<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997.
REGISTRATION FILE NO. 333-30779
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
BIG LAKE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 6711 59-2613321
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
1409 S. PARROTT AVENUE
OKEECHOBEE, FL 34974
(941) 467-4663
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------
EDWIN E. WALPOLE III CURTIS S. FRY
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD
BIG LAKE FINANCIAL CORPORATION CNB FINANCIAL CORPORATION
1409 S. PARROTT AVENUE 950 WEST VENTURA AVENUE
OKEECHOBEE, FL 34974 CLEWISTON, FL 33440
(941) 467-4663 (941) 983-9113
(Name, address, including zip code, and telephone number,
including area code, of agent for service.)
--------------
Copy to:
JOHN P. GREELEY, ESQUIRE GAREY F. BUTLER, ESQUIRE
SMITH, MACKINNON, GREELEY, HUMPHREY & KNOTT
BOWDOIN & EDWARDS, P.A. 1625 HENDRY STREET
255 SOUTH ORANGE AVENUE, SUITE 800 FORT MYERS, FLORIDA 33901
ORLANDO, FLORIDA 32801
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC:
The date of mailing the Proxy Statement-Prospectus included herein to the
shareholders of CNB Financial Corporation
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
-----------------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE> 2
__________, 1997
Dear Shareholders:
You are cordially invited to attend a Special Meeting of the
Shareholders of CNB Financial Corporation ("CNB") to be held at ____ p.m., local
time, on __________, 1997, at CNB's office located at 950 West Ventura Avenue,
Clewiston, Florida 33440 (the "Special Meeting").
At the Special Meeting you will be asked to consider and vote upon
approval of an Amended and Restated Agreement and Plan of Reorganization (the
"Agreement"), between CNB, Big Lake Financial Corporation ("BLF"), Clewiston
National Bank and Big Lake National Bank. The Agreement will bring together the
Clewiston National Bank and Big Lake National Bank organizations. Your Board of
Directors believes that the combination of Clewiston National Bank and Big Lake
National Bank organizations is a unique opportunity to build on the strengths of
two fine institutions.
The shareholders of BLF are not required to approve the Agreement. The
Boards of Directors of CNB and BLF have each unanimously approved the Agreement
and the Board of Directors of CNB has recommended that the Agreement also be
approved by CNB shareholders.
The Agreement provides for CNB to merge with and into BLF, and
Clewiston National Bank to become a subsidiary of BLF. In the merger, the shares
of BLF common stock will continue to remain outstanding as shares of the
combined corporation. Each share of CNB common stock outstanding (other than
shares held by CNB shareholders who have perfected dissenters' rights) will be
converted into .40 of a share of BLF. The firm of William R. Hough & Co., which
has served as CNB's financial advisor in the transaction, has advised the CNB
Board of Directors that in its opinion the Agreement and related merger are fair
to CNB shareholders from a financial point of view.
Consummation of the transaction is subject to several conditions,
including approval of the Agreement by the shareholders of CNB. Information
concerning the Special Meeting of CNB shareholders, the meranying proxy
material. Because of the importance of the transaction to CNB and its
shareholders, I urge you to read this material carefully.
<PAGE> 3
Your Board of Directors unanimously recommends that you vote FOR the
Agreement. It is very important that your shares be represented at the Special
Meeting, regardless of whether you plan to attend in person. The affirmative
vote of a majority of the outstanding shares of CNB common stock is required to
approve the Agreement. CONSEQUENTLY, FAILURE TO VOTE WILL HAVE THE SAME EFFECT
AS A VOTE AGAINST THE AGREEMENT. THEREFORE, I URGE YOU TO EXECUTE, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE TO ENSURE THAT YOUR SHARES WILL BE VOTED AT THE SPECIAL MEETING.
On behalf of your Board of Directors, I urge you to vote FOR approval
of the Agreement.
Sincerely,
Curtis S. Fry
Chairman of the Board
2
<PAGE> 4
CNB FINANCIAL CORPORATION
950 West Ventura Avenue
Clewiston, Florida 33440
(941) 983-9113
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 1997
To the Shareholders of CNB FINANCIAL CORPORATION
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of CNB
Financial Corporation, a registered bank holding company ("CNB"), will be held
at _____ p.m., local time, on __________, 1997 at 950 West Ventura Avenue,
Clewiston, Florida 33440 (the "Special Meeting"), for the following purposes, as
more fully described in the accompanying Proxy Statement.
1. To consider and vote upon a proposal to authorize, adopt and approve
an Amended and Restated Agreement and Plan of Reorganization (the "Agreement"),
between CNB, Big Lake Financial Corporation, Clewiston National Bank and Big
Lake National Bank. A copy of the Agreement is attached as Appendix A to the
accompanying Proxy Statement.
2. To transact such other business as may properly come before the
Special Meeting and at any adjournment or postponement thereof.
Only shareholders of record at the close of business on __________,
1997 are entitled to notice of, and to vote at, the Special Meeting and at any
adjournment or postponement thereof. CNB shareholders are entitled to assert
dissenters' rights pursuant to the Florida Business Corporation Act. A copy of
the dissenters' rights provisions is attached to the enclosed Proxy Statement as
Appendix B.
By Order of the Board of Directors of
CNB Financial Corporation
Curtis S. Fry
Chairman of the Board
Clewiston, Florida
__________, 1997
PLEASE FILL IN, SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. IF YOU ATTEND THE MEETING IN PERSON,
YOU MAY WITHDRAW YOUR PROXY AND VOTE YOUR OWN SHARES.
<PAGE> 5
SUBJECT TO COMPLETION DATED SEPTEMBER 26, 1997
BIG LAKE FINANCIAL CORPORATION
SHARES OF COMMON STOCK
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
OF
CNB FINANCIAL CORPORATION
TO BE HELD ON
___________, 1997
This Proxy Statement is being furnished to the shareholders of CNB
Financial Corporation, a registered bank holding company ("CNB"), in connection
with the solicitation of proxies by its Board of Directors for use at a Special
Meeting of Shareholders of CNB to be held on __________, 1997 and at any
adjournments or postponements thereof. At the Special Meeting, the shareholders
of CNB will consider and vote upon an Amended and Restated Agreement and Plan of
Reorganization (the "Agreement"), between Big Lake Financial Corporation, a
registered bank holding company ("BLF"), CNB, Clewiston National Bank, a
national banking association and wholly-owned subsidiary of CNB, and Big Lake
National Bank, a national banking association and a wholly-owned subsidiary of
BLF.
Pursuant to the Agreement, BLF and CNB will be combined through the
merger (the "Merger") of CNB into BLF, and Clewiston National Bank will become a
wholly-owned subsidiary of BLF. The name of the combined holding company will be
Big Lake Financial Corporation (the "Combined Corporation"). CNB shareholders
also will transact at the Special Meeting such other business as may properly
come before the meeting or any and all adjournments or postponements thereof.
After the Merger, each outstanding share of BLF Common Stock, par value
$.01 per share ("BLF Common Stock"), will remain outstanding. Also in the
Merger, each outstanding share of CNB common stock, par value $.01 per share
("CNB Common Stock"), other than shares held by CNB shareholders who have
perfected dissenters' rights, will be converted into the right to receive .40 of
a share of BLF Common Stock. The shares of BLF Common Stock after the Merger are
collectively referred to in this Proxy Statement as "Combined Corporation
Stock."
For additional information on the shares of BLF Common Stock issuable
in the Merger and the shares of CNB Common Stock, see "Market and Dividend
Information." For additional information on the Merger, see "The Merger."
BLF has filed a Registration Statement (the "Registration Statement")
on Form S-4 pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), with the Securities and Exchange Commission (the "Commission") with
respect to the shares issuable in the Merger. This Proxy Statement also
constitutes the Prospectus of BLF filed as a part of the Registration Statement.
Any reference to this document as a Proxy Statement also constitutes a reference
to it as such Prospectus.
The information contained herein with respect to BLF, CNB, Big Lake
National Bank, and Clewiston National Bank has been supplied by the respective
corporation or bank. The information contained herein with respect to the Merger
is qualified by reference to the Agreement attached hereto as Appendix A and
incorporated herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and the accompanying form of proxy are first being
mailed to the shareholders of CNB on or about __________, 1997.
The date of this Proxy Statement is __________, 1997.
<PAGE> 6
AVAILABLE INFORMATION
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION
OF THE SECURITIES BEING OFFERED PURSUANT TO THIS PROXY STATEMENT SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF BLF, BIG LAKE NATIONAL BANK, CNB, OR CLEWISTON NATIONAL BANK OR THE
INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS PROXY STATEMENT. HOWEVER,
DURING THE PERIOD IN WHICH OFFERS OR SALES ARE BEING MADE HEREUNDER, BLF IS
REQUIRED TO UPDATE THE PROXY STATEMENT TO REFLECT ANY FACTS OR EVENTS ARISING
AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION WHICH REPRESENT A FUNDAMENTAL CHANGE IN THE INFORMATION
SET FORTH IN THE REGISTRATION STATEMENT.
BLF has filed a Registration Statement under the Securities Act of
1933, as amended (the "Act"), with the Securities and Exchange Commission (the
"Commission") relating to the shares of BLF Common Stock to be issued in
connection with the Merger. For further information pertaining to the shares of
BLF Common Stock to which this Proxy Statement relates, reference is made to
such Registration Statement, including the exhibits and schedules filed as a
part thereof. As permitted by the rules and regulations of the Commission, this
Proxy Statement omits certain information, exhibits and undertakings contained
in the Registration Statement. For further information pertaining to the
securities offered hereby, reference should be made to the Registration
Statement, including the exhibits filed as a part thereof. The Registration
Statement is available for inspection at no charge at the Securities and
Exchange Commission's Public Reference Room, Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The Commission maintains an Internet
web site that contains reports, proxy and information statements and other
information regarding issuers who file electronically with the Commission. The
address of that site is http://www.sec.gov. In addition, copies of such material
are available for inspection and reproduction at the public reference facilities
of the Commission at its New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and at its Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of materials contained in the Registration Statement may be obtained from
the Commission upon payment of the fees prescribed in its rules and regulations.
BLF is not subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended.
----------------------
REPORTS TO SHAREHOLDERS
If the Merger described in this Proxy Statement is consummated, BLF
intends to furnish annual reports to shareholders containing financial
statements that have been examined by a firm of certified public accountants,
and such financial statements will be accompanied by an opinion of such firm
with respect to such financial statements.
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<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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<S> <C>
Summary of Proxy Statement.............................................................................. 1
The Parties........................................................................................ 1
Recent Developments................................................................................ 2
Meeting of Shareholders............................................................................ 2
The Merger......................................................................................... 2
BLF Selected Consolidated Financial Data for the Six Months Ended June 30, 1997
and 1996........................................................................................... 6
BLF Selected Consolidated Financial Data for the Years Ended December 31, 1996,
1995, 1994, 1993, and 1992..................................................................... 7
CNB Selected Consolidated Financial Data for the Six Months Ended June 30, 1997
and 1996....................................................................................... 8
CNB Selected Consolidated Financial Data for the Years Ended December 31, 1996,
1995, 1994, 1993, and 1992..................................................................... 9
Pro Forma Combined Selected Financial Data for the Six Months Ended June 30, 1997
and 1996....................................................................................... 10
Pro Forma Combined Selected Financial Data for the Year Ended December 31, 1996.................... 11
Unaudited Condensed Pro Forma Combined Financial Information....................................... 12
Pro Forma Combined Capital Information (Unaudited)................................................. 13
Pro Forma Condensed Combined Balance Sheet at June 30, 1997 (Unaudited)........................... 14
Pro Forma Condensed Combined Per Share Information (Unaudited)..................................... 15
Pro Forma Condensed Combined Statements of Earnings (Unaudited)................................... 16
Pro Forma Condensed Combined Statements of Earnings and Selected
Financial Data for the Six-Month Period Ended June 30, 1997,
and for the Year Ended December 31, 1996 ...................................................... 17-18
Notes to Pro Forma Condensed Combined Balance Sheet and Statements of Earnings..................... 19-21
Special Meeting of CNB Shareholders..................................................................... 22
General............................................................................................ 22
Record Date; Quorum; Voting Rights and Required Vote............................................... 22
Revocability and Solicitation of Proxies........................................................... 22
Other Business..................................................................................... 23
The Merger.............................................................................................. 23
General............................................................................................ 23
Background of the Merger........................................................................... 24
Recommendation of Board of Directors............................................................... 26
Opinion of Financial Advisor....................................................................... 26
Management and Operations after the Merger......................................................... 28
Interests of Certain Persons; Compensation and Employee Benefit Plans.............................. 29
Conversion Ratio................................................................................... 30
Effective Time..................................................................................... 30
Distribution of Combined Corporation Certificates.................................................. 30
Resale of Combined Corporation Stock Received in the Merger........................................ 31
Certain Federal Income Tax Considerations.......................................................... 31
Conditions to Consummation......................................................................... 32
Regulatory Approvals............................................................................... 33
</TABLE>
ii
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<TABLE>
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<S> <C>
Conduct of Business Pending the Merger............................................................ 33
Representations and Warranties.................................................................... 34
Expenses and Fees................................................................................. 35
Amendment, Waiver and Termination.................................................................. 35
Accounting Treatment............................................................................... 36
Dissenters' Rights................................................................................. 37
Effect of the Merger on Rights of Shareholders.......................................................... 38
Authorized Capital Stock; Par Value................................................................ 38
Directors; Removal................................................................................. 39
Shareholder Meetings............................................................................... 39
Market and Dividend Information......................................................................... 39
Stock Trading Information.......................................................................... 39
Dividends.......................................................................................... 41
BLF Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................. 42
General............................................................................................ 42
Liquidity and Capital Resources.................................................................... 42
Results of Operations.............................................................................. 43
Comparison of Six Months Ended June 30, 1997 and 1996.............................................. 48
Comparison of Years Ended December 31, 1996 and 1995............................................... 49
Asset/Liability Management......................................................................... 50
Financial Condition................................................................................ 52
Impact of Inflation and Changing Prices............................................................ 64
Future Accounting Requirements..................................................................... 64
Business of BLF........................................................................................ 65
General........................................................................................... 65
Lending Activities................................................................................ 66
Deposit Activities................................................................................ 67
Employees......................................................................................... 67
Properties........................................................................................ 67
Litigation........................................................................................ 67
Management........................................................................................ 68
Compensation and Benefits......................................................................... 69
Certain Transactions.............................................................................. 69
Management and Principal Stock Ownership.......................................................... 70
CNB Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................................. 72
General............................................................................................ 72
Liquidity and Capital Resources.................................................................... 72
Results of Operations.............................................................................. 73
Comparison of Six Months Ended June 30, 1997 and 1996.............................................. 78
Comparison of Years Ended December 1996 and 1995................................................... 79
Asset/Liability Management......................................................................... 80
Financial Condition................................................................................ 82
Impact of Inflation and Changing Prices............................................................ 96
Future Accounting Requirements..................................................................... 96
</TABLE>
iii
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<TABLE>
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Business of CNB......................................................................................... 97
General............................................................................................ 97
OCC Agreement ..................................................................................... 97
Lending Activities................................................................................. 98
Deposit Activities................................................................................. 99
Employees.......................................................................................... 99
Properties......................................................................................... 99
Litigation......................................................................................... 99
Management......................................................................................... 100
Compensation and Benefits.......................................................................... 101
Certain Transactions............................................................................... 101
Management and Principal Stock Ownership........................................................... 102
Competition............................................................................................. 103
Supervision, Regulation and Governmental Policy......................................................... 103
Description of Capital Stock............................................................................ 108
General............................................................................................ 108
Common Stock....................................................................................... 108
Preferred Stock.................................................................................... 108
Indemnification of Officers, Directors and Employees............................................... 109
Legal Matters........................................................................................... 109
Experts................................................................................................. 109
Index to Financial Statements........................................................................... 111
APPENDICES:
Appendix A Amended and Restated Agreement and Plan of Reorganization between Big
Lake Financial Corporation, CNB Financial Corporation, Big Lake National
Bank, and Clewiston National Bank...................................................
Appendix B Sections 607.1301, 607.1302, and 607.1320 of the Florida Business
Corporation Act.....................................................................
Appendix C Opinion of William R. Hough & Co....................................................
</TABLE>
iv
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SUMMARY OF PROXY STATEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROXY STATEMENT. THIS SUMMARY DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF
THE MATTERS COVERED IN THIS PROXY STATEMENT AND IS SUBJECT TO AND QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS CONTAINED ELSEWHERE IN THIS PROXY STATEMENT, INCLUDING THE APPENDICES
HERETO. SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY STATEMENT AND THE
ACCOMPANYING APPENDICES IN THEIR ENTIRETY.
THE PARTIES
BLF AND BIG LAKE NATIONAL BANK
BLF is a one bank holding company organized in 1985 under the laws of
the State of Florida. BLF owns all of the outstanding shares of Big Lake
National Bank. Big Lake National Bank commenced operations in 1986. BLF is
subject to regulation by the Board of Governors of the Federal Reserve System
(the "Federal Reserve"). Big Lake National Bank is a national banking
association subject to regulation by the Office of the Comptroller of the
Currency (the "OCC"). Big Lake National Bank's operations are conducted from its
main office and a branch office, each located in Okeechobee, Florida, and a
branch office located in Lake Placid, Florida. At June 30, 1997, BLF had total
consolidated assets of approximately $66.1 million, total consolidated deposits
of approximately $60.3 million, and total consolidated stockholders' equity of
approximately $5.2 million. BLF's and Big Lake National Bank's principal
executive offices are located at 1409 S. Parrott Avenue, Okeechobee, Florida
34974. The telephone number at such office is (941) 467-4663. For additional
information concerning BLF and Big Lake National Bank, see "Business of BLF."
CNB AND CLEWISTON NATIONAL BANK
CNB is a one bank holding company organized in 1990 under the laws of
the State of Florida. CNB is subject to regulation by the Federal Reserve and
owns all of the outstanding shares of Clewiston National Bank, which is a
national banking association subject to regulation by the OCC. Clewiston
National Bank commenced operations in 1974. Clewiston National Bank's operations
are conducted from its main office and a branch office, each located in
Clewiston, Florida, a branch office located in Moore Haven, Florida and a branch
office located in LaBelle, Florida. At June 30, 1997, CNB had total consolidated
assets of approximately $49.5 million, total consolidated deposits of
approximately $44.6 million and total consolidated stockholders' equity of
approximately $4.3 million. CNB's and Clewiston National Bank's principal
executive offices are located at 950 West Ventura Avenue, Clewiston, Florida
33440. The telephone number at such office is (941) 983-9113. For additional
information concerning CNB and Clewiston National Bank, see "Business of CNB."
1
<PAGE> 11
RECENT DEVELOPMENTS
On July 23, 1997, Clewiston National Bank entered into an agreement
with the OCC which imposes certain restrictions and requirements on Clewiston
National Bank's operations. Among other things, the agreement requires
Clewiston National Bank to appoint a Compliance Committee responsible for
monitoring and coordinating Clewiston National Bank's adherence to the
provisions of the agreement and submitting written progress reports regarding
such compliance; appoint a new president and chief executive officer, which
Clewiston National Bank has done through the appointment of Frederick W. Gesell
(as President and Chief Executive Officer); hire a senior lending officer;
maintain a total risk-weighted capital ratio of at least 12% and a tier 1
capital ratio of at least 6%; develop a three-year capital program to provide
for the maintenance of adequate capital and other related issues; develop a
dividend policy which permits the payment of dividends only with the prior
approval of the OCC; review Clewiston National Bank's liquidity on a monthly
basis; implement an independent internal audit program; implement a strategic
plan for Clewiston National Bank covering at least a three-year period;
implement a program to improve Clewiston National Bank's loan administration
and adopt a policy setting forth criteria under which renewals of extensions of
credit may be approved; obtain current and satisfactory credit information on
all loans and insure proper collateral documentation is maintained; protect its
interest in, and implement a program designed to eliminate the basis of
criticism of, assets cited by the OCC in recent reports of examination; and
provide for an independent loan review system to periodically review Clewiston
National Bank's loan portfolio to assure timely identification and
categorization of problem credits.
MEETING OF SHAREHOLDERS
The Special Meeting of CNB shareholders will be held at _____ p.m.,
local time, on __________, 1997 at 950 West Ventura Avenue, Clewiston, Florida
33440. Only CNB shareholders of record at the close of business on __________,
1997 (the "CNB Record Date"), will be entitled to vote at the Special Meeting.
The affirmative vote of the holders of a majority of the shares outstanding on
such date will be required to approve the Agreement. As of the CNB Record Date,
there were ______ shares of CNB Common Stock outstanding and entitled to vote,
each with one vote per share. As of the CNB Record Date, CNB's directors
beneficially owned _______ shares (or ____%) of the outstanding CNB Common
Stock. CNB's directors have advised CNB that they intend to vote all of the
shares of CNB Common Stock owned by them for approval of the Agreement.
THE MERGER
GENERAL
Shareholders of CNB are being asked to consider and vote upon the
Agreement, which provides for the Merger. At the time the Merger is consummated
(the "Effective Time"), each share of CNB Common Stock (other than shares held
by CNB shareholders who have perfected dissenters' rights under the Florida
Business Corporation Act (the "Florida Act")) will be converted into the right
to receive .40 of a share of Combined Corporation Stock. For purposes of this
Proxy Statement, the number of shares of Combined Corporation Stock issuable in
the Merger for each share of CNB Common Stock is referred to as the Conversion
Ratio. A fractional share otherwise issuable to a CNB shareholder in the Merger
will be rounded up to the next whole share if the fraction is .500 or greater
and rounded down to the next whole share if the fraction is .499 or less. The
shares of BLF Common Stock outstanding at the Effective Time will remain
outstanding as shares of Combined Corporation Stock as a result of the Merger.
2
<PAGE> 12
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF CNB
The combination of BLF and CNB will permit CNB shareholders to
participate in the ownership of a bank holding company and bank with greater
financial resources than either CNB or Clewiston National Bank. The Combined
Corporation, Big Lake National Bank, and Clewiston National Bank will be able to
use collectively the resources and capital of BLF, CNB, Big Lake National Bank
and Clewiston National Bank to expand lending and service capacities and to
increase the ability to compete with other banks and financial service
institutions. The CNB Board of Directors believes that the Merger is fair to and
in the best interests of CNB shareholders. Accordingly, the Board has approved
the Agreement and unanimously recommends that CNB shareholders vote to approve
the Agreement. Among the factors considered by the Board in approving the
Agreement were the terms of the proposed Merger, the compatibility of the
operations of Big Lake National Bank and Clewiston National Bank, and the
respective business, operations, earnings, financial condition, and capital
position of BLF and CNB, as well as of the Combined Corporation on a prospective
basis. The Board of Directors of CNB also took into account the opinion of its
financial advisor that the terms of the Agreement are fair to its shareholders
from a financial point of view. For additional information regarding the factors
considered by the CNB Board of Directors, see "The Merger -- Recommendation of
Board of Directors" and " -- Opinion of Financial Advisor."
OPINION OF FINANCIAL ADVISOR
CNB retained William R. Hough & Co. ("Hough") to issue a written
opinion to the CNB Board of Directors. Hough has issued an opinion that the
Merger is fair to CNB shareholders from a financial point of view. See "The
Merger -- Opinion of Financial Advisor." The opinion issued by Hough was
addressed to the Board of Directors of CNB for use by such Board in its
consideration of the financial terms of the Merger. Such opinion was not
addressed to the shareholders of CNB and does not constitute a recommendation to
any CNB shareholder as to how the shareholder should vote at the CNB Special
Meeting.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the Merger, the businesses of BLF and CNB will be conducted
through the Combined Corporation. The directors of the Combined Corporation will
consist of the seven individuals currently serving as directors of BLF plus John
Boy, Jr., Curtis S. Fry, and Thomas A. Smith. Messrs. Boy, Fry and Smith
currently serve as directors of CNB and Clewiston National Bank. The executive
officers of BLF after the Merger will consist of Edwin E. Walpole III (Chairman,
President and Chief Executive Officer), and Joe G. Mullins (Executive Vice
President and Chief Administrative Officer). Upon consummation of the Merger,
the directors of Clewiston National Bank will consist of the eight individuals
currently serving as directors of Clewiston National Bank, plus Edwin E. Walpole
III and Joe G. Mullins. Messrs. Walpole and Mullins currently serve as directors
of BLF and Big Lake National Bank. See "The Merger -- Management and Operations
After the Merger."
3
<PAGE> 13
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of BLF and CNB have interests in the
Merger in addition to their interests as shareholders of BLF and CNB generally.
These include, among other things, provisions in the Agreement for the
indemnification of CNB's present and former officers, directors and employees.
