the contrary in any written
employment agreement between CNB and/or any of its subsidiaries and Executive,
Executive covenants and agrees with Company that, except as necessary to perform
his obligations to Company or with the prior written consent of Company's Board,
he will not at any time directly or indirectly disclose any Confidential
Information that he may acquire or has acquired by reason of his association
with Company. Without limiting the rights or remedies, both legal and
equitable, available to Company in the event of an actual or threatened breach
of Executive's obligations under this Section, Company shall be entitled to seek
and obtain a temporary restraining order and/or a preliminary or permanent
injunction against Executive, which shall prevent Executive from engaging in any
activities prohibited by this Section, or to seek and obtain such other relief
against Executive as may be required to enforce Executive's obligations
hereunder. Executive's obligations set forth in this Section and Company's
rights and remedies, whether legal or equitable, with respect thereto, shall
extend indefinitely.
6. EXPENSES. If Executive determines, in his absolute judgment, that it
--------
is necessary or advisable for him to incur reasonable legal and/or accounting
expenses, including but not limited to reasonable attorneys' and/or accountants'
fees, to obtain full and effective enforcement of his rights under this
Agreement or to determine the appropriate tax treatment of amounts paid pursuant
to this Agreement, Company shall reimburse Executive for all such reasonable
expenses and costs on a periodic basis. Company's obligation to reimburse
Executive for these reasonable expenses or costs pursuant to this Section shall
survive expiration of the Term and shall survive the termination of any later
employment agreements between Executive and Company. Any
-8-
<PAGE>
reimbursement required by this Section shall be paid promptly to Executive after
he submits a copy of the service provider's invoice for the covered expense.
7. COMPANY'S OBLIGATION TO PROVIDE INFORMATION. After termination of
-------------------------------------------
Executive's employment, Company shall promptly provide Executive with reasonably
requested information relating to his retirement, benefits and payments under
this Agreement, and other post-employment benefits.
8. BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to the
-----------------------------
benefit of and shall be binding upon the parties to this Agreement and their
respective executors, administrators, heirs, personal representatives,
successors, and assigns, but neither this Agreement nor any right created by
this Agreement may be assigned or transferred by either party. Notwithstanding
the foregoing, the Company shall assign this Agreement to any person or entity
succeeding to substantially all of the business and assets of the Company upon a
Change in Control, and upon such a Change in Control, the Company shall obtain
the assumption of this Agreement by its successor.
9. NOTICES. Any notice to a party required or permitted to be given by
-------
this Agreement shall be in writing and shall be deemed given when mailed by
registered or certified mail to the party at the party's address as specified in
this Section:
If to the Company, to: CNB Bancshares, Inc.
Attention: Corporate Secretary
20 N.W. Third Street
Evansville, Indiana 47708
or such other address designated by Company in writing to Executive as provided
in this Section.
If to Executive, to: 1116 Wilderness Bluff Court
Chesterfield, Missouri 63005
or such other address designated by the Executive in writing to the Company as
provided in this Section.
-9-
<PAGE>
10. SEVERABILITY. If any term, provision, covenant, or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated.
11. AMENDMENTS. This Agreement may not be modified, amended, altered, or
----------
supplemented except upon the execution and delivery of a written agreement
executed by Company and Executive.
12. GOVERNING LAW. This Agreement shall be construed in accordance with
-------------
the laws of the State of Indiana.
13. ARBITRATION. Any dispute, claim, or controversy concerning the terms,
-----------
meaning, application, or enforcement of any provision of this Agreement that
cannot be resolved through direct discussion or mediation shall be submitted to
final and binding arbitration before a neutral arbitrator pursuant to the
arbitration procedures set out in this Section ("Procedures") under the auspices
of the American Arbitration Association (AAA) at Evansville, Indiana. The AAA
Employment Dispute Resolution Rules in effect at the time of the arbitration
shall govern arbitration proceedings, except insofar as these Procedures, as
they may be amended from time to time, specifically provide otherwise.
Executive may initiate a claim or case only by a written notice to Company as
provided in this Agreement. Company may likewise initiate a claim or case by a
written notice delivered to Executive, as provided in this Agreement. The
written notice must set forth the matter in dispute in sufficient detail to
advise the non-initiating party of the nature and amount of the dispute or
claim, the date(s) of the underlying occurrence(s), and the relief requested.
It shall also be the initiating party's responsibility to submit the claim and
other required documents and fees to AAA in a timely manner; provided, however,
if Executive is fully or partially successful, Company shall reimburse Executive
for arbitration fees reasonably incurred. In conducting arbitration
proceedings, the AAA-appointed arbitrator shall be authorized to award any
relief available under the laws of the United States or the State of Indiana
applicable to the claim, dispute, or controversy submitted, where such relief is
warranted
-10-
<PAGE>
based on the evidence and the law. Any arbitration award shall be final and
binding, and enforceable by an action in any court of competent jurisdiction. No
award shall be set aside, or denied enforcement, by any court in any action
unless the court finds that the arbitrator purported to resolve claims,
disputes, or controversies not within the scope of these Procedures. Adherence
to these Procedures, and the agreement of the parties to this Agreement to
follow them, shall be enforceable in an action to compel or stay arbitration
pursuant to the Federal Arbitration Act or the Indiana Uniform Arbitration Act
in a court of competent jurisdiction.
14. INTEGRATION. This Agreement supersedes all prior agreements between
-----------
the parties with respect to the matters covered herein.
15. COUNTERPARTS. This Agreement may be signed in two counterparts, each
------------
of which shall be deemed to be an original but which together shall constitute
one and the same instrument.
16. EFFECT OF HEADINGS. The section headings in this Agreement are for
------------------
convenience only and shall not affect the construction of this Agreement.
IN WITNESS WHEREOF, CNB Bancshares, Inc. has caused this Agreement to be
executed on this 1st day of January, 1998, and Executive has executed this
Agreement on the date specified below.
ATTEST: CNB BANCSHARES, INC.
/s/ David L. Knapp By /s/ James J. Giancola
- ------------------ ----------------------
(Signature)
January 1, 1998
-------------------------
(Date)
EXECUTIVE
/s/ David A. Rolfe
-------------------------
(Signature)
January 1, 1998
-------------------------
(Date)
-11-
<PAGE>
APPENDIX A
The Payment Period shall consist of 36 months.
ATTEST: CNB BANCSHARES, INC.
/s/ David L. Knapp By /s/ James J. Giancola
- ------------------ ----------------------
(Signature)
January 1, 1998
-------------------------
(Date)
EXECUTIVE
/s/ David A. Rolfe
-------------------------
(Signature)
January 1, 1998
-------------------------
(Date)
-12-
<PAGE>
EXHIBIT 10(6)(E)
EMPLOYMENT AND NON-COMPETE AGREEMENT
------------------------------------
THIS EMPLOYMENT AND NON-COMPETE AGREEMENT (this "Agreement") is made
January 1, 1998, by and between ANTHONY L. GUERRERIO, a Missouri resident (the
"Officer"), and WEDGEWOOD PARTNERS, INC., a Missouri corporation ("Wedgewood"),
and acknowledged and joined in by CNB BANCSHARES, INC., an Indiana corporation
("CNB").
RECITALS
--------
A. The Officer has been and is presently employed as President and
Chief Executive Officer of Wedgewood.
B. CNB has indirectly acquired all of the capital stock of Wedgewood
(the "Acquisition") pursuant to a certain Agreement and Plan of Reorganization
(the "Acquisition Agreement"), dated as of December 23, 1997, by and among CNB,
The Citizens National Bank of Evansville, Wedgewood and the shareholders of
Wedgewood. The Acquisition was subject to, among other things, the execution of
this Agreement contemporaneous with the consummation of the Acquisition.
C. The Officer has derived and in the future will derive direct
financial and other direct and indirect benefits from consummation of the
Acquisition.
D. Wedgewood and CNB desire to assure the continuing services of the
Officer after the consummation of the Acquisition. The Officer desires to be
employed by Wedgewood on a full-time basis pursuant to the terms and conditions
hereinafter more fully set forth.
E. The parties hereto desire to set forth their mutual understandings
and agreements with respect to the foregoing.
AGREEMENT
---------
In consideration of the foregoing, the mutual covenants herein
contained and other good and valuable consideration (the receipt, adequacy and
sufficiency of which are hereby acknowledged by the parties by their execution
hereof), the parties hereby agree as follows:
SECTION 1. EMPLOYMENT. Wedgewood shall employ the Officer as
---------- ----------
President and Chief Executive Officer of Wedgewood, and the Officer agrees to be
so employed during the Term (as defined in Section 2 hereof) of this Agreement,
upon the terms and conditions hereinafter set forth. The Officer shall also be
Chairman of the Board of Directors of Wedgewood during the Term hereof.
SECTION 2. TERM OF AGREEMENT. The term of this Agreement (the
---------- -----------------
"Term") shall commence on the date hereof and shall continue in full force and
effect until December 31, 2002; provided, however, that the obligations and
limited rights of the Officer under Sections 7 and 8 hereof shall survive the
expiration of the Term as provided therein.
SECTION 3. DUTIES. During the Term of this Agreement, the Officer
---------- ------
shall devote his full time and best efforts in carrying out his duties as
contemplated in Section 1 hereof. The Officer covenants and agrees to
diligently, exclusively and faithfully serve Wedgewood or its successors in the
capacity set forth above (or such other assigned duties) and to devote his full-
time professional
<PAGE>
energies, attention, care, undivided loyalty and best efforts to the performance
of such services and the fulfillment of duties attendant thereto.
SECTION 4. COMPENSATION. As full consideration for all services the
---------- ------------
Officer shall render to Wedgewood hereunder, Wedgewood shall compensate the
Officer in the following manner:
(A) BASE SALARY. Wedgewood shall pay the Officer an annual
-----------
salary of $275,000 (the "Base Salary"), payable in the manner and in accordance
with the customary payroll practices of Wedgewood. The amount of the Officer's
Base Salary shall be reviewed by the Board of Directors of Wedgewood annually
and may be increased from time to time (but not decreased) in accordance with
Wedgewood's normal business practices. The Officer shall not receive additional
compensation or fees for service on the Board of Directors of Wedgewood or any
committees thereof.
(B) INCENTIVE COMPENSATION.
----------------------
(I) Additional compensation (the "Incentive
Compensation") shall be payable to the Officer based upon the achievement by
Wedgewood of certain financial measures during the five (5) calendar years
(each, a "Calculation Period") commencing January 1, 1998, in an amount equal to
ten percent (10%) of the amount, if any, by which by which the Pre-Tax Income
(as defined below in Section 4(b)(ii) hereof) for a particular Calculation
Period exceeds the Target Pre-Tax Income (as defined below in Section 4(b)(ii)
hereof) for such Calculation Period. Within thirty (30) days after the end of
each Calculation Period, CNB shall deliver, or cause to be delivered, to the
Officer a certificate setting forth, in reasonable detail, CNB's calculation of
the Pre-Tax Income and the amount of Incentive Compensation, if any, due
pursuant to this Section 4(b)(i). The amount of the Incentive Compensation, if
any, for an applicable Calculation Period shall be paid in cash or immediately
available funds by Wedgewood to the Officer on the sixtieth (60th) day after the
last day of the applicable Calculation Period.
(II) As used herein, the following terms shall have the
following meanings:
(1) "Pre-Tax Income" shall mean the amount of
Wedgewood's net income before taxes during the applicable Calculation Period, as
shown on the books of Wedgewood, but excluding, for purposes of such
calculation, (i) the amortization of the goodwill on the books of Wedgewood
resulting from the Acquisition for the applicable Calculation Period, (ii) the
aggregate Incentive Compensation paid or payable by Wedgewood for the applicable
Calculation Period under this Agreement, and (iii) certain extraordinary
expenditures which are approved in advance by the Board of Directors of
Wedgewood and which CNB shall have agreed in writing, prior to the incurrence
thereof by Wedgewood, shall not be included in the determination of Pre-Tax
Income for purposes of the Incentive Compensation.
(2) "Target Pre-Tax Income" shall mean, for a
particular Calculation Period, the amount set forth in the table below opposite
such Calculation Period:
<TABLE>
<CAPTION>
CALCULATION PERIOD TARGET PRE-TAX INCOME
- ------------------ ---------------------
(Year Ended December 31,)
<S> <C>
1998................................................. $400,000
1999................................................. $440,000
2000................................................. $484,000
2001................................................. $532,400
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2002................................................. $585,640
</TABLE>
(C) OTHER BENEFITS. The Officer shall, during the Term of this
--------------
Agreement, be entitled to participate in (i) any and all employee welfare plans,
employee benefit plans, stock purchase plans and similar plans of Wedgewood or
CNB now or hereafter in effect and open to participation by qualifying employees
of Wedgewood and CNB generally, in accordance with the eligibility and other
requirements established for such corporate benefits, and (ii) the CNB
Bancshares, Inc. Short-Term Incentive Plan, at a Level II, commencing in 1998.
(D) STOCK OPTIONS. The Officer shall be granted, on the Closing
-------------
Date (as defined in the Acquisition Agreement), non-qualified employee stock
options under the CNB Bancshares, Inc. 1995 Stock Incentive Plan to purchase
20,000 shares of CNB common stock for an option exercise price per share equal
to the closing price of a share of CNB common stock as reported in The Wall
--------
Street Journal (Midwest Edition) on the date upon which the Closing Date shall
- --------------
have occurred.
SECTION 5. TERMINATION. Except as provided below in this Section 5, the
---------- -----------
Officer shall receive from Wedgewood, upon the termination of the Officer's
employment during the Term of this Agreement, the benefits provided in Section 6
hereof, unless such termination was (a) because of the Officer's death or
Retirement, (b) by Wedgewood for Grave Cause or Disability, or (c) by the
Officer other than for Good Reason. Notwithstanding the foregoing, in the event
that the Officer's employment is terminated during the Term of this Agreement
under circumstances (e.g., a change of control of CNB) which would entitle the
Officer to severance payments and benefits under any Change of Control Agreement
between CNB and the Officer, then the Officer shall not be entitled to receive
any payments hereunder as a result of such termination. As used herein, the
terms "Disability," "Retirement," "Grave Cause" and "Good Reason" shall have the
meanings set forth below.
(I) DISABILITY. "Disability" shall mean termination because
----------
of the Officer's absence from duties with Wedgewood on a full time basis for 100
business days during any period of 150 consecutive business days, as a result of
incapacity due to physical or mental illness.
(II) RETIREMENT. "Retirement" shall mean termination by
----------
Wedgewood based on the Officer's having reached age 65 or such other age as
shall have been fixed in any arrangement established with the Officer's consent.
(III) GRAVE CAUSE. "Grave Cause" shall mean and shall be
-----------
limited to the following (1) Officer's willful and continued failure to perform
(other than a failure resulting from Officer's illness or Disability) his
employment duties after a demand for substantial performance is delivered to
Officer on behalf of the Board of Directors of Wedgewood or CNB that
specifically identifies the manner in which such Board of Directors alleges that
Officer has failed to perform his duties and Officer's failure to take
appropriate actions to correct such failure within thirty (30) days; or (2)
Officer's willful engaging in misconduct that has caused demonstrable and
material injury, monetary or otherwise, to CNB or Wedgewood or their respective
affiliates. For purposes of this definition of "Grave Cause," no act or failure
to act on Officer's part shall be considered "willful" unless done, or omitted
to be done, by Officer not in good faith and without reasonable belief that his
action or omission was in the best interests of Wedgewood and/or CNB.
Notwithstanding the foregoing, Officer shall not be deemed to have been
terminated for Grave Cause unless and until the Board of Directors of Wedgewood
or CNB has delivered to him a copy of a notice of termination, and
<PAGE>
after reasonable notice to him and an opportunity for him, together with
counsel, to be heard before the Board, at least two-thirds of the Board finds,
in its reasonable opinion, that Officer was guilty of conduct set forth above in
clause (1) or (2) and specifying the particulars thereof in detail.
(IV) GOOD REASON. "Good Reason" shall mean termination by the
-----------
Officer of his employment based on the occurrence of a material breach by
Wedgewood of any provision of this Agreement; provided, however, that any such
occurrence shall not be deemed a "Good Reason" if the Officer consents thereto.
(V) NOTICE OF TERMINATION. Any termination by Wedgewood
---------------------
pursuant to Sections 5(i), (ii) or (iii) above or by the Officer pursuant to
Section 5(iv) above shall be communicated by written Notice of Termination
delivered to the other party hereto. As used herein, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth, in reasonable detail, the facts
and circumstances claimed to provide a basis for termination of the Officer's
employment under the provision so indicated.
(VI) DATE OF TERMINATION. "Date of Termination" shall mean (A)
-------------------
if the Officer's employment is terminated on account of Disability or pursuant
to Section 5(iii) above, the date specified in the Notice of Termination, (B) if
the Officer's employment is terminated on account of the Officer's death, the
date of the Officer's death, and (C) if the Officer's employment is terminated
for any other reason, the date on which a Notice of Termination is given.
SECTION 6. CERTAIN BENEFITS UPON TERMINATION. Subject to the exception
--------- ---------------------------------
set forth in the second sentence of Section 5 hereof, if, during the Term of
this Agreement, the Officer's employment by Wedgewood shall be terminated (A) by
Wedgewood other than for Grave Cause, Disability, Retirement or death, or (B) by
the Officer for Good Reason, then the Officer shall receive from Wedgewood, for
a period of time equal to the unexpired Term of this Agreement, on a semi-
monthly basis, an amount equal to the Officer's semi-monthly Base Salary payable
at the Date of Termination (the "Termination Payments"). Such Termination
Payments shall be the only amounts, payments and damages payable by Wedgewood or
CNB in the event of the termination of the Officer as provided in this Section
6. Such Termination Payments shall be payable in the manner and in accordance
with the customary payroll practices of Wedgewood. The provisions of this
Agreement, and any Termination Payment provided for hereunder, shall not,
however, reduce any amounts otherwise payable, or in any way diminish the
Officer's rights, under any benefit plan, incentive plan, stock option plan, or
other plan or arrangement pursuant to which the Officer receives benefits from
Wedgewood. If, during the Term of this Agreement, the Officer's employment by
Wedgewood shall be terminated (A) by Wedgewood for Grave Cause, Disability,
Retirement or death, or (B) by the Officer for other than Good Reason, the
Officer shall not be entitled to receive any amounts or payments from Wedgewood
on account of such termination (other than any compensation payable by Wedgewood
to the Officer up to and including the Date of Termination).
SECTION 7. COVENANT NOT TO COMPETE.
--------- -----------------------
(A) DEFINITION OF CARRY ON OR PARTICIPATE IN THE INVESTMENT
-------------------------------------------------------
ADVISORY, BROKERAGE AND ANNUITY BUSINESS. As used in this Agreement, the term
- ----------------------------------------
"Carry on or Participate in the Investment Advisory, Brokerage and Annuity
Business" means having an interest in, or engaging in business with or rendering
services to, or consulting or advising with, or providing assistance or guidance
to (as a director, officer, employee, agent, partner, joint venturer, advisor,
consultant,
<PAGE>
stockholder, individual proprietor, member, lender or in any other capacity
whatsoever), any business or other company or entity (however organized or
structured) which directly, or indirectly through its subsidiaries or
affiliates, is engaged in (i) investment advisory services, advice or asset
management, or any related business which would require registration under the
Investment Advisors Act of 1940, as amended and/or under comparable state laws
and regulations (the "Investment Advisory Services"), (ii) full and discount
brokerage services (the "Brokerage Services"), (iii) insurance sales and related
activities, including the sale of fixed and variable annuities (the "Annuity
Services"), and (iv) otherwise in any business of a type now or hereafter
conducted by Wedgewood or its subsidiaries or any type of business that is
directly or indirectly competitive with any business now or hereafter conducted
by Wedgewood or its subsidiaries (the "Other Wedgewood Activities"), and, in the
case of each of the clauses (i) through (iv) above, which has an office or which
otherwise solicits customers, clients or business within any county in which CNB
or any of its subsidiaries or affiliates may now or hereafter have an office or
branch location.
(B) PROHIBITED ACTIVITIES.
---------------------
(I) For a period of time equal to the Term of this Agreement
plus two (2) years (the "Non-Compete Term"), the Officer shall not, directly or
indirectly, and the Officer shall not participate or take part (as a director,
officer, employee, agent, partner, joint venturer, advisor, consultant,
stockholder, individual proprietor, member, lender or in any other capacity
whatsoever) in any entity(ies) which, directly or indirectly (A) Carry on or
Participate in the Investment Advisory, Brokerage and Annuity Business, or (B)
solicit or attempt to solicit or otherwise accept for the Officer's own benefit
or for the benefit of others (1) the employment or services of any then-present
employee of Wedgewood or CNB (and their respective subsidiaries, affiliates,
successors and assigns), or (2) any client or customer of Wedgewood or CNB (and
their respective subsidiaries, affiliates, successors and assigns), or (C) use
or otherwise disseminate or attempt to use or disseminate any information
relating to Wedgewood or CNB (and their respective subsidiaries, affiliates,
successors and assigns) or their respective clients and customers. As used in
this Section 7, the term "stockholder" shall not include any investment in any
entity, public or private, where the Officer owns less than one percent (1%) of
the stock or other ownership interest issued and outstanding.
(II) Anything to the contrary in Sections 7(b)(i) and 8 hereof
notwithstanding, if, at any time hereafter, the Officer's employment by
Wedgewood shall be terminated (A) by Wedgewood other than for Grave Cause, or
(B) by the Officer for Good Reason hereunder or for "good reason" as defined
under the Change of Control Agreement referred to in Section 5 hereof, then the
Officer shall be entitled to participate in the activities described below in
this Section 7(b)(ii) (any termination for the reasons set forth in the
preceding sentence is referred to herein as a "Covered Termination"). Upon the
occurrence of a Covered Termination, the Officer may (1) provide Investment
Advisory Services to any person or entity without restriction (including clients
to whom he previously provided Brokerage Services and Investment Advisory
Services) and related Brokerage Services to any such Investment Advisory client
to the extent necessary to fully service the investment advisory account of such
client, (2) provide Investment Advisory, Brokerage and Annuity Services to First
Community Credit Union ("FCCU"), and its successors, and to any of FCCU's
members, (3) subject to compliance with applicable laws and regulations, make
and retain copies of all records and files (paper and electronic media) with
respect to Wedgewood's Investment Advisory clients and with respect to FCCU and
its members, (4) to advise (verbally and in writing) FCCU and any of the
Wedgewood Investment Advisory clients that he has left his employment with
Wedgewood and inform them of the name and location of his new place of
employment and the business he conducts, and (v) employ any person without
geographic, time or other restriction; provided that
<PAGE>
neither the Officer nor any one working on his behalf shall solicit the
employment of any person employed by CNB or Wedgewood at any time within the six
(6) months preceding the termination of the Officer's employment with Wedgewood.
The Officer shall continue, during the Non-Compete Term, to be subject to and
bound by each and every other term, provision, restriction and prohibition set
forth in Section 7(b)(i) not expressly permitted in this Section 7(b)(ii).
(III) The Officer hereby agrees that the restrictions set
forth in this Section 7 are an integral aspect of this Agreement and are
reasonable and necessary and, accordingly, that Wedgewood and CNB (and their
respective subsidiaries, affiliates, successors and assigns) shall, anything to
the contrary in Section 20 hereof notwithstanding, be entitled to injunctive
relief, from a court having jurisdiction with respect to the matter, for the
purpose of restraining the Officer and any entity in which the Officer has an
interest (as described in Section 7(b)(i) hereof) from any actual or threatened
breach of the restrictions set forth in this Section 7 and to any other
appropriate relief. If any action is maintained to enforce any term of the
restrictions set forth in this Section 7, the prevailing party shall be entitled
to receive its reasonable attorneys' fees and expenses from the other party. If
any court of competent jurisdiction or arbitrator determines that the time
period, activities covered or the geographical scope referenced in this Section
7 is unreasonable or otherwise in contravention of the law, said restrictions
shall not be determined to be null and void and of no effect, but shall be
reformed by said court or arbitrator to impose a reasonable time period,
activities covered or geographical scope, as the case may be.