For additional information regarding the indemnification of CNB officers,
directors and employees, see "The Merger -- Interests of Certain Persons;
Compensation and Employee Benefit Plans."
EFFECTIVE TIME OF THE MERGER
Subject to the satisfaction of the conditions to the obligations of the
parties to effect the Merger, the Effective Time will occur on the date and at
the time set forth in the Articles of Merger to be filed by the Florida
Secretary of State in connection with the Merger. Assuming the satisfaction of
the conditions to the Merger, the parties anticipate that the Merger will become
effective in the fourth quarter of 1997, although there can be no assurance as
to whether or when the Merger will become effective.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
CNB and BLF have received an opinion from Stevens, Thomas, Schemer &
Sparks, P.A., certified public accountants, to the effect that the Merger will
constitute a "reorganization" under the Internal Revenue Code of 1986, as
amended (the "Code"), and that, for federal income tax purposes, the
shareholders of BLF and CNB will not recognize gain or loss upon consummation of
the Merger (except to the extent of any cash paid to any CNB shareholder
exercising dissenters' rights in the Merger and any shareholder of CNB owning
less than 1.25 shares of CNB Common Stock). For additional discussion of certain
federal income tax consequences of the Merger, see "The Merger -- Certain
Federal Income Tax Considerations."
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger is subject to the satisfaction or written waiver (where
permissible) of several conditions including receipt of CNB shareholder approval
of the Agreement, receipt of all federal regulatory approvals of the Merger, and
the fulfillment of certain closing and other conditions set forth in the
Agreement. Regulatory approval for consummation of the Merger has been received.
Consummation of the Merger also is subject to the holders of no more than 5% of
the outstanding CNB Common Stock electing to exercise their dissenters' rights.
See "The Merger -- Conditions to Consummation," "-- Regulatory Approvals," and
"-- Amendment, Waiver and Termination."
4
<PAGE> 14
AMENDMENT, WAIVER AND TERMINATION
Notwithstanding the approval of the Agreement by the CNB shareholders,
the Agreement may be terminated, and the Merger abandoned, at any time prior to
the Effective Time by (i) mutual consent of BLF and CNB, or (ii) BLF or CNB if
(A) the Merger has not been consummated by March 31, 1998, (B) there is a
material breach of the Agreement by the other party (which has not been cured
during the period of time set forth in the Agreement), (C) a material adverse
development shall have occurred affecting a party (see "The Merger - Amendment,
Waiver and Termination"), (D) the shareholders of CNB fail to approve the
Agreement, or (E) the approval of a bank regulatory agency necessary to
consummate the Merger is not received, or includes certain conditions or
restrictions. The Agreement also can be terminated by a party under certain
circumstances in the event it or its shareholders receive or approve another
acquisition proposal prior to the Effective Time and, as to CNB, its
shareholders fail to approve the Agreement (provided the terminating party pays
to the other party a termination fee equal to 10% of the shareholders' equity of
the party required to make such payment as of the end of the month preceding
such payment, as liquidated damages). Any termination and abandonment described
above would not require the approval of CNB shareholders. The Agreement may be
amended at any time prior to the Effective Time upon written agreement of all of
the parties, except that after approval of the Agreement by CNB's shareholders,
no amendment may be made in the Conversion Ratio in a manner that adversely
affects the economic value of the Merger to such shareholders without their
further approval. In addition, substantially all of the conditions to
consummation of the Merger may be waived, in whole or in part, to the extent
permissible under applicable law, by the party for whose benefit the condition
has been imposed, without the approval of CNB shareholders. See "The
Merger--Amendment, Waiver and Termination."
DISSENTERS' RIGHTS
Shareholders of CNB who deliver to CNB a notice of intent to demand
payment for their shares of CNB Common Stock before the vote of CNB shareholders
is taken at the CNB Special Meeting and not vote in favor of the Merger, and
further comply with the other provisions of the Florida Act regarding the rights
of dissenting shareholders, will be paid the fair value for their shares of CNB
Common Stock. Consummation of the Merger is subject to, among other things, the
holders of no more than 5% of the outstanding CNB Common Stock electing to
exercise their dissenters' rights. For information regarding the procedures to
be followed by CNB shareholders to dissent from the Merger, see "The Merger --
Dissenters' Rights" and the Florida Dissent Provisions included as Appendix B to
this Proxy Statement.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a purchase
under Generally Accepted Accounting Principles ("GAAP"). See "The Merger --
Accounting Treatment."
5
<PAGE> 15
BIG LAKE FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income $ 2,381 $ 2,074
Interest expense 913 882
-------- --------
Net interest income 1,468 1,192
Provision for credit losses 60 60
-------- --------
Net interest income after provision for credit losses 1,408 1,132
Noninterest income 355 286
Noninterest expenses 1,199 1,056
-------- --------
Earnings before income taxes 564 362
Provision for income taxes 188 123
-------- --------
Net earnings $ 376 $ 239
======== ========
Per share data:
Earnings per share $ 1.22 $ 0.77
Cash dividends declared $ - $ -
Book value at end of period $ 16.93 $ 14.21
Common shares outstanding at end of period 308,711 308,711
Weighted average common shares outstanding
during period 308,711 308,711
Total assets at end of period $ 66,117 $ 55,352
Cash and cash equivalents $ 2,875 $ 1,743
Investment securities $ 15,789 $ 18,216
Loans, net $ 41,382 $ 32,283
Deposits $ 60,281 $ 50,683
Stockholders' equity $ 5,226 $ 4,387
Total loans before allowance for loan losses $ 41,943 $ 32,696
Allowance for credit losses $ 561 $ 413
Nonperforming loans $ 194 $ 215
Nonperforming loans and other assets $ 194 $ 215
Allowance for credit losses as a percentage
of period-end total loans 1.34% 1.26%
Allowance for credit losses as a percentage
of nonperforming loans 289.18% 192.09%
Total nonperforming loans as a percentage
of total loans 0.46% 0.66%
Total nonperforming loans as a percentage
of total assets 0.29% 0.39%
Total nonperforming loans and other real estate
owned as a percentage of total assets 0.29% 0.39%
</TABLE>
6
<PAGE> 16
BIG LAKE FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 4,229 $ 3,195 $ 2,548 $ 2,368 $ 2,456
Interest expense 1,736 1,211 781 669 888
-------- -------- -------- -------- --------
Net interest income 2,493 1,984 1,767 1,699 1,568
Provision for credit losses 132 70 14 160 134
-------- -------- -------- -------- --------
Net interest income after provision for credit losses 2,361 1,914 1,753 1,539 1,434
Noninterest income 589 518 385 419 369
Noninterest expenses 2,112 1,574 1,575 1,536 1,383
-------- -------- -------- -------- --------
Earnings before income taxes 838 858 563 422 420
Provision for income taxes 287 308 188 139 119
-------- -------- -------- -------- --------
Net earnings $ 551 $ 550 $ 375 $ 283 $ 301
======== ======== ======== ======== ========
Per share data(1):
Earnings per share $ 1.79 $ 1.78 $ 1.21 $ 0.90 $ 0.96
Cash dividends declared $ - $ - $ - $ - $ -
Book value at end of period $ 15.72 $ 14.21 $ 12.13 $ 11.37 $ 10.22
Common shares outstanding at end of period(1) 308,711 308,711 308,711 313,435 313,435
Weighted average common shares outstanding
during period(1) 308,711 308,711 311,034 313,435 313,435
Total assets at end of period $ 59,518 $ 55,824 $ 37,175 $ 34,787 $ 30,924
Cash and cash equivalents $ 3,410 $ 2,896 $ 2,103 $ 2,219 $ 1,536
Investment securities $ 16,016 $ 11,922 $ 6,507 $ 4,822 $ 6,525
Loans, net $ 36,262 $ 28,663 $ 24,580 $ 24,148 $ 20,264
Deposits $ 54,245 $ 50,793 $ 33,299 $ 31,032 $ 27,607
Stockholders' equity $ 4,854 $ 4,386 $ 3,744 $ 3,563 $ 3,202
Total loans before allowance for loan losses $ 36,732 $ 29,026 $ 24,904 $ 24,464 $ 20,532
Allowance for credit losses $ 470 $ 363 $ 323 $ 316 $ 268
Nonperforming loans $ 111 $ 30 $ 291 $ 335 $ 270
Nonperforming loans and other assets $ 111 $ 126 $ 299 $ 532 $ 402
Allowance for credit losses as a percentage
of period-end total loans 1.28% 1.25% 1.30% 1.29% 1.31%
Allowance for credit losses as a percentage
of nonperforming loans 423.42% 1210.00% 111.00% 94.33% 99.26%
Total nonperforming loans as a percentage
of total loans 0.30% 0.10% 1.17% 1.37% 1.32%
Total nonperforming loans as a percentage
of total assets 0.19% 0.05% 0.78% 0.96% 0.87%
Total nonperforming loans and real estate
owned as a percentage of total assets 0.19% 0.23% 0.80% 1.53% 1.30%
</TABLE>
- -----------------------
(1) Adjusted for the 2.5% stock dividends in shares of BLF Common Stock in
1992 through 1996.
7
<PAGE> 17
CNB FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income $ 1,904 $ 1,833
Interest expense 853 862
-------- --------
Net interest income 1,051 971
Provision for credit losses 16 16
-------- --------
Net interest income after provision for credit losses 1,035 955
Noninterest income 233 267
Noninterest expenses 1,046 969
-------- --------
Earnings before income taxes and cumulative effect
of change in accounting principle 222 253
Provision (benefit) for income taxes 70 94
-------- --------
Net earnings $ 152 $ 159
======== ========
Per share data:
Earnings per share $ 0.37 $ .038
Cash dividends declared $ - $ -
Book value at end of period $ 10.28 $ 9.82
Common shares outstanding at end of period 416,279 416,279
Weighted average common stock and stock
equivalents outstanding during the period 416,279 416,279
Total assets at end of period $ 49,462 $ 47,447
Cash and cash equivalents $ 1,824 $ 1,837
Investment and mortgage-backed securities $ 5,863 $ 7,207
Loans, net $ 33,134 $ 31,561
Deposits $ 44,647 $ 42,739
Stockholders' equity $ 4,278 $ 4,088
Total loans before allowance for loan losses $ 33,602 $ 31,952
Allowance for credit losses $ 468 $ 391
Nonperforming loans $ 469 $ 406
Nonperforming loans and other assets $ 642 $ 901
Allowance for credit losses as a percentage
of period-end total loans 1.39% 1.22%
Allowance for credit losses as a percentage
of nonperforming loans 99.79% 96.31%
Total nonperforming loans as a percentage
of total loans 1.40% 1.27%
Total nonperforming loans as a percentage
of total assets 0.95% 0.86%
Total nonperforming loans and real estate owned
as a percentage of total assets 1.30% 1.90%
</TABLE>
8
<PAGE> 18
CNB FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 3,629 $ 3,423 $ 3,038 $ 2,989 $ 3,488
Interest expense 1,701 1,610 1,107 1,102 1,417
--------- --------- --------- --------- ---------
Net interest income 1,928 1,813 1,931 1,887 2,071
Provision for credit losses 128 94 195 228 209
--------- --------- --------- --------- ---------
Net interest income after provision for credit losses 1,800 1,719 1,736 1,659 1,862
Noninterest income 540 517 577 419 536
Noninterest expenses 2,156 1,892 2,180 2,027 2,020
--------- --------- --------- --------- ---------
Earnings before income taxes 184 344 133 51 378
Provision (benefit) for income taxes 15 108 (13) (37) 69
--------- --------- --------- --------- ---------
Net earnings $ 169 $ 236 $ 146 $ 88 $ 309
========= ========= ========= ========= =========
Per share data:(1)
Earnings per share $ 0.41 $ 0.57 $ 0.35 $ 0.21 $ 0.74
Cash dividends declared $ - $ - $ - $ - $ -
Book value at end of period $ 9.93 $ 9.61 $ 8.85 $ 8.84 $ 8.84
Common shares outstanding at end of period(1) 416,279 416,279 416,279 416,279 416,279
Weighted average common shares outstanding
during period(1) 416,279 416,279 416,279 416,279 416,279
Total assets at end of period $ 46,800 $ 45,330 $ 42,742 $ 40,325 $ 42,680
Cash and cash equivalents $ 2,422 $ 2,850 $ 2,418 $ 2,138 $ 2,444
Investment and mortgage-backed securities $ 6,996 $ 6,439 $ 5,347 $ 6,133 $ 8,138
Loans, net $ 34,154 $ 31,396 $ 29,121 $ 28,588 $ 27,874
Deposits $ 42,002 $ 40,792 $ 38,438 $ 36,087 $ 38,634
Stockholders' equity $ 4,134 $ 4,001 $ 3,684 $ 3,681 $ 3,680
Total loans before allowance for loan losses $ 34,629 $ 31,832 $ 29,533 $ 28,799 $ 28,171
Allowance for credit losses $ 475 $ 436 $ 418 $ 211 $ 297
Nonperforming loans $ 561 $ 777 $ 1,404 $ 326 $ 522
Nonperforming loans and other assets $ 621 $ 1,006 $ 1,964 $ 795 $ 1,135
Allowance for credit losses as a percentage
of period-end total loans 1.37% 1.37% 1.42% 0.73% 1.05%
Allowance for credit losses as a percentage
of nonperforming loans 84.67% 56.11% 29.77% 64.72% 56.90%
Total nonperforming loans as a percentage
of total loans 1.62% 2.44% 4.75% 1.13% 1.85%
Total nonperforming loans as a percentage
of total assets 1.20% 1.71% 3.28% 0.81% 1.22%
Total nonperforming loans and real estate
owned as a percentage of total assets 1.33% 2.22% 4.60% 1.97% 2.66%
</TABLE>
- ------------------------------
(1) Adjusted for the 5% stock dividends in shares of CNB Common Stock in
1993 through 1995 and the 2 for 1 stock split of CNB Common Stock in
1992.
9
<PAGE> 19
PRO FORMA COMBINED
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income $ 4,355 $ 3,974
Interest expense 1,766 1,744
-------- --------
Net interest income 2,589 2,230
Provision for credit losses 76 76
-------- --------
Net interest income after provision for credit losses 2,513 2,154
Noninterest income 588 553
Noninterest expenses 2,245 2,025
-------- --------
Earnings before income taxes 856 682
Provision for income taxes 282 240
-------- --------
Net earnings $ 574 $ 442
======== ========
Per share data:(1)
Earnings per share $ 1.21 $ 0.93
Cash dividends declared $ - $ -
Book value at end of period $ 19.03 $ 16.91
Equivalent CNB Common Stock per share data:(2)
Earnings per share $ 0.48 $ 0.37
Cash dividends declared $ - $ -
Book value at end of period $ 7.61 $ 6.76
Common shares outstanding at end of period(1) 475,223 475,223
Weighted average common shares outstanding
during period(1) 475,223 475,223
</TABLE>
- --------------------
(1) Computed using the weighted average number of shares of BLF Common
Stock at the dates indicated plus an exchange ratio of .40 of a share
of Combined Corporation Stock in exchange for all of the CNB Common
Stock assumed outstanding.
(2) Computed by multiplying the CNB per share data by the exchange ratio of
.40 of a share of Combined Corporation Stock in exchange for all of the
CNB Common Stock assumed outstanding.
10
<PAGE> 20
PRO FORMA COMBINED
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
AT OR FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Interest income $ 7,994
Interest expense 3,437
--------
Net interest income 4,557
Provision for credit losses 260
--------
Net interest income after provision for credit losses 4,297
Noninterest income 1,128
Noninterest expenses 4,268
--------
Earnings before income taxes 1,157
Provision for income taxes 347
--------
Net earnings $ 810
========
Per share data:
Earnings per share $ 1.70
Cash dividends declared $ -
Book value at end of period $ 17.97
Equivalent CNB Common Stock per share data:(2)
Earnings per share $ 0.68
Cash dividends declared $ -
Book value at end of period $ 7.19
Common shares outstanding at end of period(1) 475,223
Weighted average common shares outstanding
during period(1) 475,223
</TABLE>
- ------------------------------
(1) Computed using the weighted average number of shares of BLF Common
Stock at the dates indicated plus an exchange ratio of .40 of a share
of Combined Corporation Stock in exchange for all of the CNB Common
Stock assumed outstanding.
(2) Computed by multiplying the CNB per share data by the exchange ratio of
.40 of a share of Combined Corporation Stock in exchange for all of the
CNB Common Stock assumed outstanding.
11
<PAGE> 21
UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combining condensed financial
presentation of the Combined Corporation was prepared to provide information on
the combined balance sheets and income statements of BLF and CNB.
The Pro Forma Condensed Combined Balance Sheet reflects the
consolidated balance sheet of BLF as of June 30, 1997, after giving effect to
the proposed Merger. The Merger will be accounted for as a purchase and is based
on assumptions explained herein and in the Notes to Pro Forma Condensed Combined
Balance Sheet and Statements of Earnings.
The information presented below should be read in conjunction with the
separate consolidated financial statements and notes thereto of BLF and CNB, the
respective Management's Discussion and Analysis of Financial Condition and
Results of Operations of BLF and CNB, and the other unaudited pro forma
financial information, all included elsewhere in this Proxy Statement.
12
<PAGE> 22
PRO FORMA COMBINED CAPITAL INFORMATION
(UNAUDITED)
The following table presents the actual and required levels and
excesses in both dollars and percentages of capital requirements at June 30,
1997, on an historical basis for Big Lake National Bank and Clewiston National
Bank, and on a pro forma basis if the two banks were combined:
<TABLE>
<CAPTION>
BIG LAKE CLEWISTON COMBINATION OF
NATIONAL BANK NATIONAL BANK BOTH BANKS
HISTORICAL HISTORICAL PRO FORMA
CAPITAL RATIO CAPITAL RATIO CAPITAL RATIO
------------- ------------- -------------
% OF % OF % OF
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
------ ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk-
weighted assets
Regulatory capital $4,460 12.04% $4,664 15.19% $8,662 12.92%
Requirement 2,963 8.00 2,456 8.00 5,364 8.00
------ ----- ------ ----- ------ -----
Excess $1,497 4.04% $2,208 7.19% $3,298 4.92%
====== ===== ====== ===== ====== =====
Tier 1 capital to risk-
weighted assets
Regulatory capital $3,996 10.79% $4,279 13.94% $7,813 11.65%
Requirement 1,482 4.00 1,228 4.00 2,682 4.00
------ ----- ------ ----- ------ -----
Excess $2,514 6.79% $3,051 9.94% $5,131 7.65%
====== ===== ====== ===== ====== =====
Tier 1 capital to total
assets
Regulatory capital $3,996 7.20% $4,279 8.66% $7,813 7.49%
Requirement 2,221 4.00 1,977 4.00 4,170 4.00
------ ----- ------ ----- ------ -----
Excess $1,775 3.20% $2,302 4.66% $3,643 3.49%
====== ===== ====== ===== ====== =====
</TABLE>
In addition to the foregoing, Big Lake National Bank and Clewiston
National Bank are (and, after the Merger, will be) subject to the capital
requirements under the prompt corrective action provisions of recent legislation
which places depository institutions into one of the following five categories
based upon their capital levels and other supervisory criteria: (i) well
capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv)
significantly undercapitalized; and (v) critically undercapitalized. See
"Supervision, Regulation and Governmental Policy -- Capital Requirements." At
June 30, 1997, each of Big Lake National Bank and Clewiston National Bank met
the prompt corrective action capital requirements of a "well capitalized"
depository institution. Based upon the foregoing pro forma capital information,
the two banks, on a combined basis, would have met the capital requirements of a
"well capitalized" depository institution at June 30, 1997.
13
<PAGE> 23
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
JUNE 30, 1997
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR MERGER
----------- PRO
BLF CNB DEBIT CREDIT FORMA
--- --- ----- ------ -----
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 2,875 $ 1,824 $ - $ - $ 4,699
Federal funds sold 3,105 6,623 - - 9,728
Investment securities available-for-sale 14,988 5,595 - - 20,583
Investment securities held-to-maturity 801 - - - 801
Mortgage-backed securities available-for-sale - 268 - - 268
Loans receivable, net 41,382 33,134 - 700(4) 73,816
Accrued interest receivable 514 390 - - 904
Bank premises and equipment 1,613 997 - - 2,610
Other real estate owned - 173 - - 173
Intangible assets 659 - - - 659
Other assets 180 458 238(5) - 876
--------- --------- ------ ------ ---------
Total assets $ 66,117 $ 49,462 $ 238 $ 700 $ 115,117
========= ========= ====== ====== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 60,281 $ 44,647 $ - $ - $ 104,928
Accrued interest on deposits 436 221 - - 657
Other accrued expenses and liabilities 174 316 - - 490
--------- --------- ------ ------ ---------
Total liabilities 60,891 45,184 - - 106,075
--------- --------- ------ ------ ---------
Common stock 3 4 4(3) 2(2) 5
Additional paid-in-capital 3,068 1,196 1,196(3) 3,783(1) 6,851
Retained earnings 2,271 3,106 3,106(3) - 2,271
Treasury stock (59) - - 59(6) -
Unrealized loss on securities available-for-sale (57) (28) - - (85)
--------- --------- ------ ------ ---------
Total stockholders' equity 5,226 4,278 4,306 3,844 9,042
--------- --------- ------ ------ ---------
Total liabilities and
stockholders' equity $ 66,117 $ 49,462 $4,306 $3,844 $ 115,117
========= ========= ====== ====== =========
Book value per common share $ 16.93 $ 10.28 $ 19.03
========= ========= =========
Common shares outstanding 308,711 416,279 475,223
========= ========= =========
</TABLE>
- --------------------
See notes to pro forma condensed combined balance sheet at page 19.
14
<PAGE> 24
PRO FORMA CONDENSED COMBINED
PER SHARE INFORMATION
(UNAUDITED)
The following table summarizes the historical consolidated and
pro forma net earnings and book value of BLF and CNB after giving effect to the
proposed Merger at and for the six months ended June 30, 1997 and at and for the
year ended December 31, 1996. The following information should be read in
conjunction with the footnotes set forth on page 19:
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE
SIX MONTH PERIOD YEAR ENDED
ENDED JUNE 30, 1997 DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Shares outstanding at end of period:
Assumed number of shares of Combined
Corporation Stock issued 166,512 166,512
Shares of BLF Common Stock before Merger 308,711 308,711
-------- -------
Pro forma shares of Combined Corporation
Stock outstanding after Merger 475,223 475,223
======== =======
Net earnings:
BLF - Historical $376,000 $551,000
======== ========
CNB - Historical $152,000 $169,000
======== ========
Combined Corporation pro forma after Merger $574,000 $810,000
======== ========
Earnings per share:
BLF - Historical $ 1.22 $ 1.79
======== ========
CNB - Historical $ 0.37 $ 0.41
======== ========
Combined Corporation pro forma after Merger $ 1.21 $ 1.70
======== ========
CNB - Equivalent pro forma $ 0.48 $ 0.68
======== ========
Book value per share:
BLF - Historical $ 16.93 $ 15.72
======== ========
CNB - Historical $ 10.28 $ 9.93
======== ========
Combined Corporation pro forma after Merger $ 19.03 $ 17.97
======== ========
CNB - Equivalent pro forma $ 7.61 $ 7.19
======== ========
</TABLE>
15
<PAGE> 25
PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS
(UNAUDITED)
The following Pro Forma Condensed Combined Statements of Earnings
reflect the consolidated results of operations of BLF for the six-month period
ended June 30, 1997 and years ended December 31, 1996 and 1995, after giving
effect to the proposed Merger in a transaction which will be accounted for as a
purchase. The statements are based on the assumptions set forth herein and in
the Notes to Unaudited Pro Forma Condensed Combined Balance Sheet and Statements
of Earnings. The Pro Forma Condensed Combined Statements of Earnings do not
necessarily reflect the results of operations as they would have been if CNB and
BLF had constituted a single entity during the periods presented herein. The
information presented below should be read in conjunction with the separate
consolidated financial statements and notes thereto of CNB and BLF, the
respective Management's Discussion and Analysis of Financial Condition and
Results of Operations of CNB and BLF, and the other unaudited pro forma
financial information, all included elsewhere in this Proxy Statement.