(C) SURVIVAL. The provisions of this Section 7 shall survive any
--------
termination of this Agreement.
SECTION 8. CONFIDENTIAL INFORMATION. Subject to Section 7(b)(ii)(3)
---------- ------------------------
hereof, the Officer agrees that he shall not, to the detriment of Wedgewood or
CNB (and their subsidiaries, affiliates, successors and assigns), impart any
confidential information or knowledge relative to Wedgewood or CNB (and their
subsidiaries, affiliates, successors and assigns), to any person or entity,
corporate or otherwise, without specific prior written permission from Wedgewood
or CNB to do so, and the Officer agrees that all such information or knowledge
shall be kept strictly confidential. The Officer confirms and agrees that such
information constitutes the exclusive property of Wedgewood and CNB. The
provisions of this Section 8 shall survive any termination of this Agreement.
SECTION 9. NOTICES. All notices or other communications hereunder shall
--------- -------
be in writing and shall be deemed to have been given when personally delivered
or deposited in the United States mail, certified or registered, return receipt
requested, postage prepaid, or sent by Federal Express or other recognized
overnight courier service that provides proof of delivery, and addressed as
follows:
(a) if to CNB or Wedgewood:
CNB Bancshares, Inc.
20 N.W. Third Street
Evansville, Indiana 47739-0001
Attention: James J. Giancola, Chief Executive Officer
Facsimile: 812/464-3496
(b) if to the Officer:
<PAGE>
Anthony L. Guerrerio
91 W. Glenwood
Kirkwood, Missouri 63122
or to such other address as any party may from time to time designate by notice
to the others.
SECTION 10. AMENDMENT AND MODIFICATION. This Agreement may not be
----------- --------------------------
amended, modified, supplemented, or terminated unless the same is in writing and
is signed by all the parties hereto. Any waiver of any provision of this
Agreement and any consent to any departure from the terms of any provision of
this Agreement is to be effective only in the specific instance and for the
specific purpose for which given.
SECTION 11. CAPTIONS. Captions contained in this Agreement have been
----------- --------
inserted herein only as a matter of convenience and in no way define, limit,
extend or describe the scope of this Agreement or the intent of any provision
hereof.
SECTION 12. COMPLIANCE WITH LAW. None of the terms or provisions of this
----------- -------------------
Agreement require any of the parties to take any action prohibited by, or
contrary to, applicable law.
SECTION 13. COUNTERPARTS. This Agreement may be executed in two or more
----------- ------------
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument. For purposes of executing this
Agreement, a document (or signature page thereto) signed and transmitted by
facsimile machine or telecopier shall be treated as an original document. The
signature of any party thereon, for purposes hereof, shall be considered as an
original signature, and the document transmitted shall to be considered to have
the same binding effect as an original signature on an original document. At
the request of any party, any facsimile or telecopy document shall be re-
executed in original form by the parties who executed the facsimile or telecopy
document. No party may raise the use of a facsimile machine or telecopier or
the fact that any signature was transmitted through the use of a facsimile or
telecopier machine as a defense to the enforcement of this Agreement or any
amendment or other document executed in compliance with this Section 13.
SECTION 14. ENTIRE AGREEMENT. This Agreement and the Change of Control
----------- ----------------
Agreement referred to in Section 5 hereof constitute the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements, letters of intent, understandings, negotiations and discussions of
the parties, whether oral or written.
SECTION 15. FAILURE OR DELAY. No failure on the part of any party to
----------- ----------------
exercise, and no delay in exercising, any right, power or privilege hereunder
operates as a waiver thereof; nor does any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. No notice to
or demand on any party in any case entitles such party to any other or further
notice or demand in similar or other circumstances.
SECTION 16. GOVERNING LAW. This Agreement and the rights and obligations
----------- -------------
of the parties hereunder are to be governed by and construed and interpreted in
accordance with the laws of the State of Indiana applicable to contracts made
and to be performed wholly within Indiana, without regard to choice or conflict
of laws rules.
<PAGE>
SECTION 17. SUCCESSORS AND ASSIGNS. All provisions of this Agreement are
----------- ----------------------
binding upon, inure to the benefit of, and are enforceable by or against, the
parties and their respective heirs, executors, administrators or other legal
representatives and permitted successors and assigns.
SECTION 18. THIRD-PARTY BENEFICIARY. This Agreement is solely for the
----------- -----------------------
benefit of the parties hereto and their respective successors and permitted
assigns, and no other person has any right, benefit, priority or interest under,
or because of the existence of, this Agreement.
SECTION 19. TERMINATION OF PRIOR EMPLOYMENT ARRANGEMENTS. Any employment
----------- --------------------------------------------
arrangements between Wedgewood and the Officer that existed at any time prior to
the Closing (as defined in the Acquisition Agreement) are terminated by the
Officer and, from and after the Closing, the Officer shall not be entitled to
any compensation from Wedgewood on account of any such arrangement or agreement.
SECTION 20. ARBITRATION. Any dispute or disagreement between the Officer
----------- -----------
and Wedgewood or CNB arising from or related to the employment arrangement
created hereunder shall be settled by arbitration. The arbitration shall be
conducted by one arbitrator under the commercial arbitration rules of the
American Arbitration Association ("AAA") then in effect. The arbitrator shall
be chosen from a panel of persons with knowledge of employment practices and
contracts. The decision and award of the arbitrator shall be final and binding
and the award may be entered in any court of competent jurisdiction. The
arbitration shall be held in the AAA region in which Evansville, Indiana is
located.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES HERETO.
/s/ Anthony L. Guerrerio
------------------------
Anthony L. Guerrerio
WEDGEWOOD PARTNERS, INC.
By: ______________________________
_____________
_____________
CNB BANCSHARES, INC.
By: /s/ James J. Giancola
---------------------
James J. Giancola
Chief Executive Officer
<PAGE>
EXHIBIT 10(6)(F)
EMPLOYMENT AND NON-COMPETE AGREEMENT
------------------------------------
THIS EMPLOYMENT AND NON-COMPETE AGREEMENT (this "Agreement") is made
January 1, 1998, by and between DAVID A. ROLFE, a Missouri resident (the
"Officer"), and WEDGEWOOD PARTNERS, INC., a Missouri corporation ("Wedgewood"),
and acknowledged and joined in by CNB BANCSHARES, INC., an Indiana corporation
("CNB").
RECITALS
--------
A. The Officer has been and is presently employed as Chief Investment
Officer of Wedgewood.
B. CNB has indirectly acquired all of the capital stock of Wedgewood (the
"Acquisition") pursuant to a certain Agreement and Plan of Reorganization (the
"Acquisition Agreement"), dated as of December 23, 1997, by and among CNB, The
Citizens National Bank of Evansville, Wedgewood and the shareholders of
Wedgewood. The Acquisition was subject to, among other things, the execution of
this Agreement contemporaneous with the consummation of the Acquisition.
C. The Officer has derived and in the future will derive direct financial
and other direct and indirect benefits from consummation of the Acquisition.
D. Wedgewood and CNB desire to assure the continuing services of the
Officer after the consummation of the Acquisition. The Officer desires to be
employed by Wedgewood on a full-time basis pursuant to the terms and conditions
hereinafter more fully set forth.
E. The parties hereto desire to set forth their mutual understandings and
agreements with respect to the foregoing.
AGREEMENT
---------
In consideration of the foregoing, the mutual covenants herein contained
and other good and valuable consideration (the receipt, adequacy and sufficiency
of which are hereby acknowledged by the parties by their execution hereof), the
parties hereby agree as follows:
SECTION 1. EMPLOYMENT. Wedgewood shall employ the Officer as Chief
--------- ----------
Investment Officer of Wedgewood, and the Officer agrees to be so employed during
the Term (as defined in Section 2 hereof) of this Agreement, upon the terms and
conditions hereinafter set forth.
SECTION 2. TERM OF AGREEMENT. The term of this Agreement (the "Term")
--------- -----------------
shall commence on the date hereof and shall continue in full force and effect
until December 31, 2002; provided, however, that the obligations and the limited
rights of the Officer under Sections 7 and 8 hereof shall survive the expiration
of the Term as provided therein.
SECTION 3. DUTIES. During the Term of this Agreement, the Officer shall
--------- ------
devote his full time and best efforts in carrying out his duties as contemplated
in Section 1 hereof. The Officer
<PAGE>
covenants and agrees to diligently, exclusively and faithfully serve Wedgewood
or its successors in the capacity set forth above (or such other assigned
duties) and to devote his full-time professional energies, attention, care,
undivided loyalty and best efforts to the performance of such services and the
fulfillment of duties attendant thereto.
SECTION 4. COMPENSATION. As full consideration for all services the
--------- ------------
Officer shall render to Wedgewood hereunder, Wedgewood shall compensate the
Officer in the following manner:
(A) BASE SALARY. Wedgewood shall pay the Officer an annual salary of
-----------
$75,000 (the "Base Salary"), payable in the manner and in accordance with the
customary payroll practices of Wedgewood. The amount of the Officer's Base
Salary shall be reviewed by the Board of Directors of Wedgewood annually and may
be increased from time to time (but not decreased) in accordance with
Wedgewood's normal business practices. The Officer shall not receive additional
compensation or fees for service on the Board of Directors of Wedgewood or any
committees thereof.
(B) OTHER BENEFITS. The Officer shall, during the Term of this
--------------
Agreement, be entitled to participate in (i) any and all employee welfare plans,
employee benefit plans, stock purchase plans and similar plans of Wedgewood or
CNB now or hereafter in effect and open to participation by qualifying employees
of Wedgewood and CNB generally, in accordance with the eligibility and other
requirements established for such corporate benefits, and (ii) the CNB
Bancshares, Inc. Short-Term Incentive Plan, at a Level III, commencing in 1998.
SECTION 5. TERMINATION. Except as provided below in this Section 5, the
--------- -----------
Officer shall receive from Wedgewood, upon the termination of the Officer's
employment during the Term of this Agreement, the benefits provided in Section 6
hereof, unless such termination was (a) because of the Officer's death or
Retirement, (b) by Wedgewood for Grave Cause or Disability, or (c) by the
Officer other than for Good Reason. Notwithstanding the foregoing, in the event
that the Officer's employment is terminated during the Term of this Agreement
under circumstances (e.g., a change of control of CNB) which would entitle the
Officer to severance payments and benefits under any Change of Control Agreement
between CNB and the Officer, then the Officer shall not be entitled to receive
any payments hereunder as a result of such termination. As used herein, the
terms "Disability," "Retirement," "Grave Cause" and "Good Reason" shall have the
meanings set forth below.
(I) DISABILITY. "Disability" shall mean termination because
----------
of the Officer's absence from duties with Wedgewood on a full time basis for 100
business days during any period of 150 consecutive business days, as a result of
incapacity due to physical or mental illness.
(II) RETIREMENT. "Retirement" shall mean termination by
----------
Wedgewood based on the Officer's having reached age 65 or such other age as
shall have been fixed in any arrangement established with the Officer's consent.
(III) GRAVE CAUSE. "Grave Cause" shall mean and shall be
-----------
limited to the following (1) Officer's willful and continued failure to perform
(other than a failure resulting from Officer's illness or Disability) his
employment duties after a demand for substantial performance is delivered to
Officer on behalf of the Board of Directors of Wedgewood or CNB that
specifically identifies the manner in which such Board of Directors alleges that
Officer has failed to perform his duties and Officer's failure to take
appropriate actions to correct such failure within thirty (30) days; or
2
<PAGE>
(2) Officer's willful engaging in misconduct that has caused demonstrable and
material injury, monetary or otherwise, to CNB or Wedgewood or their respective
affiliates. For purposes of this definition of "Grave Cause," no act or failure
to act on Officer's part shall be considered "willful" unless done, or omitted
to be done, by Officer not in good faith and without reasonable belief that his
action or omission was in the best interests of Wedgewood and/or CNB.
Notwithstanding the foregoing, Officer shall not be deemed to have been
terminated for Grave Cause unless and until the Board of Directors of Wedgewood
or CNB has delivered to him a copy of a notice of termination, and after
reasonable notice to him and an opportunity for him, together with counsel, to
be heard before the Board, at least two-thirds of the Board finds, in its
reasonable opinion, that Officer was guilty of conduct set forth above in clause
(1) or (2) and specifying the particulars thereof in detail.
(IV) GOOD REASON. "Good Reason" shall mean termination by the
-----------
Officer of his employment based on the occurrence of a material breach by
Wedgewood of any provision of this Agreement; provided, however, that any such
occurrence shall not be deemed a "Good Reason" if the Officer consents thereto.
(V) NOTICE OF TERMINATION. Any termination by Wedgewood
---------------------
pursuant to Sections 5(i), (ii) or (iii) above or by the Officer pursuant to
Section 5(iv) above shall be communicated by written Notice of Termination
delivered to the other party hereto. As used herein, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth, in reasonable detail, the facts
and circumstances claimed to provide a basis for termination of the Officer's
employment under the provision so indicated.
(VI) DATE OF TERMINATION. "Date of Termination" shall mean
-------------------
(A) if the Officer's employment is terminated on account of Disability or
pursuant to Section 5(iii) above, the date specified in the Notice of
Termination, (B) if the Officer's employment is terminated on account of the
Officer's death, the date of the Officer's death, and (C) if the Officer's
employment is terminated for any other reason, the date on which a Notice of
Termination is given.
SECTION 6. CERTAIN BENEFITS UPON TERMINATION. Subject to the exception
--------- ---------------------------------
set forth in the second sentence of Section 5 hereof, if, during the Term of
this Agreement, the Officer's employment by Wedgewood shall be terminated (A) by
Wedgewood other than for Grave Cause, Disability, Retirement or death, or (B) by
the Officer for Good Reason, then the Officer shall receive from Wedgewood, for
a period of time equal to the unexpired Term of this Agreement, on a semi-
monthly basis, an amount equal to the Officer's semi-monthly Base Salary payable
at the Date of Termination (the "Termination Payments"). Such Termination
Payments shall be the only amounts, payments and damages payable by Wedgewood or
CNB in the event of the termination of the Officer as provided in this Section
6. Such Termination Payments shall be payable in the manner and in accordance
with the customary payroll practices of Wedgewood. The provisions of this
Agreement, and any Termination Payment provided for hereunder, shall not,
however, reduce any amounts otherwise payable, or in any way diminish the
Officer's rights, under any benefit plan, incentive plan, stock option plan, or
other plan or arrangement pursuant to which the Officer receives benefits from
Wedgewood. If, during the Term of this Agreement, the Officer's employment by
Wedgewood shall be terminated (A) by Wedgewood for Grave Cause, Disability,
Retirement or death, or (B) by the Officer for other than Good Reason, the
Officer shall not be entitled to receive any amounts or payments from Wedgewood
on account of such termination (other than any compensation payable by Wedgewood
to the Officer up to and including the Date of Termination).
3
<PAGE>
SECTION 7. COVENANT NOT TO COMPETE.
--------- -----------------------
(A) DEFINITION OF CARRY ON OR PARTICIPATE IN THE INVESTMENT
-------------------------------------------------------
ADVISORY, BROKERAGE AND ANNUITY BUSINESS. As used in this Agreement, the term
- ----------------------------------------
"Carry on or Participate in the Investment Advisory, Brokerage and Annuity
Business" means having an interest in, or engaging in business with or rendering
services to, or consulting or advising with, or providing assistance or guidance
to (as a director, officer, employee, agent, partner, joint venturer, advisor,
consultant, stockholder, individual proprietor, member, lender or in any other
capacity whatsoever), any business or other company or entity (however organized
or structured) which directly, or indirectly through its subsidiaries or
affiliates, is engaged in (i) investment advisory services, advice or asset
management, or any related business which would require registration under the
Investment Advisors Act of 1940, as amended and/or under comparable state laws
and regulations (the "Investment Advisory Services"), (ii) full and discount
brokerage services (the "Brokerage Services"), (iii) insurance sales and related
activities, including the sale of fixed and variable annuities (the "Annuity
Services"), and (iv) otherwise in any business of a type now or hereafter
conducted by Wedgewood or its subsidiaries or any type of business that is
directly or indirectly competitive with any business now or hereafter conducted
by Wedgewood or its subsidiaries (the "Other Wedgewood Activities"), and, in the
case of each of the clauses (i) through (iv) above, which has an office or which
otherwise solicits customers, clients or business within any county in which CNB
or any of its subsidiaries or affiliates may now or hereafter have an office or
branch location.
(B) PROHIBITED ACTIVITIES.
---------------------
(I) For a period of time equal to the Term of this Agreement
plus two (2) years (the "Non-Compete Term"), the Officer shall not, directly or
indirectly, and the Officer shall not participate or take part (as a director,
officer, employee, agent, partner, joint venturer, advisor, consultant,
stockholder, individual proprietor, member, lender or in any other capacity
whatsoever) in any entity(ies) which, directly or indirectly (A) Carry on or
Participate in the Investment Advisory, Brokerage and Annuity Business, or (B)
solicit or attempt to solicit or otherwise accept for the Officer's own benefit
or for the benefit of others (1) the employment or services of any then-present
employee of Wedgewood or CNB (and their respective subsidiaries, affiliates,
successors and assigns), or (2) any client or customer of Wedgewood or CNB (and
their respective subsidiaries, affiliates, successors and assigns), or (C) use
or otherwise disseminate or attempt to use or disseminate any information
relating to Wedgewood or CNB (and their respective subsidiaries, affiliates,
successors and assigns) or their respective clients and customers. As used in
this Section 7, the term "stockholder" shall not include any investment in any
entity, public or private, where the Officer owns less than one percent (1%) of
the stock or other ownership interest issued and outstanding.
(II) Anything to the contrary in Sections 7(b)(i) and 8 hereof
notwithstanding, if, at any time hereafter, the Officer's employment by
Wedgewood shall be terminated (A) by Wedgewood other than for Grave Cause, or
(B) by the Officer for Good Reason hereunder or for "good reason" as defined
under the Change of Control Agreement referred to in Section 5 hereof, then the
Officer shall be entitled to participate in the activities described below in
this
4
<PAGE>
Section 7(b)(ii) (any termination for the reasons set forth in the preceding
sentence is referred to herein as a "Covered Termination"). Upon the occurrence
of a Covered Termination, the Officer may (1) provide Investment Advisory
Services to any person or entity without restriction (including clients to whom
he previously provided Brokerage Services and Investment Advisory Services) and
related Brokerage Services to any such Investment Advisory client to the extent
necessary to fully service the investment advisory account of such client, (2)
provide Investment Advisory, Brokerage and Annuity Services to First Community
Credit Union ("FCCU"), and its successors, and to any of FCCU's members, (3)
subject to compliance with applicable laws and regulations, make and retain
copies of all records and files (paper and electronic media) with respect to
Wedgewood's Investment Advisory clients and with respect to FCCU and its
members, (4) to advise (verbally and in writing) FCCU and any of the Wedgewood
Investment Advisory clients that he has left his employment with Wedgewood and
inform them of the name and location of his new place of employment and the
business he conducts, and (v) employ any person without geographic, time or
other restriction; provided that neither the Officer nor any one working on his
behalf shall solicit the employment of any person employed by CNB or Wedgewood
at any time within the six (6) months preceding the termination of the Officer's
employment with Wedgewood. The Officer shall continue, during the Non-Compete
Term, to be subject to and bound by each and every other term, provision,
restriction and prohibition set forth in Section 7(b)(i) not expressly permitted
in this Section 7(b)(ii).
(III) The Officer hereby agrees that the restrictions set
forth in this Section 7 are an integral aspect of this Agreement and are
reasonable and necessary and, accordingly, that Wedgewood and CNB (and their
respective subsidiaries, affiliates, successors and assigns) shall, anything to
the contrary in Section 20 hereof notwithstanding, be entitled to injunctive
relief, from a court having jurisdiction with respect to the matter, for the
purpose of restraining the Officer and any entity in which the Officer has an
interest (as described in Section 7(b)(i) hereof) from any actual or threatened
breach of the restrictions set forth in this Section 7 and to any other
appropriate relief. If any action is maintained to enforce any term of the
restrictions set forth in this Section 7, the prevailing party shall be entitled
to receive its reasonable attorneys' fees and expenses from the other party. If
any court of competent jurisdiction or arbitrator determines that the time
period, activities covered or the geographical scope referenced in this Section
7 is unreasonable or otherwise in contravention of the law, said restrictions
shall not be determined to be null and void and of no effect, but shall be
reformed by said court or arbitrator to impose a reasonable time period,
activities covered or geographical scope, as the case may be.
(C) SURVIVAL. The provisions of this Section 7 shall survive any
--------
termination of this Agreement.
SECTION 8. CONFIDENTIAL INFORMATION. Subject to Section 7(b)(ii)(3)
--------- ------------------------
hereof, the Officer agrees that he shall not, to the detriment of Wedgewood or
CNB (and their subsidiaries, affiliates, successors and assigns), impart any
confidential information or knowledge relative to Wedgewood or CNB (and their
subsidiaries, affiliates, successors and assigns), to any person or entity,
corporate or otherwise, without specific prior written permission from Wedgewood
or CNB to do so, and the Officer agrees that all such information or knowledge
shall be kept strictly confidential. The Officer confirms and agrees that such
information constitutes the exclusive property of Wedgewood and CNB. The
provisions of this Section 8 shall survive any termination of this Agreement.
SECTION 9. NOTICES. All notices or other communications hereunder
--------- -------
shall be in writing
5
<PAGE>
and shall be deemed to have been given when personally delivered or deposited in
the United States mail, certified or registered, return receipt requested,
postage prepaid, or sent by Federal Express or other recognized overnight
courier service that provides proof of delivery, and addressed as follows:
(a) if to CNB or Wedgewood:
CNB Bancshares, Inc.
20 N.W. Third Street
Evansville, Indiana 47739-0001
Attention: James J. Giancola, Chief Executive Officer
Facsimile: 812/464-3496
(b) if to the Officer:
1116 Wilderness Bluff Court
Chesterfield, Missouri 63005
or to such other address as any party may from time to time designate by notice
to the others.
SECTION 10. AMENDMENT AND MODIFICATION. This Agreement may not be
---------- --------------------------
amended, modified, supplemented, or terminated unless the same is in writing and
is signed by all the parties hereto. Any waiver of any provision of this
Agreement and any consent to any departure from the terms of any provision of
this Agreement is to be effective only in the specific instance and for the
specific purpose for which given.
SECTION 11. CAPTIONS. Captions contained in this Agreement have been
---------- --------
inserted herein only as a matter of convenience and in no way define, limit,
extend or describe the scope of this Agreement or the intent of any provision
hereof.
SECTION 12. COMPLIANCE WITH LAW. None of the terms or provisions of this
----------- -------------------
Agreement require any of the parties to take any action prohibited by, or
contrary to, applicable law.
SECTION 13. COUNTERPARTS. This Agreement may be executed in two or more
---------- ------------
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument. For purposes of executing this Agreement,
a document (or signature page thereto) signed and transmitted by facsimile
machine or telecopier shall be treated as an original document. The signature of
any party thereon, for purposes hereof, shall be considered as an original
signature, and the document transmitted shall to be considered to have the same
binding effect as an original signature on an original document. At the request
of any party, any facsimile or telecopy document shall be re-executed in
original form by the parties who executed the facsimile or telecopy document. No
party may raise the use of a facsimile machine or telecopier or the fact that
any signature was transmitted through the use of a facsimile or telecopier
machine as a defense to the enforcement of this Agreement or any amendment or
other document executed in compliance with this Section 13.
SECTION 14. ENTIRE AGREEMENT. This Agreement and the Change of Control
---------- ----------------
Agreement referred to in Section 5 hereof constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements, letters of intent, understandings,
6
<PAGE>
negotiations and discussions of the parties, whether oral or written.
SECTION 15. FAILURE OR DELAY. No failure on the part of any party to
---------- ----------------
exercise, and no delay in exercising, any right, power or privilege hereunder
operates as a waiver thereof; nor does any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. No notice to
or demand on any party in any case entitles such party to any other or further
notice or demand in similar or other circumstances.
SECTION 16. GOVERNING LAW. This Agreement and the rights and obligations
---------- -------------
of the parties hereunder are to be governed by and construed and interpreted in
accordance with the laws of the State of Indiana applicable to contracts made
and to be performed wholly within Indiana, without regard to choice or conflict
of laws rules.
SECTION 17. SUCCESSORS AND ASSIGNS. All provisions of this Agreement
---------- ----------------------
are binding upon, inure to the benefit of, and are enforceable by or against,
the parties and their respective heirs, executors, administrators or other legal
representatives and permitted successors and assigns.
SECTION 18. THIRD-PARTY BENEFICIARY. This Agreement is solely for
---------- -----------------------
the benefit of the parties hereto and their respective successors and permitted
assigns, and no other person has any right, benefit, priority or interest under,
or because of the existence of, this Agreement.
SECTION 19. TERMINATION OF PRIOR EMPLOYMENT ARRANGEMENTS. Any employment
---------- --------------------------------------------
arrangements between Wedgewood and the Officer that existed at any time prior to
the Closing (as defined in the Acquisition Agreement) are terminated by the
Officer and, from and after the Closing, the Officer shall not be entitled to
any compensation from Wedgewood on account of any such arrangement or agreement.
SECTION 20. ARBITRATION. Any dispute or disagreement between the Officer
---------- -----------
and Wedgewood or CNB arising from or related to the employment arrangement
created hereunder shall be settled by arbitration. The arbitration shall be
conducted by one arbitrator under the commercial arbitration rules of the
American Arbitration Association ("AAA") then in effect. The arbitrator shall be
chosen from a panel of persons with knowledge of employment practices and
contracts. The decision and award of the arbitrator shall be final and binding
and the award may be entered in any court of competent jurisdiction. The
arbitration shall be held in the AAA region in which Evansville, Indiana is
located.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES HERETO.
/s/ David A. Rolfe
------------------
David A. Rolfe
WEDGEWOOD PARTNERS, INC.
By: /s/ Anthony L. Guerrerio
------------------------
Anthony L. Guerrerio
Chief Executive Officer
CNB BANCSHARES, INC.
By: /s/ James J. Giancola
---------------------
James J. Giancola
Chief Executive Officer
8
<PAGE>
CNB BANCSHARES, INC. 1
<TABLE>
<CAPTION>
Financial Highlights
1998 1997 Change
<S> <C> <C> <C>
Per Share
Basic operating income/(1)/ $ 2.59 $ 2.12 22.2%
Basic net income 1.74 1.71 1.8
Diluted operating income/(1)/ 2.53 2.09 21.1
Diluted net income 1.73 1.69 2.4
Cash dividends paid/(2)/ .90 .82 9.8
Book value at year-end 14.85 14.66 1.3
If converted book value at year-end/(3)/ 18.33 15.09 21.5
Closing market price 46.63 45.90 1.6
Earnings (in thousands)
Net interest income $ 236,264 $ 232,545 1.6%
Provision for loan losses 10,638 24,886 (57.3)
Non-interest income 106,734 81,980 30.2
Non-interest expense 232,476 198,859 16.9
Operating income/(1)/ 91,785 73,868 24.3
Net income 61,571 59,874 2.8
Average Balances (in thousands)
Total assets $ 6,681,017 $ 6,460,638 3.4%
Earning assets 6,223,962 6,077,023 2.4
Loans 3,870,335 3,852,202 .5
Deposits 4,724,775 4,543,855 4.0
Interest bearing liabilities 5,526,694 5,489,231 .7
Shareholders' equity 513,322 498,263 3.0
Financial Ratios/(1)/
Return on assets 1.37% 1.14% 23b.p.
Return on equity 17.88 14.83 305
Net interest margin 4.02 3.94 8
Efficiency ratio/(4)/ 54 59 (500)
Allowance for loan losses to loans 1.45 1.38 7
Net charge-offs to average loans .30 .42 (12)
Equity to assets at year-end 7.38 7.81 (43)
Tangible equity to assets at year-end 6.80 7.19 (39)
Leverage ratio 9.30 7.14 216
Risk-based capital ratios at year-end
Tier 1 capital 14.76 11.49 327
Total capital 16.02 12.73 329
Other Data
Total assets at year-end (in thousands) $ 7,141,797 $ 6,596,136
Average shares outstanding - basic 35,436,807 34,921,287
Average shares outstanding - diluted 37,579,130 35,491,544
Shares outstanding at year-end 35,482,969 35,158,665
Common shareholders of record 12,596 11,908
Full-time equivalent associates 2,767 2,594
Banking offices 144 140
Consumer finance offices 29 33
</TABLE>
Notes:(1) Operating income and financial ratios are based on income that
excludes merger and related charges, as discussed herein.
(2) Dividends per share is for CNB Bancshares, Inc. only, not restated for
poolings of interests.
(3) Assumes all stock options and convertible securities are converted
into common stock.
(4) Efficiency ratio excludes foreclosed property expenses, securities
gains/losses and other non-recurring items, as originally reported,
not restated for poolings of interests.
<PAGE>
18 CNB BANCSHARES, INC.
SELECTED STATISTICAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
EARNINGS 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 236,264 $ 232,545 $ 217,232 $ 189,432 $ 168,072
Provision for loan losses 10,638 24,886 13,283 8,349 7,538
Non-interest income 106,734 81,980 68,686 56,437 56,126
Non-interest expense 232,476 198,859 191,940 157,108 146,942
Operating income/(1)/ 91,785 73,868 60,327 52,847 45,954
Net income 61,571 59,874 53,682 52,847 45,954
PER SHARE DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Basic operating income/(1)/ $ 2.59 $ 2.12 $ 1.73 $ 1.62 $ 1.41
Basic net income 1.74 1.71 1.54 1.62 1.41
Diluted operating income/(1)/ 2.53 2.09 1.70 1.59 1.39
Diluted net income 1.73 1.69 1.52 1.59 1.39
Cash dividends declared/(2)/(3)/ .90 .82 .74 .50 .65
Cash dividends paid/(2)/ .90 .82 .74 .67 .64
Book value at year-end 14.85 14.66 14.10 13.75 12.35
If converted book value at year-end/(4)/ 18.33 15.09 14.24 13.80 12.35
Closing market price 46.63 45.90 37.87 24.62 24.37
AT YEAR-END
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,141,797 $ 6,596,136 $ 6,351,785 $ 5,576,314 $ 4,806,175
Earning assets 6,624,439 6,143,971 5,928,180 5,170,754 4,472,544
Loans/(5)/ 3,891,269 3,987,447 3,690,944 3,227,232 3,081,314
Allowance for loan losses 56,271 55,223 46,171 43,259 40,889
Non-interest bearing deposits 577,108 468,438 480,381 424,159 383,461
Total deposits 4,958,337 4,615,062 4,593,441 4,255,135 3,631,957
Shareholders' equity 527,046 515,463 495,673 475,789 401,630
Shares outstanding 35,482,969 35,158,665 35,150,331 34,601,566 32,531,451
AVERAGE BALANCES
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 6,681,017 $ 6,460,638 $ 5,875,100 $ 5,026,553 $ 4,499,929
Earning assets 6,223,962 6,077,023 5,514,194 4,704,829 4,204,421
Loans/(5)/ 3,870,335 3,852,202 3,448,510 3,236,253 2,796,110
Non-interest bearing deposits 491,981 420,098 407,450 376,679 341,774
Total deposits 4,724,775 4,543,855 4,367,176 3,820,289 3,618,263
Shareholders' equity 513,322 498,263 481,095 429,186 404,086
Shares outstanding:
Basic 35,436,807 34,921,287 34,944,271 32,586,143 32,501,601
Diluted 37,579,130 35,491,544 35,621,175 33,432,760 33,408,493
FINANCIAL RATIOS/(1)/
- ---------------------------------------------------------------------------------------------------------------------------------
Return on assets 1.37% 1.14% 1.03% 1.05% 1.02%
Return on equity 17.88 14.83 12.54 12.31 11.37
Net interest margin 4.02 3.94 4.04 4.11 4.09
Efficiency ratio/(6)/ 54 59 63 64 66
Equity to assets at year-end 7.38 7.81 7.80 8.53 8.36
Cash dividend payout/(3)/ 47 48 46 33 39
</TABLE>
(1) Operating income and financial ratios are based on income that excludes SAIF
assessment in 1996 and merger and related charges in 1997 and 1998, as
discussed herein.
(2) Dividends per share is for CNB Bancshares, Inc. only, not restated for
poolings of interests.
(3) Declaration date for fourth quarter 1995 dividend was changed from December
1995 to January 1996.
(4) Assumes all stock options and convertible securities are converted into
common stock.
(5) Excludes loans held for sale.
(6) Excludes foreclosed property expenses, securities gains/losses and other
non-recurring items, as originally reported, not restated for poolings of
interests.
<PAGE>
CNB BANCSHARES, INC. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
This section presents management's review of the operating results and financial
condition of CNB Bancshares, Inc. (the Corporation) and its subsidiaries. It
provides information which is not otherwise apparent from the Consolidated
Financial Statements and related footnotes and is intended to assist readers in
evaluating the Corporation's performance. The following analysis should be read
in conjunction with the Consolidated Financial Statements and accompanying notes
as well as the average balance sheet and selected statistical information
presented in other sections of the report. All dollar amounts throughout this
discussion and report are presented in thousands, except for per share data, and
all share data has been adjusted for common stock dividends.
The Corporation's financial data for periods prior to mergers accounted
for as poolings of interests, and having a material impact on the Corporation's
financial results, has been restated.
RESULTS OF OPERATIONS
Net income for the year ended December 31, 1998, was $61,571, an increase of
2.8% over the $59,874 earned in 1997. Diluted net income per share of $1.73 in
1998 represented an increase of 2.4% over 1997. The Corporation completed its
merger with Pinnacle Financial Services (Pinnacle) on April 17, 1998. In
conjunction with that merger, which was accounted for as a pooling of interests,
the Corporation recorded merger and related charges in second quarter 1998 of
$41,346 ($30,214 net of tax), which equated to $.80 per share for the year.
These charges are discussed further in Note 2 to the Consolidated Financial
Statements. Pinnacle recorded net of tax charges of $13,994 in connection with
mergers it consummated in third quarter 1997. Excluding the merger and related
charges recorded in 1998 and 1997, operating income was $91,785 and $73,868,
respectively, an increase of 24.3%. Diluted operating income per share, which
excludes the merger and related charges, increased 21.1% to $2.53 in 1998 from
1997's $2.09. The increase in 1998 operating earnings was the result of
increased net interest income and fee income, reduced provision for loan losses
and controlled expense growth. The increase in net interest income was primarily
due to the June 1998 issuance of the Guaranteed Preferred Beneficial Interests
in the Corporation's Convertible Subordinated Debentures (trust preferred
securities) as discussed in Note 9 to the Consolidated Financial Statements. Net
interest income on a fully taxable equivalent basis (FTE) increased $10,983, or
4.6%, from 1997, excluding 1998's accounting conformity adjustments of $4,012
related to the Pinnacle merger. Non-interest income, exclusive of conformity
adjustments of $252, increased $25,006, or 30.5%, compared to 1997. The
provision for loan losses decreased in 1998 by $14,248. The reduced provision in
1998 was primarily the result of the companies acquired by Pinnacle in third
quarter 1997 increasing reserves to conform to Pinnacle's policy for credit risk
and lower net charge-offs in 1998. Non-interest expense included merger and
related charges of $37.1 million in 1998 and $11.1 million in 1997. Excluding
those charges, non-interest expense increased $7,624, or 4.1%, in 1998.
[BAR GRAPH APPEARS HERE]
OPERATING INCOME
(IN MILLIONS)
As originally reported As restated
1994 $26.9 $46.0
1995 $35.7 $52.8
1996 $40.7 $60.3
1997 $49.7 $73.9
1998 $91.8
Operating income before SAIF assessment and merger and related charges, as
discussed herein.
[BAR GRAPH APPEARS HERE]
OPERATING DILUTED INCOME PER SHARE
1994 $1.39
1995 $1.59
1996 $1.70
1997 $2.09
1998 $2.53
Operating diluted income per share before SAIF assessment and merger and related
charges, as discussed herein.
[BAR GRAPH APPEARS HERE]
OPERATING DILUTED INCOME PER SHARE
(AS ORIGINALLY REPORTED)
1994 $1.60
1995 $1.67
1996 $1.90
1997 $2.26
1998 $2.53
Operating diluted income per share before SAIF assessment and merger and related
charges, as discussed herein, not restated for poolings of interests.
<PAGE>
20 CNB BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net income increased 11.5% in 1997 from the $53,682 earned in 1996
primarily due to increases in net interest income and non-interest income.
Growth in earning assets, offset by a lower net interest margin, resulted in
increased FTE net interest income of $16,687 from 1996. Non-interest income
increased $13,294 as growth was experienced in most categories from 1996.
Non-interest expenses increased $6,919 during 1997. The Corporation recorded a
$10,963 SAIF recapitalization charge in 1996. Excluding merger charges in 1997
and the SAIF charge in 1996, expenses increased $6,793, or 3.8%. The provision
for loan losses increased in 1997 by $11,603 from 1996 primarily to conform
allowance for loan losses methodology as previously discussed. Excluding 1997
merger charges and the 1996 SAIF charge, operating income per diluted share
increased 22.9% in 1997 to $2.09 from $1.70 in 1996.
The following table reconciles the changes in diluted net income per share
from 1996 to 1998 by major income statement components which are further
discussed below.
<TABLE>
<CAPTION>
Changes in Diluted Net Income Per Share
1998 1997
------------------------------------------------------------------------------------------------
<S> <C> <C>
Diluted net income per share, previous year $ 1.69 $ 1.52
Increase (decrease) attributable to:
Taxable equivalent net interest income .18 .47
Provision for loan losses .38 (.33)
Non-interest income .66 .37
Non-interest expense (.90) (.20)
Income tax effect (.19) (.15)
Change in diluted shares outstanding (.09) .01
--------------------
Diluted net income per share, current year $ 1.73 $ 1.69
====================
</TABLE>
Operating expenses as a percentage of revenues, commonly referred to as
the efficiency ratio, continued to decline, improving from 63% in 1996 to 59% in
1997 and 54% in 1998.
The Corporation's operating earnings, which exclude merger and related
charges to allow meaningful comparisons, resulted in returns on average assets
and shareholders' equity of 1.37% and 17.88%, respectively, in 1998 compared
with a return on assets of 1.14% and return on equity of 14.83% in 1997.
Excluding the SAIF recapitalization charge, returns on average assets and
shareholders' equity were 1.03% and 12.54%, respectively, in 1996.
[BAR GRAPH APPEARS HERE]
EFFICIENCY RATIO
(AS ORIGINALLY REPORTED)
1994 66%
1995 64%
1996 63%
1997 59%
1998 54%
Excludes foreclosed property expenses, securities gains/losses, and other
non-recurring items as originally reported, not restated for poolings of
interests.
[BAR GRAPH APPEARS HERE]
RETURN ON ASSETS
1994 1.02%
1995 1.05%
1996 1.03%
1997 1.14%
1998 1.37%
Based on operating income before SAIF assessment and merger and related charges,
as discussed herein.
[BAR GRAPH APPEARS HERE]
RETURN ON EQUITY
1994 11.37%
1995 12.31%
1996 12.54%
1997 14.83%
1998 17.88%
Based on operating income before SAIF assessment and merger and related charges,
as discussed herein.
<PAGE>
CNB BANCSHARES, INC. 21
Net Interest Income
Net interest income is the Corporation's largest component of income and
represents the difference between interest and fees earned on loans and
investments and the interest paid on interest bearing liabilities. In this
discussion, FTE net interest income is presented whereby tax exempt income, such
as interest on securities of state and political subdivisions, has been
increased to an amount that would have been earned had such income been taxable.
This adjustment places taxable and nontaxable income on a common basis and
permits comparisons of rates and yields. Also to aid in year-to-year
comparisons, this discussion and analysis excludes 1998 net interest income
accounting conformity adjustments totaling $4,012. A detailed analysis of net
interest income, with average balances and related interest rates for the past
three years, appears on page 37 of this report.
In 1998, FTE net interest income increased $10,983, or 4.6%, to $250,309
compared to $239,326 in 1997, primarily due to the issuance of the trust
preferred securities. Net interest income in 1997 increased $16,687, or 7.5%,
over the $222,639 recorded in 1996. The amount of net interest income is
affected by changes in the volume and mix of earning assets and interest bearing
liabilities and the interest rates on these assets and liabilities. An analysis
of how changes in volumes and rates have affected net interest income for the
years ended December 31, 1998 and 1997, is presented below.
<TABLE>
<CAPTION>
Analysis of Changes in Net Interest Income*
1998 over 1997 1997 over 1996
Volume Rate Total Volume Rate Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Federal funds sold and other
short-term investments $ (264) $ (224) $ (488) $ (1,979) $ (48) $ (2,027)
Loans held for sale 6,101 (640) 5,461 (3,386) (1) (3,387)
Investment securities 4,073 (4,480) (407) 16,226 2,864 19,090
Loans 1,646 (2,335) (689) 36,776 (1,055) 35,721
-------------------------------------------------------------------------
Total interest income 11,556 (7,679) 3,877 47,637 1,760 49,397
-------------------------------------------------------------------------
Interest Expense:
Interest bearing checking accounts 485 (2,863) (2,378) (90) (1,877) (1,967)
Money market savings accounts 7,937 214 8,151 2,891 2,311 5,202
Other savings accounts (1,779) (1,328) (3,107) (291) 1,000 709
Certificates of deposit and other time (1,809) (2,272) (4,081) 6,045 (203) 5,842
Short-term borrowings (3,087) (637) (3,724) 10,748 1,056 11,804
FHLB advances and other
long-term debt (645) (1,322) (1,967) 10,867 253 11,120
-------------------------------------------------------------------------
Total interest expense 1,102 (8,208) (7,106) 30,170 2,540 32,710
-------------------------------------------------------------------------
Changes in net interest income $ 10,454 $ 529 $ 10,983 $ 17,467 $ (780) $ 16,687
=========================================================================
</TABLE>
* Fully taxable equivalent
Notes: The change in interest which cannot be attributed to only a
change in rate or a change in volume, but instead represents a
combination of the two factors, has been allocated to the rate
variance.
Analysis is based on net interest income before accounting
conformity charges in 1998, as discussed herein.
Average earning assets, which include loans, investment securities and
other assets that earn interest, increased $146,939 during 1998 to $6,223,962.
Loans, including loans held for sale, increased $93,738, and investment
securities grew $57,851. This asset growth was funded primarily by the issuance
of the trust preferred securities and growth in deposits. The trust preferred
securities averaged $90,555 for 1998; deposits increased $180,920 to $4,724,775
in 1998. Average earning assets were $6,077,023 and interest bearing liabilities
were $5,489,231 in 1997, increases of $562,829 and $559,515, respectively, from
1996. As the preceding analysis indicates, this increased volume resulted in
$10,454 and $17,467 of additional net interest income in 1998 and 1997,
respectively, over the previous years'.
The net interest margin is a percentage computed by dividing FTE net
interest income by average earning assets and represents a basic measure of
interest earned on interest bearing assets held by the Corporation, less the
interest expense to fund such assets. The net interest margin increased 8 basis
points (b.p.) primarily due to the issuance of the trust preferred securities to
4.02% in 1998 from 3.94% in 1997, which had decreased 10 b.p. from 1996.
<PAGE>
22 CNB BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The earning asset yield decreased 14 b.p. to 8.20% in 1998 compared to the
22 b.p. decrease, to 4.18%, in the cost to fund earning assets. The loan and
investment security growth experienced in 1998 was at marginally lower rates;
and, consequently, average loan yields and security yields declined 6 b.p. and
20 b.p., respectively, from 1997 to 1998. The cost to fund earning assets
decreased as a result of the issuance of trust preferred securities and lower
costs on interest bearing liabilities. The prime interest rate was reduced three
times in fourth quarter 1998 by a total of 75 b.p. as a result of Federal
Reserve actions. These reductions placed further pressure on the net interest
margin as the earning assets repriced downward more quickly than interest
bearing liabilities. In addition, additional investments in corporate-owned life
insurance, which income is recorded as non-interest income but funded with
interest bearing liabilities, resulted in a lower net interest margin.
The earning asset yield increased 5 b.p. to 8.34% in 1997, partially
offsetting a 15 b.p. increase, to 4.40%, in the cost to fund earning assets. The
increase in the cost to fund earning assets resulted from competitive pricing to
attract deposits, customers shifting to higher-priced deposit products and
non-deposit funding at marginally higher rates to support the growth in earning
assets. Additionally, the sale of the credit card portfolio in May 1997 and
investments in corporate-owned life insurance resulted in a lower net interest
margin.
To reduce the impact of changing interest rates on its costs to acquire
liabilities that fund certain earning assets, the Corporation has entered into
interest rate swaps (swaps). These agreements represent an exchange of interest
payments and require the Corporation to pay a fixed rate and receive a
LIBOR-based variable rate payment. The amortization of premiums paid for
interest rate caps, which were formerly used by the Corporation, totaled $1,411,
$2,055 and $1,637 in 1998, 1997 and 1996, respectively. This expense was offset
by counterparty reimbursements of $151, $364 and $767, respectively, during the
same periods.
[BAR GRAPH APPEARS HERE]
NET INTEREST MARGIN
(TAXABLE EQUIVALENT BASIS)
1994 4.09%
1995 4.11%
1996 4.04%
1997 3.94%
1998 4.02%
Based on net interest income before accounting conformity charges in 1998, as
discussed herein.
Non-Interest Income
Non-interest income continues to be an increasingly significant portion of
revenues for the Corporation and has grown to represent 29.9% of net FTE
revenues in 1998 as compared to 25.5% and 23.6% in 1997 and 1996, respectively.
As shown in the following table, non-interest income grew 30.2% in 1998 and
19.4% in 1997.
<TABLE>
<CAPTION>
Non-Interest Income
Change from Prior Year
Amount 1998 1997
1998 1997 1996 Amount % Amount %
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 26,672 $ 19,877 $ 17,088 $ 6,795 34.2% $ 2,789 16.3%
Mortgage banking revenue 20,674 9,133 11,083 11,541 126.4 (1,950) (17.6)
Insurance premiums and commissions 12,134 9,563 7,916 2,571 26.9 1,647 20.8
Trust and plan administration fees 11,489 9,838 7,720 1,651 16.8 2,118 27.4
Non-interest fees on loans 7,753 7,637 7,276 116 1.5 361 5.0
Investment products fees 6,849 6,653 5,319 196 2.9 1,334 25.1
Net securities gains 2,126 2,122 2,204 4 .2 (82) (3.7)
Other 19,037 17,157 10,080 1,880 11.0 7,077 70.2
------------------------------------------------------------------------------
Total non-interest income $ 106,734 $ 81,980 $ 68,686 $ 24,754 30.2% $ 13,294 19.4%
==============================================================================
</TABLE>
<PAGE>
CNB BANCSHARES, INC. 23
Service charges on deposit accounts increased 34.2% in 1998 compared to an
increase of 16.3% in 1997. Growth in these fees resulted from an increased
number of deposit accounts, chargeable services, higher activity fees and new
fee sources combined with improved efforts to collect a greater percentage of
assessable fees.