16
<PAGE> 26
PRO FORMA CONDENSED COMBINED
STATEMENT OF EARNINGS AND SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------------
ADJUSTMENTS
FOR MERGER(1)
-------------- PRO
BLF CNB DEBIT CREDIT FORMA
-------- -------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Interest income on loans $ 1,852 $ 1,600 $ - $70(3) $ 3,522
Interest income on investment
and mortgage-backed securities 467 188 - - 655
Other interest income 62 116 - - 178
-------- -------- ---- --- --------
Total interest income 2,381 1,904 - 70 4,355
Interest expense on deposits 913 853 - - 1,766
-------- -------- ---- --- --------
Net interest income before
provision for credit losses 1,468 1,051 - 70 2,589
Provision for credit losses 60 16 - - 76
-------- -------- ---- --- --------
Net interest income 1,408 1,035 - 70 2,513
-------- -------- ---- --- --------
Fees and service charges 304 210 - - 514
Other income 51 23 - - 74
-------- -------- ---- --- --------
Total other income 355 233 - - 588
-------- -------- ---- --- --------
Compensation and employee benefits 591 531 - - 1,122
Other operating expenses 608 515 - - 1,123
-------- -------- ---- --- --------
Total other expenses 1,199 1,046 - - 2,245
-------- -------- ---- --- --------
Earnings before income taxes 564 222 - 70 856
Provision for income taxes 188 70 24(4) - 282
-------- -------- ---- --- --------
Net earnings $ 376 $ 152 $(24) $70 $ 574
======== ======== ==== === ========
Per share data:
Earnings per share $ 1.22 $ 0.37 $ 1.21
======== ======== ========
Weighted average common shares
outstanding during period(2) 308,711 416,279 475,223
======== ======== ========
</TABLE>
- ------------------------------
See notes to pro forma condensed combined statement of earnings at page 19.
17
<PAGE> 27
PRO FORMA CONDENSED COMBINED
STATEMENT OF EARNINGS AND SELECTED FINANCIAL DATA
(DOLLARS IN THOUSAND EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
ADJUSTMENTS
FOR MERGER(1)
---------------------- PRO
BLF CNB DEBIT CREDIT FORMA
-------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C>
Interest income on loans $ 3,088 $ 3,019 $ - $ 135(3) $ 6,242
Interest income on investment
and mortgage-backed securities 1,042 415 - - 1,457
Other interest income 99 195 - 1(5) 295
-------- -------- --------- ----- --------
Total interest income 4,229 3,629 - 136 7,994
Interest expense on deposits 1,736 1,701 - - 3,437
-------- -------- --------- ----- --------
Net interest income before provision
for credit losses 2,493 1,928 - 136 4,557
Provision for credit losses 132 128 - - 260
-------- -------- --------- ----- --------
Net interest income 2,361 1,800 - 136 4,297
-------- -------- --------- ----- --------
Fees and service charges 549 402 - - 951
Other income 40 138 - (1)(5) 177
-------- -------- --------- ----- --------
Total other income 589 540 - (1) 1,128
-------- -------- --------- ----- --------
Compensation and employee benefits 1,063 991 - - 2,054
Other operating expenses(6) 1,049 1,165 - - 2,214
-------- -------- --------- ----- --------
Total other expense 2,112 2,156 - - 4,268
-------- -------- --------- ----- --------
Earnings before income taxes 838 184 - 135 1,157
Provision for income taxes 287 15 45(4) - 347
-------- -------- --------- ----- --------
Net earnings $ 551 $ 169 $ (45) $ 135 $ 810
======== ======== ========= ===== ========
Per share data:
Earnings per share $ 1.79 $ 0.41 $ 1.70
======== ======== ========
Weighted average common shares
outstanding during period(2) 308,711 416,279 475,223
======== ======== ========
</TABLE>
- ---------------------------------
See notes to pro forma condensed combined statement of earnings at page 19.
18
<PAGE> 28
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
AND STATEMENTS OF EARNINGS
The Pro Forma Condensed Combined Balance Sheet as of June 30, 1997,
assumes that the proposed Merger occurred on June 30, 1997. The Merger will be
accounted for as a purchase and, in accordance with GAAP, the issuance of
Combined Corporation Stock to be exchanged for CNB Common Stock will be valued
based on the fair value of the assets and liabilities of CNB as of the Effective
Time.
The Pro Forma Condensed Combined Statements of Earnings for the
six-month period ended June 30, 1997 and the year ended December 31, 1996
assume that the proposed Merger occurred on the first day of each respective
period.
The Pro Forma financial information included in the Pro Forma Condensed
Combined Balance Sheet and the Pro Forma Condensed Combined Statements of
Earnings assumes the issuance in the Merger of .40 of a share of Combined
Corporation Stock for each share of CNB Common Stock outstanding.
The following footnotes relate to the Pro Forma Condensed Combined
Balance Sheet and the Pro Forma Condensed Combined Statements of Earnings:
Notes to the Pro Forma Condensed Combined Balance Sheet
(1) Under purchase accounting, CNB's assets and liabilities are required to
be adjusted to reflect their fair values. The adjusted amounts have
been based on appraisals, valuation reports, and computational
techniques designed to approximate their value. The following
adjustments have been made (dollars in thousands):
<TABLE>
<S> <C>
Net assets as reported by CNB $4,306
Estimated fair value adjustment for loans (700)
Deferred tax adjustment 238
------
As included in the pro forma condensed combined balance sheet $3,844
======
The net adjustment to additional paid-in-capital was computed as follows:
Total purchase accounting adjustment per above computation $3,844
Adjustment to reflect retirement of treasury stock (see Note 7) (59)
Adjustment for BLF Common Stock to be issued (2)
------
$3,783
======
</TABLE>
(2) Reflects the issuance of 166,512 shares of Combined Corporation Stock
in exchange for all of the issued and outstanding shares of CNB Common
Stock based on the exchange ratio of .40 of a share of Combined
Corporation Stock in exchange for all of the CNB Common Stock assumed
outstanding, computed as follows:
<TABLE>
<S> <C> <C>
CNB Common Stock assumed to be outstanding prior to merger 416,279
Times exchange ratio x 0.40
--------
Assumed shares issued to CNB stockholders 166,512
Times par value per share x $ 0.01
--------
$ 1,665
========
Rounded (dollars in thousands) $ 2
========
</TABLE>
19
<PAGE> 29
(3) Reflects the elimination of the Common Stock component of stockholders'
equity of CNB and the related adjustments to the components of
stockholders' equity for the net effect of the adjustment to fair value
for loans in the period presented, computed as follows (dollars in
thousands):
<TABLE>
<S> <C>
Stockholders' equity of CNB (book value):
Common Stock $ 4
Additional paid-in-capital 1,196
Retained earnings 3,106
------
Purchase price per valuation $4,306
======
</TABLE>
(4) Reflects the adjustment under purchase accounting to fair value for
loans in the amount of $700,000. All other assets and liabilities
approximate fair value.
(5) Reflects deferred tax asset at the estimated tax effect of 34%,
computed as follows:
<TABLE>
<S> <C> <C>
Estimated fair value adjustment for loans $ 700
Times estimated tax rate x 0.34
------
$ 238
======
</TABLE>
(6) Represents the adjustment to record the retirement of BLF treasury
stock. Prior to the Merger, BLF will retire all of its treasury stock,
computed as follows:
<TABLE>
<S> <C> <C>
Number of shares of treasury stock 4,724
Cost per share x $ 12.50
-------
$59,050
=======
Rounded (dollars in thousands) $ 59
=======
</TABLE>
Notes to the Pro Forma Condensed Combined Statement of Earnings and Selected
Financial Data
(1) For the purposes of presenting the pro forma condensed combined
statement of earnings, the following adjustments (which are expected to
be recurring as disclosed in Note 3) have been made:
<TABLE>
<CAPTION>
Year Six Months
Ended Ended
December 31, June 30,
1996 1997
------------ ----------
<S> <C> <C>
Increase in interest income (see Note 3) $135 $ 70
Rounding, other interest income 1 -
Rounding, other income (1) -
Deferred tax adjustment (45) (24)
---- ----
As included in the pro forma condensed combined statement of earnings $ 90 $ 46
==== ====
</TABLE>
(2) Computed using the weighted average number of shares of BLF Common
Stock at the dates indicated, plus 166,512 shares of Combined
Corporation Stock.
20
<PAGE> 30
(3) Reflects the accretion to interest income on the discount recorded to
loans in purchase accounting. The accretion is based on an estimated
weighted average maturity of the underlying loans, which is not
expected to exceed 5 years. For purposes of these pro forma statements,
the accretion is computed over 5 years using the straight-line method,
which is not expected to be materially different than the interest
method.
The accretion to interest income for the periods presented was computed
as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Six Months
Ended Ended
December 31, June 30,
1996 1997
------------ ----------
<S> <C> <C>
Estimated fair value adjustment for loans for the period presented $ 676 $ 700
Divided by number of months 60 60
----- -----
11 12
Times number months for period presented 12 6
----- -----
As rounded $ 135 $ 70
===== =====
</TABLE>
(4) Represents the estimated tax effect at 34%, computed as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year Six Months
Ended Ended
December 31, June 30,
1996 1997
------------ ----------
<S> <C> <C>
Estimated adjustment for accretion to interest income (see note 3) $ 135 $ 70
Rounding, net - -
----- -----
Increase in earnings before income taxes 135 70
Times estimated tax rate 0.34 0.34
----- -----
As rounded $ 45 $ 24
===== =====
</TABLE>
(5) Includes rounding.
(6) The costs to complete the Merger have been expensed by BLF and CNB as
incurred. Future Merger costs are not expected to be material and
accordingly have not been considered in the pro forma statements.
21
<PAGE> 31
SPECIAL MEETING OF CNB SHAREHOLDERS
GENERAL
This Proxy Statement is being furnished to the shareholders of CNB in
connection with the solicitation of proxies by the Board of Directors of CNB for
use at the Special Meeting of Shareholders of CNB to be held at _____ p.m.,
local time, on __________, 1997, at 950 West Ventura Avenue, Clewiston, Florida
33440. At the CNB Special Meeting, the shareholders of CNB will be asked to (i)
consider and vote upon approval of the Agreement, and (ii) transact such other
business as may properly come before the Special Meeting or any adjournment or
postponement thereof. This Proxy Statement and the enclosed Proxy are first
being sent to holders of CNB Common Stock on or about __________, 1997.
RECORD DATE; QUORUM; VOTING RIGHTS AND REQUIRED VOTE
The Board of Directors of CNB has fixed the close of business on
__________, 1997 as the CNB Record Date for determination of the shareholders
entitled to notice of, and to vote at, the CNB Special Meeting and at any
adjournment or postponement thereof. On the CNB Record Date, there were _______
shares of CNB Common Stock issued and outstanding, held of record by ____
shareholders. Each holder of CNB Common Stock will be entitled to one vote for
each share owned on each matter submitted to a vote at the CNB Special Meeting.
Only holders of record of CNB Common Stock as of the CNB Record Date are
entitled to vote at the CNB Special Meeting. The presence at the Special
Meeting, in person or by proxy, of the holders of a majority of the outstanding
shares of CNB Common Stock on the CNB Record Date is necessary to constitute a
quorum for the transaction of business at the CNB Special Meeting. In the
absence of a quorum, the CNB Special Meeting may be postponed from time to time
until CNB shareholders holding the requisite amount of shares of CNB Common
Stock are represented in person or by proxy. If a quorum is present, the
affirmative vote of the holders of a majority of the outstanding shares of CNB
Common Stock entitled to vote thereon at the CNB Special Meeting is required
for approval of the Agreement. Abstentions will be counted for purposes of
determining whether a quorum is present. Abstentions and broker non-votes, if
any, however, will have the same effect as a negative vote on the Agreement. As
of the CNB Record Date, CNB's directors and executive officers and their
affiliates beneficially owned approximately ___% of the outstanding shares of
CNB Common Stock entitled to vote at the CNB Special Meeting. All such
directors and executive officers have advised CNB that they intend to vote
their shares of CNB Common Stock at the Special Meeting in favor of the
approval of the Agreement. Mr. Edwin E. Walpole III (the Chairman, President
and Chief Executive Officer of BLF) held 1,735 shares of CNB Common Stock as of
the CNB Record Date. Mr. Walpole has advised BLF that he intends to vote his
shares of CNB Common Stock at the Special Meeting in favor of the approval of
the Agreement.
REVOCABILITY AND SOLICITATION OF PROXIES
A proxy is enclosed with this Proxy Statement. Shares of CNB Common
Stock represented at the CNB Special Meeting by properly executed proxies which
are received prior to the vote at the CNB Special Meeting and not theretofore
revoked will be voted at the Special Meeting in accordance with the instructions
indicated on the proxies. Properly executed proxies containing no instructions
will be voted FOR approval of the Agreement. IF NO INSTRUCTIONS ARE INDICATED,
SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND IN THE DISCRETION
OF THE PROXIES AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE CNB
SPECIAL MEETING. ANY HOLDER OF CNB COMMON STOCK WHO RETURNS A SIGNED PROXY BUT
FAILS TO PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH HIS SHARES ARE TO BE
VOTED WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE AGREEMENT. IF THERE ARE NOT
SUFFICIENT VOTES TO APPROVE THE AGREEMENT AT THE CNB SPECIAL MEETING, THE PROXY
HOLDER MAY VOTE IN FAVOR OF A PROPOSAL TO ADJOURN THE SPECIAL MEETING TO PERMIT
FURTHER SOLICITATION OF PROXIES (HOWEVER PROXIES OF THOSE VOTING AGAINST THE
MERGER WILL NOT BE USED TO VOTE FOR ANY POSTPONEMENT OF THE CNB SPECIAL MEETING
IN ORDER TO SEEK MORE AFFIRMATIVE VOTES).
22
<PAGE> 32
Any shareholder who has executed and returned a proxy may revoke it at
any time before it is exercised at the CNB Special Meeting by (i) attending and
voting his shares in person at the CNB Special Meeting, (ii) giving to CNB a
properly executed proxy bearing a later date, or (iii) giving written notice of
revocation of such proxy to the Secretary of CNB, provided such notice is
actually received by the Secretary prior to the voting of the shares represented
by the proxy at the CNB Special Meeting. All written notices of revocation and
other communications with respect to revocation of proxies related to CNB Common
Stock should be addressed as follows: CNB Financial Corporation, 950 West
Ventura Avenue, Clewiston, Florida 33440, ATTN: Frederick W. Gesell. The mere
presence of a shareholder at the Special Meeting will not constitute a
revocation of a proxy previously given.
All costs relating to the solicitation of proxies of holders of CNB
Common Stock will be paid by CNB. In addition to solicitation by mail, proxies
may be solicited by the officers, directors, and employees of CNB by telephone,
telegram, or in person. Such directors, officers, and employees will not be
additionally compensated for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. All other expenses
associated with soliciting proxies will include the reimbursement of banks,
brokerage firms, nominees, fiduciaries and other custodians for reasonable
expenses of forwarding proxy materials to beneficial owners of shares of CNB
Common Stock.
OTHER BUSINESS
As of the date of this Proxy Statement, CNB's Board of Directors knows
of no other matter that will be presented for consideration at the CNB Special
Meeting other than as described in this Proxy Statement. However, if any other
matters come before the CNB Special Meeting or any adjournment or postponement
thereof and shall be voted upon, proxies submitted by shareholders will be
deemed to confer discretionary authority to the individuals named as authorized
therein to vote the shares represented by such proxies as to any such matters.
THE MERGER
THE FOLLOWING INFORMATION DESCRIBES CERTAIN INFORMATION PERTAINING TO
THE MERGER. THIS DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE APPENDICES HERETO, INCLUDING THE AGREEMENT,
WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A AND IS INCORPORATED
HEREIN BY REFERENCE THERETO. ALL SHAREHOLDERS OF CNB ARE URGED TO READ THE
AGREEMENT IN ITS ENTIRETY.
GENERAL
The Agreement provides for a combination of the CNB and BLF
organizations through the merger of CNB with and into BLF at the Effective Time.
At the Effective Time and as a result of the Merger, Clewiston National Bank
will become a wholly-owned subsidiary of BLF. Following the Effective Time,
Clewiston National Bank and Big Lake National Bank will continue to conduct
business with their same officers, employees and offices. Pursuant to the
Merger, the shares of BLF Common Stock outstanding prior to the Merger will
remain outstanding as shares of the Combined Corporation after the Effective
Time. The shares of CNB Common Stock (other than shares held by CNB shareholders
who have perfected dissenters' rights) will be converted into shares of Combined
Corporation Stock in the Merger in accordance with the Conversion Ratio. See
"Conversion Ratio", below.
23
<PAGE> 33
BACKGROUND OF THE MERGER
During 1995 and 1996, representatives of CNB and another bank located
in southeastern Florida had discussions regarding a possible combination of the
two financial institutions through a "merger of equals" transaction. No letter
of intent or definitive agreement was entered into between the parties.
In November, 1996, representatives of CNB had discussions with two
other community banks regarding a possible acquisition of CNB. The banks
exchanged limited information on their organizations. No due diligence reviews
were undertaken nor were any letters of intent or definitive agreements entered
into by the parties regarding the value of the consideration that would have
been paid to CNB shareholders in these transactions or any other issues.
In early December, 1996, representatives of BLF and CNB held
preliminary discussions about a possible business combination of the two
organizations. On December 9, 1996, Mr. Edwin E. Walpole, III (Chairman,
President and Chief Executive Officer of BLF), Joe G. Mullins (Executive Vice
President of BLF), Curtis S. Fry (Chairman of CNB), and John H. Holmes
(President of CNB) met to discuss the possibility of a merger of CNB with BLF.
At the meeting, the representatives discussed the two organizations, the
possible composition of the Board of Directors and the executive officers of the
Combined Corporation, and that an evaluation would be done of BLF and CNB by an
outside third party not associated with either organization. During the meeting,
the representatives of BLF advised CNB that BLF was not interested in assuming
the employment agreement between CNB and its president and, accordingly, any
transaction between BLF and CNB must be in the context that CNB would terminate
the employment agreement prior to closing of the transaction. The
representatives agreed that a preliminary outline of a proposed transaction
would be reviewed by each organization's Board of Directors at its December,
1996 meeting and, if approved by each board, BLF and CNB would enter into a
confidentiality agreement to exchange information so that each could perform a
due diligence review of the other. The representatives also expressed a desire
that any decision regarding a combination of the organizations be made prior to
the end of the first quarter of 1997 in order that any such transaction could
be closed by the end of that year.
On December 18, 1996, the Board of Directors of BLF, reviewed the
discussions to date between the BLF and CNB representatives, authorized the
signing of a confidentiality agreement and, assuming such confidentiality
agreement was also signed by CNB, to commence performance of a due diligence
review of CNB. Also, on December 18, 1996, the Board of Directors of CNB
reviewed the discussions to date between BLF and CNB representatives, as well as
discussions between CNB representatives and representatives of the two other
community banks interested in a possible merger or acquisition transaction with
CNB. The CNB Board of Directors unanimously approved authorizing the CNB
representatives to continue discussions with BLF representatives regarding a
possible combination transaction of the BLF and CNB organizations. Among other
factors considered by the CNB board was the greater knowledge by CNB of the BLF
organization, the market diversification afforded by the possible combination
transaction and the BLF earnings record over the past several years. On December
18, 1996, BLF and CNB entered into a confidentiality agreement.
During the remainder of December, 1996, BLF had discussions with
several investment banking firms regarding their possible representation of BLF.
On January 8, 1997, the BLF and Big Lake National Bank directors met with a
representative of Mercer Capital, which was retained by BLF to do a valuation of
BLF and CNB. Mercer Capital also was retained to issue a fairness opinion to the
BLF Board of Directors in connection with any potential definitive agreement
that might be entered into between BLF and CNB.
On January 9, 1997, representatives of BLF commenced a due diligence
review of CNB. On January 15, 1997, representatives of CNB commenced a due
diligence review of BLF.
24
<PAGE> 34
On January 23, 1997, the CNB Board of Directors reviewed the status of
the due diligence review of BLF and approved the retention of William R. Hough &
Co. ("Hough") to review and assess the evaluation reports issued by Mercer
Capital and, if a transaction was entered into between BLF and CNB, to issue a
fairness opinion to the Board of Directors of CNB.
On February 5, 1997, the BLF Directors reviewed a report issued by
Mercer Capital, establishing an exchange ratio of .519 of BLF Common Stock for
each outstanding share of CNB Common Stock in a proposed merger of the two
organizations. The directors also discussed the status of the due diligence
review by BLF of CNB.
On February 7, 1997, the Chairman of BLF and the Chairman of CNB
discussed the composition of the Board of Directors of the Combined Corporation,
which would consist of the current directors of BLF plus three representatives
of CNB. Also on February 7, 1997, the Clewiston National Bank executive
committee met and reviewed the preliminary exchange ratio prepared by Mercer
Capital. The members authorized CNB management to continue with the negotiation
of a transaction with BLF which would include an exchange ratio .519 share of
BLF Common Stock for each outstanding share of CNB Common Stock.
On February 11, 1997, the BLF and Big Lake National Bank Directors
reviewed a presentation from Mercer Capital regarding its valuation of BLF and
CNB. The directors also reviewed the due diligence review conducted by BLF on
CNB. On February 12, 1997, BLF and CNB representatives reviewed and discussed
the terms of a proposed definitive agreement between BLF and CNB.
On February 19, 1997, the BLF Board of Directors approved an Agreement
and Plan of Reorganization. At the meeting, a representative of Mercer Capital
rendered an opinion that the terms of the Merger are fair, from a financial
point of view, to the shareholders of BLF. The BLF Board then unanimously
approved the Agreement and Plan of Reorganization and the transaction
contemplated thereby. On February 19, 1997, the Agreement and Plan of
Reorganization was approved by the Board of Directors of CNB. At the meeting, a
representative of Hough rendered an opinion that the terms of the Merger are
fair, from a financial point of view, to the shareholders of CNB. The CNB Board
then unanimously approved the Agreement and Plan of Reorganization and the
transactions contemplated thereby. The Agreement and Plan of Reorganization was
signed by the parties February 19, 1997. The terms of the Agreement and Plan of
Reorganization, as originally approved by the Boards of Directors of BLF and
CNB, provided that each share of CNB Common Stock would be converted into .519
shares of BLF Common Stock.
In late April and early May, 1997, BLF and CNB received and reviewed
from each other the financial results for each company during 1997. In May,
1997, BLF and CNB negotiated an amendment to the original conversion ratio as a
result of a divergence between the financial results reported by CNB for 1997
and the assumed financial results for CNB utilized in connection with the
determination of the conversion ratio by the parties, and the change in
condition of CNB. With regard to the financial results, CNB's operating income
for the second quarter of 1997 decreased approximately $100,000 as a result of
the loss incurred for the uninsured portion of a robbery occurring at one of
CNB's banking offices. Further, CNB reported an increase in its nonperforming
loans as a result of an examination by the OCC completed in 1997. Finally, as to
CNB's condition, CNB entered into an agreement with the OCC as a result of the
OCC's examination of CNB (see "Business of CNB - OCC Agreement"). On May 2,
1997, representatives of BLF and CNB met to review the updated 1997 financial
information for BLF and CNB. On June 18, 1997, the BLF Board of Directors
approved an Amended and Restated Agreement and Plan of Reorganization (the
"Agreement") to provide for the issuance in the Merger of .40 shares of BLF
Common Stock for each share of CNB Common Stock. At the meeting, a
representative of Mercer Capital rendered an opinion that the terms of the
Merger are fair, from a financial point of view, to the shareholders of BLF. On
June 19, 1997, the Board of Directors of CNB also approved the Agreement. At the
meeting, a representative of Hough rendered an opinion that the terms of the
Merger are fair, from a financial point of view, to the shareholders of CNB. The
Agreement was signed by the parties effective June 19, 1997.
25
<PAGE> 35
The terms of the Agreement were the result of arms-length negotiations
between representatives of BLF and representatives of CNB.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of CNB considered a number of factors in
deciding to approve and recommend the terms of the Agreement to CNB
shareholders. The CNB Board of Directors did not assign any relative or specific
weights to the factors considered. Among the factors considered by the CNB board
were (i) the respective business, operations, earnings, financial condition, and
capital position of BLF and CNB, as well as of the Combined Corporation on a
prospective basis, (ii) the terms of the Agreement, including the Conversion
Ratio, (iii) the overall compatibility of operations and management of the two
organizations, (iv) the tax-free nature of the transaction to CNB shareholders,
(v) the likelihood of receiving requisite regulatory approval, (vi) economic and
other conditions affecting the banking industry, (vii) that the Merger would
afford CNB shareholders the opportunity to participate in the ownership of a
bank holding company and bank with greater financial resources than either CNB
or Clewiston National Bank, (viii) that the Combined Corporation, Big Lake
National Bank, and Clewiston National Bank would be able to use the collective
resources and capital of BLF, CNB, Big Lake National Bank and Clewiston National
Bank to serve more and larger customers through a branching network not
available to either organization and larger lending limits reflecting the
combined capital of the two banks, and (ix) that the Merger would increase the
ability to compete with other banks and financial service institutions not only
through a more expansive branch network and lending capacity, but also through
pricing reflecting the economies and cost reductions afforded by a combination
of the two organizations. CNB also entered into the Agreement conditioned upon
it receiving from its financial advisor an opinion as to the fairness of the
Merger, from a financial point of view, to its shareholders. See " -- Opinion of
Financial Advisor."
THE BOARD OF DIRECTORS OF CNB UNANIMOUSLY RECOMMENDS THAT CNB
SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT.
OPINION OF FINANCIAL ADVISOR
CNB retained the financial institution consulting firm of William R.
Hough & Co., St. Petersburg, Florida ("Hough"), to offer an opinion on the
fairness of the Merger from a financial point of view. As of February 19, 1997,
Hough issued a written opinion to the CNB Board of Directors that the Merger is
fair to CNB shareholders from a financial point of view. Hough updated its
opinion to May 30, 1997 that, based on the matters set forth therein, the Merger
is fair to CNB shareholders from a financial point of view. A copy of Hough's
opinion, which sets forth the assumptions made, matters considered, and
limitations on the review undertaken, is set forth as Appendix C to this Proxy
Statement and should be read in its entirety by shareholders of CNB.
The original and updated opinions issued by Hough were addressed to the
Board of Directors of CNB for use by the Board in its consideration of the
financial terms of the Merger. Such opinions were not addressed to the
shareholders of CNB and do not constitute a recommendation to any CNB
shareholder as to how the shareholder should vote at the CNB Special Meeting.
Hough, as part of its financial institution consulting business, is
routinely engaged in the valuation of banks and other financial institutions and
their securities in connection with mergers and acquisitions and other
transactions. CNB retained Hough on the basis of its reputation and its
experience in evaluating financial institutions and in representing community
banks in merger transactions.
The terms of the Merger were determined by CNB and BLF after
arms-length negotiations between the parties. At the request of CNB, Hough
reviewed the Agreement and related documents and advised CNB on certain matters
related to its negotiations.
26
<PAGE> 36
In arriving at its opinion, Hough reviewed and analyzed material bearing
upon the financial and operating condition of CNB and BLF, including but not
limited to the following: (i) this Proxy Statement; (ii) the financial
statements of CNB and BLF for the period 1989 through March 31, 1997; (iii)
certain other publicly available information on CNB and BLF, consisting
principally of data obtained from each organization's financial statements filed
with the applicable Federal banking regulatory agency, which provides balance
sheet, income statement and other financial information; (iv) other internal
financial and operating information which was provided to Hough by CNB and BLF,
consisting of budgets and pro forma financial information reflecting the Merger;
(v) publicly available information regarding the performance of certain other
banks whose business activities are believed to be generally comparable to those
of CNB and BLF; (vi) the Agreement and related documents; and (vii) Hough's
experience with respect to bank merger transactions which provides insights into
the unique aspects of any one particular transaction, thus influencing its
conclusion as to whether a transaction is fair from a financial point of view.
In connection with rendering its opinion, Hough performed a variety of
financial analyses, which are summarized below. Hough believes its analyses must
be considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the process underlying Hough's
opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analyses or
summary description. In its analyses, Hough made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond CNB's or BLF's control. Any estimates
contained in Hough's analyses are not necessarily indicative of future results
or values, which may be significantly more or less favorable than the estimates.
Merger of Equals Analysis Of CNB and BLF. Hough completed a merger of
equals analysis of CNB and BLF as of December 31, 1996. This analysis included
the preparation of individual appraisals of CNB and BLF, respectively, for the
sole purpose of determining the relative contribution of value by each company,
including levels of equity, deposits, earnings and other factors, to the
combined corporation on a pro forma basis. At December 31, 1996, CNB's equity
represented 45.99%, deposits 43.64% and 12-month earnings 23.47% of total
combined equity, deposits and earnings as compared with BLF, whose equity
represented 54.01%, deposits 56.36%, and earnings 76.53% to total combined
equity, deposits and earnings. At March 31, 1997, CNB's equity represented
45.92%, deposits 43.53%, and 3-month earnings 35.09% of total combined equity,
deposits, and earnings as compared with BLF, whose equity represented 54.08%,
deposits 56.47%, and earnings 64.91% of total combined equity, deposits, and
earnings. The Hough analysis was updated to May 30, 1997, using substantially
the same methodology. This updated analysis included an evaluation of subsequent
events since December 31, 1996, including the interim financial performance of
CNB and BLF and their subsidiaries. Hough reviewed the updated analysis on
behalf of CNB, and advised the CNB Board of Directors in its negotiations with
BLF. A fair exchange ratio analysis was then prepared to complete the merger of
equals financial analysis. This merger of equals analysis concluded that a fair
exchange ratio for CNB shares would be in the range of .40 to .45 shares of the
resulting holding company for each share outstanding, and that a fair exchange
ratio for BLF Common Stock would be 1.00 share of the resulting holding company
for each share outstanding.
Financial Performance Analysis. Hough completed a financial analysis of
the performance and condition of CNB and BLF, including their affiliate banks.
This analysis included a five-year balance sheet and income statement
comparison, and a performance ratio analysis, including a comparison to industry
peer groups. Specific measures reviewed, among other areas, included that total
deposits of CNB increased from $38.6 million as of the end of 1992 to $42.0
million as of December 31, 1996. Income before taxes of CNB decreased from
$378,000 in 1992 to $184,000 in 1996. Total deposits of BLF increased from $27.6
million as of the end of 1992 to $54.2 million as of December 31, 1996, and
income before taxes increased from $420,000 in 1992 to $838,000 in 1996.
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Hough also reviewed the performance of the affiliate banks of both CNB and
BLF as presented in each Bank's Uniform Bank Performance Report. The net income
of Clewiston National Bank in 1996 as a percentage of average assets ("ROA")
equaled .37% and compared to a peer group of 1.15%. The ROA for Big Lake
National Bank in 1996 of .97% compared to its a peer group average of 1.24%.
Hough also reviewed CNB's and BLF's disclosures included in this Proxy
Statement under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for each respective company.
Contribution Analysis. Hough compared the pro forma ownership interest in
BLF that CNB shareholders would receive, in the aggregate, to the contribution
by CNB to the total assets, equity and net income in the combined organization.
As of March 31, 1997, CNB shareholders would own approximately 35% of the
combined organization, while CNB's contribution of total deposits would equal
approximately 44%, the contribution of total equity would equal approximately
46%, the contribution of income before taxes would have equaled approximately
35%, and CNB's contribution to 1996 total income before taxes (most recent
calendar year) would have equaled approximately 18%. Hough believes that the
marketplace sets a value on earnings and historical consistency of earnings is
considered an indicator of a bank's ability to sustain earnings. CNB has had
inconsistent earnings over the past five years. These measures are based on the
unaudited condensed pro forma financial information included under the section
"Unaudited Condensed Pro Forma Combined Financial Information."
Pro Forma Merger Analysis. Hough analyzed the historical and pro forma
effect of the Merger to the total book value of shareholders of CNB and BLF as
of March 31, 1997. As of such date, the Conversion Ratio resulted in a decrease
in pro forma total book value of approximately 27.5% to CNB shareholders, as
compared to an increase of approximately 14.2% for the shareholders of BLF. The
Conversion Ratio indicates that the Merger would result in an increase in the
total earnings of CNB shareholders of approximately 8.8% and an increase in
total earnings of BLF shareholders of approximately 8.5%.
The summary set forth above does not purport to be a complete description
of the analyses performed by Hough. Further, Hough did not conduct a physical
inspection of any of the properties or assets of CNB or BLF. Hough has assumed
and relied upon the accuracy and completeness of the financial and other
information provided to it or publicly available, has relied upon the
representations and warranties of CNB and BLF made pursuant to the Agreement,
and has not independently attempted to verify any of such information. Hough has
also assumed that the conditions to the Merger as set forth in the Agreement
would be satisfied and that the Merger would be consummated on a timely basis in
the manner contemplated by the Agreement. No limitations were imposed by CNB or
BLF on Hough regarding the scope of its investigation nor were any specific
instructions given to Hough in connection with its fairness opinion.
For Hough's services as financial advisor in the proposed transaction, CNB
will pay the firm professional fees based upon its customary rates, which are
estimated at $12,500. In addition, CNB has agreed to reimburse Hough for
reasonable out-of-pocket expenses and indemnify Hough against certain
liabilities, including liabilities under the securities laws.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the Effective Time, the combined business of CNB and BLF will be
conducted under the name "Big Lake Financial Corporation" at the bank holding
company level. The executive offices of the Combined Corporation will be located
at the executive offices of BLF at 1409 S. Parrott Avenue, Okeechobee, Florida
34974. No banking offices of Clewiston National Bank or Big Lake National Bank
will be closed as a result of the Merger.
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The officers and employees of the Clewiston National Bank after the Merger will
be those persons serving as officers and employees of Clewiston National Bank as
of the Effective Time.
The Board of Directors of the Combined Corporation will consist of the
seven individuals currently serving as directors of BLF plus John Boy, Jr.,
Curtis S. Fry, and Thomas A. Smith. Messrs. Boy, Fry, and Smith are currently
serving as directors of CNB and Clewiston National Bank. The executive officers
of BLF after the Merger will consist of Edwin E. Walpole III (Chairman,
President and Chief Executive Officer) and Joe G. Mullins (Executive Vice
President and Chief Administrative Officer). Upon consummation of the Merger,
the directors of Clewiston National Bank will consist of the eight individuals
currently serving as directors of Clewiston National Bank, plus Edwin E. Walpole
III and Joe G. Mullins. Messrs. Walpole and Mullins currently serve as directors
of BLF and Big Lake National Bank. See "The Merger -- Management and Operations
After the Merger."
INTERESTS OF CERTAIN PERSONS; COMPENSATION AND EMPLOYEE BENEFIT PLANS
As of the date of this Proxy Statement, Edwin E. Walpole III (Chairman,
President and Chief Executive Officer of BLF) owned 1,735 shares of CNB Common
Stock. Also at that date, the following directors of CNB owned the number of
shares of BLF Common Stock set forth in parenthesis after their names: John Boy,
Jr. (2,261 shares), Curtis S. Fry (16,551 shares), Dan McCarthy (904 shares),
and Thomas A. Smith (3,109 shares).
The parties have agreed in the Agreement to use their best efforts to
coordinate the conversion of each employee benefit plan of CNB into similar
plans of the Combined Corporation, to the extent similar plans are maintained by
the Combined Corporation, and to make available for eligibility for CNB and
Clewiston National Bank employees all benefit plans and policies maintained by
the Combined Corporation following the Effective Time, with such employees
receiving credit for past service with CNB and Clewiston National Bank for
purposes of eligibility for participation, vesting and years of service under
such plan.
BLF has outstanding options covering 18,213 shares of BLF Common Stock
(the "BLF Options"). The BLF Options will remain outstanding after the Merger
convertible into the same number of shares of Combined Corporation Stock as such
options are convertible into shares of BLF Common Stock as of the Effective Time
and at the same exercise price per share.
The Agreement also provides that after the Effective Time, the Combined
Corporation will indemnify, defend and hold harmless the present and former
officers, directors and employees and agents of CNB and Clewiston National Bank
against all losses, expenses, claims, damages or liabilities occurring on or
prior to the Effective Time subject to the Florida Act. If the Combined
Corporation or any of its successors consolidates with or merges into any other
corporation, or transfers all or substantially all of its property and assets,
then the Combined Corporation will cause proper provision to be made so that the
successors of the Combined Corporation will assume the indemnification
obligations set forth in the Agreement.
Except as set forth above, no director or executive officer of BLF, Big
Lake National Bank, CNB or Clewiston National Bank and no associate of any such
person, has any substantial interest, direct or indirect, in the Merger, other
than an interest arising from the ownership of BLF Common Stock or CNB Common
Stock, in which case the director or officer receives no extra or special
benefit not shared on a pro rata basis by all other holders of BLF Common Stock
or CNB Common Stock.
BLF, Big Lake National Bank, CNB and Clewiston National Bank are not aware
of any material relationship between BLF or Big Lake National Bank or their
directors and executive officers and CNB or Clewiston National Bank or their
directors and executive officers, except as contemplated by the Agreement or as
described herein. In the ordinary course of business and from time to time,
however, BLF may do business with CNB, BLF may enter into banking transactions
with certain of CNB or CNB's directors, executive officers and their affiliates,
CNB
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may do business with BLF, and CNB may enter into banking transactions with
certain of BLF's directors, executive officers and their affiliates.
CONVERSION RATIO
CNB Common Stock. At the Effective Time, each share of CNB Common Stock
(other than shares held by shareholders of CNB who have perfected dissenters'
rights under the Florida Act) will be converted into the right to receive .40 of
a share of Combined Corporation Stock. If BLF changes the number of shares of
BLF Common Stock issued and outstanding prior to the Effective Time as a result
of a stock split, stock dividend, or similar reclassification or distribution
with respect to such stock and the record date therefor is prior to the
Effective Time, the amount of shares of Combined Corporation Stock issuable in
the Merger will be subject to appropriate adjustment. A fractional share
otherwise issuable to a CNB shareholder in the Merger will be rounded up to the
next whole share if the fraction is .500 or greater and rounded down to the next
whole share if the fraction is .499 or less.
BLF Common Stock. The shares of BLF Common Stock issued and outstanding
immediately prior to the Effective Time will remain outstanding and unchanged
after the Merger as shares of Combined Corporation Stock.
EFFECTIVE TIME
If the Agreement is approved by the CNB shareholders and if the Merger is
approved by the various authorities described under "Regulatory Approvals"
below, and if the other conditions to consummation of the Merger are satisfied
or waived, as permitted, the Merger will be closed on the date and at the time
mutually agreed upon by BLF and CNB. See "Conditions to Consummation" below.
Upon the satisfactory completion of the closing, the Merger will be deemed to be
effective and consummated on the date and at the time specified in the Articles
of Merger to be filed by the Florida Secretary of State (the "Effective Time").
Assuming the satisfaction of the conditions to the Merger, the parties
anticipate that the Merger will become effective in the fourth quarter of 1997,
although there can be no assurance as to whether or when the Merger will become
effective.
DISTRIBUTION OF COMBINED CORPORATION CERTIFICATES
After the Effective Time, the Combined Corporation will act as exchange
agent ("Exchange Agent") for the transaction or appoint another institution as
the Combined Corporation may designate to act as the exchange agent for the
transaction, and if another institution is so selected, the Combined Corporation
will deliver to such institution, the total consideration to be paid for shares
of CNB Common Stock in the Merger. As promptly as practicable after the
Effective Time, the Exchange Agent will send a letter of transmittal to each
former holder of record of shares of CNB Common Stock for use in exchanging
their certificates formerly representing shares of CNB Common Stock for exchange
and conversion in accordance with the procedures provided for in this Proxy
Statement and in the Agreement. The letter of transmittal will contain detailed
instructions concerning the manner of executing and submitting the CNB stock
certificates for certificates of the Combined Corporation. At the Effective
Time, all holders of shares of CNB Common Stock will be deemed to be holders of
the shares of Combined Corporation Stock into which such shares of CNB Common
Stock have converted in the Merger, whether or not they surrender the stock
certificates representing their shares of CNB Common Stock. Such holders will be
entitled to all dividends or distributions in respect of shares of Combined
Corporation Stock where the record date for the payment of such dividends or
distributions occurs on or after the Effective Time; however, no such dividends
or distributions will be paid to holders of any unsurrendered certificate or
certificates representing CNB Common Stock, and the Combined Corporation will
not be obligated to deliver any of the
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consideration to which any holder of CNB Common Stock is entitled as a result of
the Merger, until such holder surrenders the certificate or certificates
representing CNB Common Stock as provided for in the Agreement. Until the stock
certificates evidencing the shares of CNB Common Stock are surrendered pursuant
to the Agreement, no stock certificates representing shares of Combined
Corporation Stock will be delivered or remitted to such holders. In addition,
holders of shares of CNB Common Stock will not be entitled to receive any
interest respecting any dividends or distributions payable in respect of shares
of Combined Corporation Stock, and the Combined Corporation, after the lapse of
the appropriate time period and in accordance with the applicable laws of
escheat or abandoned property, may remit any unclaimed funds or unclaimed stock
certificates representing shares of Combined Corporation Stock to state
officials under the applicable laws of escheat or abandoned property.
RESALE OF COMBINED CORPORATION STOCK RECEIVED IN THE MERGER
The shares of Combined Corporation Stock to be issued in the Merger have
been registered under the Securities Act, thereby allowing such shares to be
sold without restriction by shareholders of CNB who are not deemed to be
"affiliates" (as that term is defined in the rules under the Securities Act) of
CNB and who do not become affiliates of the Combined Corporation. The shares of
Combined Corporation Stock to be issued to affiliates of CNB may be resold only
pursuant to an effective registration statement, pursuant to Rule 145 under the
Securities Act, or in transactions otherwise exempt from registration under the
Securities Act. The Combined Corporation will not be obligated and does not
intend to register its shares under the Securities Act for resale by
shareholders who are affiliates.
At or prior to the Effective Time, each such person deemed an affiliate of
CNB will deliver to the Combined Corporation a letter agreeing that he or she
will not sell, transfer, or otherwise dispose of such shares of Combined
Corporation Stock in violation of the Securities Act or the rules and
regulations thereunder.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS A SUMMARY OF CERTAIN ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO HOLDERS OF CNB COMMON STOCK WHO ARE
CITIZENS OF THE UNITED STATES. IT DOES NOT DISCUSS ALL THE TAX CONSEQUENCES THAT
MAY BE RELEVANT TO HOLDERS OF CNB COMMON STOCK ENTITLED TO SPECIAL TREATMENT
UNDER THE CODE. THE SUMMARY SET FORTH BELOW DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OF ALL POTENTIAL TAX EFFECTS OF THE TRANSACTIONS CONTEMPLATED BY THE
AGREEMENT OR THE MERGER. EACH HOLDER OF CNB COMMON STOCK IS URGED TO CONSULT HIS
OR HER OWN TAX AND FINANCIAL ADVISOR AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX
CONSEQUENCES ON HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES, AND ALSO AS
TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE
MERGER.
Neither CNB, Clewiston National Bank, BLF, nor Big Lake National Bank has
requested a ruling from the Internal Revenue Service ("IRS") in connection with
the Merger. Instead, the parties will rely upon an opinion of Stevens, Thomas,
Schemer & Sparks, P.A., as to the Federal income tax consequences of the Merger
to the holders of CNB Common Stock. The opinion of Stevens, Thomas, Schemer &
Sparks, P.A., is based entirely upon the Code, the Treasury Regulations
thereunder, current administrative rulings and practices, and judicial
authority, all of which are subject to change. The opinion is filed with the
Commission as an exhibit to the Registration Statement. Unlike a ruling from
the IRS, an opinion is not binding on the IRS and there can be no assurance,
and none is hereby given, that the IRS will not take a position contrary to one
or more positions reflected herein or that the opinion will be upheld by the
courts if challenged by the IRS.
In the opinion of Stevens, Thomas, Schemer & Sparks, P.A., which opinion
is based on various representations and subject to various assumptions and
qualifications, the following federal income tax consequences to the holders of
BLF and CNB Common Stock will result from the Merger:
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(i) Upon consummation, the Merger will qualify as a reorganization
within the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
CNB, Clewiston National Bank, BLF, and Big Lake National Bank will each be a
party to the reorganization.
(ii) No gain or loss will be recognized by any shareholder of CNB upon
the exchange of such shareholder's CNB Common Stock for Combined Corporation
Stock pursuant to the Merger.
(iii) No gain or loss will be recognized by any shareholder of BLF as a
result of the Merger.
(iv) The basis of the Combined Corporation Stock received by the
shareholders of CNB will be the same as the basis of the CNB Common Stock
surrendered therefor.
(v) To the extent any shareholder of CNB owns less than 1.25 shares of
CNB Common Stock immediately prior to the Effective Time, a loss, if any, may be
recognized by such CNB shareholder in an amount equal to the tax basis in said
shares as determined in accordance with applicable provisions of the Code.
(vi) A shareholder of CNB who dissents to the proposed Merger and
receives solely cash for such shareholder's stock will be treated as having
received such cash as a distribution in redemption of such shareholder's stock
subject to the provisions and limitations of Section 302 of the Code.
(vii) Provided that shares of CNB Common Stock were capital assets in the
hands of a holder of CNB Common Stock immediately prior to the Merger, the
holding period of the Combined Corporation Stock received by a holder of CNB
Common Stock in the Merger will include the holding period of the CNB Common
Stock surrendered in exchange therefor.
CONDITIONS TO CONSUMMATION
The obligations of CNB, Clewiston National Bank, BLF and Big Lake National
Bank to consummate the Merger are subject to the satisfaction or waiver (to the
extent permitted) of certain conditions at or prior to the Effective Time,
including the following: (i) all approvals of, filings with, and notifications
to, all appropriate regulatory authorities necessary to consummate the Merger
shall have been made or received (and not include any provisions which unduly
impair or restrict the operations, or would have a material adverse effect on
the condition, of the Combined Corporation or the Combined Bank, or render
consummation of the Merger unduly burdensome, in each case as determined in the
reasonable discretion of the parties), and all waiting periods imposed by law
must have expired; (ii) the representations and warranties of the parties in the
Agreement shall be true and correct in all material respects as of the closing
date, and the various covenants and agreements of the parties shall have been
duly performed and complied with in all material respects; (iii) no action or
proceeding shall be pending or threatened preventing consummation of the
transactions contemplated by the Agreement, causing any such transactions to be
rescinded following consummation, or adversely affecting the right of the
Combined Corporation after the Effective Time to own, operate or control
essentially all the assets of CNB and BLF and their subsidiaries; (iv) the
shareholders of CNB shall have approved the Agreement; (v) the parties shall
have delivered to each other certain certificates setting forth compliance with
certain provisions of the Agreement; (vi) each of the parties shall have
delivered to the others certain legal opinions; (vii) the respective
shareholders' equity of CNB and BLF on the last day of the calendar month
immediately preceding the closing date, as determined in accordance with GAAP
and before of any adjustments required pursuant to Statement of Financial
Accounting Standards No. 115 ("SFAS less than the amounts reported by each as of
April 30, 1997; (viii) the allowances for loan or credit losses of CNB and BLF
as of the last day of the calendar month immediately preceding the closing date
shall not be less than 1.20% in the case of BLF and 1.13% in the case of CNB,
based upon such party's gross loans net of unearned income (and before deduction
of its allowance
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for loan or credit losses); and (ix) the holders of no more than 5% of the
outstanding CNB Common Stock shall have elected to exercise their dissenters'
rights in the Merger.
No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the appropriate
party. If the Merger is not effected on or before June 30, 1998, the Agreement
may be terminated, and the Merger abandoned, by either BLF or CNB. See
"Amendment, Waiver and Termination" below.
REGULATORY APPROVALS
The Merger is subject to approval by the Federal Reserve. On August 21,
1997, the Federal Reserve issued an order approving the Merger.
Any approval received from the banking agencies reflects only their view
that the Merger does not contravene applicable competitive standards imposed by
law, and that the Merger is consistent with regulatory policies relating to
safety and soundness. Such approval is not an opinion by any banking agency that
the Merger is favorable to the shareholders from a financial point of view or
that any banking agency has considered the adequacy of the terms of the Merger.
THE APPROVAL OF THE BANKING AGENCIES IS NOT AN ENDORSEMENT OR RECOMMENDATION OF
THE MERGER.