Mortgage banking revenue increased $11,541 in 1998, or 126.4%, due to the
strong demand for new and refinanced residential mortgages and increased loan
sales. The Corporation sold the majority of its 1998 loan production in addition
to approximately $100 million of Pinnacle loans to generate fee income and limit
its long-term interest rate exposure. The Corporation continues to service most
of these sold loans. In third quarter 1998, a gain of $1,361 was recorded on the
sale of the servicing rights of an out-of-market, sub-serviced portfolio
acquired with a 1995 merger. Mortgage banking revenue for 1997 decreased $1,950
due to fewer loan sales and securitizations. At December 31, 1998, the
Corporation was servicing $1,090,044 of residential mortgage loans which had
been sold compared to $1,083,192 at December 31, 1997.
Revenues from insurance premiums and commissions increased 26.9% to
$12,134 in 1998. Income from the sale of life, health and disability insurance
increased $1,796, or 40.0%, in 1998. Casualty insurance premiums written by the
Corporation's agencies increased $465, or 10.0%. Profit sharing bonuses received
from insurance underwriters during 1998, which are experience-related and
associated with prior year property and casualty policies written, were $310
greater than payments received in 1997. Insurance revenues increased 20.8% in
1997 compared to 1996 principally due to higher casualty insurance commissions
from the Corporation's insurance agencies.
Trust and plan administration fees increased $1,751 to $11,589 in 1998,
excluding accounting conformity adjustments of $100. Trust fee income, based
primarily on the market value of assets under management or custody, increased
18.2% in 1998. Plan administration fees earned by the Corporation's third party
administrator of employee benefit plans, Small Parker & Blossom, increased $418,
or 16.7%. The Corporation continues to increase its trust client base and fee
revenues through product expansion and cross-selling of services. Trust and plan
administration fees increased $2,118 in 1997. Trust fees accounted for $817 of
the increase over 1996 while plan administration fees increased $1,301 due to
the May 31, 1996, purchase of Small Parker & Blossom.
Non-interest fees on loans increased $116, or 1.5%, from 1997 primarily
due to increased fees from loan originations and letter of credit commissions.
These increases were offset by lower revenues from credit card fees, as the
credit card portfolio was sold in second quarter 1997. Non-interest fees on
loans increased $361, or 5.0%, to $7,637 in 1997 due to higher loan origination
fees and merchant transaction volumes offset by lower credit card revenues due
to the May 1997 sale of the portfolio.
Investment product fees increased 2.9% in 1998 due to the January 1998
acquisition of Wedgewood Partners. The increase in 1998 was reduced as several
investment representatives at Pinnacle terminated employment prior to its merger
with the Corporation. Consequently, the Northern Indiana/Michigan Division
operated with fewer representatives for much of 1998. Investment products fees
increased 25.1% in 1997, or $1,334, as the Corporation placed a greater emphasis
on the sale of annuities, mutual funds and other non-traditional banking
products.
[BAR GRAPH APPEARS HERE]
Operating Revenue
(taxable equivalent basis in millions)
Total Net Interest Income and Non-Interest Income
-------------------------------------------------
1994 $228
1995 $249
1996 $292
1997 $321
1998 $357
Based on revenue before accounting conformity charges in 1998, as discussed
herein.
[BAR GRAPH APPEARS HERE]
Trust Assets Under Administration at Year-end
(in billions)
1994 $ .7
1995 $ .8
1996 $1.1
1997 $1.8
1998 $2.2
<PAGE>
24 CNB BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net securities gains remained relatively the same for 1998, 1997 and 1996
at $2,126, $2,122 and $2,204, respectively. Certain securities were sold each
year when those securities were called under covered call option contracts that
the Corporation had sold.
Other income increased $1,880 in 1998 from 1997. Other income included
increases of $1,765 from net securities trading account gains, $1,701 from
income on corporate-owned life insurance and $647 from the expiration of covered
call option contracts. Gains on sale of non-mortgage loans decreased $1,540, of
which $646 related to the May 1997 sale of the credit card portfolio. Gains
realized on the sale of foreclosed properties declined by $446 in 1998. Other
income increased $7,077 in 1997 compared with 1996. The items with increases
over 1996 included income from corporate-owned life insurance, gains on expired
covered call option contracts, net securities trading account gains and
non-customer ATM access fees. The gain on sale of the credit card portfolio, as
discussed above, also contributed to the increase in 1997.
NON-INTEREST EXPENSE
Non-interest expenses increased $33,617, or 16.9%, in 1998. Expenses totaling
$37,082 related to the Pinnacle merger and its conversion to the Corporation's
systems were recorded in second quarter 1998. Excluding these charges and the
$11,089 of merger and related charges incurred in third quarter 1997 by
Pinnacle, non-interest expenses increased $7,624, or 4.1%, from 1997. Non-
interest expenses increased 3.6% from 1996 to 1997. Expenses in 1996 included a
SAIF recapitalization charge of $10,963. Excluding these charges, 1997 non-
interest expenses increased $6,793, or 3.8%.
Non-Interest Expense
<TABLE>
<CAPTION>
Change from Prior Year
Amount 1998 1997
1998 1997 1996 AMOUNT % Amount %
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 111,079 $ 103,025 $ 90,394 $ 8,054 7.8% $ 12,631 14.0%
Equipment 17,325 10,950 10,147 6,375 58.2 803 7.9
Data processing and other services 16,830 17,240 14,064 (410) (2.4) 3,176 22.6
Occupancy 16,420 13,417 12,983 3,003 22.4 434 3.3
Professional fees 15,888 8,718 5,966 7,170 82.2 2,752 46.1
Advertising and promotion 7,380 6,532 6,734 848 13.0 (202) (3.0)
Printing and supplies 5,740 5,043 5,157 697 13.8 (114) (2.2)
Postage and freight 5,330 4,885 4,725 445 9.1 160 3.4
Telecommunication 5,102 4,355 3,978 747 17.2 377 9.5
Amortization of intangible assets 4,698 4,481 4,250 217 4.8 231 5.4
SAIF assessment 10,963 (10,963)
Other 26,684 20,213 22,579 6,471 32.0 (2,366) 10.5)
--------------------------------------------------------------------------------
Total non-interest expense $ 232,476 $ 198,859 $ 191,940 $ 33,617 16.9% $ 6,919 3.6%
================================================================================
</TABLE>
The largest category of non-interest expense relates to salaries and
employee benefits. Excluding severance payments recorded at Pinnacle in 1998 and
1997 of $10,501 and $4,632, respectively, salaries and employee benefits
increased $2,185, or 2.2%, in 1998. Excluding the severance payments, salaries
and employee benefits accounted for 51.5% of total non-interest expense adjusted
for merger and related charges. This compares to 52.4% and 49.9% for 1997 and
1996, respectively, excluding merger and SAIF charges. Incentive compensation
decreased $707 to $9,070 in 1998 and represented 9.0% of salaries and employee
benefits expense compared to 9.9% in 1997. The Corporation continues to
emphasize performance-based awards tied to net income per share and product
sales. Salaries, excluding severance, increased $2,228 in 1998, due to normal
merit increases and the purchase of Wedgewood Partners effective January 1,
1998. Salaries and benefits expense in 1997, excluding severance, increased 8.8%
to $98,393 from 1996 due primarily to increased incentive commissions resulting
from additional sales activity and the May 1996 acquisitions where prior periods
were not restated.
<PAGE>
CNB BANCSHARES, INC. 25
Equipment expenses increased 58.2% in 1998 compared to 1997. Charges to
write-down equipment not needed after Pinnacle's conversion to the Corporation's
data processing systems in 1998, to its fair value, amounted to $5,488.
Equipment expenses excluding those charges increased $887, or 8.1%, due to the
operation of an additional non-bank subsidiary and additional banking offices.
Equipment expenses increased 7.9% in 1997. A full year of expenses was incurred
in 1997 for facilities acquired in May 1996.
Data processing and other services decreased 2.4% in 1998. Excluding the
Pinnacle conversion costs incurred in both 1998 and 1997, data processing and
other services remained flat at $15,282 compared to $15,286 in 1997. Increased
expenses for brokerage clearings at Wedgewood, which was acquired in 1998,
offset reduced credit card processing fees due to the 1997 sale of the credit
card portfolio, as discussed earlier. The outsourced operation of most data
processing activities has permitted the Corporation to process the increased
transaction volumes of acquired institutions and internally-generated growth
with minimal incremental cost. Data processing expenses, excluding merger
charges, increased 8.7% in 1997 compared to 1996 due to increased business
activity.
Occupancy expenses increased $3,003 in 1998. Office closures and write-
downs associated with the Pinnacle merger accounted for $1,781 of the increase.
When those charges are excluded, 1998 occupancy expenses increased $1,222, or
9.1%, due to additional facilities being operated. Occupancy expenses increased
$434, or 3.3%, in 1997.
Professional fees increased $7,170 in 1998 compared to 1997. Included in
1998 and 1997 were $8,153 and $1,779, respectively, of legal, accounting and
investment banker fees in connection with the 1998 merger of Pinnacle with the
Corporation and 1997 mergers at Pinnacle. Professional fees excluding those
expenses increased $796, or 11.5%, due to increases in legal fees, expenses
associated with potential mergers and outsourced staff functions. Professional
fees increased in 1997, after excluding the charges associated with mergers, by
$973, or 16.3%. The 1997 increase was due to increased outsourced staff
functions and consulting expenses incurred by Pinnacle following their 1997
mergers.
Advertising and promotion expense increased to $7,380 in 1998 due to
increased marketing efforts primarily related to checking account promotions.
Expenses for advertising and promotion in 1997 were reduced 3.0% as management
chose not to offer any significant credit card solicitations during 1997 in
light of the pending sale of its portfolio.
Printing and supplies increased $697, or 13.8%, in 1998 over 1997.
Expenses related to the Pinnacle merger accounted for $405 of the increase. An
increase of 5.8% would have been realized excluding those merger and related
charges. Printing and supplies for 1997 declined 2.2% due to cost containment
efforts.
Postage and freight and telecommunication expenses increased 9.1% and
17.2%, respectively, in 1998 over 1997. The increases are due to additional
communication needed with recently completed acquisitions, the expanded distance
in the Corporation's branch network and higher levels of business activity. The
increases in postage and freight and telecommunication expenses in 1997 were
generally due to higher levels of business activity when compared to 1996.
Amortization of intangible assets increased 4.8% and 5.4% in 1998 and
1997, respectively. The purchase of Wedgewood Partners in January 1998 and the
1997 full year effect of purchase acquisitions closed in May 1996 account for
the increases. Goodwill resulting from these acquisitions totaled $2.3 million
and $6.4 million, respectively, and is being amortized on a straight-line basis
over periods not exceeding 15 years.
Other expenses increased 32.0%, or $6,471 in 1998. Excluding charges
associated with the 1998 Pinnacle merger and mergers at Pinnacle in 1997 of
$9,018 and $2,724, respectively, other expenses increased by $177, or 1.0%. FDIC
assessments, travel and foreclosed property expenses increased from 1997 while
directors fees, subscriptions and ceding fees and policy reserves for the
Corporation's reassurance company all decreased from 1997. Other expenses,
excluding the merger charges recorded by Pinnacle, were lower in 1997 over 1996
by 22.5%. This relates to the charges recorded in 1996 for the closure of five
offices, equipment write-offs and other operational charges taken.
<PAGE>
26 CNB BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
INCOME TAXES
Income tax expense for 1998 was $35,056 compared to $30,906 in 1997 and $27,013
in 1996. The effective tax rate increased to 35.1% in 1998 from 34.0% and 33.5%
in 1997 and 1996, respectively. The effective tax rate was higher in 1998 due to
the non-deductibility of various Pinnacle merger expenses. Excluding the effects
of the merger and related charges, the effective tax rate in 1998 would have
been 32.7%. The decline in the effective tax rate is attributable to an increase
in income from tax exempt sources, including municipal investments and
corporate-owned life insurance. Tax exempt interest income increased by $6,223
in 1998 as additional investments in municipal securities were made. In
addition, investments in corporate-owned life insurance policies on certain
officers generated $1,701 of additional tax exempt income in 1998 compared with
1997.
Quarterly Results of Operations
<TABLE>
<CAPTION>
Mar. 31 June 30 Sept. 30 Dec. 31
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net interest income $ 57,115 $ 54,042 $ 62,796 $ 62,311
Provision for loan losses 3,316 1,761 1,844 3,717
Net securities gains 633 590 480 423
Non-interest income 22,168 25,663 27,419 29,358
Non-interest expense 47,886 84,992 50,235 49,363
------------------------------------------------------------
Income (loss) before income taxes 28,714 (6,458) 38,616 39,012
Income taxes 9,133 423 12,773 12,727
Distribution pertaining to guaranteed preferred
beneficial interests in the Corporation's
convertible subordinated debentures 132 1,563 1,562
------------------------------------------------------------
Net income (loss) $ 19,581 $ (7,013) $ 24,280 $ 24,723
============================================================
Net income (loss) per share:
Basic $ .56 $ (.21) $ .68 $ .69
============================================================
Diluted $ .55 $ (.21) $ .66 $ .67
============================================================
1997
Net interest income $ 56,288 $ 58,056 $ 58,318 $ 59,883
Provision for loan losses 3,563 4,086 13,425 3,812
Net securities gains 383 359 648 732
Non-interest income 17,593 19,262 21,316 21,687
Non-interest expense 44,035 46,058 57,576 51,190
------------------------------------------------------------
Income before income taxes 26,666 27,533 9,281 27,300
Income taxes 9,118 9,512 3,613 8,663
------------------------------------------------------------
Net income $ 17,548 $ 18,021 $ 5,668 $ 18,637
============================================================
Net income per share:
Basic $ .50 $ .52 $ .16 $ .53
============================================================
Diluted $ .49 $ .51 $ .16 $ .53
============================================================
</TABLE>
Notes: Quarter ended June 30, 1998, includes merger and related charges
of $30,214, net of tax, or $.85 per diluted share.
Quarter ended September 30, 1997, includes merger and related
charges of $13,994, net of tax, or $.40 per diluted share.
<PAGE>
CNB BANCSHARES, INC. 27
FINANCIAL CONDITION
The financial condition of the Corporation at December 31, 1998, is presented in
the comparative balance sheet of the consolidated financial statements. The
following discussion addresses loans and other components of earning assets,
sources of funds, capital resources, liquidity and interest rate sensitivity.
LOANS
Loans at December 31, 1998, decreased $96,178 to $3,891,269 compared to
$3,987,447 at the previous year-end. The Corporation continued to reduce its
residential mortgage portfolio by selling or securitizing most new production.
Additionally, management reclassified $96,462 of SBA loans purchased by Pinnacle
to held for sale in June 1998. These loans, previously included as commercial
and industrial, have prepayment risk and do not meet the Corporation's loan and
investment strategies. At December 31, 1998, $23,560 of the SBA loans remained
in loans held for sale. Growth was experienced in all loan categories during
1998 except for residential mortgage loans. Average loans, excluding residential
mortgage loans, were $2,774,552 during 1998, which represented a 12.2% increase
from 1997.
Commercial loans at December 31, 1998, were $1,344,110 and accounted for
34.5% of the loan portfolio compared with $1,281,143, or 32.1% of total loans,
at December 31, 1997. Excluding the reclassification of the purchased SBA loans
to held for sale as previously discussed, commercial loans increased $159,429,
or 13.5%.
Real estate mortgage loans, including residential, commercial and
agricultural loans secured by real estate and construction loans, decreased
$233,132 from 1997 and accounted for 40.3% of the total loan portfolio at
December 31, 1998. Residential mortgage loan balances decreased $304,331 from
December 31, 1997, to year-end 1998. Residential mortgage loans were 25.1% of
total loans at December 31, 1998, as compared to 32.1% at December 31, 1997. The
aggregate of commercial and agricultural mortgage and construction loans
represented 15.2% of total loans at year-end 1998 as compared to 13.0% at the
end of last year. Demand for new residential mortgage loans remained strong
throughout 1998, but the Corporation sold a significant portion of that
production in addition to approximately $100 million of Pinnacle loans to reduce
its long-term interest rate exposure and prepayment risk along with generating
fee income. The Corporation originated $731 million of residential mortgages in
1998 with loan sales and securitizations of $713 million. While the Corporation
may sell certain loans, servicing rights are generally retained. At December 31,
1998, $1,090,044 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 $7,485 relating to $783,037 of those loans.
Consumer loans, which include installment and home equity loans, increased
7.9% to $939,566 at December 31, 1998. Indirect installment loan balances
increased $68,130, or 27.1%, during 1998 to $319,610 due to increased indirect
automobile loan originations. Home equity and other revolving lines of credit
outstandings increased $4,997 during 1998, which represented an increase of 2.9%
over 1997. All other installment loans at December 31, 1998, had decreased
$4,192, or .9%, from December 31, 1997.
The Corporation's loan portfolio contains no loans to foreign governments,
foreign enterprises, foreign operations of domestic companies, highly-leveraged
transactions nor any concentrations to borrowers engaged in the same or similar
industries that exceed 10% of total loans.
[BAR GRAPH APPEARS HERE]
Loans Excluding Residential Real Estate at Year-end
(in millions)
1994 $1,803
1995 $2,070
1996 $2,416
1997 $2,707
1998 $2,915
[BAR GRAPH APPEARS HERE]
Average Assets
(in millions)
As Originally Reported As Restated
1994 $2,497 $4,500
1995 $3,530 $5,027
1996 $3,833 $5,875
1997 $4,317 $6,461
1998 $6,681
<PAGE>
28 CNB BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
LOANS OUTSTANDING AT DECEMBER 31,
1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural production $ 1,344,110 $ 1,281,143 $ 1,176,172 $ 987,115 $ 510,851
Tax exempt 40,122 35,070 31,442 27,701 31,682
Real estate mortgage:
Commercial and agricultural 435,129 389,761 293,281 232,841 500,304
Construction 155,756 129,925 85,382 58,054 80,351
Residential 976,586 1,280,917 1,274,516 1,156,981 1,278,127
Consumer 939,566 870,631 830,151 764,540 679,999
------------------------------------------------------------------------------
Total $ 3,891,269 $ 3,987,447 $ 3,690,944 $ 3,227,232 $ 3,081,314
==============================================================================
</TABLE>
Note: Owner-occupied commercial real estate loans were reclassified to
commercial, industrial and agricultural production loans from real
estate mortgage loans at December 31, 1995. Prior year's balances
have not been reclassified.
<TABLE>
<CAPTION>
LOAN MATURITIES AT DECEMBER 31, 1998
Within 1-5 Over 5
1 Year Years Years Total
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, industrial, agricultural
production and tax exempt $ 702,125 $ 417,091 $ 265,016 $ 1,384,232
Real estate mortgage 514,477 706,832 346,162 1,567,471
Consumer 251,371 534,093 154,102 939,566
-------------------------------------------------------------
Total $ 1,467,973 $ 1,658,016 $ 765,280 $ 3,891,269
=============================================================
</TABLE>
Of the loans with maturities of over one year, $1,132,579 had floating
interest rates and the remainder had fixed interest rates.
RISK MANAGEMENT AND ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level considered adequate by
management to absorb potential loan losses as determined by evaluations of the
loan portfolio on a continuing basis. This evaluation by management includes 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.
Loans with principal or interest payments contractually due but not yet
paid are reviewed weekly by management and are placed on nonaccrual status when
scheduled payments remain unpaid for 90 days or more, unless the loan is both
well secured and in the process of collection. Interest income on nonaccrual
loans is recorded when actually received (cash basis) in contrast to the accrual
basis, which records income over the period in which it is earned, regardless of
when it is received. Loans are charged to the allowance for loan losses when
deemed uncollectible by management, unless sufficient collateral exists to
adequately secure the loan.
The allowance for loan losses at December 31, 1998, was $56,271, or 1.45%
of loans, compared to $55,223, or 1.38% of loans, at the end of 1997. The
increased allowance ratio was driven by changes in the mix of loans in the
Corporation's portfolio and by applying
<PAGE>
CNB BANCSHARES, INC. 29
the Corporation's more stringent credit risk policy to the loans acquired in the
Pinnacle merger. As previously discussed, the Corporation has reduced its
residential mortgage portfolio. The commercial, consumer and real estate loans,
other than residential, now represent a higher percentage of the overall
portfolio. These loans generally produce higher yields but require higher
reserve levels due to their inherent risk profile. The allowance to loans ratio
was 1.45% at December 31, 1998, versus 1.38% at December 31, 1997.
The provision for loan losses represents a charge against income and a
corresponding increase to the allowance for loan losses. The 1998 provision was
reduced by $14,248 to $10,638 from $24,886 in 1997 when companies acquired by
Pinnacle increased reserves to conform to Pinnacle's policy for credit risk.
Lower charge-offs in 1998 also contributed to a lower provision in 1998. Net
charge-offs to average loans decreased to .30% in 1998 from .42% in 1997. Net
charge-offs in the commercial, real estate and consumer loan portfolios
decreased in 1998. The decline in commercial and real estate loan charge-offs
were in part due to the increased charge-offs in fourth quarter 1997 at Pinnacle
on loans where specific reserves had been established in third quarter 1997.
Consumer loan net charge-offs were down in 1998 due in part to the May 1997 sale
of the credit card portfolio and improved efforts in the collection of past due
and previously charged-off loans. The allowance for loan losses equaled 161% and
197% of total non-performing loans at December 31, 1998 and 1997, respectively.
A summary of loan loss experience and management's allocation of the
allowance for loan losses to the various loan categories for the years indicated
follow.
[BAR GRAPH APPEARS HERE]
Non-performing Loans and Allowance for Loan Losses To Loans at Year-end
Non-Performing Loans Allowance to Loans
-------------------- -------------------
1994 .65% 1.33%
1995 1.00% 1.34%
1996 .91% 1.25%
1997 .70% 1.38%
1998 .90% 1.45%
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Balance at January 1, $ 55,223 $ 46,171 $ 43,259 $ 40,889 $ 35,208
Allowance of subsidiaries at acquisition date 2,140 1,872 2,624 1,773
Adjustment to conform year-ends 501 561
Loan charge-offs:
Commercial, agricultural and tax exempt 6,598 7,212 5,320 3,156 2,014
Real estate mortgage 2,058 3,491 1,192 258 584
Consumer 7,657 8,999 9,837 7,661 3,909
-----------------------------------------------------------
Total charge-offs 16,313 19,702 16,349 11,075 6,507
-----------------------------------------------------------
Loan recoveries:
Commercial, agricultural and tax exempt 2,078 1,487 2,049 1,117 932
Real estate mortgage 289 231 621 160 259
Consumer 2,216 1,649 1,436 1,195 1,125
-----------------------------------------------------------
Total recoveries 4,583 3,367 4,106 2,472 2,316
-----------------------------------------------------------
Net charge-offs 11,730 16,335 12,243 8,603 4,191
-----------------------------------------------------------
Provision for loan losses 10,638 24,886 13,283 8,349 7,538
-----------------------------------------------------------
Balance at December 31, $ 56,271 $ 55,223 $ 46,171 $ 43,259 $ 40,889
-----------------------------------------------------------
Ratio of net charge-offs to average
loans outstanding .30% .42% .36% .27% .15%
-----------------------------------------------------------
Ratio of provision for loan losses to
average loans outstanding .27 .65 .39 .26 .27
-----------------------------------------------------------
Ratio of allowance for loan losses to
total loans outstanding at year-end 1.45 1.38 1.25 1.34 1.33
-----------------------------------------------------------
</TABLE>
<PAGE>
30 CNB BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
Amount % of Loans to Total
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
agricultural
and tax exempt $ 24,542 $ 23,520 $ 22,528 $ 18,885 $ 15,650 36% 33% 33% 31% 18%
Real estate mortgage 13,183 10,996 9,461 11,280 11,798 40 45 45 45 60
Consumer 15,575 17,148 12,383 11,125 11,524 24 22 22 24 22
Unallocated 2,971 3,559 1,799 1,969 1,917
-----------------------------------------------------------------------------------------------
Total $ 56,271 $ 55,223 $ 46,171 $ 43,259 $ 40,889 100% 100% 100% 100% 100%
===============================================================================================
</TABLE>
Note: Owner-occupied commercial real estate loans were reclassified to
commercial, industrial and agricultural production loans from real
estate mortgage loans at December 31, 1995. Prior year's balances
have not been reclassified.