BLF and CNB are not aware of any other governmental approvals or actions
that may be required for consummation of the Merger except for the Federal
Reserve approval described above. Should any such approval or action be
required, it is presently contemplated that such approval or action would be
sought. There can be no assurance, however, that any such approval or action, if
needed, could be obtained and would not be conditioned in a manner that would
cause the parties to abandon the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
The Agreement provides that the parties will (i) confer with each other on
a regular and frequent basis and deliver to each other periodic financial and
statistical information, (ii) use their best efforts to take all actions
necessary for all regulatory applications to be approved (provided that no such
condition unduly impairs or restricts the operations, or would have a material
adverse effect on the condition, of the Combined Corporation or render
consummation of the Merger unduly burdensome), (iii) use their best efforts to
obtain any consents, approvals, permits or authorizations required to consummate
the Merger, (iv) refrain from taking any action which would cause any
representations and warranties to become untrue in any material respect or any
condition set forth in the Agreement to not be satisfied, (v) continue to file
all reports and documents required with appropriate regulatory authorities, (vi)
refrain from taking any action (whether before or after the Effective Time)
which would disqualify the Merger as a "reorganization" within the meaning of
the Code, (vii) permit representatives of other parties to have full access to
information and documents pertaining to such party, (viii) notify the others of
any material adverse development affecting the business of such party, (ix)
conduct their businesses in the usual, regular and ordinary course consistent
with past practices, (x) use reasonable efforts to maintain their business
organizations, employees and business relationships, and (xi) take no action
which would adversely affect or delay the ability of any party to obtain any
consent or approval required for the Merger. In addition, until the Effective
Time, no party may (without the prior written consent of the other parties) (i)
incur any indebtedness for borrowed money, assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any
other person or entity, other than in the ordinary course of business, (ii)
adjust, split, combine or reclassify any capital stock; make, declare or pay
any dividend or make any other distribution on its stock; or redeem, purchase
or otherwise acquire, any shares of its stock or grant any person the right to
acquire any shares of its stock, (iii) sell, mortgage, or transfer any of its
material properties or assets to any person or entity, or cancel,
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release or assign any material indebtedness to any person or entity, except in
the ordinary course of business, (iv) make any material investment in any other
individual or entity, except in the ordinary course of business, (v) enter into
or terminate any material contract or agreement, or make any change in any of
its material leases or contracts, other than renewals of contracts and leases
without material adverse changes of terms and except for transactions in the
ordinary course of business, (vi) increase in any material manner the
compensation or fringe benefits of any of its employees or pay any pension or
retirement allowance not required by any existing plan or agreement, or commit
itself to any pension, retirement, profit-sharing or other benefit plan or
agreement for the benefit of any employee, other than in the ordinary course of
business (with the understanding that entering into any new employment contracts
or renewing or amending any existing employment contracts are deemed to be
outside the ordinary course of business), (vii) amend its Articles of
Incorporation or Bylaws, (viii) enter into any new material line of business,
(ix) change its lending, investment, liability management and other material
banking policies in any respect which is material, (x) incur or commit to any
capital expenditure or any obligations or liabilities, other than in the
ordinary course of business, (except, as to BLF, the construction of an
operations center, two drive-in lanes for the BLF main office, the renovation of
the interior of the BLF main office, and the installation of safe-deposit boxes
in BLF's Lake Placid banking office); (xi) change its methods of accounting
(except as required by SFAS Nos. 121, 123 or 125), or (xii) issue or sell any
shares of its capital stock or any securities convertible into any such shares,
other than the issuance of BLF Common Stock, pursuant to outstanding BLF
Options, as in effect on the date of the Agreement and in accordance with their
present terms. The Agreement also provides that no party may acquire or agree to
acquire any business, entity or assets which are material to such party (except
that internal reorganizations, foreclosures in the ordinary course of business,
acquisitions of control in a fiduciary capacity, investments made in small
business investment corporations in the ordinary course of business, or the
creation of new subsidiaries organized to conduct or continue activities
otherwise permitted by the Agreement are permitted).
The Agreement also provides that, except as specifically permitted or
contemplated by the Agreement, no party may solicit, initiate, encourage,
entertain, consider, or participate in the negotiation, discussion or submission
of any proposal or offer from any person relating to any (i) liquidation,
dissolution, or recapitalization, (ii) merger or consolidation, (iii)
acquisition or purchase of 25% or more of securities or assets, or (iv) similar
transaction or business combination involving the party and/or its subsidiaries
or their respective assets (an "Acquisition Proposal"). However, each party is
entitled to entertain, consider, and participate in negotiations and discussions
regarding, and furnish any information with respect to, any effort or attempt by
any person to do or seek to do any of the foregoing to the extent that the Board
of Directors of such party determines in good faith that the failure to so
consider or participate in such negotiations or discussions would be
inconsistent with the fiduciary obligations of the directors of such party to
the shareholders of suuired to give prompt notice to all of the parties of such
negotiations and discussions and to notify the others immediately if any person
makes any proposal, offer, inquiry, or contact with respect to any Acquisition
Proposal. Under certain circumstances, the receipt of an Acquisition Proposal
can give rise to the termination of the Agreement and abandonment of the Merger
by a party. See "Amendment, Waiver and Termination" below.
REPRESENTATIONS AND WARRANTIES
The Agreement contains representations and warranties by each of BLF, CNB,
Big Lake National Bank, and Clewiston National Bank relating to corporate
existence, powers and similar matters, corporate authorization, regulatory
filings and approvals, non-contravention of corporate documents, agreements and
instruments, capitalization, regulatory filings, financial statements, absence
of certain changes, undisclosed liabilities, litigation, taxes and tax
treatment, employee plans and benefits, compliance with law, and other issues.
The representations, warranties, covenants and agreements in the Agreement do
not survive the Effective Time.
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EXPENSES AND FEES
The Agreement provides that each of the parties will bear its own expenses
in connection with the negotiation and execution of the Agreement and the
implementation and effectiveness of the Merger, provided that each of BLF and
CNB will pay one-half of all filing fees relating to all applications submitted
for prior regulatory approval of the Merger, the fees and expenses related to
obtaining the tax opinion, the fees and expenses of counsel relating to the
preparation of applications to the regulatory authorities for approval of the
Merger and the preparation of the Proxy Statement, and the costs of printing and
mailing the Proxy Statement.
AMENDMENT, WAIVER AND TERMINATION
Notwithstanding the approval of the Agreement by the CNB shareholders, the
Agreement may be terminated, and the Merger abandoned, at any time prior to the
Effective Time by (i) mutual consent of the parties, or (ii) any party if (A)
the Merger has not been consummated by March 31, 1998, (B) there is a material
breach of a representation, warranty, or covenant by the other party (which has
not been cured during the period of time set forth in the Agreement), (C) the
Agreement or the Merger fails to receive the requisite shareholder approval of a
party, or (D) any approval from a bank regulatory agency necessary to permit
consummation of the Merger is not received, or includes conditions or
restrictions which in the reasonable judgment of a party would (y) unduly impair
or restrict the operations, or would have a material adverse effect on the
condition, of the Combined Corporation or (z) render consummation of the Merger
unduly burdensome.
The Agreement also may be terminated and the Merger abandoned at any time
prior to the Effective Time by any party if a material adverse development shall
have occurred affecting the condition of the other party. While the Agreement
does not define what developments, if they occur, would constitute a material
adverse effect on the condition of a party, it does contain provisions which
provide some indication of the circumstances that would constitute a material
adverse effect on a party. For example, the Agreement requires that the
shareholders' equity of a party on the last day of the calendar month preceding
the closing date (before any adjustments required pursuant to FAS 115 and for
expenses incurred in connection with the Merger), be not less than its
shareholders' equity at April 30, 1997 and that the parties maintain a minimum
allowance for loan losses through the closing date (1.20% of gross loans net of
unearned income and before such allowance in the case of BLF, and 1.13% in the
case of CNB). The Agreement also states that, for purposes of the Agreement, a
material adverse effect on the condition of the parties shall not include a
decline in results of operation resulting from any change in law, rule,
regulation or generally accepted accounting principle which impacts banks or
bank holding companies generally in a substantially similar manner. Finally, in
requiring each of the parties to give prompt written notice to the other of any
material adverse development affecting its condition or operations, the
Agreement notes that the following items are expressly included: (i) any
material change in a party's business or operations, (ii) any material
complaint, investigation or hearing (or communication indicating that the same
may be contemplated) of any bank regulatory authority, (iii) the institution or
the threat of material litigation involving a party, or (iv) any event or
condition that might be reasonably expected to cause any of the parties'
representations and warranties set forth in the Agreement not to be true and
correct in all material respects as of the closing date.
If the Agreement is terminated as described above, no party will have any
further liability to any other party, except for any liability of any party then
in breach.
The Agreement also can be terminated by any party if during the term of
the Agreement an Acquisition Proposal is submitted to and approved by the
shareholders of such party prior to the Effective Time, or an Acquisition
Proposal is received by such party or is made directly to its shareholders and,
as to CNB, its Board of Directors fails to recommend, or withdraws its
recommendation, that CNB's shareholders approve the Agreement or the Merger, or
CNB's Board of Directors fails to solicit proxies to approve the Agreement or
the
35
<PAGE> 45
Merger, and the Agreement and the Merger are subsequently rejected by CNB's
shareholders. If the party terminating the Agreement is BLF or Big Lake National
Bank, then BLF will pay to CNB, and if the party terminating the Agreement is
CNB or Clewiston National Bank, then CNB will pay to BLF, a termination fee
equal to 10% of the shareholders' equity of the party required to make such
payment as of the end of the month preceding such payment, as liquidated
damages, and not as a penalty, and, upon the payment of such amount, the
Agreement will be terminated and no party will have any further liability under
the Agreement or the Merger, except as otherwise provided in the Agreement.
As stated above, CNB may terminate the Agreement if, among other things,
an Acquisition Proposal is received by it and its Board of Directors fails to
recommend, or withdraws its recommendation, that CNB's shareholders approve the
Agreement or the Merger, or CNB's Board of Directors fails to solicit proxies to
approve the Agreement or the Merger, and the Agreement and the Merger are
subsequently rejected by CNB's shareholders. CNB may elect to take such action
even after CNB shareholder approval of the Agreement and the Merger and without
resolicitation of CNB shareholders. In determining whether to take such action,
the CNB Board of Directors will take into account, consistent with its fiduciary
duties, all relevant facts and circumstances existing at the time, including,
without limitation, the value of the consideration to be received by CNB
shareholders in the Acquisition Proposal versus the value to be received by CNB
shareholders in the Merger, whether (and the extent to which) BLF is prepared to
increase the consideration to be received by CNB shareholders in the Merger, and
the advice of CNB's financial advisor and legal counsel. By approving the
Agreement, CNB shareholders would be permitting the Board of Directors of CNB to
determine, in the exercise of its fiduciary duties, to terminate the Agreement
and the Merger following CNB shareholder approval and without resolicitation of
CNB shareholders if an Acquisition Proposal is received by CNB.
Any termination and abandonment of the Agreement would not require
approval of CNB shareholders.
The Agreement may be amended at any time prior to the Effective Time upon
written agreement of all of the parties, except that after approval of the
Agreement by CNB's shareholders, no amendment may be made in the conversion
ratio in a manner that adversely affects the economic value of the Merger to
such shareholders without their further approval.
Substantially all of the conditions to consummation of the Merger may be
waived, in whole or in part, to the extent permissible under applicable law, by
the party for whose benefit the condition has been imposed, without the approval
of the shareholders of CNB.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a purchase for accounting and
financial reporting purposes. Under this accounting method, the assets and
liabilities of CNB will be recorded at fair value. BLF anticipates that the
purchase price will be less than the book value of CNB's net assets. BLF does
not anticipate that any negative goodwill will be booked as the discount from
CNB's book value approximates the adjustment to record CNB's loans at fair
value. This adjustment will be recorded to income as an interest yield
adjustment over the expected life of the loan portfolio using the interest
method. The amortization period will be determined at the time of merger based
on the estimated average remaining maturities of the loan portfolio and is
expected not to exceed five years.
The results of the operations of CNB will be included in the consolidated
financial statements from the date of acquisition and the prior periods will not
be restated. In the year of acquisition, the pro forma combined results of
operations for BLF and CNB will be disclosed from the beginning of the year of
acquisition and for the immediately preceding year in accordance with generally
accepted accounting principles.
36
<PAGE> 46
DISSENTERS' RIGHTS
Florida law accords the shareholders of CNB the right to dissent from the
transactions contemplated by the Agreement. Consummation of the Merger is
subject to, among other things, the holders of no more than 5% of the
outstanding CNB Common Stock electing to exercise their dissenters' rights. A
shareholder of CNB may dissent from the transactions contemplated by the
Agreement and receive in cash the fair value, as of the day prior to the CNB
Special Meeting, of the shares of CNB Common Stock held by such shareholder
pursuant to Sections 607.1301, 607.1302 and 607.1320 of the Florida Act (the
"Florida Dissent Provisions"). Such fair value is exclusive of any appreciation
or depreciation in anticipation of the Merger, unless exclusion would be
inequitable. The following summary of the Florida Dissent Provisions is
qualified in its entirety by reference to the full text of the provisions which
is set forth as Appendix B to this Proxy Statement.
Under the Florida Dissent Provisions, a shareholder of CNB may dissent
from the Agreement by complying with the following procedures: (i) the
dissenting shareholder must file with CNB, prior to the CNB Special Meeting,
written notice of the shareholder's intent to demand payment for the
shareholder's shares; (ii) the dissenting shareholder must refrain from voting
in favor of the Agreement; (iii) within 10 days after the date of the CNB
Special Meeting, CNB must give written notice of approval of the Agreement by
the shareholders to such dissenting shareholder; and (iv) within 20 days after
the dissenting shareholder receives such notice of authorization the dissenting
shareholder must file with CNB a notice of election and a demand for payment of
the fair value of his shares. Any dissenting shareholder filing an election to
dissent must deposit the shareholder's certificates for certificated shares with
CNB simultaneously with the filing of the election to dissent. A shareholder may
dissent as to less than all of the shares of CNB Common Stock held by the
shareholder, and in such event, the shareholder is treated as two separate
shareholders. Once CNB offers to pay the dissenting shareholder for the
shareholder's shares, the notice of election cannot be withdrawn except with the
consent of CNB. However, the right of a dissenting shareholder to be paid the
fair value of the shareholder's shares will cease if (i) the demand is
withdrawn, (ii) the proposed Merger is abandoned, (iii) no demand or petition
for determination of fair value is filed hin the time provided by law or (iv) a
court of competent jurisdiction determines that such shareholder is not entitled
to the relief provided by the Florida Dissent Provisions.
Submission of a proxy or a vote against the Agreement does not constitute
a notice of intent to demand payment under the Florida Dissent Provisions.
Within 10 days after the later of the expiration of the period in which
the dissenting shareholder may file the shareholder's notice of election to
dissent, or the Effective Time, the Combined Corporation is required to make a
written offer to each dissenting shareholder to purchase the shares of the
Combined Corporation Stock at a price deemed by the Combined Corporation to be
the fair value of such shares. If, within 30 days after the making of such
offer, any shareholder accepts the same, payment therefor shall be made within
90 days after the later of the date such offer was made or the consummation of
the Merger. However, if, within such 30 day period, the Combined Corporation and
the dissenting shareholder are unable to agree with respect to a price, then the
Combined Corporation, within 30 days after receipt of written demand from such
dissenting shareholder given within 60 days after the Effective Time, shall, or
at its election within such period may, file an action in a court of competent
jurisdiction in Okeechobee County requesting that the fair value of the shares
of CNB Common Stock be found and determined. If the Combined Corporation fails
to institute such proceedings, any dissenting shareholder may do so in the name
of the Combined Corporation. All dissenting shareholders are deemed to be
parties to the proceeding as an action against their shares. In such proceeding,
the court may, if it so elects, appoint one or more persons as appraisers to
receive evidence and recommend a decision on the question of fair value. The
Combined Corporation is required to pay each dissenting shareholder the amount
found to be due within 10 days after fiings. Upon payment of such judgment, the
dissenting shareholder will cease to have any interest in the shares of CNB
Common Stock.
37
<PAGE> 47
Any judgment rendered in any dissent proceeding may, at the discretion of
the court, include an allowance for interest at such rate as the court may deem
fair and equitable. The cost and expenses of any such dissent proceeding will be
determined by the court and assessed against the Combined Corporation, but all
or any part of such costs and expenses may be apportioned and assessed against
the dissenting shareholders, in such amount as the court deems equitable, if the
court determines that the Combined Corporation made an offer to the dissenting
shareholders and the shareholders' failure to accept such offer was arbitrary or
vexatious and not in good faith. The expenses awarded by the court will include
compensation for reasonable expenses of any appraiser but will not include the
fees and expenses of counsel or experts employed by any party. If the fair value
of the shares of CNB Common Stock, as determined by the proceeding, materially
exceeds the amount which the Combined Corporation initially offered to pay, or
if no offer was made, the court, in its discretion, may award to any shareholder
who is a party to the proceeding such sum as the court may determine to be
reasonable compensation for any expert employed by the shareholder in the
proceeding.
The foregoing discussion only describes certain provisions of the Florida
Dissent Provisions; however, CNB shareholders are urged to review such
provisions in their entirety, which are included as Appendix B to this Proxy
Statement. Any CNB shareholder who intends to dissent from the Merger should
review the text of the Florida Dissent Provisions carefully and also should
consult with his or her attorney. Any CNB shareholder who fails to strictly
follow the procedure set forth in such statutes will forfeit dissenters' rights.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
After the Merger, the Restated Articles of Incorporation of BLF will
constitute the Restated Articles of Incorporation of the Combined Corporation
(the "Combined Corporation Articles"). The Combined Corporation Articles and the
Combined Corporation Bylaws will govern the outstanding shares of Combined
Corporation Stock after the Merger. The outstanding shares of Combined
Corporation Stock after the Merger will consist of shares of BLF Common Stock
outstanding at the Effective Time and the shares of Combined Corporation Stock
issued to CNB shareholders in the Merger. See "The Merger -- Conversion Ratio."
Since both CNB and BLF (which, after the Merger, is referred to in this Proxy
Statement as the Combined Corporation) are Florida corporations, the rights of
CNB shareholders are in general similar to the rights of BLF shareholders.
However, there are certain differences between the Combined Corporation Articles
and the Combined Corporation Bylaws and the CNB Articles of Incorporation ("CNB
Articles") and Bylaws. The following is a summary of certain of these
differences and is qualified in its entirety by reference to the Restated
Articles of Incorporation of BLF and Combined Corporation Bylaws (copies of
which are filed as exhibits to the Registration Statement).
AUTHORIZED CAPITAL STOCK; PAR VALUE
The Combined Corporation Articles authorize the Combined Corporation to
issue up to 1,000,000 shares of Combined Corporation common stock, par value
$.01 per share ("Combined Corporation Stock"), as compared to the CNB Articles
(which authorize the issuance of up to 10,000,000 shares of CNB Common Stock).
The Combined Corporation Articles authorize the Combined Corporation to issue up
to 500,000 shares of preferred stock, par value $1.00 per share, as compared to
the CNB Articles (which do not authorize the issuance of any shares of CNB
preferred stock). The shares of Combined Corporation preferred stock may be
issued by the Combined Corporation Board, from time to time, without further
shareholder action, in one or more series and with such relative rights and
preferences (including, with respect to any series, the dividend rate, the terms
and conditions of redemption, liquidation value, voting rights, conversion
rights, and such other relative, participating, optional, or special rights,
qualifications, limitations, or restrictions) as the Combined Corporation Board
may determine.
38
<PAGE> 48
The Combined Corporation Board of Directors may authorize the issuance of
additional shares of the Combined Corporation Common Stock or preferred stock
without further action by the Combined Corporation Shareholders, unless such
action is required in a particular case by applicable laws or regulations. The
authority to issue additional shares of Combined Corporation Stock or preferred
stock provides the Combined Corporation with the flexibility necessary to meet
its future needs without the delay resulting from seeking shareholder approval.
The unissued shares of the Combined Corporation Stock and preferred stock may
be issued from time to time for any corporate purposes, including, without
limitation, stock splits, stock dividends, employee benefit and compensation
plans, acquisitions, and public or private sales for cash as a means of raising
capital. Such shares could be used to dilute the stock ownership of persons
seeking to obtain control of the Combined Corporation. In addition, the sale of
a substantial number of shares of the Combined Corporation Stock or the sale of
preferred stock to persons who have an understanding with the Combined
Corporation concerning the voting of such shares, or the distribution or
dividend of shares of Combined Corporation Stock or preferred stock (or the
right to receive such shares) to the Combined Corporation shareholders, may
have the effect of discouraging or increasing the cost of unsolicited attempts
to acquire control of the Combined Corporation. Further, because the Combined
Corporation Board will have the power to determine the voting, conversion or
other rights of the Combined Corporation preferred stock, the issuance of a
series of preferred stock to persons friendly to management could effectively
discourage or preclude consummation of a change in control transaction or have
the effect of maintaining the position of Combined Corporation incumbent
management. CNB and BLF do not currently have any plans or commitments for the
Combined Corporation to use its authority to effect any such issuance, but
reserve the right to take any action that the Board of Directors deems to be in
the best interests of the Combined Corporation and its shareholders.
DIRECTORS; REMOVAL
BLF has seven directors. The Combined Corporation Articles divide the
number of directors into three classes, as nearly equal in number as reasonably
possible, with the term of office of each class expiring at each succeeding
annual meeting of the Combined Corporation shareholders. CNB has eight
directors, all of whom stand for re-election at each annual meeting of the CNB
shareholders. The Combined Corporation Articles provide that Combined
Corporation directors may be removed only for cause and only by the affirmative
vote of the holders of a majority of the outstanding shares of Combined
Corporation Common Stock. The CNB Articles have no such provision, and thus are
subject to the Florida law provisions which provide that directors may be
removed by shareholders with or without cause.
SHAREHOLDER MEETINGS
Special meetings of shareholders of CNB may be called by its Board of
Directors, or upon the written request of any three or more shareholders owning
less than 25% of all outstanding CNB Common Stock entitled to vote at the
meeting. Special meetings of shareholders of Combined Corporation may be called
by the Board of Directors, or upon the request of holders of not less than 10%
of all outstanding Combined Corporation Common Stock.
MARKET AND DIVIDEND INFORMATION
STOCK TRADING INFORMATION
The shares of BLF Common Stock and CNB Common Stock are not actively
traded, and such trading activity, as it occurs, takes place in privately
negotiated transactions. There is no established public trading market for the
39
<PAGE> 49
shares of BLF Common Stock or CNB Common Stock. Management of BLF and CNB are
aware of certain transactions in their respective shares that have occurred
since January 1, 1995, although the trading prices of all stock transactions are
not known.
As to shares of BLF Common Stock traded since January 1, 1995, BLF
management is aware of the trading prices for the following transactions: in
1995, an aggregate of 2,150 shares were traded in eight transactions for prices
ranging from $10.00 to $13.75 per share; in 1996, an aggregate of 12,718 shares
were traded in 15 transactions for $15.00 per share; and in 1997, an aggregate
of 212 shares were traded in two transactions for $15.00 per share. The last
sale of BLF Common Stock of which BLF had knowledge occurred on February 24,
1997, at a price of $15.00 per share.
With respect to the CNB Common Stock, CNB management is aware of the
trading prices for the following transactions: in 1995, there were no shares
known to have been traded; in 1996, an aggregate of 2,798 shares were traded in
four transactions for prices ranging from $9.61 to $9.78 per share; and in 1997,
an aggregate of 2,351 shares were traded in five transactions for prices ranging
from $6.59 to $9.00 per share. The last sale of CNB Common Stock of which CNB
had knowledge occurred on June 16, 1997 at a price of $9.00 per share.
Public announcement of the Merger by BLF and CNB occurred on February 21,
1997. The following sets forth on a historical basis for CNB Common Stock and
BLF Common Stock, the price per share in the last sale of such shares (for which
CNB and BLF management, respectively, had knowledge) at or prior to February 20,
1997 (the day prior to the public announcement of the Merger), the book value of
CNB Common Stock and BLF Common Stock as of February 21, 1997, and the
equivalent pro forma per share amounts of BLF Common Stock and CNB Common Stock
based upon such per share prices as adjusted for the Conversion Ratio. As noted
above, there is no established public trading market for the shares of BLF
Common Stock or CNB Common Stock. Accordingly, there is no assurance that the
last trading prices or the book value per share for CNB Common Stock and BLF
Common Stock are reflective of the market value of such shares or the price at
which such shares could be sold to others.
40
<PAGE> 50
<TABLE>
<CAPTION>
BLF COMMON STOCK CNB COMMON STOCK
--------------------------------- -------------------------------
EQUIVALENT EQUIVALENT
HISTORICAL PER SHARE (1) HISTORICAL PER SHARE (1)
-------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Approximate Book value per Common Share
as of February 21, 1997 $15.94 $15.94 $10.05 $ 6.38
Last sales price (and date) of
Common Stock prior to
February 21, 1997 public
announcement of Merger $15.00 (2) $15.00 $9.00(3) $ 6.00
</TABLE>
- --------------------
(1) Computed (a) as to BLF Common Stock, by multiplying the BLF Common Stock
historical amounts by 1.0 and (b) as to CNB Common Stock, by multiplying
the BLF Common Stock historical amounts by the Conversion Ratio.