Risk assets consist of loans on nonaccrual status, loans classified as
troubled debt restructurings, foreclosed properties and loans 90 days or more
past due but continuing to accrue interest. Although these assets have more than
a normal risk of loss, they will not necessarily result in a higher level of
losses in the future. As illustrated in the following table, which presents risk
assets for the past five years, non-performing loans at December 31, 1998,
increased by $6,990 from December 31, 1997. The increase is generally due to
management's continuing review of "criticized" loans and placing on nonaccrual
status several smaller loans acquired with the Pinnacle merger. In addition to
the loans classified as non-performing, there were other loans totaling $20,820
at December 31, 1998, where the borrowers were experiencing difficulties and
management was closely monitoring the borrowers' abilities to comply with
payment terms. However, conditions at this time do not warrant their
classification as non-performing loans. Management is not aware of any loans
that have not been disclosed that represent or result from trends or
uncertainties which may have a material impact on the Corporation's future
operating results, liquidity or capital resources.
<TABLE>
<CAPTION>
Asset Quality at December 31,
1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual:
Commercial, agricultural and tax exempt $ 13,679 $ 12,801 $ 18,177 $ 17,988 $ 8,189
Real estate mortgage 16,918 12,115 11,439 9,213 7,694
Consumer 3,426 1,657 2,022 3,269 2,020
-----------------------------------------------------------
Total nonaccrual 34,023 26,573 31,638 30,470 17,903
Restructured:
Commercial, agricultural and tax exempt 768 837 657 479 892
Real estate mortgage 173 564 1,242 1,284 1,113
Consumer 42 5 5
-----------------------------------------------------------
Total restructured 941 1,401 1,941 1,768 2,010
-----------------------------------------------------------
Total non-performing loans 34,964 27,974 33,579 32,238 19,913
Foreclosed properties 3,769 6,703 6,874 7,627 10,052
-----------------------------------------------------------
Total non-performing assets 38,733 34,677 40,453 39,865 29,965
90 days or more past due and accruing:
Commercial, agricultural and tax exempt 2,446 2,372 2,140 1,116 659
Real estate mortgage 3,814 5,427 5,935 3,075 2,397
Consumer 1,404 1,683 1,883 802 1,339
-----------------------------------------------------------
Total 90 days or more past due and accruing 7,664 9,482 9,958 4,993 4,395
-----------------------------------------------------------
Total risk assets $ 46,397 $ 44,159 $ 50,411 $ 44,858 $ 34,360
===========================================================
Non-performing loans to loans .90% .70% .91% 1.00% .65%
===========================================================
Non-performing assets to loan-related assets .99 .87 1.09 1.23 .97
===========================================================
Risk assets to loan-related assets 1.19 1.11 1.36 1.39 1.11
===========================================================
</TABLE>
<PAGE>
CNB BANCSHARES, INC 31
Investment Securities
Investment securities represented 36.0% of average earning assets in both 1998
and 1997. The portfolio has continued to shift toward investments in
mortgage-backed securities which are predominantly underwritten to the standards
of, and guaranteed by, government sponsored agencies. These securities generally
yield 70-100 basis points more than comparable U.S. Treasury securities 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 some of the underlying mortgages are refinanced at
lower rates. Conversely, the average lives of these securities generally are
extended as interest rates increase. Mortgage-backed securities represented
72.3% and 67.0% of total investment securities at December 31, 1998 and 1997,
respectively. The estimated average lives of these securities and the overall
portfolio were 4.2 years and 5.5 years, respectively, at December 31, 1998,
based on current prepayment expectations. Additional state and municipal
securities were also purchased in 1997 and 1998 due to their higher tax
equivalent yields. At December 31, 1998, state and municipal securities
represented 18.8% of total investment securities compared to 12.8% one year
prior.
On December 31, 1998, in order to provide for more effective
asset/liability management, the entire held to maturity securities portfolio was
transferred to available for sale. The held to maturity portfolio had an
amortized cost of $191,658 and a fair value of $198,685 at the date of transfer.
The unrealized gain of $7,027 is included, net of tax, in accumulated other
comprehensive income. While management no longer has the positive intent to hold
such transferred securities to their maturity date, at December 31, 1998, there
were no immediate plans to sell any of the transferred securities.
Investment Securities Available For Sale at December 31,
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury $ 19,972 $ 25,456 $ 25,372
Federal agencies:
Bonds and notes 111,925 334,483 397,876
Mortgage-backed securities 1,832,263 1,184,564 1,149,041
Collateralized mortgage obligations 41,521 119,425 178,494
State and municipal 487,742 130,039 81,148
Other securities 98,697 60,058 61,427
-------------------------------------------
Total $ 2,592,120 $ 1,854,025 $ 1,893,358
===========================================
</TABLE>
Investment Securities Held to Maturity at December 31,
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal agencies:
Bonds and notes $ 3,000
Mortgage-backed securities $ 68,867 86,410
Collateralized mortgage obligations 24,535 29,989
State and municipal 137,501 140,199
Other securities 2,789
---------------------------
Total $ 230,903 $ 262,387
===========================
</TABLE>
<PAGE>
32 CNB BANCSHARES, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS
Sources of Funds
The Corporation relies on customers' deposits, securities sold under repurchase
agreements, federal funds purchased and other borrowed funds along with
shareholders' equity to fund its earning assets. Additionally, the Corporation
raised $172,500 in 1998 by issuing trust preferred securities as discussed in
Note 9 to the Consolidated Financial Statements. Proceeds were used to reduce
long-term debt by $45,000 and the remainder was invested in securities available
for sale.
Average total deposits increased 4.0% to $4,724,775 in 1998 compared to
1997. Average non-interest bearing checking deposits increased 17.1% in 1998
while interest bearing deposits grew 2.6% in 1998. Those interest bearing
products showing increases in 1998 were interest bearing checking, 5.0%, and
money market savings, 34.6%. The increases in non-interest bearing checking and
interest bearing checking deposits were the result of a corporate-wide campaign
targeting those products. During 1998, customers' preferences shifted to money
market savings accounts from savings accounts and certificates of deposit due to
a flat yield curve and as a result of the Corporation offering very competitive
pricing on these products.
[BAR GRAPH APPEARS HERE]
AVERAGE DEPOSITS
(IN MILLIONS)
1994 $3,618
1995 $3,820
1996 $4,367
1997 $4,544
1998 $4,725
Average Deposits
<TABLE>
<CAPTION>
1998 1997 1996
Amount Rate Amount Rate Amount Rate
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing checking $ 491,981 $ 420,098 $ 407,450
Interest bearing checking 556,250 1.32% 529,885 1.84% 533,995 2.19%
Money market savings 697,443 4.46 518,281 4.43 445,650 3.98
Other savings 471,255 2.48 535,728 2.76 547,015 2.58
Certificates of deposit and other time 2,507,846 5.56 2,539,863 5.65 2,433,066 5.66
------------ ----------- -----------
Total $ 4,724,775 4.01% $ 4,543,855 4.20% $ 4,367,176 4.15%
======================================================================
</TABLE>
Maturities of Certificates of Deposit of $100 or More at December 31,
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------------
<S> <C> <C>
3 months or less $ 262,365 $ 211,683
3-6 months 62,071 43,292
6-12 months 32,299 40,673
Over 12 months 14,514 14,361
----------------------------
Total $ 371,249 $ 310,009
============================
</TABLE>
<PAGE>
CNB BANCSHARES, INC. 33
Securities sold under repurchase agreements are acquired in national
markets as well as from the Corporation's commercial customers as a part of a
cash management service. Repurchase agreements generally provide the Corporation
with a lower interest cost than similar sources of funds and were $697,960 at
December 31, 1998, compared to $586,855 at year-end 1997. A portion of these
repurchase agreements, acquired to fund certain fixed rate earning assets, are
being hedged by interest rate swaps. Securities sold under repurchase agreements
averaged $546,660 in 1998 compared to $640,425 in 1997.
Federal funds purchased and other short-term borrowings increased $11,611
to $105,831 at December 31, 1998. At December 31, 1998, the Corporation had
$99,370 of federal funds purchased, which represent funds acquired overnight
from other financial institutions. Other short-term borrowings, principally U.S.
Treasury demand notes, totaled $6,461 at December 31, 1998, a decrease of
$30,379. These demand notes are subject to call by the Federal Reserve and carry
a variable interest rate.
Long-term debt totaled $626,759 at December 31, 1998, which represented a
decrease of $99,899 from one year earlier. Advances from the Federal Home Loan
Bank accounted for $614,201 of the long term debt total and continue to provide
a flexible and relatively inexpensive source of funds. The Corporation expects
to continue utilizing the FHLB as a core funding source for its subsidiary bank.
CAPITAL RESOURCES
The Corporation continues to maintain a strong capital position which supports
its current needs and provides a sound foundation to support further expansion.
At December 31, 1998, shareholders' equity had increased to $527,046. The amount
of net earnings retained after the payment of cash dividends was $32,811 for
1998 compared to $30,988 in the prior year. The dividend payout ratio was 47% in
1998 compared to 48% in 1997 and was higher than the 30% to 40% range normally
targeted by the Corporation due to the merger and related charges in both years
which reduced net income. The 1998 dividend payout ratio excluding those charges
was 31%. Book value per share at year-end 1998 increased to $14.85 from $14.66
one year earlier, an increase of 1.3%. If converted book value, which assumes
all stock options and convertible securities are converted into common stock,
was $18.33 at year-end compared to $15.09 at December 31, 1997. Shareholders'
equity averaged $513,322 during 1998, an increase of 3.0% from 1997.
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 1998 and 1997, the Corporation
repurchased $53,459 and $37,552, respectively, of its common stock under this
program.
As discussed in Note 9 to the Consolidated Financial Statements, the
Corporation issued $172,500 of trust preferred securities in 1998. These
securities qualify as regulatory capital and are included in the Corporation's
Tier 1 capital, total capital and leverage ratios which were 14.8%, 16.0% and
9.3%, respectively, all well above regulatory minimums.
After adjusting for stock dividends, dividends declared and paid per share
were $.90 for 1998, an increase of 9.8% over 1997. The indicated annual dividend
rate is currently $.96 per share. Excluding the merger and related charges and
SAIF assessment, to allow meaningful comparisons, the Corporation's return on
average shareholders' equity was 17.88% for 1998 compared to 14.83% in 1997 and
12.54% in 1996.
[BAR GRAPH APPEARS HERE]
Book Value Per Share at Year-end
If Converted
Book Value Book Value*
---------- -----------
1994 $12.35 $12.35
1995 $13.75 $13.80
1996 $14.10 $14.24
1997 $14.66 $15.09
1998 $14.85 $18.33
* Assumes all stock options and convertible securities are converted into common
stock
[BAR GRAPH APPEARS HERE]
Cash Dividends Paid
(per share)
1994 $.64
1995 $.67
1996 $.74
1997 $.82
1998 $.90
<PAGE>
34 CNB BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Interest Rate Sensitivity
Liquidity is a measure of the Corporation's ability to meet its customers'
present and future deposit withdrawals and/or increased loan demand without
unduly penalizing earnings. Interest rate sensitivity involves the relationship
between rate sensitive assets and liabilities and is an indication of the
probable effects of interest rate movements on the Corporation's net interest
income. The Corporation manages both its liquidity and interest sensitivity
through a coordinated asset/liability management program directed by the Funds
Management and Investment Committee.
Liquidity is provided by projecting credit demand and other financial
needs and then maintaining sufficient funding sources and assets readily
convertible into cash to meet these requirements. The Corporation has provided
for its liquidity needs by maintaining adequate balances in money market assets,
through growth in core deposits, maturing loans and investments in its
securities portfolio and by maintaining various short-term borrowing sources. At
December 31, 1998, the Corporation had $459,836, or 6.4%, of total assets in
investment securities maturing within one year. In addition, the Corporation had
over $174,000 available from unused federal funds purchased agreements and in
excess of $460,000 of available borrowing capacity from the Federal Home Loan
Bank. Management believes that maturing investment securities and unused
borrowing sources will be adequate to meet the liquidity needs for the
foreseeable future.
The Parent Company's liquidity includes its cash and short-term
investments and is generally provided by dividends received from its subsidiary
bank. Approximately $301,248 was available to the Parent at December 31, 1998,
from dividends by its subsidiary bank. Cash dividends received from subsidiaries
in 1998 were $42,270 compared to $39,523 in 1997. The Parent Company also has
available a $50,000 bank line of credit. At year-end, the entire $50,000 line of
credit remained available for future use.
Interest rate sensitive assets and liabilities are those which have yields
or rates subject to change within a future time period due to maturity or
changes in market rates. An ongoing objective of the Corporation's
asset/liability policy is to match rate-adjustable assets and liabilities at
similar maturity horizons so that changes in interest rates will not result in
wide fluctuations in net interest income. The Corporation manages its rate
sensitivity position through the use of variable rate loans and by matching
funds acquired, having a specific maturity, with loans, securities or money
market investments with similar maturities. The Corporation supplements this
approach through the use of interest rate swaps to reduce the impact of changing
interest rates on its cost to acquire certain variable rate funds. The
Corporation employs a variety of measurement techniques to identify and manage
its exposure to changing interest rates. A simulation model is used to measure
the Corporation's net interest income volatility to changes in the level of
interest rates, interest rate spreads, the shape of the yield curve and changing
product growth patterns and investment strategies. Results of the simulation
model indicate that the Corporation's net interest income would be affected by
1.5% or less should interest rates increase or decrease by up to 200 basis
points gradually over twelve months. Additionally, a rate sensitivity position
is computed for various repricing intervals by calculating rate sensitivity
gaps. The following table shows the Corporation's interest rate sensitivity
analysis as of December 31, 1998. Interest earning assets and interest bearing
liabilities have been distributed based on their repricing opportunities. The
maturities of certain investments, loans and deposits have been adjusted based
on projected prepayment patterns or historical relationships to changes in
market interest rates. The repricing of certain liabilities has been adjusted to
reflect the expected benefit of interest rate contracts in place at year-end.
Although rate sensitivity gaps constantly change as funds are acquired and
invested, the Corporation's positive gap of $23,089 at one year or less as of
December 31, 1998, was approximately .3% of total assets. This, in the opinion
of management, represented a relatively balanced position. Net interest income
at financial institutions with positive gaps tends to increase in periods of
rising interest rates and decrease as interest rates fall.
[BAR GRAPH APPEARS HERE]
Market Capitalization at Year-End
(in millions)
1994 $ 409
1995 $ 510
1996 $ 800
1997 $ 983
1998 $1,655
Based on shares outstanding for CNB Bancshares, Inc. only, not restated for
poolings of interests.
<PAGE>
CNB BANCSHARES, INC. 35
Static Interest Rate Sensitivity at December 31, 1998
<TABLE>
<CAPTION>
Maturing or Repricing
--------------------------------------------------------------------------------------
Non-Sensitive
1-90 91-180 181 Days Over 1 Year and Over
Days Days to 1 Year to 5 Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and
money market investments $ 33,912 $ 33,912
Loans held for sale 107,138 107,138
Investment securities available for sale 170,074 $ 105,591 $ 203,298 $ 943,833 $ 1,169,324 2,592,120
Loans 1,508,933 288,398 423,171 1,370,080 300,687 3,891,269
Non-earning assets 517,358 517,358
--------------------------------------------------------------------------------------
Total assets 1,820,057 393,989 626,469 2,313,913 1,987,369 7,141,797
Liabilities and shareholders' equity
Interest bearing deposits:
Interest bearing checking accounts* 72,855 556,436 629,291
Money market and other savings* 413,763 823,329 1,237,092
Certificates of deposit and other time 652,314 488,108 540,588 771,221 62,615 2,514,846
--------------------------------------------------------------------------------------
Total interest bearing deposits 1,138,932 488,108 540,588 771,221 1,442,380 4,381,229
Securities sold under
repurchase agreements 475,006 18,446 12,115 75,393 117,000 697,960
Federal funds purchased and other
short-term borrowings 105,831 105,831
Long-term debt 36,400 2,000 419,361 168,998 626,759
Non-interest bearing deposits* 577,108 577,108
Non-interest bearing liabilities,
guaranteed preferred beneficial
interests in the Corporation's
convertible subordinated debentures
and shareholders' equity 752,910 752,910
--------------------------------------------------------------------------------------
Total liabilities and equity 1,756,169 506,554 554,703 1,265,975 3,058,396 $ 7,141,797
--------------------------------------------------------------------------------------
Interest sensitivity gap $ 63,888 $ (112,565) $ 71,766 $ 1,047,938 $ (1,071,027)
=======================================================================
Cumulative interest sensitivity gap $ 63,888 $ (48,677) $ 23,089 $ 1,071,027
=======================================================
Cumulative gap as a percentage
of total assets .9% (.7)% .3% 15.0%
=======================================================
</TABLE>
* The Corporation's experience with interest bearing checking accounts, money
market and savings and non-interest bearing deposits has been that, although
these deposits are subject to immediate withdrawal or repricing, a portion of
the balances has remained relatively constant in periods of both rising and
falling rates. Therefore, a portion of these deposits is included in the
"Non-Sensitive" category.
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
<PAGE>
36 CNB BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 these systems in addition to reviewing 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 approximately 90% of all
vendors including all those deemed critical. One critical outsourced system, the
human resource/payroll system, that was not Year 2000 compliant, has been
replaced. Integrated testing on all critical applications will continue through
the first quarter of 1999. The review of non-critical systems has begun and is
expected to be completed by June 30, 1999. With the renovation phase nearly
complete, the validation and implementation phases of all systems will continue
and are expected to be completed, for critical systems, by March 31, 1999 and
for all remaining systems by June 30, 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
will be 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 commencing 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.
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. Additional investigation is
scheduled for first quarter 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. 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>
CNB BANCSHARES, INC. 37
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS (1)
(IN THOUSANDS ON FULLY TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balances Interest Rates Balances Interest Rates Balances Interest Rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold and other
short-term investments $ 18,796 $ 841 4.47% $ 23,446 $ 1,329 5.67% $ 57,110 $ 3,356 5.88%
Loans held for sale 91,400 6,735 7.37 15,795 1,274 8.07 57,809 4,661 8.06
Investment securities:
Taxable 1,882,075 125,778 6.68 1,957,123 135,712 6.93 1,776,303 120,516 6.78
Tax exempt (2) 361,356 27,783 7.69 228,457 18,256 7.99 174,462 14,362 8.23
----------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 2,243,431 153,561 6.84 2,185,580 153,968 7.04 1,950,765 134,878 6.91
Loans: (3), (4)
Commercial and industrial 1,306,808 116,254 8.90 1,140,563 100,428 8.81 1,002,844 89,713 8.95
Tax exempt (2) 35,875 3,299 9.20 34,629 3,323 9.60 30,786 3,263 10.60
Real estate mortgage 1,628,924 142,457 8.75 1,834,615 165,752 9.03 1,638,776 138,090 8.43
Consumer 898,728 87,262 9.71 842,395 80,458 9.55 776,104 83,174 10.72
----------------------------------------------------------------------------------------------
TOTAL LOANS 3,870,335 349,272 9.02 3,852,202 349,961 9.08 3,448,510 314,240 9.11
----------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 6,223,962 510,409 8.20 6,077,023 506,532 8.34 5,514,194 457,135 8.29
Less: Allowance for loan losses 55,387 49,929 44,267
Cash and due from banks 154,326 106,098 130,073
Premises and equipment 102,841 101,236 96,291
Other assets 255,275 226,210 178,809
----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 6,681,017 $6,460,638 $5,875,100
==============================================================================================
<CAPTION>
LIABILITIES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing deposits:
Interest bearing checking accounts $ 556,250 $ 7,354 1.32% $ 529,885 $ 9,732 1.84% $ 533,995 $ 11,699 2.19%
Money market savings accounts 697,443 31,112 4.46 518,281 22,961 4.43 445,650 17,759 3.98
Other savings accounts 471,255 11,692 2.48 535,728 14,799 2.76 547,015 14,090 2.58
Certificates of deposit and
other time 2,507,846 139,442 5.56 2,539,863 143,523 5.65 2,433,066 137,681 5.66
----------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING DEPOSITS 4,232,794 189,600 4.48 4,123,757 191,015 4.63 3,959,726 181,229 4.58
Securities sold under repurchase
agreements 546,660 28,457 5.21 640,425 33,793 5.28 440,465 22,526 5.11
Federal funds purchased and
other short-term borrowings 113,529 6,128 5.40 80,364 4,516 5.62 70,922 3,979 5.61
FHLB advances and other long-term debt 633,711 35,915 5.67 644,685 37,882 5.88 458,603 26,762 5.84
----------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 5,526,694 260,100 4.71 5,489,231 267,206 4.87 4,929,716 234,496 4.76
Non-interest bearing demand deposits 491,981 420,098 407,450
Other liabilities 58,465 53,046 56,839
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,077,140 5,962,375 5,394,005
Guaranteed preferred beneficial
interests in the Corporation's con-
vertible subordinated debentures 90,555
SHAREHOLDERS' EQUITY 513,322 498,263 481,095
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 6,681,017 $6,460,638 $5,875,100
==============================================================================================
TOTAL DEPOSITS $ 4,724,775 $ 189,600 4.01% $4,543,855 $191,015 4.20% $4,367,176 $ 181,229 4.15%
==============================================================================================
RECAP: (5)
Interest income $ 510,409 8.20% $506,532 8.34% $ 457,135 8.29%
Interest expense 260,100 4.18 267,206 4.40 234,496 4.25
----------------------------------------------------------------------------------------------
NET INTEREST INCOME/MARGIN $ 250,309 4.02% $239,326 3.94% $ 222,639 4.04%
==============================================================================================
</TABLE>
(1) Analysis is based on net interest income before accounting conformity
charges in 1998, as discussed herein.
(2) Tax exempt securities and loans have been adjusted to a fully tax equivalent
basis using a marginal tax rate of 35%.
(3) Nonaccrual loans have been included in the average balances.
(4) Loan income includes interest and fees on loans.
(5) Average rates have been computed by dividing by total earning assets.
<PAGE>
38 CNB BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 193,696 $ 160,189
Federal funds sold and other short-term investments 33,912 20,773
--------------------------------
TOTAL CASH AND CASH EQUIVALENTS 227,608 180,962
Loans held for sale 107,138 50,823
Investment securities available for sale 2,592,120 1,854,025
Investment securities held to maturity (fair value $236,242 in 1997) 230,903
Loans 3,891,269 3,987,447
Less: Allowance for loan losses 56,271 55,223
--------------------------------
NET LOANS 3,834,998 3,932,224
Premises and equipment 101,160 104,420
Interest receivable 49,475 46,078
Intangible assets 51,185 48,620
Other assets 178,113 148,081
--------------------------------
TOTAL ASSETS $ 7,141,797 $ 6,596,136
================================
LIABILITIES
Deposits:
Non-interest bearing $ 577,108 $ 468,438
Interest bearing 4,381,229 4,146,624
--------------------------------
TOTAL DEPOSITS 4,958,337 4,615,062
Securities sold under repurchase agreements 697,960 586,855
Federal funds purchased and other short-term borrowings 105,831 94,220
FHLB advances and other long-term debt 626,759 726,658
Interest payable and other liabilities 53,364 57,878
--------------------------------
TOTAL LIABILITIES 6,442,251 6,080,673
Guaranteed preferred beneficial interests in the Corporation's
convertible subordinated debentures 172,500
SHAREHOLDERS' EQUITY
Common stock, $1 stated value
Shares authorized: 100,000,000
Shares issued: 35,482,969 in 1998 and 33,484,443 in 1997 35,483 33,484
Capital surplus 396,795 364,987
Retained earnings 83,612 110,343
Accumulated other comprehensive income - net unrealized
gains on investment securities available for sale 11,156 6,649
--------------------------------
TOTAL SHAREHOLDERS' EQUITY 527,046 515,463
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,141,797 $ 6,596,136
================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CNB BANCSHARES, INC. 39
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees:
Taxable $ 343,092 $ 346,638 $ 309,627
Tax exempt 2,240 2,257 1,867
Loans held for sale 6,735 1,274 6,557
Investment securities:
Taxable 124,696 135,712 120,516
Tax exempt 18,781 12,541 9,805
Federal funds sold and other short-term investments 841 1,329 3,356
---------------------------------------------------
Total interest income 496,385 499,751 451,728
---------------------------------------------------
INTEREST EXPENSE
Deposits 189,498 191,015 181,229
Short-term borrowings 34,585 38,309 26,505
FHLB advances and other long-term debt 36,038 37,882 26,762
---------------------------------------------------
Total interest expense 260,121 267,206 234,496
---------------------------------------------------
NET INTEREST INCOME 236,264 232,545 217,232
Provision for loan losses 10,638 24,886 13,283
---------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 225,626 207,659 203,949
---------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 26,672 19,877 17,088
Mortgage banking revenue 20,674 9,133 11,083
Insurance premiums and commissions 12,134 9,563 7,916
Trust and plan administration fees 11,489 9,838 7,720
Non-interest fees on loans 7,753 7,637 7,276
Investment products fees 6,849 6,653 5,319
Net securities gains 2,126 2,122 2,204
Other 19,037 17,157 10,080
---------------------------------------------------
Total non-interest income 106,734 81,980 68,686
---------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 111,079 103,025 90,394
Equipment 17,325 10,950 10,147
Data processing and other services 16,830 17,240 14,064
Occupancy 16,420 13,417 12,983
Professional fees 15,888 8,718 5,966
Advertising and promotion 7,380 6,532 6,734
Printing and supplies 5,740 5,043 5,157
Postage and freight 5,330 4,885 4,725
Telecommunication 5,102 4,355 3,978
Amortization of intangible assets 4,698 4,481 4,250
SAIF assessment 10,963
Other 26,684 20,213 22,579
---------------------------------------------------
Total non-interest expense 232,476 198,859 191,940
---------------------------------------------------
INCOME BEFORE INCOME TAXES 99,884 90,780 80,695
Income taxes 35,056 30,906 27,013
---------------------------------------------------
64,828 59,874 53,682
Distribution pertaining to guaranteed preferred beneficial interests in
the Corporation's convertible subordinated debentures, net of tax 3,257
---------------------------------------------------
NET INCOME $ 61,571 $ 59,874 $ 53,682
===================================================
NET INCOME PER SHARE
Basic $ 1.74 $ 1.71 $ 1.54
===================================================
Diluted $ 1.73 $ 1.69 $ 1.52
===================================================
AVERAGE SHARES OUTSTANDING
Basic 35,436,807 34,921,287 34,944,271
===================================================
Diluted 37,579,130 35,491,544 35,621,175
===================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
40 CNB BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
Accumulated Other
Common Stock Capital Retained Comprehensive
Shares Amount Surplus Earnings Income (Loss) Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1996 31,049,484 $ 31,049 $ 326,155 $ 112,926 $ 5,659 $ 475,789
Comprehensive income:
Net income for 1996 53,682 53,682
Change in unrealized gains/losses on
investment securities available for sale (6,867) (6,867)
----------
Total comprehensive income 46,815
----------
Cash dividends:
CNB Bancshares - $.74 per share (15,672) (15,672)
Pooled companies prior to acquisition (8,942) (8,942)
Stock dividend 950,040 950 26,553 (27,503)
Issuance of common stock for:
Dividend reinvestment plan 127,090 127 3,433 3,560
Stock options exercised 98,423 98 843 941
Exercise and conversion of stock
purchase contracts and debentures 171,655 172 2,466 2,638
Acquisitions 499,200 499 900 4,887 6,286
Purchase and retirement of common stock (587,822) (588) (16,302) (16,890)
Other 174,081 175 973 1,148
-----------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 32,482,151 32,482 345,021 119,378 (1,208) 495,673
Comprehensive income:
Net income for 1997 59,874 59,874
Change in unrealized gains/losses on
investment securities available for sale 7,857 7,857
----------
Total comprehensive income 67,731
----------
Cash dividends:
CNB Bancshares - $.82 per share (17,624) (17,624)
Pooled companies prior to acquisition (11,262) (11,262)
Stock dividend 966,741 967 38,277 (39,244)
Issuance of common stock for:
Dividend reinvestment plan 47,185 47 1,769 1,816
Stock options exercised 549,946 550 8,452 9,002
Exercise and conversion of debentures 350,436 350 5,390 5,740
Purchase and retirement of common stock (908,717) (909) (36,643) (37,552)
Adjustment to conform year-ends (745) (745)
Other (3,299) (3) 2,721 (34) 2,684
-----------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 33,484,443 33,484 364,987 110,343 6,649 515,463
Comprehensive income:
Net income for 1998 61,571 61,571
Change in unrealized gains/losses on
investment securities available for sale 4,507 4,507
----------
Total comprehensive income 66,078
----------
Cash dividends:
CNB Bancshares - $.90 per share (25,789) (25,789)
Pooled companies prior to acquisition (2,971) (2,971)
Stock dividend 1,712,908 1,713 72,313 (74,026)
Issuance of common stock for:
Stock options exercised 222,715 223 4,086 4,309
Acquisitions 1,198,742 1,199 5,493 14,484 21,176
Purchase and retirement of common stock (1,172,275) (1,172) (52,287) (53,459)
Other 36,436 36 2,203 2,239
-----------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 35,482,969 $ 35,483 $ 396,795 $ 83,612 $ 11,156 $ 527,046
=============================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CNB BANSHARES, INC. 41
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 61,571 $ 59,874 $ 53,682
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 27,257 18,580 19,026
Provision for loan losses 10,638 24,886 13,283
Amortization of premiums and discounts on securities 7,690 3,558 2,330
Deferred income tax benefit (1,787) (2,978) (1,876)
Net securities gains (2,126) (2,122) (2,204)
Loans originated for sale (744,573) (283,760) (249,733)
Proceeds from sale of loans 785,520 250,879 227,125
Increase in interest receivable and other assets, net of amortization (29,459) (45,522) (25,173)
Increase (decrease) in interest payable and other liabilities (5,158) 2,054 5,072
---------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 109,573 25,449 41,532
---------------------------------------------------
INVESTING ACTIVITIES
Cash and cash equivalents of subsidiaries acquired, net of purchase price 9,512 369
Principal payments received on investment securities available for sale 968,551 387,595 348,182
Proceeds from the sale of investment securities available for sale 1,386,982 1,182,086 744,338
Purchase of investment securities available for sale (2,867,077) (1,504,051) (1,330,300)
Principal payments received on investment securities held to maturity 38,874 16,756 19,118
Purchase of investment securities held to maturity (56,277)
Net (increase) decrease in loans 123,971 (319,633) (426,325)
Purchase of premises and equipment (12,623) (17,376) (13,200)
---------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (351,810) (254,623) (714,095)
---------------------------------------------------
FINANCING ACTIVITIES
Net increase in deposits 184,598 20,864 263,886
Net increase in short-term borrowings 118,057 17,914 389,697
Payment and maturity of long-term debt (412,248) (162,515) (170,793)
Proceeds from long-term borrowings 303,886 349,220 191,965
Proceeds pertaining to guaranteed preferred beneficial interests in
the Corporation's convertible subordinated debentures 172,500
Cash dividends paid (28,760) (27,174) (24,475)
Proceeds from common stock issued for dividend reinvestment plan 1,816 3,560
Proceeds from exercise of stock options 4,309 9,002 941
Purchase and retirement of common stock (53,459) (37,552) (16,890)
Other 331 274
---------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 288,883 171,906 638,165
---------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 46,646 (57,268) (34,398)
Adjustment to conform year-ends (745)
CASH AND CASH EQUIVALENTS AT JANUARY 1, 180,962 238,975 273,373
---------------------------------------------------
CASH AND CASH EQUIVALENTS AT DECEMBER 31, $ 227,608 $ 180,962 $ 238,975
===================================================
Supplemental disclosure:
Cash paid for:
Interest $ 260,411 $ 264,063 $ 232,725
Income taxes 27,069 34,168 24,112
Non-cash investing and financing activities:
Common stock issued for acquisitions 21,176 6,286
Stock issued in exchange of debentures and equity contracts and
pursuant to employee benefit plans 1,530 6,024 2,882
Investment securities transferred to available for sale 191,658
Loans transferred from portfolio to loans held for sale 96,462
</TABLE>
See notes to consolidated financial statements.
<PAGE>
42 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CNB Bancshares, Inc. (the Corporation)
and its subsidiaries conform to generally accepted accounting principles and
reporting practices followed by the banking industry. The more significant
policies are described below.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries after elimination of all material intercompany accounts and
transactions. Certain prior year amounts have been reclassified to conform with
current classifications.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of aggregate cost or market value.
Gains and losses on loans sold are recorded at the time of sale. Servicing fee
income subsequent to the sale is included in non-interest income. Mortgage
servicing rights associated with loans originated and sold, where servicing is
retained, are capitalized and amortized over the estimated lives of the loans.
The carrying value of such rights is subject to periodic adjustment based upon
changing market conditions.
INVESTMENT SECURITIES
Debt securities that the Corporation has the positive intent and ability to hold
to maturity are classified as held to maturity and reported at amortized cost.
Other investment securities are classified as trading or available for sale and
reported at fair value with unrealized gains and losses included in income or
shareholders' equity, net of related taxes, respectively.
Amortization of premiums and accretion of discounts are recorded as
adjustments to interest income using the level-yield method over the estimated
remaining period until maturity, adjusted for estimated prepayments. Gains and
losses on the sale of investment securities are determined on the specific
identification method at the time of sale.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are reported net of unearned interest and unamortized deferred fees and
costs. Interest income on loans is accrued on the principal amount of such loans
outstanding, except for leases and discounted installment loans which is
computed using the level-yield method. Certain nonrefundable loan fees and
related direct loan costs are deferred and amortized over the life of the loan
as an adjustment to interest income.
Loans are placed on nonaccrual status when the collection of interest
becomes doubtful. Interest accrued during the current year and deemed
uncollectible is reversed and charged against current income, while
uncollectible interest accrued from prior years is charged against the allowance
for loan losses. Interest income on nonaccrual loans is then recognized only
when collected. A loan remains on nonaccrual status until the loan is current as
to payment of both principal and interest, and/or the borrower demonstrates the
ability to pay and remain current.
Loans are considered impaired when it becomes probable that the Corporation
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. Impaired loans are measured by the present value of expected
future cash flows or the fair value of collateral, if the loan is collateral
dependent. Interest income on these loans is recognized as described above
depending on the accrual status of the loan.
The allowance for loan losses is increased by provisions charged to
expenses and reduced by loans charged off, net of recoveries. It is maintained
at a level considered adequate to absorb potential loan losses determined on the
basis of management's continuing review and evaluation of the loan portfolio and
its judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loan loss experience and
trends, changes in the composition of the loan portfolio, the current volume and
condition of loans outstanding and the probability of collecting all amounts
due.
<PAGE>
CNB BANCSHARES, INC. 43
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method based on
estimated useful lives. Gains and losses on dispositions are included in
operations.
FORECLOSED PROPERTIES
Foreclosed properties represent properties acquired through foreclosure or deed
in lieu of foreclosure and are recorded at the lower of cost or fair value less
estimated costs to sell. Losses at the time of transfer from loans are charged
to the allowance for loan losses. Subsequent adjustments to value and gains or
losses on sales are included in operations. Rental income and costs of
maintaining the properties are also included in operations.
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets and other intangibles
acquired in acquisitions accounted for as purchases are amortized using the
straight-line method over estimated lives up to 25 years. Such assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amounts of these assets may not be recoverable.
INTEREST RATE CONTRACTS
The Corporation reduces the potential impact of changing interest rates on its
costs to acquire liabilities that fund certain loans and investments through
interest rate contracts, including interest rate swaps (swaps), interest rate
caps (caps) and covered call option contracts.
The net settlements received or paid on swaps are reported as adjustments
to interest expense of the related liabilities being hedged. Premiums paid for
caps are included in the carrying amounts of those liabilities being hedged.
These amounts are amortized as an adjustment to interest expense of the related
liabilities on a straight-line method over the contractual terms of the caps.
Interest expense is reduced on a current basis as amounts are earned from
counterparties when the index rate exceeds the rate contractually specified in
the cap agreements.
Covered call option contracts provide the option buyer with the right to
sell to, or purchase from, another party some financial instrument at a stated
price on a specified future date. Fees received from the sale of written options
are deferred until the option expires, is terminated, or is exercised, at which
point the fees are included in current operations.
Gains or losses on the termination of interest rate contracts used to hedge
changes in interest rates are included in the carrying amounts of those
liabilities being hedged and are amortized as an adjustment to the yield of the
hedged liability over its remaining life. Gains or losses on the early
termination of a hedged transaction are included in current operations.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. The Corporation
and its subsidiaries file consolidated income tax returns.
NET INCOME PER SHARE
Basic net income per share has been computed by dividing net income by the
weighted average number of common shares outstanding during each period. Diluted
net income per share is computed as above, adjusted for the effects of options,
convertible subordinated debentures and the Guaranteed Preferred Beneficial
Interests in the Corporation's Convertible Subordinated Debentures (trust
preferred securities). Diluted net income has been adjusted for the elimination
of interest expense, net of tax, on convertible subordinated debentures and
distributions on the trust preferred securities, net of tax. Average shares have
been increased for the assumed conversion of outstanding options, convertible
subordinated debentures and trust preferred securities into common shares. All
share data included in the consolidated financial statements has been adjusted
for stock dividends.
<PAGE>
44 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
STOCK OPTION PLANS
On January 1, 1996, the Corporation adopted Financial Accounting Standards Board
(FASB) Statement No. 123, Accounting for Stock-Based Compensation, which permits
entities to expense the fair value of stock-based awards, as measured on the
date of grant, over their vesting period, or alternatively, provide pro forma
net income and pro forma net income per share disclosures for employee stock
option grants as if the fair-value-based method defined in FASB No. 123 had been
applied. The Corporation has elected to provide the pro forma disclosure
provisions of FASB No. 123.
TRUST ASSETS
Assets held by the Corporation's subsidiaries in fiduciary or agency capacity
for customers are not included in the Consolidated Financial Statements as such
items are not assets of the Corporation or its subsidiaries.
NEW ACCOUNTING STANDARDS
The FASB has issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities. The
Corporation has not yet determined the financial impact to its financial
condition or results of operations but plans to adopt FASB No. 133 on January 1,
2000.
2. BUSINESS COMBINATIONS
Information relating to mergers accounted for as poolings of interests for the
three year period ended December 31, 1998, includes:
<TABLE>
<CAPTION>
Merger Common Assets
Date Shares Issued Acquired
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
National Bancorp, Tell City, Indiana August 3, 1998 1,143,389 $ 190,080*
Pinnacle Financial Services, Inc., (Pinnacle),
St. Joseph, Michigan April 17, 1998 13,771,974 2,079,447
BMC Bancshares, Inc., Mt. Carmel, Illinois February 14, 1997 792,551 100,041
DuQuoin Bancorp, Inc., DuQuoin, Illinois May 17, 1996 577,886 84,357*
</TABLE>
* Accounted for as a pooling of interests without restatement of prior
periods as the amounts involved were not material to the Corporation's
financial condition or results of operations.
As discussed above, the Corporation acquired Pinnacle on April 17, 1998.
The acquisition was accounted for as a pooling of interests. Separate operating
results of the Corporation and Pinnacle for the periods prior to the merger were
as follows:
<TABLE>
<CAPTION>
Three Months Year Ended
Ended March 31, December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income:
Corporation $ 39,545 $ 157,996 $ 148,928
Pinnacle 17,570 74,549 68,304
--------------------------------------------
Combined $ 57,115 $ 232,545 $ 217,232
--------------------------------------------
Net income:
Corporation $ 13,626 $ 49,658 $ 37,595
Pinnacle 5,955 10,216 16,087
--------------------------------------------
Combined $ 19,581 $ 59,874 $ 53,682
============================================
Diluted net income per share:
Corporation $ .63 $ 2.26 $ 1.69
Pinnacle .43 .76 1.21
Combined .55 1.69 1.52
</TABLE>
The Corporation recorded merger and related charges of $41,346 ($30,214 net
of tax) in the second quarter of 1998 in connection with the Pinnacle merger.
The charges included accounting conformity adjustments of $4,012 and $252 to net
interest income and non-interest income, respectively, and $37,082 of
non-interest expenses related to the merger and conversion of Pinnacle to the
Corporation's data processing systems and other accounting conformity
adjustments. The non-interest expenses were comprised of $10,501 in severance
<PAGE>
CNB BANCSHARES, INC. 45
payments, $7,036 in data processing equipment and conversion expenses, $1,781 in
occupancy expense associated with office closures, $8,153 in associated
professional fees and $9,611 in other costs and accounting conformity
adjustments.
Direct merger expenses, write-downs of equipment and software to fair value
and conformity adjustments totaled $29,994. Reserves of $11,352 were established
for anticipated payments related to employment and contract terminations,
conversion costs and to resolve reconciling items generated through Pinnacle's
1997 data processing conversions. The data processing conversion to the
Corporation's systems was completed during the second quarter of 1998 and most
terminations were completed by September 30, 1998. Of the $11,352 in reserves
established in the second quarter of 1998, $2,574 remained at December 31, 1998,
as certain associates elected to receive severance payments over an extended
term. No further adjustment to the Corporation's results of operations is
expected and future payments will not have a significant effect on the
Corporation's liquidity or capital resources.
On January 1, 1998, the Corporation issued 115,290 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.
On May 31, 1996, the Corporation acquired $11,785 of loans from 12 offices
of Money One Credit Company, acquired a portion of the customer base from
Evansville Insurance Group and purchased Small Parker & Blossom, Inc., a third
party administrator of employee benefit plans. Goodwill resulting from these
acquisitions totaled $6,375 and is being amortized on a straight-line basis over
periods not exceeding 15 years. These acquisitions were accounted for under the
purchase method of accounting; and, accordingly, the consolidated financial
statements include the assets and liabilities and results of operations from the
May 31, 1996, transaction date forward.
On 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.
3. INVESTMENT SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale at December 31, 1998:
U.S. Treasury $ 19,190 $ 782 $ 19,972
Federal agencies:
Bonds and notes 111,296 629 111,925
Mortgage-backed securities 1,827,652 9,890 $ (5,279) 1,832,263
Collateralized mortgage obligations 42,914 432 (1,825) 41,521
State and municipal 473,794 15,472 (1,524) 487,742
Other securities 98,897 397 (597) 98,697
----------------------------------------------------------
Total $ 2,573,743 $ 27,602 $ (9,225) $ 2,592,120
==========================================================
Available for Sale at December 31, 1997:
U.S. Treasury $ 25,227 $ 230 $ (1) $ 25,456
Federal agencies:
Bonds and notes 334,325 774 (616) 334,483
Mortgage-backed securities 1,177,148 8,322 (906) 1,184,564
Collateralized mortgage obligations 120,894 891 (2,360) 119,425
State and municipal 125,736 4,338 (35) 130,039
Other securities 59,730 419 (91) 60,058
----------------------------------------------------------
Total $ 1,843,060 $ 14,974 $ (4,009) $ 1,854,025
==========================================================
Held to Maturity at December 31, 1997:
Federal agencies:
Mortgage-backed securities $ 68,867 $ 113 $ (807) $ 68,173
Collateralized mortgage obligations 24,535 (142) 24,393
State and municipal 137,501 6,295 (120) 143,676
----------------------------------------------------------
Total $ 230,903 $ 6,408 $ (1,069) $ 236,242
==========================================================
</TABLE>
<PAGE>
46 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
The carrying values of investment securities at December 31, 1998, by
contractual maturity, except for mortgage-backed securities and collateralized
mortgage obligations, which are based on estimated average lives, are shown in
the following table. Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with or without
call or prepayment penalties.
MATURITIES AND AVERAGE YIELDS OF INVESTMENT SECURITIES AVAILABLE FOR SALE AT
DECEMBER 31, 1998*
<TABLE>
<CAPTION>
1 Year or Less 1-5 Years 5-10 Years Over 10 Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $ 4,044 6.24% $ 6,087 6.00% $ 9,841 6.12% $ 19,972 6.11%
Federal agencies:
Bonds and notes 135 7.20 2,471 6.73 106,510 6.72 $ 2,809 7.50% 111,925 6.74
Mortgage-backed
securities 416,145 6.33 897,120 6.48 369,014 6.47 149,984 6.46 1,832,263 6.44
Collateralized mortgage
obligations 29,488 7.05 11,948 7.12 85 7.14 41,521 7.07
State and municipal 10,024 8.59 39,568 8.03 113,623 7.64 324,527 7.22 487,742 7.41
Other securities 1,156 6.73 97,541 7.33 98,697 7.32
---------- ---------- --------- ---------- -----------
Total $ 459,836 6.42% $ 958,350 6.55% $ 599,073 6.73% $ 574,861 7.04% $ 2,592,120 6.68%
=======================================================================================================
Percent of total 18% 37% 23% 22% 100%
=======================================================================================================
</TABLE>
* Fully taxable equivalent yields
Specific investment securities with fair values of $1,175,979 and $600,823
were pledged at December 31, 1998 and 1997, respectively, to secure securities
sold under repurchase agreements, public deposits, trust funds and for other
purposes as required or permitted by law. In addition, investment securities
with a carrying value of $831,659 were pledged at December 31, 1998, under
blanket collateral agreements to secure borrowings availability with the Federal
Home Loan Bank.
Proceeds from the sales of investment securities available for sale during
1998, 1997 and 1996 were $1,386,982, $1,182,086 and $744,338, respectively.
Gross gains and losses, respectively, realized on those transactions were as
follows: 1998 - $3,563 and ($1,437); 1997 - $4,512 and ($2,390); and 1996 -
$3,453 and ($1,249).