(2) Sale occurred on January 7, 1997
(3) Sale occurred on January 31, 1997
DIVIDENDS
BLF has not paid any cash dividends in the past and CNB has not paid any
cash dividends since June, 1992. BLF and CNB intend that, for the foreseeable
future, the Combined Corporation will retain earnings to finance continued
growth rather than pay cash dividends on the Combined Corporation Stock. If at
any time the Combined Corporation Board determines to pay dividends on the
Combined Corporation Stock, the timing and the extent to which dividends are
paid by the Combined Corporation will be determined by such Board in light of
then-existing circumstances, including the Combined Corporation's rate of
growth, profitability, financial condition, existing and anticipated capital
requirements, the amount of funds legally available for the payment of cash
dividends, regulatory constraints and such other factors as the Board determines
relevant. The source of funds for payment of dividends by the Combined
Corporation will be dividends received from Big Lake National Bank and Clewiston
National Bank. Payments by these national banks to the Combined Corporation are
limited by law and regulations of the bank regulatory authorities. There are
various statutory and contractual limitations on the ability of Big Lake
National Bank and Clewiston National Bank to pay dividends to the Combined
Corporation. The OCC also has the general authority to limit the dividends paid
by national banks if such payment may be deemed to constitute an unsafe and
unsound practice. As a national bank, Big Lake National Bank and Clewiston
National Bank may not pay dividends from their paid-in surplus. All dividends
must be paid out of undivided profits then on hand, after deducting expenses,
including reserves for losses and bad debts. In addition, a national bank is
prohibited from declaring a dividend on its shares of common stock until its
surplus equals its stated capital, unless there has been transferred to surplus
no less than one/tenth of the bank's net profits of the preceding two
consecutive half-year periods (in the case of an annual dividend). The approval
of the OCC is required if the total of all dividends declared by a national bank
in any calendar year exceeds the total of its net profits for that year combined
with its retained net profits for the preceding two years, less any required
transfers to surplus.
41
<PAGE> 51
BLF
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
BLF's principal asset is its ownership of Big Lake National Bank.
Accordingly, BLF's results of operations are primarily dependent upon the
results of operations of Big Lake National Bank. Big Lake National Bank conducts
commercial banking business consisting of attracting deposits from the general
public and applying those funds to the origination of commercial, consumer and
real estate loans (including commercial loans collateralized by real estate).
Big Lake National Bank's profitability depends primarily on net interest income,
which is the difference between interest income generated from interest-earning
assets (i.e., loans and investments) less the interest expense incurred on
interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest rate earned and paid on these
balances. Net interest income is dependent upon Big Lake National Bank's
interest-rate spread which is the difference between the average yield earned on
its interest-earning assets and the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximate or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. The interest rate spread is impacted by interest rates, deposit flows,
and loan demand. Additionally, and to a lesser extent, Big Lake National Bank's
profitability is affected by such factors as the level of noninterest income and
expenses, the provision for credit losses, and the effective tax rate.
Noninterest income consists primarily of service fees on deposit accounts.
Noninterest expense consists of compensation and employee benefits, occupancy
and equipment expenses, deposit insurance premiums paid to the FDIC, and other
operating expenses.
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the financial
condition of BLF at, and results of operations of BLF for the years ended,
December 31, 1996 and 1995, and for the six-month periods ended June 30, 1997
and 1996. This discussion should be read in conjunction with the consolidated
financial statements and related footnotes of BLF presented elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
A national bank is required to maintain a liquidity reserve of at least 3%
of its net transaction deposit accounts under $49.3 million. Where net
transaction deposit accounts exceed $49.3 million, the reserve requirements are
$1,479,000 plus 10% of the amount over $49.3 million. The liquidity reserve may
consist of cash on hand, cash on demand deposit with other correspondent banks,
and other investments and short-term marketable securities as determined by the
rules of the OCC, such as federal funds sold and United States securities or
securities guaranteed by the United States. As of June 30, 1997 and December 31,
1996 and 1995, Big Lake National Bank had liquidity ratios of 58.3%, 29.1% and
103.3%, respectively.
BLF's principal sources of funds are those generated by Big Lake National
Bank, including net increases in deposits, principal and interest payments on
loans, and proceeds from sales and maturities of investment securities.
BLF uses its capital resources principally to fund existing and continuing
loan commitments and to purchase investment securities. At June 30, 1997, and
December 31, 1996 and 1995, BLF had commitments to originate loans totaling $2.5
million, $2.4 million and $2.8 million, respectively, and had issued but unused
letters of credit of $24,000, $74,000 and $457,000, respectively. In addition,
scheduled maturities of certificates of deposit
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<PAGE> 52
during the 12 months following June 30, 1997, and December 31, 1996 and 1995
totaled $28.2 million, $23.1 million and $22.7 million, respectively. Management
believes that BLF has adequate resources to fund all its commitments, that
substantially all of its existing commitments will be funded within 12 months
and, if so desired, that BLF can adjust the rates and terms on certificates of
deposit and other deposit accounts to retain deposits in a changing interest
rate environment.
In accordance with risk capital guidelines issued by the OCC, Big Lake
National Bank is required to maintain a minimum standard of total capital to
risk-weighted assets of 8.0%. Additionally, the OCC requires banks to maintain a
minimum leverage-capital ratio of Tier 1 capital (as defined) to average assets.
The leverage-capital ratio ranges from 3.0% to 5.0% based on the bank's rating
under the regulatory rating system.
The following table summarizes the regulatory capital levels and ratios
for Big Lake National Bank:
<TABLE>
<CAPTION>
ACTUAL REGULATORY
RATIOS REQUIREMENT
------ -----------
<S> <C> <C>
At June 30, 1997:
Total capital to risk-weighted assets 12.04% 8.00%
Tier I capital to risk-weighted assets 10.79% 4.00%
Tier I capital to average assets - leverage ratio 7.20% 4.00%
At December 31, 1996:
Total capital to risk-weighted assets 12.12% 8.00%
Tier I capital to risk-weighted assets 10.87% 4.00%
Tier I capital to average assets - leverage ratio 7.37% 4.00%
At December 31, 1995:
Total capital to risk-weighted assets 11.69% 8.00%
Tier I capital to risk-weighted assets 10.43% 4.00%
Tier I capital to average assets - leverage ratio 6.74% 4.00%
</TABLE>
RESULTS OF OPERATIONS
Net interest income, which constitutes the principal source of income for
BLF, represents the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities. The principal
interest-earning assets are investment securities and loans made to businesses
and individuals. Interest- bearing liabilities primarily consist of time
deposits, interest-bearing checking accounts ("NOW accounts"), retail savings
deposits and money market accounts. Funds attracted by these interest-bearing
liabilities are invested in interest-earning assets. Accordingly, net interest
income depends upon the volume of average interest-earning assets and average
interest-bearing liabilities and the interest rates earned or paid on them.
Net interest income was $1,468,000 for BLF for the six months ended June
30, 1997, compared with $1,192,000 for the six months ended June 30, 1996. This
improvement in net interest income was a result of a higher volume of net
interest-earning assets and a more favorable interest-rate spread. Net interest
income was $2,493,000 for BLF for the year ended December 31, 1996, compared
with $1,984,000 for the year ended December 31, 1995. This improvement in net
interest income was a result of a higher volume of net interest-earning assets
offset in part by a lower interest-rate spread.
43
<PAGE> 53
The following table shows selected ratios for the periods ended or at the
dates indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
----------------- -------------------
1997 1996 1996 1995
----- ---- ------ ----
<S> <C> <C> <C> <C>
Average equity as a percentage
of average assets 8.06% 7.82% 8.01% 9.89%
Equity to total assets at end
of period 7.91% 7.84% 8.16% 7.86%
Return on average assets 1.21% 0.85% 0.98% 1.34%
Return on average equity 15.00% 10.91% 12.26% 13.53%
Noninterest expense to
average assets 3.85% 3.77% 3.76% 3.82%
</TABLE>
The rates and yields at the dates indicated were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YIELD OR RATE AT
-----------------------------------------------
JUNE 30, DECEMBER 31,
------------------- ----------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loans 9.44% 9.53% 9.49% 9.39%
Investment securities 5.83% 6.01% 6.00% 6.08%
Other interest-earning assets 5.22% 5.23% 5.26% 5.81%
All interest-earning assets 8.26% 8.05% 8.17% 8.39%
Savings deposits 2.50% 3.22% 3.11% 2.73%
NOW accounts 2.30% 2.10% 2.02% 1.81%
Money market deposits 1.90% 2.30% 2.24% 2.55%
Certificates of deposit 5.27% 5.32% 5.30% 5.57%
All interest-bearing liabilities 4.11% 4.21% 4.14% 4.08%
Interest-rate spread 4.15% 3.84% 4.03% 4.31%
</TABLE>
44
<PAGE> 54
The following tables set forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of BLF
from interest-earning assets and the resultant average yield; (ii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest/dividend income; (iv) interest-rate
spread; (v) net interest margin. Average balances were based on average daily
balances.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ---- ------- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $39,236 $ 1,852 9.44% $ 30,568 $ 1,457 9.53%
Investment and mortgage-backed securities 16,007 467 5.83% 17,472 525 6.01%
Other interest-earning assets(2) 2,374 62 5.22% 3,515 92 5.23%
------- ------- -------- -------
Total interest-earning assets 57,617 2,381 8.26% 51,555 2,074 8.05%
------- -------
Noninterest-earning assets 4,621 4,495
------- --------
Total assets $62,238 $ 56,050
======= ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $11,434 123 2.15% $ 10,956 119 2.17%
Savings 5,762 72 2.50% 5,770 93 3.22%
Certificates of deposit 27,231 718 5.27% 25,194 670 5.32%
Other Borrowings 9 - 6.06% 6 - 5.65%
------- ------- -------- -------
Total interest-bearing
liabilities 44,436 913 4.11% 41,926 882 4.21%
------- -------
Noninterest-bearing liabilities 12,788 9,743
Stockholders' equity 5,014 4,381
------- --------
Total liabilities and
stockholders' equity $62,238 $ 56,050
======= ========
Net interest/dividend income $ 1,468 $ 1,192
======= =======
Interest-rate spread(3) 4.15% 3.84%
==== ======
Net interest margin(4) 5.09% 4.62%
==== ======
Ratio of average interest-earning assets
to average interest-bearing
liabilities 129.66% 122.97%
======= ========
</TABLE>
- ------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits due from other banks and federal
funds sold.
(3) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
45
<PAGE> 55
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995
----------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------ ------- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $ 32,531 $ 3,088 9.49% $ 26,841 $2,521 9.39%
Investment securities 17,354 1,041 6.00% 7,630 464 6.08%
Other interest-earning assets(2) 1,901 100 5.26% 3,614 210 5.81%
-------- -------- -------- ------
Total interest-earning assets 51,786 4,229 8.17% 38,085 3,195 8.39%
-------- ------
Noninterest-earning assets 4,314 3,097
-------- --------
Total assets $ 56,100 $ 41,182
======== ========
Interest-bearing liabilities:
Demand, money market and
NOW deposits $ 11,263 235 2.09% $ 8,347 179 2.14%
Savings 5,781 180 3.11% 5,491 150 2.73%
Certificates of deposit 24,646 1,306 5.30% 15,831 882 5.57%
Other borrowings 247 15 6.07% - - -%
-------- -------- -------- ------
Total interest-bearing
liabilities 41,937 1,736 4.14% 29,669 1,211 4.08%
------- ------
Noninterest-bearing liabilities and
minority interest 9,670 7,440
Stockholders' equity 4,493 4,073
-------- --------
Total liabilities and
stockholders' equity $ 56,100 $ 41,182
======== ========
Net interest/dividend income $ 2,493 $1,984
======= ======
Interest-rate spread(3) 4.03% 4.31%
==== ====
Net interest margin(4) 4.81% 5.21%
==== ====
Ratio of average interest-earning assets
to average interest-bearing
liabilities 123.49% 128.37%
====== ========
</TABLE>
- ------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits due from other banks and federal funds
sold.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
46
<PAGE> 56
The following tables set forth certain information regarding changes in
interest income and interest expense of BLF for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in interest rate
(change in rate multiplied by prior volume), (2) changes in the volume (change
in volume multiplied by prior rate) and (3) changes in rate-volume (change in
rate multiplied by change in volume):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 VS. 1996
INCREASE (DECREASE) DUE TO
------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ (14) $ 413 $ (4) $ 395
Investment securities (15) (44) 1 (58)
Other interest-earning assets - (30) - (30)
------ ----- ---- -----
Total (29) 339 (3) 307
------- ----- ---- -----
Interest-bearing liabilities:
Demand, money market and NOW deposits (1) 5 - 4
Savings (21) - - (21)
Certificates of deposit (6) 54 - 48
Other borrowings - - - -
------ ----- ---- -----
Total (28) 59 - 31
------ ----- ---- -----
Net change in net interest income $ (1) $ 280 $ (3) $ 276
====== ===== ==== =====
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 VS. 1995
INCREASE (DECREASE) DUE TO
------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 27 $ 534 $ 6 $ 567
Investment securities (6) 591 (8) 577
Other interest-earning assets (19) (100) 9 (110)
---- ------ ------ -----
Total 2 1,025 7 1,034
---- ------ ------ -----
Interest-bearing liabilities:
Demand, money market and NOW deposits (5) 63 (2) 56
Savings 21 8 1 30
Certificates of deposit (43) 491 (24) 424
Other borrowings - - 15 15
---- ------ ------ -----
Total (27) 562 (10) 525
---- ------ ------ -----
Net change in net interest income $ 29 $ 463 $ 17 $ 509
==== ====== ====== =====
</TABLE>
47
<PAGE> 57
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
General
Net earnings for the six months ended June 30, 1997 were $376,000, or
$1.22 per share, compared to net earnings of $239,000, or $0.77 per share, for
the six months ended June 30, 1996. The increase in net earnings was primarily
due to an increase in earning assets, particularly the increase in loans having
a higher yield than other earning assets. This change in mix of earning assets
also contributed to an overall increase in the average yield of earning assets.
The overall decline in interest rates resulted in a favorable decrease in the
average yield of all interest- bearing liabilities from 4.21% to 4.11%.
Interest Income and Expense
Interest income increased by $307,000 from $2,074,000 for the six months
ended June 30, 1996 to $2,381,000 for the six months ended June 30, 1997.
Interest income on loans increased $395,000 due to an increase in the average
loan portfolio balance from $30.6 million for the six months ended June 30, 1996
to $39.2 million for the comparable 1997 period, partially offset by a decrease
in the weighted average yield of 9 basis points. The decrease in weighted
average yield was the result of decreases in market interest rates, rather than
a material change in the loan composition. Interest on investment securities
decreased $58,000 due to a decrease in the average investment securities
portfolio from $17.5 million in 1996 to $16.0 million in 1997, and by a decrease
in the average yield on the investment securities portfolio of 18 basis points.
Interest on other interest-earning assets decreased $30,000 due to a decline
from $3.5 million in average other interest-earning assets in 1996 to $2.4
million in 1997 and a decline in the weighted average yield of one basis point.
The decrease in average other interest-earning assets during the six months
ended June 30, 1997 was attributable to the BLF's use of its liquidity to fund
the loan growth, which resulted in less federal funds available for sale during
the six months ended June 30, 1997.
Interest expense increased to $913,000 for the six months ended June 30,
1997 from $882,000 for the six months ended June 30, 1996. Interest expense on
deposit accounts increased because the average interest-bearing deposits
increased from $41.9 million for the six months ended June 30, 1996 to $44.4
million for the comparable 1997 period, partially offset by a decrease in the
average rate of 10 basis points. The decrease in rates paid on deposits was
caused by declining interest rates since there was no material change in the
deposit mix.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by BLF, the
amounts of nonperforming loans, general economic conditions, particularly as
they relate to BLF's market area, and other factors related to the
collectibility of BLF's loan portfolio. There was no change in the provision for
the six months ended June 30, 1996 as compared with the six months ended June
30, 1997.
Other Income
Total other income increased $69,000 for the six months ended June 30,
1997 compared to 1996, principally due to an increase in service fees on deposit
accounts that resulted from an increase in deposit accounts subject to service
fees.
Other Expense
Total other expense increased $143,000 to $1,199,000 for the six months
ended June 30, 1997 from $1,056,000 for the six months ended June 30, 1996,
primarily due to an increase in employee compensation and benefits of
48
<PAGE> 58
$73,000, expenses of premises and fixed assets of $15,000, and other expenses of
$55,000 (substantially all of which were related to the Merger and totaled
$62,000).
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
General
Net earnings for the year ended December 31, 1996 were $551,000, or $1.79
per share, compared to net earnings of $550,000, or $1.78 per share, for the
year ended December 31, 1995. Net earnings for 1996 versus 1995 were level due
primarily to BLF's acquisition of its Lake Placid branch in late 1995. Favorable
growth in earning assets were offset by higher costs including the amortization
of goodwill and core deposit premium.
Interest Income and Expense
Interest income increased by $1,034,000 from $3,195,000 for the year ended
December 31, 1995 to $4,229,000 for the year ended December 31, 1996. Interest
income on loans increased $567,000 due to an increase in the average loan
portfolio balance from $26.8 million for the year ended December 31, 1995 to
$32.5 million for the comparable 1996 period, partially offset by a decrease of
22 basis points in the weighted average yield of total interest-earning assets.
The decrease in the weighted average yield was due to a change in the
composition of the interest-earning assets, which was associated with the
acquisition of deposits at Lake Placid. The acquisition of the Lake Placid
branch occurred late in 1995 resulting in little impact on the average yield
for interest-earning assets in 1995; however, the composition of
interest-earning assets at December 31, 1995, was substantially changed from
the averages throughout 1995. Upon acquisition of the Lake Placid branch, BLF
invested approximately $10.2 million of net proceeds from the assumption of
deposits and liabilities into lower yielding assets. In 1996, as the funds
from maturing investments were re-deployed into higher yielding loans, the
weighted average yield on total interest-earning assets improved, but lagged
1995 results.
Interest on investment securities increased $577,000 due to an increase in
the average investment securities portfolio to $17.4 million in 1996 from $7.6
million in 1995 partially offset by a slight decrease in the average yield
earned from 6.08% in 1995 to 6.00% in 1996. Interest on other interest-earning
assets decreased $110,000 due to a decrease from $3.6 million in average other
interest-earning assets in 1995 to $1.9 million in 1996 and a decrease in the
weighted average yield of 55 basis points, primarily due to an overall declining
interest rate environment.
Interest expense increased to $1,736,000 for the year ended December 31,
1996, from $1,211,000 for the year ended December 31, 1995. Interest expense on
deposit accounts increased because of an increase in the average balance from
$26.7 million in 1995 to $41.9 million in 1996 and a slight increase in the
average rates paid on interest-bearing liabilities of 6 basis points. The mix of
deposits and the volume changes were impacted by the acquisition of $11.2
million in deposits by BLF in its purchase of the Lake Placid branch on December
15, 1995.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by BLF, the
amounts of nonperforming loans, general economic conditions, particularly as
they relate to BLF's market area, and other factors related to the
collectibility of BLF's loan portfolio. The increase in the provision from
$70,000 for the year ended December 31, 1995 to $132,000 for the year ended
December 31, 1996 was primarily due to the increase in average loans outstanding
for the same periods, from approximately $26.8 million in 1995 to $32.5 million
in 1996, and an increase in nonperforming loans from $30,000 at December 31,
1995, to $111,000 at December 31, 1996.
49
<PAGE> 59
Other Income
Total noninterest income increased $71,000 primarily due to the
acquisition of Lake Placid deposit accounts in 1995. The increase in service
charges, fees, and commissions of $108,000 was partially offset by losses on the
sale of other real estate owned totaling $8,000 versus a gain of $18,000 in the
comparable period for 1995.
Other Expense
Total noninterest expense increased $538,000 to $2,112,000 for the year
ended December 31, 1996 from $1,574,000 for the year ended December 31, 1995,
primarily due to increases in compensation and employee benefits of $274,000,
amortization of goodwill and core deposit premiums of $84,000, and other
operating expenses of $170,000 resulting primarily from the increased costs
associated with the acquisition of the Lake Placid branch.
ASSET/LIABILITY MANAGEMENT
A principal objective of BLF's asset/liability management strategy is to
minimize its exposure to changes in interest rates by matching the maturity and
repricing horizons of interest-earning assets and interest-bearing liabilities.
This strategy is overseen in part through the direction of an Asset and
Liability Committee (the "ALCO Committee") which establishes policies and
monitors results to control interest rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk which are determined by the ALCO
Committee. The ALCO Committee uses internally generated reports to measure the
Bank's interest rate sensitivity. From these reports, the ALCO Committee can
estimate the net income effect of various interest rate scenarios.
As a part of BLF's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate sensitive" and monitors the bank's interest rate sensitivity "gap." An
asset or liability is considered to be interest rate sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate sensitivity gap is the difference between interest-earning assets
and interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to
adversely affect net interest income. If the repricing of each bank's assets and
liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or period of
repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the
50
<PAGE> 60
asset. In the event of a change in interest rates, prepayment (on loans) and
early withdrawal (of deposit accounts) levels also could deviate significantly
from those assumed in calculating the interest rate gap. The ability of many
borrowers to service their debts also may decrease in the event of an interest
rate increase.
Management's strategy is to maintain a balanced interest rate risk
position to protect its net interest margin from market fluctuations. To this
end, the ALCO Committee reviews, on a monthly basis, the maturity and repricing
of assets and liabilities. BLF's cumulative one-year gap at December 31, 1996
was a negative 24.82% of assets. BLF's cumulative one-year gap at June 30, 1997
was a negative 12.53% of assets.
The ALCO Committee's policy does not state a negative to positive
cumulative one year gap range. However, BLF management anticipates that it will
adopt a policy similar to that of CNB's policy, which states a cumulative
one-year gap range of negative 20% to positive 20%. Management also expects the
Combined Corporation's cumulative one-year gap will fall within the range of
negative 20% to positive 20% after the Merger is consummated; however, no
assurance can be given.
Principal among BLF's asset/liability management strategies has been the
emphasis on managing its interest rate sensitive liabilities in a manner
designed to attempt to reduce BLF's exposure during periods of fluctuating
interest rates. Management believes that the type and amount of BLF's interest
rate sensitive liabilities may reduce the potential impact that a rise in
interest rates might have on BLF's net interest income. BLF seeks to maintain a
core deposit base by providing quality services to its customers without
significantly increasing its cost of funds or operating expenses. BLF's demand,
money market, and NOW deposit accounts approximated 36.0%, 39.1% and 36.5% of
total deposits at June 30, 1997, and December 31, 1996 and 1995, respectively.
These accounts bore a weighted average cost of deposits of 1.08%, 1.20% and
1.17% during the six months ended June 30, 1997 and years ended December 31,
1996 and 1995, respectively. Management anticipates that these accounts will
continue to comprise a significant portion of BLF's total deposit base. BLF also
maintains a portfolio of liquid assets in order to reduce its overall exposure
to changes in market interest rates. At June 30, 1997, and December 31, 1996 and
1995, approximately 15.9%, 8.2% and 29.5%, respectively, of BLF's total assets
consisted of cash and due from banks, federal funds sold, and short-term
investment securities. In addition, at June 30, 1997 and December 31, 1996, Big
Lake National Bank's liquidity ratio was approximately 58.3% and 29.1%,
respectively. BLF also maintains a "floor," or minimum rate, on certain of its
floating or prime based loans. These floors allow BLF to continue to earn a
higher rate when the floating rate falls below the established floor rate.
51
<PAGE> 61
The following table sets forth certain information relating to BLF's
interest-earning assets and interest-bearing liabilities at June 30, 1997 that
are estimated to mature or are scheduled to reprice within the period shown:
<TABLE>
<CAPTION>
UNDER 3 TO 12 OVER
3 MONTHS MONTHS 1-5 YEARS 5 YEARS TOTALS
-------- ------ --------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 3,105 $ - $ - $ - $ 3,105
Investment securities available-for-sale (1) - 4,493 10,403 92 14,988
Investment securities held-to-maturity (1) - 50 550 201 801
Loans receivable (2) 6,911 20,989 12,644 1,274 41,818
--------- ------- ---------- -------- --------
Total rate-sensitive assets $ 10,016 $25,532 $ 23,597 $ 1,567 $ 60,712
========= ======= ========== ======== ========
Money market and NOW accounts (1) $ 10,554 $ - $ - $ - $ 10,554
Savings accounts (1) 6,627 - - - 6,627
Certificates of deposit (1) 9,704 16,945 5,282 - 31,931
--------- ------- ---------- -------- --------
Total rate-sensitive liabilities $ 26,885 $16,945 $ 5,282 $ - $ 49,112
========= ======= ========== ======== ========
Gap (repricing differences) $ (16,869) $ 8,587 $ 18,315 $ 1,567 $ 11,600
========= ======= ========== ======== ========
Cumulative Gap $ (16,869) $(8,282) $ 10,033 $ 11,600
========= ======= ========== ========
Cumulative GAP/total assets -25.51% -12.53% 15.17% 17.54%
========= ======= ========== ========
Total Assets $ 66,117
========
</TABLE>
- ----------------------
(1) Investments were scheduled through their contractual maturity dates.