On December 31, 1998, in order to provide for more effective
asset/liability management, the entire held to maturity securities portfolio was
transferred to available for sale. The held to maturity portfolio had an
amortized cost of $191,658 and a fair value of $198,685 at the date of transfer.
The unrealized gain of $7,027 is included, net of tax, in accumulated other
comprehensive income. While management no longer has the positive intent to hold
such transferred securities to their maturity date, at December 31, 1998, there
were no immediate plans to sell any of the transferred securities.
<PAGE>
CNB BANCSHARES, INC. 47
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Through its subsidiaries, the Corporation originates commercial, mortgage and
consumer loans from customers located in its primary market areas of Indiana,
Illinois, Kentucky, Michigan and portions of Tennessee. Collateral, if deemed
necessary, is based on management's credit evaluation and may include business
assets of commercial borrowers as well as personal property and real estate of
individual borrowers or guarantors. The Corporation's loan portfolio is
diversified with no major concentration related to any one industry.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans outstanding at December 31:
Commercial, industrial and agricultural production $ 1,344,110 $ 1,281,143
Tax exempt 40,122 35,070
Real estate mortgage:
Commercial and agricultural 435,129 389,761
Construction 155,756 129,925
Residential 976,586 1,280,917
Consumer 951,135 884,265
-----------------------------
3,902,838 4,001,081
Less: Unearned income 11,569 13,634
-----------------------------
Loans, net of unearned income $ 3,891,269 $ 3,987,447
=============================
</TABLE>
Impaired loans totaled $39,823 and $42,097 at December 31, 1998 and 1997,
respectively. Included in the impaired loans total as of the same respective
year-end dates were $13,868 and $26,035 of impaired loans for which the related
specific allowance for loan losses were $2,506 and $5,159. The remaining $25,955
and $16,062 of impaired loans at year-end 1998 and 1997, respectively, did not
require specific reserves. Impaired loans averaged $38,932 and $32,955 for 1998
and 1997, respectively. The Corporation recognized $1,554, $1,345 and $866 of
interest income on impaired loans in 1998, 1997 and 1996, respectively.
Loans on which the accrual of interest was discontinued or reduced amounted
to $34,964 at December 31, 1998, and $27,974 at December 31, 1997. Additional
interest income of approximately $3,223 for 1998, $2,615 for 1997, and $2,799
for 1996, would have been recorded had income on these loans been accounted for
on the accrual basis.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses:
Balance at January 1, $ 55,223 $ 46,171 $ 43,259
Allowance of subsidiaries at acquisition date 2,140 1,872
Adjustment to conform year-ends 501
Loan charge-offs (16,313) (19,702) (16,349)
Loan recoveries 4,583 3,367 4,106
Provision for loan losses 10,638 24,886 13,283
----------------------------------------------
Balance at December 31, $ 56,271 $ 55,223 $ 46,171
==============================================
</TABLE>
5. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost at December 31:
Land $ 15,794 $ 15,586
Buildings and leasehold improvements 102,105 104,539
Equipment 68,634 74,637
-----------------------------
Total cost 186,533 194,762
Accumulated depreciation (85,373) (90,342)
-----------------------------
Net $ 101,160 $ 104,420
=============================
</TABLE>
<PAGE>
48 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
6. DEPOSITS
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deposits at December 31:
Non-interest bearing checking $ 577,108 $ 468,438
Interest bearing checking 629,291 555,910
Savings 448,657 501,520
Money market 788,435 580,845
Certificates of $100 or more 371,249 310,009
Other certificates and time deposits 2,143,597 2,198,340
-----------------------------
Total $ 4,958,337 $ 4,615,062
=============================
</TABLE>
The Corporation receives deposits from customers located in its primary
market areas of Indiana, Illinois, Kentucky and Michigan, and generally does not
accept brokered deposits and has no significant concentrations of deposits from
any one customer or industry. The scheduled maturities of certificates and other
time deposits at December 31, 1998, was as follows: 1999 - $1,731,010; 2000 -
$496,035; 2001 - $189,422; 2002 - $45,846; 2003 - $34,917; 2004 and after -
$17,616.
Interest expense on time deposits of $100 or more was $20,033, $16,643 and
$15,912 for 1998, 1997 and 1996, respectively.
7. SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Securities
Sold Under Federal Other
Repurchase Funds Short-Term
1998 Agreements Purchased Borrowings Total
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, $ 697,960 $ 99,370 $ 6,461 $ 803,791
Average amount outstanding during the year 546,660 104,759 8,770 660,189
Maximum amount outstanding at any month-end 697,960 141,950 13,809
Weighted average interest rate:
During year 5.21% 5.41% 5.28% 5.24%
End of year 4.86 5.03 4.07 4.88
1997
--------------------------------------------------------------------------------------------------------------------
Balance at December 31, $ 586,855 $ 57,380 $ 36,840 $ 681,075
Average amount outstanding during the year 640,425 70,937 9,427 720,789
Maximum amount outstanding at any month-end 700,534 124,610 36,840
Weighted average interest rate:
During year 5.28% 5.67% 5.26% 5.32%
End of year 5.45 5.94 5.65 5.50
1996
--------------------------------------------------------------------------------------------------------------------
Balance at December 31, $ 562,364 $ 91,630 $ 7,878 $ 661,872
Average amount outstanding during the year 440,465 64,817 6,105 511,387
Maximum amount outstanding at any month-end 562,364 126,120 16,252
Weighted average interest rate:
During year 5.11% 5.72% 4.46% 5.18%
End of year 4.98 6.12 4.76 5.14
</TABLE>
<PAGE>
CNB BANCSHARES, INC. 49
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt of the parent company and its subsidiaries as of December 31:
Parent Company:
Notes payable, unsecured:
Variable rate adjusted with changes in LIBOR (6.47% at December 31, 1997) $ 35,000
Variable rate adjusted with changes in LIBOR, payable $250 quarterly through
2000 (6.13% and 6.47% at December 31, 1998 and 1997, respectively) $ 2,500 3,500
Subsidiaries:
Federal Home Loan Bank advances, due at various dates through 2016 (weighted
average rates of 5.46% and 5.68% at December 31, 1998 and 1997, respectively) 614,201 677,979
Other, including capitalized leases 10,058 10,179
---------------------------
Total $ 626,759 $ 726,658
===========================
</TABLE>
The scheduled principal reduction of long-term debt at December 31, 1998,
was as follows: 1999 - $72,379; 2000 - $227,975; 2001 - $10,981; 2002 - $71,120;
2003 - $132,702; 2004 and after - $111,602. Certain notes permit earlier
principal payments without penalty.
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.
At December 31, 1998, the Corporation's subsidiary bank had $174,630
available from unused federal funds purchased agreements and in excess of
$460,143 of available borrowing capacity from the Federal Home Loan Bank. In
addition, the Corporation has an unsecured line of credit available which
permits it to borrow up to $50,000 at variable rates adjusted with changes in
LIBOR through June 30, 1999. At December 31, 1998, the entire $50,000 of the
line of credit remained available for future use.
9. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S CONVERTIBLE
SUBORDINATED DEBENTURES
In June 1998, the Corporation issued $172,500 of trust preferred securities
through CNB Capital Trust I, a Delaware statutory business trust created and
wholly owned 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 any time 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.
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.
10. SHAREHOLDERS' EQUITY
The Corporation is authorized to issue 2,000,000 shares of preferred stock, no
par value, which remain unissued. In the event any preferred shares are issued,
specific voting powers, dividend preferences and other rights and restrictions
of the preferred stock will be designated by the Board of Directors.
Shareholders' equity has been adjusted to record the one-for-twenty stock
dividends declared on September 10, 1996, August 11, 1997, and August 18, 1998.
All share data has been adjusted to reflect the stock dividends.
<PAGE>
50 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATE)
The Corporation offers a Dividend Reinvestment and Stock Purchase Plan (the
Plan), which provides shareholders of the Corporation a convenient method of
purchasing additional shares of common stock. The Plan provides for shares to be
purchased in the market or to be issued by the Corporation. Pursuant to the
Plan, 123,216 and 60,098 shares were purchased in the market for 1998 and 1997,
respectively. Shares issued under the Plan totaled 51,431 and 145,522 for 1997
and 1996, respectively. At December 31, 1998, there were 518,630 shares of
common stock reserved for issuance under the Plan.
The Corporation called its convertible subordinated debentures effective
October 3, 1997. The Corporation issued 369,124 shares in 1997 and 37,171 shares
in 1996 in connection with the conversion of these debentures.
Cancelable mandatory stock purchase contracts were called effective August
15, 1996. The Corporation issued 159,170 shares in 1996 in connection with the
exercise of these stock purchase contracts.
The Corporation issued $172,500 of convertible trust preferred securities
in June 1998, as described in Note 9. At December 31, 1998, there were 3,336,150
shares of common stock reserved for issuance in connection with these
securities.
The Corporation has Incentive Stock Option Plans (Plans), whereby up to
1,768,000 shares of common stock can be granted to directors, officers or
employees of the Corporation or its subsidiaries. Under terms of the Plans,
options may be granted to purchase the Corporation's common stock at a price not
less than the fair market value of the common stock at the date of the grant,
for a period of up to 10 years after a six month or greater vesting period.
Options granted pursuant to the Plans generally qualify as incentive stock
options; however, certain conditions may be waived which would result in the
options being treated as non-qualified stock options. Unless earlier terminated
by the Board of Directors, the Plans will terminate on March 20, 2005. At
December 31, 1998, 60,136 shares were available for the granting of additional
options.
The fair value of option grants, excluding options from Pinnacle, was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.50% 6.38% 6.83%
Dividend yield 2.50 2.50 3.20
Volatility 22.50 20.00 14.00
Expected option life 7 years 5 years 7 years
</TABLE>
The fair value of Pinnacle's option grants prior to the April 17, 1998,
merger was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 6.50% 6.50%
Dividend yield 3.75 3.75
Volatility 30.60 34.10
Expected option life 3.5 years 3.5 years
</TABLE>
For purposes of pro forma disclosures, if the estimated fair value of all
options granted after January 1, 1996, is amortized to expense over the options'
vesting period, the effect on net income and net income per share would be:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 61,571 $ 59,874 $ 53,682
Pro forma 60,244 58,767 52,701
Basic net income per share:
As reported $ 1.74 $ 1.71 $ 1.54
Pro forma 1.70 1.68 1.51
Diluted net income per share:
As reported $ 1.73 $ 1.69 $ 1.52
Pro forma 1.69 1.66 1.49
</TABLE>
<PAGE>
CNB BANCSHARES, INC. 51
A summary of the option transactions under the Plans and other options
assumed by the Corporation as a result of certain mergers is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
Average Average Average
Option Option Option Option Option Option
Shares Price Shares Price Shares Price
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 1,227,859 $ 27.34 1,231,118 $ 17.63 1,118,583 $ 14.57
Granted or assumed 310,522 40.85 599,668 36.03 317,628 22.23
Exercised (230,756) 18.67 (579,777) 15.67 (180,213) 7.38
Forfeited (61,211) 38.21 (23,150) 28.05 (24,880) 12.86
--------- --------- ---------
Outstanding at December 31, 1,246,414 $ 31.78 1,227,859 $ 27.34 1,231,118 $ 17.63
=============================================================================
Exercisable at December 31, 773,204 $ 26.45 778,700 $ 21.67 891,197 $ 17.64
=============================================================================
</TABLE>
The following table summarizes stock options outstanding as of December 31,
1998:
<TABLE>
<CAPTION>
Weighted Average
Range of Remaining Contractual Weighted Average
Exercise Price Outstanding Life (Years) Exercise Price
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 5.00 - $15.00 64,198 4.4 $ 10.91
15.01 - 35.00 493,343 6.2 22.71
35.01 - 50.00 688,873 8.2 40.23
---------
1,246,414 7.2 31.78
=========
</TABLE>
The following table reconciles the numerators and denominators for basic
and diluted net income per share:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
For basic net income per share - Net income $ 61,571 $ 59,874 $ 53,682
Effect of dilutive securities:
Trust preferred securities and convertible
subordinated debentures 3,257 179 288
------------------------------------
For diluted net income per share - Net income
after assumed conversions $ 64,828 $ 60,053 $ 53,970
====================================
DENOMINATOR (SHARES IN THOUSANDS):
For basic net income per share - Average shares outstanding 35,437 34,921 34,944
Effect of dilutive securities:
Trust preferred securities, convertible subordinated
debentures and stock options 2,142 571 677
------------------------------------
For diluted net income per share - Average shares outstanding
after assumed conversions 37,579 35,492 35,621
====================================
</TABLE>
<PAGE>
52 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
11. COMPREHENSIVE INCOME
The Corporation's other comprehensive income included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net realized and unrealized gains (losses) on available for sale securities $ 5,772 $ 9,119 $ (5,556)
Less: Adjustment for net securities gains realized in net income, net of tax 1,265 1,262 1,311
--------------------------------------
Other comprehensive income (loss) $ 4,507 $ 7,857 $ (6,867)
======================================
</TABLE>
12. MORTGAGE BANKING ACTIVITIES
The Corporation has sold certain loans to various investors while retaining
servicing rights. Loans serviced for others totaled $1,090,044 and $1,083,192 at
December 31, 1998 and 1997, respectively, and are not included in the
accompanying consolidated financial statements. Changes in mortgage servicing
rights for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, $ 4,847 $ 3,846
Mortgage servicing rights capitalized 4,146 1,979
Amortization (1,508) (978)
------------------------
Balance at December 31, $ 7,485 $ 4,847
========================
</TABLE>
The components of mortgage banking revenue were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gains on sales and securitizations of mortgage loans $ 14,867 $ 5,157 $ 7,776
Gain on sale of mortgage servicing rights 1,361
Mortgage loan fees 2,050 1,398 1,051
Mortgage servicing fees, net of amortization 2,396 2,578 2,256
---------------------------------------
Mortgage banking revenue $ 20,674 $ 9,133 $ 11,083
=======================================
</TABLE>
13. EMPLOYEE BENEFIT PLANS
The Corporation and its subsidiaries maintain noncontributory, defined-benefit
pension plans covering substantially all employees. Pension benefits are
generally based on years of service and compensation, as defined. Pension
expense was $929, $580 and $713 for 1998, 1997 and 1996, respectively, and
included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service costs-benefits earned during the period $ 2,826 $ 2,392 $ 2,191
Interest costs on projected benefit obligation 3,159 2,844 2,687
Return on plan assets (4,753) (4,353) (3,924)
Net amortization and deferral (303) (303) (241)
--------------------------------------
Net pension expense $ 929 $ 580 $ 713
======================================
</TABLE>
It is the Corporation's policy to make contributions to the plans that meet
or exceed the minimum funding requirements of applicable laws and regulations,
up to that allowable by federal tax regulations.
<PAGE>
CNB BANCSHARES, INC. 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
The following tables show the plans' benefit obligation, plan assets,
funded status and the amounts recognized in the Corporation's Consolidated
Balance Sheet:
<TABLE>
<CAPTION>
CHANGE IN PROJECTED BENEFIT OBLIGATION 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation at January 1, $ 43,234 $ 38,099
Actuarial (gain) loss 1,048 (346)
Service costs-benefits earned during the period 2,826 2,392
Interest costs on projected benefit obligation 3,159 2,844
Plan amendments 52
Benefits paid (2,629) (2,069)
Loss due to change in discount rate 970 1,499
Merger of plans 815
-------------------------
Projected benefit obligation at December 31, $ 48,660 $ 43,234
=========================
<CAPTION>
CHANGE IN PLAN ASSETS 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fair value of assets at January 1, $ 59,058 $ 50,179
Actual return on plan assets 6,544 8,839
Contributions 446 544
Benefits paid (2,629) (2,069)
Merger of plans 1,565
-------------------------
Fair value of assets at December 31, $ 63,419 $ 59,058
=========================
<CAPTION>
FUNDED STATUS AT DECEMBER 31, 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $ 63,419 $ 59,058
Projected benefit obligation (48,660) (43,234)
-------------------------
Excess of plan assets over projected benefit obligation 14,759 15,824
Unrecognized net transition asset (1,773) (2,037)
Unrecognized net gain (5,559) (5,775)
Unrecognized prior service cost (1,301) (1,402)
-------------------------
Prepaid pension expense included in other assets $ 6,126 $ 6,610
=========================
</TABLE>
Plan assets consist primarily of investments in U.S. Government agency and
corporate debt obligations and collective investment and mutual funds. At
December 31, 1998, the plans held 134,311 common shares of the Corporation.
Range of assumptions used in determining the projected benefit obligations
and net pension expense for the Corporation including those used by Pinnacle for
years prior to the merger were:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.00% 7.25-7.50% 7.50%
Rate of increase in compensation levels 4.25 4.25-5.50 4.25-5.50
Expected long-term rate of return on plan assets 9.00 9.00-10.00 9.00-10.00
</TABLE>
The Corporation and its subsidiaries also have a deferred income savings
plan (Savings Plan) with substantially all employees eligible to participate. At
the discretion of the Board of Directors, the subsidiaries match a percentage of
employee contributions and may make an additional contribution based on earnings
performance. The Corporation's expense for the Savings Plan was $1,794, $1,226
and $1,089 for 1998, 1997 and 1996, respectively.
The Corporation generally does not provide postretirement benefits other
than pensions nor does it have any material liabilities for postemployment
benefits.
<PAGE>
54 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
14. INCOME TAXES
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes:
Currently payable:
Federal $ 30,024 $ 29,365 $ 23,481
State 6,819 4,519 5,408
Deferred (benefit) expense:
Federal (1,801) (3,124) (1,642)
State 14 146 (234)
---------------------------------------
Total income taxes $ 35,056 $ 30,906 $ 27,013
=======================================
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of federal statutory tax to actual income tax expense:
Federal income tax at applicable statutory rate (35%) $ 34,959 $ 31,773 $ 28,243
Tax exempt income (7,948) (5,328) (3,792)
State tax, net of federal tax benefit 4,441 3,032 3,309
Amortization of intangibles 887 1,229 726
Other 2,717 200 (1,473)
---------------------------------------
Income tax expense $ 35,056 $ 30,906 $ 27,013
---------------------------------------
Effective rate 35% 34% 33%
=======================================
</TABLE>
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and liabilities at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 20,023 $ 19,139
Deferred compensation 4,459 3,292
Unearned fees and commissions 505 1,322
Accrued expenses 1,849 1,168
Other 1,763 1,313
-------------------------
Total deferred tax assets 28,599 26,234
Deferred tax liabilities:
Unrealized gains on investment securities available for sale 7,222 4,316
Deferred loan fees and costs 1,509 2,046
Depreciation 5,112 4,689
Prepaid pension 2,459 2,815
Leasing operations 2,296 1,359
Mortgage servicing rights 2,380 1,611
Other 3,320 3,978
-------------------------
Total deferred tax liabilities 24,298 20,814
-------------------------
Net deferred tax asset $ 4,301 $ 5,420
=========================
</TABLE>
<PAGE>
CNB BANCSHARES, INC. 55
No valuation allowance was required for the years reported due to
management's belief that it is more likely than not that future operations will
generate sufficient taxable income to realize the deferred tax assets.
The base year reserves of certain thrift institutions acquired by the
Corporation would be recaptured if the bank subsidiary of the Corporation ceases
to qualify as a "bank" for federal income tax purposes. The base year reserves
of thrift institutions also remain subject to income tax provisions which, in
general, require recapture upon certain stock redemptions of shareholders and
excess distributions to shareholders. At December 31, 1998 and 1997, retained
earnings included approximately $8,800 of base year reserves for which no
deferred income tax liability had been recognized.
15. COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is committed under various operating leases for premises and
equipment. Future minimum rentals for lease commitments having initial or
remaining non-cancelable lease terms in excess of one year totaled approximately
$12,281 at December 31, 1998. Rental expense for operating leases totaled
$3,613, $3,395 and $2,770 in 1998, 1997 and 1996, respectively.
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying consolidated financial
statements. The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for commitments
to extend credit and standby letters of credit is represented by the contractual
or notional amount of those instruments. The Corporation uses the same credit
policies in making such commitments as it does for instruments that are included
in the Consolidated Balance Sheet.
At December 31, those financial instruments whose contract amount
represents credit and/or interest rate risk are summarized in the following
table:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $ 814,143 $ 622,079
Standby letters of credit 120,195 78,695
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation. Collateral held may include accounts receivable,
inventory, real property, plant and equipment and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party.
The Corporation and its subsidiaries are also subject to claims and
lawsuits which arise primarily in the ordinary course of business. Based on
information presently available and advice received from legal counsel
representing the Corporation in connection with such claims and lawsuits, it is
the opinion of management that the disposition or ultimate determination of such
claims and lawsuits will not have a material adverse effect on the consolidated
financial position of the Corporation.
The Corporation has change of control agreements with certain employees
which provide for specified benefits under certain conditions. The contingent
liability under these agreements in the event of a change in control is
approximately $8,664.
The Corporation has entered into an agreement with a third party to provide
the Corporation with certain services, including software, specified computer
equipment and the overall management and operations of its data processing
through June 2003. The agreement provides for minimum annual payments as
follows: 1999 - $4,607; 2000 - $4,519; 2001 - $4,519; 2002 - $4,519; and 2003 -
$2,259.
16. INTEREST RATE CONTRACTS
The Corporation has entered into interest rate contracts as a hedge against the
interest costs of certain deposits, repurchase agreements and long-term
borrowings to manage its interest rate sensitivity. Interest rate swaps (swaps)
represent an exchange of interest payments and the underlying principal balances
of the liabilities are not affected. At December 31, 1998 and 1997, the
Corporation had swaps with notional values of $440,000 and $55,000 which
terminate on or prior to April 7, 2005. The swaps require the Corporation to pay
a fixed rate of interest ranging from 5.32% to 5.60% and receive a variable rate
based on one-month or three-month LIBOR. At December 31,
<PAGE>
56 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
1997, the Corporation had entered into interest rate cap agreements (caps), with
a notional value of $390,000, to reduce the impact of increased interest rates
on its costs to acquire certain deposits and repurchase agreements. These caps
were terminated and replaced with swaps during 1998. The Corporation's interest
rate contracts had carrying values of $367 and $2,095 at December 31, 1998 and
1997, respectively. The related fair values of the contracts were ($14,182) and
$950 at December 31, 1998 and 1997, respectively. The negative fair value
represents the estimated amount the Corporation would have to pay at December
31, 1998, to cancel the contracts or transfer them to other parties.
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.
17. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Corporation has loan, deposit and other
transactions with executive officers, directors and principal shareholders, and
with organizations and individuals with which they are financially or otherwise
closely associated. All of the transactions were entered into on substantially
the same terms as those prevailing at the time for comparable transactions with
other parties. These loans do not involve more than normal risk of collection or
present other unfavorable features. As defined, total loans to executive
officers, directors and principal shareholders were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1998 $ 63,316
New loans, including renewals 8,856
Director and officer changes (39,055)
Payments, including renewals (14,422)
------------
Balance at December 31, 1998 $ 18,695
============
</TABLE>
18. REGULATORY RESTRICTIONS AND CAPITAL REQUIREMENTS
The principal source of income and funds for the Corporation (Parent Company) is
dividends from its banking subsidiary (Bank). During 1999, the amount of
dividends that the Bank can pay to the Parent Company is limited to the total of
its retained earnings of $301,248 (the amount available at December 31, 1998).
As a practical matter, the Bank may restrict dividends to a lesser amount
because of the need to maintain adequate capital levels.
The Bank is required to maintain a non-interest bearing cash reserve
balance which is dependent on the amounts and types of deposits it holds. The
reserve required at December 31, 1998, was $23,129.
The Corporation and the Bank are subject to various regulatory capital
requirements administered by state and federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation and the Bank must meet specific capital
guidelines that involve quantitative measures of their respective assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Corporation's and the Bank's 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 the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, that as of
December 31, 1998, the Corporation and the Bank met all capital adequacy
requirements to which they were subject.
As of December 31, 1998, the most recent notification from regulatory
agencies categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the following table. There are no conditions or events
since that notification that management believes have changed the Bank's
categories.
<PAGE>
CNB BANCSHARES, INC. 57
The Corporation's and the Bank's actual and minimum required capital
amounts and ratios as mandated by the respective principal regulatory authority
at December 31, 1998, were as follows:
<TABLE>
<CAPTION>
Requirements
To be Classified
Actual Minimum Requirements as "Well Capitalized"
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (to risk-weighted assets):
Corporation $ 698,295 16.02% $ 348,652 8.00% n/a n/a
Citizens Bank of MidAmerica 569,922 13.04 349,721 8.00 $ 437,151 10.00%
TIER 1 CAPITAL (to risk-weighted assets):
Corporation 643,281 14.76 174,326 4.00 n/a n/a
Citizens Bank of MidAmerica 515,258 11.79 174,860 4.00 262,290 6.00
TIER 1 CAPITAL (to average assets):
(also known as leverage ratio)
Corporation 643,281 9.30 276,563 4.00 n/a n/a
Citizens Bank of MidAmerica 515,258 7.47 275,758 4.00 344,697 5.00
</TABLE>
19. SEGMENT INFORMATION
As previously discussed in Note 2, the Corporation combined its eight subsidiary
banks into one charter effective December 31, 1998. Prior to that combination,
management used loan and deposit average balances, net income and related growth
rates and financial ratios to measure performance of each subsidiary bank. The
following table shows the financial information of the Corporation's reportable
divisions (formerly subsidiary banks) for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Northern
Indiana/ Central Merger &
Evansville Michigan Indiana Kentucky Illinois Other Related Charges Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income $ 69,723 $ 71,202 $ 23,497 $ 25,844 $ 19,371 $ 30,639 $ (4,012) $ 236,264
Provision for loan losses 1,674 3,351 459 2,982 1,114 1,058 10,638
Non-interest income 30,160 25,412 9,441 8,329 5,812 27,832 (252) 106,734
Non-interest expense 46,434 49,269 18,587 19,493 16,075 45,536 37,082 232,476
Income taxes 18,598 15,048 4,553 3,330 1,988 2,671 (11,132) 35,056
Distribution on trust
preferred securities 3,257 3,257
Net income 33,177 28,946 9,339 8,368 6,006 5,949 (30,214) 61,571
AVERAGE BALANCES:
Loans $ 1,095,232 $ 1,302,893 $ 363,715 $ 433,378 $ 301,622 $ 373,495 $ 3,870,335
Assets 2,346,061 2,003,235 652,064 695,276 691,827 292,554 6,681,017
Deposits 1,414,212 1,417,143 539,354 469,990 496,399 387,677 4,724,775
FINANCIAL RATIOS:
Return on assets 1.41% 1.44% 1.43% 1.20% .87% 1.37%
Efficiency ratio 44 49 54 55 60 54
</TABLE>
<PAGE>
58 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Northern
Indiana/ Central Merger &
Evansville Michigan Indiana Kentucky Illinois Other Related Charges Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income $ 67,753 $ 74,386 $ 23,041 $ 23,102 $ 19,870 $ 24,393 $ 232,545
Provision for loan losses 2,686 3,320 1,906 2,505 1,189 3,280 $ 10,000 24,886
Non-interest income 24,487 16,846 7,444 5,949 4,620 22,634 81,980
Non-interest expense 45,548 50,735 16,750 17,361 15,378 41,998 11,089 198,859
Income taxes 15,893 13,675 4,040 2,733 2,102 (442) (7,095) 30,906
Net income 28,113 23,502 7,789 6,452 5,821 2,191 (13,994) 59,874
AVERAGE BALANCES:
Loans $ 1,042,551 $ 1,474,905 $ 352,624 $ 358,721 $ 315,023 $ 308,378 $ 3,852,202
Assets 2,064,449 2,129,069 620,669 643,264 669,248 333,939 6,460,638
Deposits 1,290,484 1,462,869 503,962 433,371 504,643 348,526 4,543,855
FINANCIAL RATIOS:
Return on assets 1.36% 1.10% 1.25% 1.00% .87% 1.14%
Efficiency ratio 48 53 53 58 60 59
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Northern One-Time
Indiana/ Central SAIF
Evansville Michigan Indiana Kentucky Illinois Other Assessment Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income $ 65,684 $ 68,304 $ 20,455 $ 20,673 $ 19,698 $ 22,418 $ 217,232
Provision for loan losses 5,445 2,681 652 484 2,179 1,842 13,283
Non-interest income 22,284 12,853 6,327 6,360 4,628 16,234 68,686
Non-interest expense 46,512 48,946 16,386 17,659 15,559 35,915 $ 10,963 191,940
Income taxes 13,201 9,843 3,449 2,812 1,926 100 (4,318) 27,013
Net income 22,810 19,687 6,295 6,078 4,662 795 (6,645) 53,682
AVERAGE BALANCES:
Loans $ 958,120 $ 1,316,487 $ 295,886 $ 289,199 $ 309,493 $ 279,325 $ 3,448,510
Assets 1,873,897 1,938,154 543,955 596,768 610,083 312,243 5,875,100
Deposits 1,237,287 1,419,563 472,552 426,724 513,083 297,967 4,367,176
FINANCIAL RATIOS:
Return on assets 1.22% 1.02% 1.16% 1.02% .76% 1.03%
Efficiency ratio 51 60 60 64 61 63
</TABLE>
The "Other" column includes the Parent Company, all subsidiaries not
required to be disclosed separately and all intercompany elimination entries.
The merger and related charges column for 1998 relates to the merger of
Pinnacle into the Corporation; and, accordingly, most charges would be allocated
to the Northern Indiana/Michigan Division, but to show meaningful comparisons,
they are displayed separately. The 1997 charges are the result of mergers
Pinnacle consummated prior to its merger with the Corporation and would also be
allocated to the Northern Indiana/Michigan Division, but are shown separately to
allow meaningful comparisons. The adjustment in 1996 relates to the special
assessment required of all financial institutions with deposits insured by the
Savings Association Insurance Fund (SAIF). The assessment would be allocated,
net of tax, as follows: Evansville - $569; Northern Indiana/Michigan - $3,600;
Central Indiana - $198; Kentucky - $508; Illinois - $587 and divisions included
in "Other" - $1,183.
The financial ratios exclude all of the above merger and one-time charges
to allow meaningful comparisons. Capital expenditures, amortization and
depreciation are not separately disclosed as they were immaterial.
<PAGE>
CNB BANCSHARES, INC. 59
20. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments are
provided in the following table. A financial instrument is defined as cash,
evidence of an ownership interest in an entity, or a contract that imposes on
one entity a contractual obligation to deliver cash or another financial
instrument to a second entity or, conveys to a second entity a contractual right
to receive cash or another financial instrument from the first entity. All of
the Corporation's assets and liabilities are not financial instruments, as
defined, and are therefore not included in the table.
The estimated fair values of the Corporation's financial instruments at
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 227,608 $ 227,608 $ 180,962 $ 180,962
Investment securities available for sale 2,592,120 2,592,120 1,854,025 1,854,025
Investment securities held to maturity 230,903 236,242
Net loans (including loans held for sale) 3,942,136 4,026,531 3,983,047 4,030,798
Interest receivable 49,475 49,475 46,078 46,078
Financial liabilities:
Deposits (4,958,527) (4,962,679) (4,616,077) (4,632,524)
Short-term borrowings (803,968) (803,968) (682,155) (682,155)
Interest rate contracts 367 2,095 989
Long-term debt (626,759) (627,156) (726,658) (717,200)
Interest payable (25,187) (25,187) (25,477) (25,477)
Guaranteed preferred beneficial interests in the
Corporation's convertible subordinated debentures (172,500) (193,631)
Off-balance sheet financial assets (liabilities):
Commitments to extend credit 4,647 2,799
Interest rate swaps (14,182) (39)
</TABLE>
The carrying amounts of cash and cash equivalents are reasonable estimates
of their fair values. The fair values of investment securities and guaranteed
preferred beneficial interests in the Corporation's convertible subordinated
debentures were based on quoted market prices or dealer quotes where available.
The fair values of interest-bearing deposits with financial institutions and
investment securities, where market values or dealer quotes were not available,
and loans were calculated by discounting expected cash flows to average
maturities. The discount rate was adjusted to allow for varying repricing
opportunities, credit risks and carrying costs, as deemed appropriate by
management. The fair values of demand deposits, savings accounts, money market
deposits and short-term borrowings are the carrying amounts which were payable
on December 31, 1998 and 1997, respectively. Fair values of interest rate
contracts, including interest rate swaps, were based on dealer quotes. The fair
values of fixed-maturity certificates of deposit and long-term debt were
estimated using current interest rates for similar remaining maturities.
Commitments to make loans and standby letters of credit are not recorded on the
Consolidated Balance Sheet. The fair values of commitments to extend credit are
based on fees currently charged to enter into similar agreements with similar
maturities and interest rates.
Because no active market exists for a significant portion of the
Corporation's financial instruments, fair value estimates were based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other such
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision.
<PAGE>
60 CNB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
21. SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Presented below is supplemental condensed financial information as to financial
position, results of operations and cash flows of the Corporation (Parent
Company only).
<TABLE>
<CAPTION>
December 31,
SUPPLEMENTAL CONDENSED BALANCE SHEET 1998 1997
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash on deposit with subsidiary $ 1,172 $ 10,631
Securities purchased under repurchase agreements with subsidiary 96,000 6,500
----------------------------
Total cash and cash equivalents 97,172 17,131
Investment in subsidiaries 588,112 523,763
Premises and equipment 2,515 2,044
Other assets 22,551 19,583
----------------------------
Total assets $ 710,350 $ 562,521
============================
Liabilities
Accrued expenses $ 2,969 $ 8,558
Convertible subordinate debentures owned by subsidiary trust 177,835
Long-term debt 2,500 38,500
----------------------------
Total liabilities 183,304 47,058
Shareholders equity 527,046 515,463
----------------------------
Total liabilities and shareholders' equity $ 710,350 $ 562,521
============================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
SUPPLEMENTAL CONDENSED STATEMENT OF INCOME 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $ 42,270 $ 39,523 $ 40,750
Management fees from subsidiaries 9,402 8,087 7,100
Other income 3,415 1,694 2,659
---------------------------------------
Total income 55,087 49,304 50,509
Expenses
Personnel expense 8,626 9,957 8,969
Interest expense 6,981 1,839 1,327
Other expenses 14,446 13,125 6,911
---------------------------------------
Total expense 30,053 24,921 17,207
---------------------------------------
Income before income tax benefit and equity
in undistributed earnings of subsidiaries 25,034 24,383 33,302
Income tax benefit 3,423 4,681 3,172
---------------------------------------
Income before equity in undistributed earnings of subsidiaries 28,457 29,064 36,474
Equity in undistributed earnings of subsidiaries 33,114 30,810 17,208
---------------------------------------
Net income $ 61,571 $ 59,874 $ 53,682
=======================================
</TABLE>
<PAGE>
CNB BANCSHARES, INC. 61
<TABLE>
<CAPTION>
Year Ended December 31,
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 61,571 $ 59,874 $ 53,682
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 547 346 223
Undistributed net income of subsidiaries (33,114) (30,810) (17,208)
Increase in other assets (1,589) (2,607) (591)
Increase (decrease) in other accrued expenses (5,820) 747 1,647
Other, net (11,413) (317)
-----------------------------------------
Net cash provided by operating activities 21,595 16,137 37,436
-----------------------------------------
Investing activities:
Net decrease in interest bearing deposits with financial institutions 6,076 18,108
Principal payments received on notes from subsidiaries 12 14,657
Advances on notes to subsidiaries (948) (11,200)
Capital contributions (to) from subsidiaries (5,281) 48 (674)
Purchase of premises and equipment (792) (996) (730)
Other, net 1,089 (3,080)
-----------------------------------------
Net cash provided by (used in) investing activities (7,009) 6,217 17,081
-----------------------------------------
Financing activities:
Proceeds from sale of convertible subordinate debentures to subsidiary trust 177,835
Proceeds from long-term debt 10,000 35,000 12,200
Payment of long-term debt (46,000) (3,405) (31,810)
Cash dividends paid (28,760) (27,174) (24,475)
Proceeds from common stock issued for dividend reinvestment plan 1,816 3,560
Proceeds from exercise of stock options, stock purchase contracts and
pursuant to employee benefit plans 5,839 9,002 1,137
Purchase and retirement of common stock (53,459) (37,552) (16,890)
-----------------------------------------
Net cash provided by (used in) financing activities 65,455 (22,313) (56,278)
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 80,041 41 (1,761)
Cash and cash equivalents at January 1, 17,131 17,090 18,851
-----------------------------------------
Cash and cash equivalents at December 31, $ 97,172 $ 17,131 $ 17,090
=========================================
Supplemental disclosure:
Non-cash investing and financing activities:
Stock issued in exchange of debentures and equity contracts $5,740 $2,638
Common stock issued for acquisitions $21,176 6,286
Capital contribution to subsidiaries 7,650
</TABLE>
<PAGE>
62 CNB BANCSHARES, INC.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors, CNB Bancshares, Inc.:
We have audited the accompanying consolidated balance sheet of CNB Bancshares,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNB
Bancshares, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
KPMG LLP
St. Louis, Missouri
January 14, 1999
MANAGEMENT'S STATEMENT ON FINANCIAL REPORTING
The consolidated financial statements of CNB Bancshares, Inc. were prepared by
management of the Corporation, which is responsible for their integrity and
objectivity. The statements were prepared in accordance with generally accepted
accounting principles appropriate in the circumstances and properly include
amounts that are based on management's best judgments and estimates. The other
financial information included in this report is consistent with that in the
financial statements.
In meeting its responsibility, management has established and maintains
systems of internal control which are designed to provide reasonable assurance
that assets are safeguarded and that the financial records reflect the
authorized transactions of the Corporation and that its policies and procedures
are followed. These systems are augmented by the careful selection and training
of qualified personnel and a continuous program of internal audits.
KPMG LLP, independent auditors, were engaged to audit the consolidated
financial statements of CNB Bancshares, Inc. and to express an opinion thereon.
The audit was conducted in accordance with generally accepted auditing standards
which included a review of the Corporation's systems of internal controls and
such tests and related procedures as they deemed necessary to express an opinion
on the fairness of the consolidated financial statements.
The Board of Directors pursues its responsibility for the Corporation's
financial statements through its Audit Committee. The Audit Committee, comprised
solely of directors who are not officers or employees of the Corporation, is
responsible for monitoring the accounting, auditing and financial reporting
practices of the Corporation and its subsidiaries. The Committee recommends to
the Board of Directors the appointment of the independent auditors and meets
regularly with them, the internal auditors, and management. To further assure
their independence, the internal auditors and the independent auditors have
direct access to the Audit Committee and the Board of Directors.
/s/ James J. Giancola /s/ John R. Spruill /s/ Ralph L. Alley
James J. Giancola John R. Spruill Ralph L. Alley
President and Executive Vice President Senior Vice President,
Chief Executive Officer and Chief Financial Officer Controller and Treasurer
<PAGE>
CNB BANCSHARES, INC. 65
SHAREHOLDER INFORMATION
CORPORATE OFFICES
The corporate offices of CNB Bancshares are located at: 20 N.W. Third Street,
Evansville, Indiana 47739-0001 812-456-3400.
ANNUAL MEETING
The annual meeting of shareholders of CNB Bancshares will be held at 5:00 p.m.
on April 21, 1999, at the Victory Theatre, 600 Main Street, Evansville, Indiana.
COMMON STOCK PRICES AND DIVIDENDS
The common stock of CNB trades on the New York Stock Exchange under the symbol
BNK. The table below lists the range of stock prices and dividend information on
a quarterly basis over the last two years. All amounts have been adjusted for
stock dividends.
1998 Prices Dividends
---------------------------
Low High Close Declared
- -------------------------------------------------------------
1st Quarter $ 39.41 $ 47.03 $46.49 $ .22
2nd Quarter 41.19 51.19 45.71 .22
3rd Quarter 40.00 50.23 45.75 .22
4th Quarter 38.75 47.13 46.63 .24
-----
$ .90
1997 Prices Dividends
--------------------------
Low High Close Declared
- -------------------------------------------------------------
1st Quarter $ 32.88 $ 37.53 $35.72 $ .20
2nd Quarter 35.59 40.70 36.73 .20
3rd Quarter 36.52 41.02 40.77 .20
4th Quarter 37.33 45.90 45.90 .22
-----
$ .82
QUARTERLY DIVIDEND PROGRAMS
CNB offers a Dividend Reinvestment and Stock Purchase Plan to shareholders. The
Plan provides for automatic reinvestment of quarterly dividends with a 3%
discount, as well as optional purchases of up to $5,000 per month.
The Corporation also offers Direct Deposit of cash dividends, whereby
quarterly dividend payments can be automatically deposited to the shareholder's
designated bank account.
For information regarding CNB's convenient dividend programs, contact
Shareholder Relations.
TRANSFER AGENT
Shareholders should direct inquiries concerning dividends or their shareholder
records to:
Shareholder Relations
P.O. Box 778
Evansville, Indiana 47705-0778
812-456-3416
[email protected]
CNB CAPITAL TRUST I PREFERRED SECURITIES
The Convertible Trust Preferred Securities pay a quarterly $.375 per share fixed
distribution and each are convertible, at the option of the holder, into .4835
shares of common stock of CNB which is equivalent to a conversion price of
$51.71 per share. The securities are listed on the NYSE under the symbol BNK
PrA. The table below lists the range of the securities prices since the initial
offering on June 19, 1998.
1998 Prices
------------------------------
Low High Close
- ------------------------------------------------------------
2nd Quarter $ 25.06 $ 26.25 $ 26.25
3rd Quarter 25.00 28.75 26.75
4th Quarter 24.75 28.31 28.06
Standard Thompson
DEBT RATINGS Moody's & Poor's BankWatch
- -------------------------------------------------------------
CNB BANCSHARES, INC.
Issuer B
Trust preferred securities baa2 BB+
Short-term debt TBW-1
CITIZENS BANK OF MIDAMERICA
Long-term deposits A3 BBB+
Short-term deposits P-2 A-2 TBW-1
- -------------------------------------------------------------
INTERNET
Information on CNB and online banking services is available on the internet at
www.citizensonline.com.
AVAILABILITY OF FORM 10-K
CNB's annual report to the Securities and Exchange Commission on Form 10-K is
available without charge upon written request to Shareholder Relations at the
corporate address listed above.
[LOGO OF BNK NYSE APPEARS HERE]
<PAGE>
EXHIBIT NO. 21 - SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OR STATE OF
NAME INCORPORATION
---- -------------
Citizens Bank of MidAmerica Michigan
Citizens Banc Leasing, Inc. Kentucky
Citizens Realty and Insurance, Inc. Indiana
Peoples Security Finance Company, Inc. Kentucky
Small Parker & Blossom, Inc. Illinois
Starkes, Inc. Michigan
Wedgewood Partners, Inc. Missouri
Citizens Life Assurance Company** Arizona
CNB Capital Trust I (a statutory business trust) Delaware
IBI & Associates*** (a general partnership) Indiana
IndFed Mortgage Company Indiana
* The indentation of an entity's name in the table above signifies its
ownership by the entity preceding it.
** The registrant has a 79% interest in Citizens Life Assurance Company.
*** The registrant has a 75% interest in IBI & Associates.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CNB Bancshares, Inc.:
We consent to the incorporation by reference in the below scheduled Form S-8
registration statements of our report dated January 14, 1999, and appearing on
page 62 of the Annual Report to Shareholders, on the consolidated financial
statements of CNB Bancshares, Inc. and subsidiaries incorporated by reference in
the Annual Report on Form 10-K for the year ended December 31, 1998.
COMMISSION
FILE
NUMBER
------
Indiana Bancshares, Inc.
1990 Stock Option Plan 33-47898
CNB Bancshares, Inc. 1992 Incentive Stock Option Plan 33-45929
Citizens Incentive Savings Plan 33-41514
King City Federal Savings Bank 1986 Stock Option and
Incentive Plan 33-89658
King City Federal Savings Bank 1993 Stock Option and
Incentive Plan 33-89722
UF Bancorp, Inc. 1991 Stock Option and Incentive Plan 33-61685
CNB Bancshares, Inc. 1995 Stock Incentive Plan 33-60431
CNB Bancshares, Inc. Associate Stock Option Plan 333-38907
Indiana Federal Corporation 1986 Stock Option and
Incentive Plan 333-46837
National Bancorp Stock Option Plan 333-55961
/s/ KPMG LLP
St. Louis, Missouri
March 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CNB
BANCSHARES INC.'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998, 1997 AND
1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998, 1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 193,696 160,189 175,426
<INT-BEARING-DEPOSITS> 1,237 1,623 13,374
<FED-FUNDS-SOLD> 32,675 19,150 50,175
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 2,592,120 1,854,025 1,893,358
<INVESTMENTS-CARRYING> 0 230,903 262,387
<INVESTMENTS-MARKET> 0 236,242 263,498
<LOANS> 3,998,407 4,038,270 3,708,886
<ALLOWANCE> 56,271 55,223 46,171
<TOTAL-ASSETS> 7,141,797 6,596,136 6,351,785
<DEPOSITS> 4,958,337 4,615,062 4,593,441
<SHORT-TERM> 803,791 681,075 661,872
<LIABILITIES-OTHER> 53,364 57,878 54,831
<LONG-TERM> 626,759 726,658 545,968
172,500 0 0
0 0 0
<COMMON> 35,483 33,484 32,482
<OTHER-SE> 491,563 481,979 463,191
<TOTAL-LIABILITIES-AND-EQUITY> 7,141,797 6,596,136 6,351,785
<INTEREST-LOAN> 352,067 350,169 318,051
<INTEREST-INVEST> 143,477 148,253 130,321
<INTEREST-OTHER> 841 1,329 3,356
<INTEREST-TOTAL> 496,385 499,751 451,728
<INTEREST-DEPOSIT> 189,498 191,015 181,229
<INTEREST-EXPENSE> 260,121 267,206 234,496
<INTEREST-INCOME-NET> 236,264 232,545 217,232
<LOAN-LOSSES> 10,638 24,886 13,283
<SECURITIES-GAINS> 2,126 2,122 2,204
<EXPENSE-OTHER> 232,476 198,859 191,940
<INCOME-PRETAX> 96,627 90,780 80,695
<INCOME-PRE-EXTRAORDINARY> 96,627 90,780 80,695
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 61,571 59,874 53,682
<EPS-PRIMARY> 1.74 1.71 1.54
<EPS-DILUTED> 1.73 1.69 1.52
<YIELD-ACTUAL> 3.96 3.94 4.04
<LOANS-NON> 34,023 26,573 31,638
<LOANS-PAST> 7,664 9,482 9,958
<LOANS-TROUBLED> 941 1,401 1,941
<LOANS-PROBLEM> 20,820 30,987 20,320
<ALLOWANCE-OPEN> 55,223 46,171 43,259
<CHARGE-OFFS> 16,313 19,702 16,349
<RECOVERIES> 4,583 3,367 4,106
<ALLOWANCE-CLOSE> 56,271 55,223 46,171
<ALLOWANCE-DOMESTIC> 53,300 51,664 44,372
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 2,971 3,559 1,799
</TABLE>