Excludes noninterest bearing deposit accounts. Money market, NOW, and
savings deposits were regarded as maturing immediately. All other time
deposits were scheduled through the maturity dates.
(2) In preparing the table above, adjustable-rate loans were included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans were
scheduled according to their contractual maturities. Nonaccrual loans of
$125 were excluded from above.
FINANCIAL CONDITION
Lending Activities
A significant source of income for BLF is the interest earned on loans. At
June 30, 1997, BLF's total assets were $66.1 million and its net loans were
$41.4 million or 62.59% of total assets. At December 31, 1996, BLF's total
assets were $59.5 million and its net loans were $36.2 million or 60.93% of
total assets. At December 31, 1995, BLF's total assets were $55.8 million and
its net loans were $28.7 million or 51.35% of the total assets.
Big Lake National Bank's primary market area consists of Okeechobee and
Lake Placid, Florida, located in Okeechobee County and Highlands County,
Florida, respectively. This region's economy is primarily dependent upon
agriculture, light industry, and tourism. Okeechobee is located on the northern
end of Lake Okeechobee in South Central Florida and is the seat of government
for Okeechobee County. Okeechobee County has a diverse group
52
<PAGE> 62
of employers. Services provide approximately 29% of jobs, followed by trade
(28%), and government (15%). The larger employers include Raulerson Hospital,
Walpole, Inc. (trucking), Larson Dairy, Inc. (milk producer), Wal-Mart (retail
sales), McArthur Farms (milk producer), Publix (grocery), and Winn-Dixie
(grocery). Among the newer employers in the area are Holiday Inn Express, Days
Inn, and a correction facility that provides approximately 300 jobs. Lake
Okeechobee, located in the Southern portion of the County is a 750 square mile
lake bordered by four other counties. The lake serves as a major tourist
attraction. Big Lake National Bank's primary market area also includes Lake
Placid, Florida, which is located approximately 70 miles east of Fort Myers in
Highlands County. Agriculture is the main income producing industry around the
city. The area also supports the citrus and cattle industries. The larger
employers in Highlands County include Florida Hospitals - Heartland, Highlands
Regional Medical Center, Lesco (mowers, fertilizers), Consolidated - Tomoka
(citrus packing), Wellcraft Marine (boats), Ben Hill Griffin (citrus), United
Telephone of Florida, Barnett Banks, Georgia Pacific (corrugated boxes), and Lin
Pac (packaging products).
There is no assurance that the Okeechobee or Lake Placid communities will
continue to experience economic growth. Adverse conditions in any one or more of
the industries operating in such markets or slow-down in general economic
conditions could have an adverse effect on Big Lake National Bank.
Lending activities are conducted pursuant to a written policy which has
been adopted by BLF. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain directors of Big Lake National Bank.
53
<PAGE> 63
The following table sets forth information concerning BLF's loan portfolio
by type of loan at the dates indicated:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
------------------ --------------------------------------
1997 1996 1995
------------------ ----------------- -----------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate loans $33,885 80.7% $29,149 79.2% $22,083 75.9%
Installment loans 5,527 13.2 5,436 14.8 4,677 16.1
Commercial and all other loans 2,600 6.1 2,208 6.0 2,329 8.0
------- ----- ------- ----- ------- -----
Total loans 42,012 100.0% 36,793 100.0% 29,089 100.0%
===== ===== =====
Less:
Deferred loan and unearned fees 69 61 63
Allowance for credit losses 561 470 363
------- ------- -------
Loans, net $41,382 $36,262 $28,663
======= ======= =======
</TABLE>
The following table reflects the contractual principal repayments by period
of BLF's loan portfolio at June 30, 1997 (excluding nonaccrual loans):
<TABLE>
<CAPTION>
1 YEAR 1 THROUGH AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate loans $6,413 $ 7,992 $19,318 $33,723
Installment loans 1,007 3,956 535 5,498
Commercial and all other loans 1,255 1,035 307 2,597
------ ------- ------- -------
Total loans $8,675 $12,983 $20,160 $41,818
====== ======= ======= =======
Loans with maturities over one year:
Fixed rate $14,113
Variable rate 19,030
Total maturities greater than one year $33,143
=======
</TABLE>
The following table sets forth total loans originated and repaid during the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------------- ----------------------
1997 1996 1996 1995
------ ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Originations:
Real Estate loans $6,952 $ 4,616 $ 8,769 $ 5,536
Installment loans 2,234 1,860 3,918 2,527
Commercial and all other loans 496 340 813 1,638
------ ------- ------- -------
Total loans originated 9,682 6,816 13,500 9,701
Principal reductions 4,463 3,145 5,796 5,587
------ ------- ------- -------
Increase in total loans $5,219 $ 3,671 $ 7,704 $ 4,114
====== ======= ======= =======
</TABLE>
54
<PAGE> 64
Asset Quality
Management seeks to maintain a high quality of assets through conservative
underwriting and sound lending practices. The majority of the loans in BLF's
loan portfolio are collateralized by residential and commercial real estate
mortgages. As of June 30, 1997, and December 31, 1996, and 1995, approximately
80.7%, 79.2% and 75.9%, respectively, of the total loan portfolio was
collateralized by real estate of which 26.3%, 24.9% and 23.2% of the total loan
portfolio was secured by commercial real estate as of June 30, 1997, and
December 31, 1996 and 1995, respectively. The level of delinquent loans and real
estate owned also is relevant to the credit quality of a loan portfolio. As of
June 30, 1997, total nonperforming assets were $194,000 or 0.3% of total assets,
compared to $111,000 or 0.2% of total assets and $126,000, or 0.2% of total
assets at December 31, 1996 and 1995, respectively.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. In view of the relative
significance of real estate related loans, a downturn in the value of the real
estate could have an adverse impact on BLF's profitability. However, as part of
its loan portfolio management strategy, BLF generally limits its loans to a
maximum of 80% of the value of the underlying real estate as determined by
appraisal. In addition, knowledgeable members of management make physical
inspections of properties being considered for mortgage loans. Management
believes that such precautions reduce BLF's exposure to the risk associated with
a downturn in real estate values.
Commercial loans also entail risks since repayment is usually dependent
upon the successful operation of the commercial enterprise. They also are
subject to adverse conditions in the economy. Commercial loans are generally
riskier than mortgage loans because they are typically underwritten on the basis
of the ability to repay from the cash flow of a business rather than on the
ability of the borrower or guarantor to repay. Further, the collateral
underlying a commercial loan may depreciate over time, cannot be appraised with
as much precision as real estate, and may fluctuate in value based on the
success of the business.
The repayment of consumer installment loans and other loans to individuals
is closely linked to the economic conditions of the communities in which BLF
operates (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Lending Activities"). For the most
part, these local economies enjoy diverse labor forces. The majority of these
consumer loans are secured by collateral which limits, to a degree, any loss
BLF would suffer upon default.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted by
economic or other conditions. BLF, on a routine basis, monitors these
concentrations in order to consider adjustments in its lending practices to
reflect economic conditions, loan to deposit ratios, and industry trends.
Concentrations of loans in the following categories constituted the total loan
portfolio as of June 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Real estate mortgage loans 80.7%
Installment loans 13.2
Commercial loans and other loans 6.1
-----
100.0%
=====
</TABLE>
The Loan Committee of the Board of Directors of Big Lake National Bank
concentrates its efforts and resources, and that of its senior management and
lending officers, on loan review and underwriting procedures. Internal controls
include ongoing reviews of loans made to monitor documentation and the existence
and valuations of collateral. In addition, management of BLF has established a
review process with the objective of identifying, evaluating, and initiating
necessary corrective action for marginal loans. The goal of the loan review
process is to address classified and nonperforming loans as early as possible.
55
<PAGE> 65
Classification of Assets
Generally, interest on loans accrues and is credited to income based upon
the principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan as nonaccrual when principal or
interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans are generally charged-off after 90 days of delinquency unless
adequately collateralized and in the process of collection. Loans are not
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the outstanding
principal balance.
Real estate acquired by BLF as a result of foreclosure or by deed in lieu
of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further allowances for
losses in OREO are recorded at the time management believes additional
deterioration in value has occurred.
Management has adopted SFAS No. 114, which considers a loan to be impaired
if it is probable that BLF will be unable to collect all amounts due under the
contractual terms of the loan agreement. If a loan is considered impaired, its
value generally should be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate. As a practical
expedient, however, the loan's value may be based on (i) the loan's market price
or (ii) the fair value of the loan's collateral, less discounted estimated costs
to sell, if the collateral is expected to be the sole source of repayment. If
the value of the loan is less than the recorded investment in the loan, a loss
should be recognized by recording a valuation allowance and a corresponding
increase to the provision for credit losses charged to operating expenses.
Situations may occur where (i) BLF receives physical possession of a
debtor's assets regardless of whether formal foreclosure proceedings have been
initiated or completed or (ii) the debtor has effectively surrendered control
of the underlying collateral in contemplation of foreclosure. These situations
are referred to as "in-substance foreclosures." SFAS No. 114 recognizes the
practical problems of accounting for the operation of an asset the creditor
does not possess, and states that a loan for which foreclosure is probable
should continue to be accounted for as a loan.
At June 30, 1997 and December 31, 1996 and 1995, no loans were considered
by management to be impaired or in-substance foreclosed.
56
<PAGE> 66
The following tables sets forth certain information on nonaccrual loans and
real estate owned, the ratio of such loans and real estate owned to total assets
as of the dates indicated, and certain other related information:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans:
Real estate $162 $ 85 $ 30
Installment loans 29 - -
Commercial and all other loans 3 26 -
---- ---- ----
Total nonaccrual loans 194 111 30
Accruing loans over 90 days delinquent - - -
Troubled debt restructurings - - -
---- ---- ----
Total nonperforming loans 194 111 30
Other real estate owned:
Real estate acquired by foreclosure or
deed in lieu of foreclosure - - 96
---- ---- ----
Total nonperforming loans and other real
estate owned $194 $111 $126
==== ==== ====
Total nonperforming loans as a percentage
of total loans 0.46% 0.30% 0.10%
==== ==== ====
Total nonperforming loans as a percentage
of total assets 0.29% 0.19% 0.05%
==== ==== ====
Total nonperforming loans and real estate
owned as a percentage of total assets 0.29% 0.19% 0.23%
==== ==== ====
</TABLE>
Allowance for Credit Losses
In originating loans, BLF recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan as well as general economic conditions. It is
management's policy to attempt to maintain an adequate allowance for credit
losses based on, among other things, BLF's historical loan loss experience,
evaluation of economic conditions and regular reviews of any delinquencies and
loan portfolio quality. Specific allowances are provided for individual loans
when ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the net realizable value of the collateral for the loan. Management
recognizes the greater inherent risks in connection with commercial and consumer
lending. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Provision for Credit Losses."
Management continues to actively monitor BLF's asset quality and to
charge-off loans against the allowance for credit losses when appropriate or to
provide specific loss allowances when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for credit losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in making
the initial determinations. BLF's allowance for credit losses at December 31,
1995 was $363,000. BLF increased the allowance to $470,000 as of December 31,
1996 and $561,000 at June 30, 1997, consistent with the increase in the loan
portfolio and the rise in nonperforming loans as a percentage of total assets.
Management considers several factors in determining the reserves, including the
favorable charge-off history, the relatively low level of nonperforming assets,
and the value of the underlying collateral. While total nonperforming loans as a
percentage of total loans and assets have increased to 0.46% at June 30, 1997,
from 0.30% and 0.10% at December 31, 1996 and 1995, respectively, management
considers substantially all of the nonperforming loans to be adequately
colllateralized. Without expectation of any significant losses from the
liquidation of the underlying collateral, management believes its net additions
to the allowance for credit lossses of $198,000 from December 31, 1995, to June
30, 1997, are adequate when compared with BLF's nonperforming loans and total
loans.
57
<PAGE> 67
The following table sets forth information with respect to activity in
BLF's allowance for credit losses during the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------------ ------------------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period $ 470 $ 363 $ 363 $ 323
------ -------- ------- -------
Charge-offs:
Real estate loans - - 8 -
Installment loans 3 18 23 26
Commercial and all other loans - - 15 10
------- -------- ------- -------
Total loans charged-off 3 18 46 36
Recoveries 34 8 21 6
------- -------- ------- -------
Net charge-offs (31) 10 25 30
------- -------- ------- -------
Provision for credit losses charged to
operating expenses 60 60 132 70
------- -------- ------- -------
Allowance at end of period $ 561 $ 413 $ 470 $ 363
======= ======== ======= =======
Net charge-offs as a percentage of average
loans outstanding (0.08)% 0.03% 0.08% 0.11%
======= ======== ======= =======
Allowance for credit losses as a percentage
of period-end total loans 1.34% 1.26% 1.28% 1.25%
======= ======== ======= =======
Allowance for credit losses as a percentage
of nonperforming loans 289.18% 192.09% 423.42% 1210.00%
======= ======== ======= =======
Average loans outstanding, net $39,236 $ 30,568 $32,531 $26,841
======= ======== ======= =======
Period-end total loans $41,943 $ 32,696 $36,732 $29,026
======= ======== ======= =======
</TABLE>
BLF classifies its loan portfolio for internal purposes as mortgage loans,
installment loans and commercial loans. BFL prepares its quarterly computation
of allowance for losses in this manner. The following table presents information
regarding the BLF's total allowance for losses as well as the allocation of such
amounts to the various categories of loans (dollars in thousands):
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
-------------------- -----------------------------------------------
1997 1996 1995
---------------------- --------------------- -----------------------
% OF % OF % OF
LOANS TO LOANS TO LOANS TO
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Mortgage loan system $261 49.3% $224 48.2% $164 50.3%
Installment loan system 101 12.6 86 12.5 65 12.1
Commercial loan system 199 38.1 160 39.3 134 37.6
---- ----- ----- ----- ---- ------
Total allowance for credit losses $561 100.0% $470 100.0% $363 100.0%
==== ===== ===== ===== ==== ======
</TABLE>
58
<PAGE> 68
The allowance for credit losses represented 1.34% of the total loans
outstanding as of June 30, 1997, compared with 1.28% of the total loans
outstanding as of December 31, 1996, and 1.25% of the total loans outstanding at
December 31, 1995.
Investment Securities
BLF's investment securities portfolio at June 30, 1997 primarily consisted
of United States Government agency obligations. The following table sets forth
the amortized cost of the BLF's investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ----------------------
1997 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Investment securities:
Available-for-sale:
U.S. Government agency obligations $14,987 $15,237 $ 10,260
Other securities 92 92 92
------- ------- --------
Total available-for-sale 15,079 15,329 10,352
Held-to-maturity:
Obligations of states and
municipalities 801 801 1,554
------- ------- --------
Total investment securities, at amortized cost $15,880 $16,130 $ 11,906
======= ======= ========
</TABLE>
59
<PAGE> 69
The following table sets forth, by maturity distribution, certain
information pertaining to the investment securities portfolio as follows:
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS AFTER TEN YEARS TOTAL
----------------- ----------------- ----------------- ----------------- -----------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997:
U.S. Government and
agency securities $4,493 5.61% $10,403 6.05% $ - - $ - -% $14,986 5.80
Obligations of states
and municipalities 50 6.46% 550 6.02% 50 4.80% 151 6.96% 801 6.15%
Other securities - -% - -% - -% 92 3.89% 92 3.89%
------ ------- ---- ----- -------
Total $4,543 5.62% $10,953 6.05% $ 50 4.80% $ 243 5.80% $15,789 5.89%
====== ======= ==== ===== =======
December 31, 1996:
U.S. Government and
agency securities $ 501 6.27% $14,622 5.89% $ - -% $ - -% $15,123 5.90%
Obligations of states
and municipalities - -% 600 6.06% 50 4.80% 151 6.95% 801 6.15%
Other securities - - - -% - -% 92 3.89% 92 3.89%
------ ------- ---- ----- -------
Total $ 501 6.27% $15,222 5.90% $ 50 4.80% $ 243 5.79% $16,016 5.90%
====== ======= ==== ===== =======
December 31, 1995:
U.S. Government and
agency securities $2,957 5.66% $ 7,073 6.12 $246 6.02% $ - -% $10,276 5.98%
Obligations of states
and municipalities 1,003 7.20% 350 6.07% 50 4.80% 151 6.95% 1,554 6.84%
Other securities - -% - -% - -% 92 3.89% 92 3.89%
------ ------- ---- ----- -------
Total $3,960 6.05% $ 7,423 6.12% $296 5.81% $ 243 5.79% $11,922 6.08%
====== ======= ==== ===== =======
</TABLE>
60
<PAGE> 70
Deposit Activities
Deposits are the major source of BLF's funds for lending and other
investment purposes. Deposits are attracted principally from within BLF's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established by
BLF on a periodic basis. The determination of rates and terms is predicated on
funds acquisition and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in such depository institutions' normal market area. Under these
regulations, "well capitalized" depository institutions may accept, renew, or
rollover deposits at such rates without restriction, "adequately capitalized"
depository institutions may accept, renew or rollover deposits at such rates
with a waiver from the FDIC (subject to certain restrictions on payments of
rates), and "undercapitalized" depository institutions may not accept, renew or
rollover deposits at such rates. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the prompt corrective action provisions of applicable law. See
"Supervision, Regulation and Governmental Policy -- Capital Requirements." As of
June 30, 1997, Big Lake National Bank met the definition of a "well capitalized"
depository institution.
The following table shows the distribution of, and certain other
information relating to, BLF's deposit accounts by type:
<TABLE>
<CAPTION>
AT JUNE 30 AT DECEMBER 31,
1997 1996 1995
------------------------- ----------------------- ----------------------
% OF % OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT AMOUNT DEPOSIT
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $11,169 18.5% $10,083 18.6% $ 6,846 13.5%
NOW deposits 6,865 11.4 6,860 12.6 8,210 16.2
Money market deposits 3,689 6.1 4,297 7.9 3,470 6.8
Savings deposits 6,627 11.0 6,492 12.0 6,466 12.7
------- ---- ------- ----- -------- ------
Subtotal 28,350 47.0 27,732 51.1 24,992 49.2
------- ---- ------- ----- -------- ------
Certificates of deposit:
3.00% - 3.99% - - - - 85 0.1
4.00% - 4.99% 11,150 18.5 11,868 21.9 4,528 8.9
5.00% - 5.99% 12,625 20.9 9,457 17.4 13,542 26.7
6.00% - 6.99% 7,837 13.0 4,834 8.9 6,994 13.8
7.00% - 7.99% 319 .6 354 .7 652 1.3
------- ----- ------- ----- -------- ------
Total certificates of deposit 31,931 53.0 26,513 48.9 25,801 50.8
------- ----- ------- ----- -------- ------
Total deposits $60,281 100.0% $54,245 100.0% $ 50,793 100.0%
======= ===== ======= ===== ======== ======
</TABLE>
- ----------
(1) Includes individual retirement accounts ("IRAs") totaling $1,494, $252 and
$612 at June 30, 1997, and December 31, 1996 and 1995, respectively, all of
which are in the form of certificates of deposit.
61
<PAGE> 71
The following tables show the average amount outstanding and the average
rate paid on each of the following deposit account categories during the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
1997 1996
------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand, money market
and NOW $22,805 1.08% $19,619 1.21%
Savings deposits 5,762 2.50% 5,770 3.22%
Certificates of deposit 27,231 5.27% 25,194 5.32%
------ -------
Total deposits $55,798 3.27% $50,583 3.49%
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995
------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand, money market
and NOW $ 19,755 1.20% $ 15,415 1.17%
Savings deposits 5,781 3.11% 5,491 2.73%
Certificates of deposit 24,646 5.30% 15,831 5.57%
-------- --------
Total deposits $ 50,182 3.43% $ 36,737 3.30%
======== ========
</TABLE>
BLF does not have a concentration of deposits from any one source, the
loss of which would have a material adverse effect on BLF. Management believes
that substantially all of BLF's depositors are residents in its primary market
areas. BLF currently does not accept brokered deposits. As shown in the tables
below, a significant amount of BLF's certificates of deposit will mature during
the year ending June 30, 1998. The high volume of maturities during this period
is primarily due to customer demand for certificates of deposit having original
maturities of 12 months or less. Based upon current and anticipated levels of
interest rates and past practice, BLF management anticipates that substantially
all of BLF's certificates of deposit maturing during this time period will be
renewed or replaced by certificates of deposit issued to other customers at
competitive market rates, which may be higher or lower than the rates currently
being paid. Consequently, BLF management does not believe that the maturity of
BLF's certificates of deposit during the year ending June 30, 1998, will have a
material adverse effect on BLF's liquidity. However, if BLF is required to pay
substantially higher rates to obtain the renewal of these or other certificates
of deposit or alternative sources of funds, the higher net interest expense
could have a material adverse effect on BLF's net income.
62
<PAGE> 72
The following tables present by various interest rate categories the
amounts of certificates of deposit at June 30, 1997, December 31, 1996 and 1995
which mature during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
---------------------------------------------------------------------
1998 1999 2000 2001 2002 TOTAL
---- ---- ---- ---- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At June 30, 1997:
4.00% - 4.99% $11,124 $ 26 $ - $ - $ - $11,150
5.00% - 5.99% 10,211 1,395 262 392 365 12,625
6.00% - 6.99% 6,851 143 205 238 400 7,837
7.00% - 7.99% - 211 108 - - 319
------- ------ ---- ---- ---- -------
Total certificates of deposit $28,186 $1,775 $ 575 $630 $ 765 $ 31,931
======= ====== ==== ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------------
1997 1998 1999 2000 2001 TOTAL
---- ---- ---- ---- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
4.00% - 4.99% $11,626 $ 193 $ 49 $ - $ - $11,868
5.00% - 5.99% 7,272 1,207 445 62 471 9,457
6.00% - 6.99% 4,175 272 111 59 217 4,834
7.00% - 7.99% 44 - 206 104 - 354
------- ------ ---- ---- ---- -------
Total certificates of deposit $23,117 $1,672 $811 $225 $688 $26,513
======= ====== ==== ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 TOTAL
---- ---- ---- ---- ---- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
At December 31, 1995:
3.00% - 3.99% $ 85 $ - $ - $ - $ - $ - $ 85
4.00% - 4.99% 4,409 94 25 - - - 4,528
5.00 - 5.99% 12,249 736 241 251 65 - 13,542
6.00 - 6.99% 5,572 652 277 98 178 217 6,994
7.00 - 7.99% 347 - - 205 100 - 652
------- ------ ---- ---- ---- ---- -------
Total certificates of deposit $22,662 $1,482 $543 $554 $343 $217 $25,801
======= ====== ==== ==== ==== ==== =======
</TABLE>
63
<PAGE> 73
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Due in three months or less $ 1,746 $1,835 $1,802
Due from three months to one year 1,846 1,767 2,607
Due over one year 458 300 300
------- ------ ------
$ 4,050 $3,902 $4,709
======= ====== ======
</TABLE>
The following table sets forth the net deposit flows of BLF during the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
---------------- ---------------
JUNE 30, DECEMBER 31,
-------- ---------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net increase (decrease) before interest credited $5,254 $(1,008) $1,673 $16,582
Net interest credited 782 898 1,779 912
------ ------- ------ -------
Net deposit increase (decrease) $6,036 $ (110) $3,452 $17,494
====== ======== ====== =======
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data concerning BLF
presented in this Proxy Statement have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of BLF is reflected
in increased operating costs. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, changes in interest rates have a more significant impact on the
performance of a financial institution than do the effects of changes in the
general rate of inflation and changes in prices. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices of
goods and services.
FUTURE ACCOUNTING REQUIREMENTS
SFAS No. 125 and its amendment SFAS No. 127 apply to certain transfers and
servicing of financial assets and extinguishments of liabilities effective
January 1, 1997 (except as deferred by SFAS No. 127). BLF has not transferred
and serviced significant financial assets nor does it anticipate that these
Statements will have any material impact on the financial statements of BLF.
SFAS Nos. 128 and 129 addressing earnings per share and disclosure of
information about the capital structure, respectively, are effective for BLF's
financial statements issued after December 15, 1997. SFAS No. 128 establishes
standards for the computation and presentation of earnings per share ("EPS").
This statement is not expected to have a material impact on the financial
statements of BLF. SFAS No. 129 requires only additional disclosure and will not
have any material impact on the financial statements of BLF.
64
<PAGE> 74
BUSINESS OF BLF
GENERAL
BLF was incorporated under the laws of the State of Florida on August 8,
1985. BLF is a registered bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHC Act") and owns all of the voting shares of Big
Lake National Bank. BLF has no significant operations other than owning the
stock of Big Lake National Bank. Big Lake National Bank, which is a national
banking association, is the only source of revenue for BLF.
Big Lake National Bank provides a range of consumer and commercial banking
services to individuals, businesses and industries. The basic services offered
by Big Lake National Bank include: demand interest-bearing and noninterest
bearing accounts, money market deposit accounts, NOW accounts, time deposits,
safe deposit services, credit cards, cash management, direct deposits, notary
services, money orders, night depository, travelers' checks, cashier's checks,
domestic collections, savings bonds, bank drafts, automated teller services,
drive-in tellers, and banking by mail. In addition, Big Lake National Bank makes
secured and unsecured commercial and real estate loans and issues stand-by
letters of credit. Big Lake National Bank provides automated teller machine
(ATM) cards, as a part of the HONOR ATM Network, thereby permitting customers to
utilize the convenience of larger ATM networks. In addition to the HONOR ATM
Network, the Bank also provides the Presto and Cirrus systems for ATM use. In
addition to the foregoing services, the offices of Big Lake National Bank
provide customers with extended banking hours. Big Lake National Bank does not
have trust powers and, accordingly, no trust services are provided.
The revenues of Big Lake National Bank are primarily derived from interest
on, and fees received in connection with, real estate and other loans, and from
interest and dividends from investment and mortgage-backed securities, and
short-term investments. The principal sources of funds for Big Lake National
Bank's lending activities are its deposits, repayment of loans, and the sale and
maturity of investment securities. The principal expenses of Big Lake National
Bank are the interest paid on deposits, and operating and general administrative
expenses.
As is the case with banking institutions generally, Big Lake National
Bank's operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Federal Reserve and the OCC.
Deposit flows and costs of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds. Big
Lake National Bank faces strong competition in the attraction of deposits (its
primary source of lendable funds) and in the origination of loans. See
"Competition."
65
<PAGE> 75
LENDING ACTIVITIES
Big Lake National Bank offers a range of lending services, including real
estate, consumer and commercial loans, to individuals and small businesses and
other organizations that are located in or conduct a substantial portion of
their business in Big Lake National Bank's market area. Big Lake National Bank's
total loans at June 30, 1997 were $42.0 million, or 63.5% of total BLF
consolidated assets. The interest rates charged on loans vary with the degree of
risk, maturity, and amount of the loan, and are further subject to competitive
pressures, money market rates, availability of funds, and government
regulations. Big Lake National Bank has no foreign loans or loans for highly
leveraged transactions.
Big Lake National Bank's loans are concentrated in three major areas:
commercial loans, real estate loans, and consumer loans. A majority of Big Lake
National Bank's loans are made on a secured basis. As of June 30, 1997,
approximately 81% of the loan portfolio consisted of loans secured by mortgages
on real estate, of which approximately 50% of the total loan portfolio is
secured by 1-4 family residential properties.
Big Lake National Bank's commercial loan portfolio includes loans to
individuals and small-to-medium sized businesses located primarily in Okeechobee
and Highlands Counties for working capital, equipment purchases, and various
other business purposes. A majority of Big Lake National Bank's commercial loans
are secured by real estate, equipment, or similar assets, but these loans may
also be made on an unsecured basis. Commercial loans may be made at variable or
fixed rates of interest. Commercial lines of credit are typically granted on a
one-year basis, with loan covenants and monetary thresholds. Other commercial
loans with terms or amortization schedules of longer than one year will normally
carry interest rates which vary with the prime lending rate and will become
payable in full and are generally refinanced in three to five years. Commercial
and industrial loans not secured by real estate amounted to approximately 5% of
the total loan portfolio as of June 30, 1997.
Big Lake National Bank's real estate loans are secured by mortgages and
consist primarily of loans to individuals and businesses for the purchase,
improvement of or investment in real estate and for the construction of
single-family residential units or the development of single-family residential
building lots. These real estate loans may be made at fixed or variable interest
rates. Big Lake National Bank generally does not make fixed-rate commercial real
estate loans for terms exceeding three years. Loans in excess of three years are
generally adjustable. Big Lake National Bank's residential real estate loans
generally are repayable in monthly installments based on up to a 30-year
amortization schedule with variable interest rates.
Big Lake National Bank's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes, but includes some business
purpose loans which are payable on an installment basis. The majority of these
loans are for terms of less than five years and are secured by liens on various
personal assets of the borrowers, but consumer loans may also be made on an
unsecured basis. Consumer loans are made at fixed and variable interest rates,
and are often based on up to a five-year amortization schedule.
For additional information regarding Big Lake National Bank's loan
portfolio, see "BLF'S Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition."
Loan originations are derived from a number of sources. Loan originations
can be attributed to direct solicitation by Big Lake National Bank's loan
officers, existing customers and borrowers, advertising, walk-in customers and,
in some instances, referrals from brokers.
Certain credit risks are inherent in making loans. These include
prepayment risks, risks resulting from uncertainties in the future value of
collateral, risks resulting from changes in economic and industry conditions,
and risks inherent in dealing with individual borrowers. In particular, longer
maturities increase the risk that economic conditions will change and adversely
affect collectibility. Big Lake National Bank attempts to minimize loan losses
through various means. In particular, on larger credits, Big Lake National Bank
generally relies on
66
<PAGE> 76
the cash flow of a debtor as the source of repayment and secondarily on the
value of the underlying collateral. In addition, Big Lake National Bank attempts
to utilize shorter loan terms in order to reduce the risk of a decline in the
value of such collateral.
DEPOSIT ACTIVITIES
Deposits are the major source of Big Lake National Bank's funds for
lending and other investment activities. Big Lake National Bank considers the
majority of its regular savings, demand, NOW and money market deposit accounts
to be core deposits. These accounts comprised approximately 47.0% of Big Lake
National Bank's total deposits at June 30, 1997. Approximately 53.0% of Big
Lake National Bank's deposits at June 30, 1997 were certificates of deposit.
Generally, Big Lake National Bank attempts to maintain the rates paid on its
deposits at a competitive level. Time deposits of $100,000 and over made up
approximately 6.7% of Big Lake National Bank's total deposits at June 30, 1997.
The majority of the deposits of Big Lake National Bank are generated from
Okeechobee County. Big Lake National Bank does not accept brokered deposits.
For additional information regarding Big Lake National Bank's deposit accounts,
see "BLF'S Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition."
EMPLOYEES
At June 30, 1997, BLF and Big Lake National Bank employed 39 full-time
(including its executive officers) and no part-time employees. The employees are
not represented by a collective bargaining unit. BLF and Big Lake National Bank
consider relations with employees to be good.
PROPERTIES
The main office of BLF and Big Lake National Bank is located at 1409 S.
Parrott Avenue, Okeechobee, Florida 34974, in a two-story building of
approximately 8,010 square feet, which is owned by BLF. Big Lake National Bank
also has banking offices located at 1801 Highway 441 SE, Okeechobee, Florida
34974, in a one-story building of approximately 1,196 square feet, which is
owned by Big Lake National Bank and a branch at 199 N. U.S. Highway 27, Lake
Placid, Florida 33852, in a one-story building of approximately 2,000 square
feet, which is owned by Big Lake National Bank.
LITIGATION
BLF and/or Big Lake National Bank are periodically parties or a party to
or otherwise involved in legal proceedings arising in the normal course of
business, such as claims to enforce liens, claims involving the making and
servicing of real property loans, and other issues incident to its business.
Management does not believe that there is any pending or threatened proceeding
against BLF and/or Big Lake National Bank which, if determined adversely, would
have a material adverse effect on the business, results of operations, or
financial position of BLF and/or Big Lake National Bank.
67
<PAGE> 77
MANAGEMENT
Board of Directors. The Board of Directors of BLF currently consists of
seven directors, divided into three classes. Each director is elected to serve
for a three-year term or until his or her successor is elected. Each director of
BLF currently also serves as a director of Big Lake National Bank. The following
table sets forth certain information with respect to the directors of BLF:
<TABLE>
<CAPTION>
DIRECTOR OR OFFICER PRINCIPAL OCCUPATION
OF BLF OR BIG LAKE DIRECTOR AND BUSINESS
NATIONAL BANK TERM EXPERIENCE DURING
NAME AND AGE SINCE EXPIRES PAST FIVE YEARS
-------------------------- -------------------- -------- -----------------------------------
<S> <C> <C> <C>
John W. Abney, Sr., 47 1986 1999 Building Contractor
Mary Beth Cooper, 48 1986 1999 Homemaker
H. G. Culbreth, Jr., 51 1986 1998 Auto Franchise Dealer
Henry C. Kelly, 79 1986 2000 Retired
Joe G. Mullins, 57 1988 1998 President, Big Lake National Bank
Bobby H. Tucker, 47 1993 1998 Real Estate Broker
Edwin E. Walpole, III, 61 1986 1999 Business Owner
</TABLE>
Executive Officers. BLF has four officers: Edwin E. Walpole, III
(Chairman, President and Chief Executive Officer), Joe G. Mullins (Executive
Vice President and Chief Administrative Officer), Mary Beth Cooper (Secretary),
and Anita DeWitt (Treasurer), of which only Messrs. Walpole and Mullins are
executive officers. The officers of BLF and Big Lake National Bank serve at the
pleasure of the Board of Directors of BLF and Big Lake National Bank,
respectively. The following sets forth information regarding the executive
officers of Big Lake National Bank.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AND BUSINESS
EXPERIENCE DURING
NAME AND AGE PAST FIVE YEARS
- ------------ ---------------------------------------------------------
<S> <C>
Joe G. Mullins, 57 President, Big Lake National Bank
Anita DeWitt, 36 Vice President/Operations Officer, Big Lake National Bank
Rick Justice, 36 Senior Lending Officer/Vice President of the Bank (September 1995
to present); Vice President/Commercial Lender of SouthTrust Bank
(February 1995 to September 1995); Commercial Lender of
Pikeville National Bank (July 1994 to February 1995); Vice
President/Loan Officer of Citizens Bank of Frostproof (July 1993 to
July 1994); and Assistant Vice President/Business Banker (June
1987 to July 1993) of Barnett Bank/First Florida Bank.
</TABLE>
68
<PAGE> 78
<TABLE>
<S> <C>
Brenda Mathews, 44 Vice President/Marketing Director of the Bank (January 1996 to present); Vice
President/Correspondent Relations of Independent Bankers' Bank of Florida (December
1994 to January 1996); President and Chief Operating Officer of Governors Bank
(December 1991 to December 1994).
</TABLE>
COMPENSATION AND BENEFITS
The table below sets forth certain information with respect to
compensation paid by Big Lake National Bank to Mr. Mullins (the Executive Vice
President and Chief Administrative Officer of BLF and the President and Chief
Executive Officer of Big Lake National Bank) during the years presented. No
executive officer of Big Lake National Bank received a total salary and bonus
in excess of $100,000 in 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION COMPENSATION (1)
- ------------------ ---- ------------ ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Joe G. Mullins 1996 $ 96,000 $ - $ - $ 1,419
Executive Vice President and
Chief Administrative Officer 1995 $ 91,500 $ 3,897 $ - $ 2,689
of BLF and the President
and Chief Executive Officer 1994 $ 88,000 $ - $ - $ 2,148
Big Lake National Bank
</TABLE>
- ------------------
(1) Represents amounts contributed by Big Lake National Bank to Mr. Mullins'
account pursuant to the Big Lake National Bank Profit Sharing Plan.
Directors of BLF are not paid any fees for meetings of BLF. Directors of
Big Lake National Bank are paid fees of $350, with the Chairman receiving $450,
for each meeting. Non-employee directors of Big Lake National Bank are also paid
$75 for each committee meeting.
Stock Option Plan. BLF has a stock option plan. The plan authorizes the
issuance of options for approximately 18,213 shares to certain BLF directors. As
of the date of this Proxy Statement, options exercisable for an aggregate of
approximately 18,213 shares of BLF Common Stock were outstanding and held by
certain Big Lake National Bank directors at an exercise price of $10.00 per
share. The options terminate June 30, 1998.
Profit Sharing Plan. Big Lake National Bank has adopted a 401(k) Profit
Sharing Plan. Employees are eligible to participate after meeting certain length
of service requirements. Each year, participants may elect to defer up to 15% of
compensation instead of receiving that amount in cash. Big Lake National Bank
may contribute a percentage amount provided that only salary reductions up to 6%
of compensation will be considered. Big Lake National Bank also may contribute a
discretionary amount. Amounts deferred by participants are fully vested.
Contributions by Big Lake National Bank vest based upon percentage amounts of
20% to 100% over three to seven years of service.
CERTAIN TRANSACTIONS
BLF has had, and expects to have in the future, banking transactions in the
ordinary course of business with certain of its directors and executive officers
and their associates. As of June 30, 1997, the directors and executive officers
of BLF and their associates, as a group, were indebted to BLF in the aggregate
amount of approximately $1,328,000. All loans included in such transactions were
made in the ordinary course of business, on
69
<PAGE> 79
substantially the same terms (including interest rate and collateral) as those
prevailing at the time for comparable transactions with other persons, and in
the opinion of management of BLF did not involve more than the normal risk of
collectibility or present other unfavorable features.
MANAGEMENT AND PRINCIPAL STOCK OWNERSHIP
Directors and Executive Officers
The following table sets forth the beneficial ownership of outstanding
shares of BLF Common Stock as of June 30, 1997 by BLF's current directors, and
by current directors and executive officers as a group:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT/NATURE OF PERCENT
(AND ADDRESS OF 5% OWNER) BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- ----------------------- --------
<S> <C> <C>
John W. Abney, Sr 9,982 (2) 2.98%
Mary Beth Cooper 4,163 1.24%
H. Gilbert Culbreth, Jr 14,454 (3) 4.32%
Henry C. Kelly 50,365 (4) 15.05%
P.O. Box 176
Okeechobee, FL 34973-0176
Joe G. Mullins 11,941 3.57%
Bobby H. Tucker 670 (5) .20%
Edwin E. Walpole III 61,743 (6) 18.45%
P.O. Box 1177
Okeechobee, FL 34973-1177
All directors and executive
officers as a group (nine persons) 153,893 43.99%
</TABLE>
- -------------------------------------------------
(1) Information related to beneficial ownership is based upon information
available to BLF and also includes as to each director the number of
shares listed below, which represents shares the individual has the
right to acquire pursuant to presently exercisable options:
<TABLE>
<CAPTION>
Name of Individual Number of Shares
------------------ ----------------
<S> <C>
John W. Abney, Sr. 3,035.49
Mary Beth Cooper 3,035.49
H. Gilbert Culbreth, Jr. 3,035.49
Henry C. Kelly 3,035.49
Joe G. Mullins 3,035.49
Edwin E. Walpole, III 3,035.49
----------
18,212.94
==========
</TABLE>
70
<PAGE> 80
<TABLE>
<S> <C>
(2) Includes 618 shares held in trust for his children, 563 shares held by a company owned by him and
5,767 shares held as trustee
(3) Includes 110 shares held jointly with his son, 5,655 shares held by a company owned by him, and
5,655 shares held jointly with his spouse
(4) Includes 13,451 shares held in trust
(5) Shares held jointly with spouse
(6) Includes 1,129 shares held by a company owned by him, 28,623 shares held by his individual retirement
account, and 1,102 shares held jointly with his daughter
</TABLE>
Other Principal Shareholders
In addition to Messrs. Walpole and Kelly, the following are the only
individuals beneficially owning more than 5% of BLF Common Stock on June 30,
1997:
NAME AND ADDRESS AMOUNT - NATURE OF
OF OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------------- -------------------- ----------------
Robert L. Mace 39,028 12.64%
c/o Fijian RV Park
6500 Hwy 441 S.
Okeechobee, FL 34974
Curtis S. Fry 16,551 5.36%
111 San Benito Street
Clewiston, FL 33440
71
<PAGE> 81
CNB
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
CNB's principal asset is its ownership of Clewiston National Bank.
Accordingly, CNB's results of operations are primarily dependent upon the
results of operations of Clewiston National Bank. Clewiston National Bank
conducts a commercial banking business which consists of attracting deposits
from the general public and applying those funds to the origination of
commercial, consumer and real estate loans (including commercial loans
collateralized by real estate). Clewiston National Bank's profitability depends
primarily on net interest income, which is the difference between interest
income generated from interest-earning assets (i.e., loans and investments) less
the interest expense incurred on interest-bearing liabilities (i.e., customer
deposits and borrowed funds). Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities, and the
interest-rate earned and paid on these balances. Net interest income is
dependent upon Clewiston National Bank's interest-rate spread, which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income. The interest rate spread is
impacted by interest rates, deposit flows, and loan demand. Additionally, and to
a lesser extent, Clewiston National Bank's profitability is affected by such
factors as the level of noninterest income and expenses, the provision for
credit losses, and the effective tax rate. Noninterest income consists primarily
of service fees on deposit accounts. Noninterest expense consists of
compensation and employee benefits, occupancy related expenses, deposit
insurance premiums paid to the FDIC, and other operating expenses.
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the consolidated
financial condition of CNB at, and results of operations of CNB for the years
ended, December 31, 1996 and 1995, and for the six-month periods ended June 30,
1997 and 1996. For purposes of the following discussion, CNB includes Clewiston
National Bank, unless otherwise indicated. The following discussion should be
read in conjunction with the consolidated financial statements and related
footnotes presented elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
A national bank is required to maintain a liquidity reserve of at least 3%
of its net transaction deposit accounts under $49.3 million. When net
transaction deposit accounts exceed $49.3 million, the reserve requirements are
$1,479,000 plus 10% of the amount over $49.3 million. The liquidity reserve may
consist of cash on hand, cash on demand deposit with other correspondent banks,
and other investments and short-term marketable securities as determined by the
rules of the OCC, such as federal funds sold and United States securities or
securities guaranteed by the United States. As of June 30, 1997 and December 31,
1996 and 1995, Clewiston National Bank had liquidity ratios of 75.8%, 44.5% and
96.3%, respectively.
CNB's principal sources of funds are those generated by Clewiston National
Bank. Clewiston National Bank's principal sources of funds are net increases in
deposits, principal and interest payments on loans, and proceeds from sales and
maturities of investment and mortgage-backed securities. CNB used its capital
resources primarily to fund existing and continuing loan commitments and to
purchase investment and mortgage-backed securities. At June 30, 1997, and
December 31, 1996 and 1995, CNB had commitments to originate loans totaling $3.1
million, $4.0 million and $2.9 million, respectively, and had issued but unused
standby letters of credit of $89,000, $79,000, and $103,000, respectively.
Scheduled maturities of certificates of deposit during the twelve months
following June 30, 1997, and December 31, 1996 and 1995, totaled $15.9 million,
$15.6
72
<PAGE> 82
million and $9.9 million, respectively. Management believes that CNB had
adequate resources to fund all its commitments, that substantially all of its
existing commitments will be funded in the subsequent twelve months and, if so
desired, that it can adjust the rates on certificates of deposit and other
deposit accounts to retain deposits in a changing interest rate environment.
In accordance with risk capital guidelines issued by the OCC, Clewiston
National Bank was required to maintain a minimum standard of total capital to
risk-weighted assets of 8%. Additionally, the OCC requires banks to maintain a
minimum leverage-capital ratio of Tier 1 capital (as defined) to total assets.
The leverage-capital ratio ranges from 3% to 5% based on the bank's rating
under the regulatory rating system.
The following table summarizes the regulatory capital levels and ratios of
Clewiston National Bank:
<TABLE>
<CAPTION>
ACTUAL REGULATORY
RATIOS REQUIREMENT
------ -----------
<S> <C> <C>
At June 30, 1997:
Total capital to risk-weighted assets 15.19% 8.00%
Tier 1 capital to risk-weighted assets 13.94% 4.00%
Tier 1 capital to total average assets - leverage ratio 8.66% 4.00%
At December 31, 1996:
Total capital to risk-weighted assets 14.72% 8.00%
Tier I capital to risk-weighted assets 13.47% 4.00%
Tier I capital to total average assets - leverage ratio 9.10% 4.00%
At December 31, 1995:
Total capital to risk-weighted assets 14.47% 8.00%
Tier I capital to risk-weighted assets 13.22% 4.00%
Tier I capital to total average assets - leverage ratio 8.92% 4.00%
</TABLE>
RESULTS OF OPERATIONS
Net interest income, which constitutes the principal source of income for
CNB, represents the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities. The principal
interest-earning assets are investment and mortgage-backed securities and loans
made to businesses and individuals. Interest-bearing liabilities primarily
consist of time deposits, interest-bearing checking accounts ("NOW accounts"),
retail savings deposits and money market accounts. Funds attracted by these
interest-bearing liabilities are invested in interest-earning assets.
Accordingly, net interest income depends upon the volume of average
interest-earning assets and average interest-bearing liabilities and the
interest rates earned or paid on them.
Net interest income was $1,051,000 for CNB for the six months ended June
30, 1997 compared with $971,000 for the six months ended June 30, 1996. Net
interest income was $1,928,000 for CNB for the year ended December 31, 1996
compared with $1,813,000 for the year ended December 31, 1995. This improvement
in net interest income was a result of a higher volume of net interest-earning
assets.
73
<PAGE> 83
The following table shows selected ratios for the periods ended or at the
dates indicated:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
----------------- ------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average equity as a percentage
of average assets 8.62% 8.38% 8.65% 8.55%
Equity to total assets at end
of period 8.65% 8.62% 8.83% 8.83%
Return on average assets .62% .66% .36% .53%
Return on average equity 7.23% 7.89% 4.14% 6.16%
Noninterest expense to
average assets 4.29% 4.03% 4.57% 4.22%
</TABLE>
The rates and yields at the dates indicated were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YIELD OR RATE AT
---------------------------------------------
JUNE 30, DECEMBER 31,
-------- ------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loans 9.36% 9.41% 9.28% 9.25%
Investment and mortgage-backed securities 5.73% 6.13% 6.00% 6.22%
Other interest-earning assets 5.38% 5.31% 5.49% 5.77%
All interest-earning assets 8.45% 8.43% 8.44% 8.52%
Savings deposits 3.13% 3.24% 3.26% 3.13%
NOW accounts 3.11% 2.11% 2.38% 2.17%
Money Market deposits 3.55% 3.17% 3.26% 3.05%
Certificates of deposit 5.62% 5.89% 5.83% 5.79%
All interest-bearing liabilities 4.68% 4.69% 4.72% 4.64%
Interest-rate spread 3.77% 3.74% 3.72% 3.81%
</TABLE>
74
<PAGE> 84
The following tables set forth for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of CNB
from interest-earning assets and the resultant average yield; (ii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest/dividend income; (iv) interest-rate
spread; (v) net interest margin. Average balances were based on average daily
balances.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------
1997 1996
--------------------------------- ----------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------ ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $34,181 $ 1,600 9.36% $31,774 $1,495 9.41%
Investment and mortgage-
backed securities 6,566 188 5.73% 6,588 202 6.13%
Other interest-earning assets(2) 4,316 116 5.38% 5,124 136 5.31%
------- ------- ------- ------
Total interest-earning
assets 45,063 1,904 8.45% 43,486 1,833 8.43%
------- ------
Noninterest-earning assets 3,751 4,591
------- -------
Total assets $48,814 $48,077
======= =======
Interest-bearing liabilities:
Demand, money market and
NOW deposits $ 9,340 153 3.28% $ 9,066 121 2.67%
Savings 4,990 78 3.13% 5,555 90 3.24%
Certificates of deposit 22,139 622 5.62% 22,123 651 5.89%
Other Borrowings - - -% - - -%
------- ------- ------- ------
Total interest-bearing
liabilities $36,469 853 4.68% 36,744 862 4.69%
------- ------
Noninterest-bearing liabilities 8,138 7,305
Stockholders' equity 4,207 4,028
------- -------
Total liabilities and
stockholders' equity $48,814 $48,077
======= =======
Net interest/dividend income $ 1,051 $ 971
======= ======
Interest-rate spread(3) 3.77% 3.74%
===== ====
Net interest margin(4) 4.66% 4.47%
===== ====
Ratio of average interest-earning assets
to average interest-bearing
liabilities 123.57% 118.35%
====== =======
</TABLE>
- ---------------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits in other banks and federal funds sold.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
75
<PAGE> 85
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995
--------------------------------- ------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- ---------- -------- ------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $32,515 $ 3,019 9.28% $30,250 $2,799 9.25%
Investment and mortgage-
backed securities 6,918 415 6.00% 7,232 450 6.22%
Other interest-earning assets(2) 3,555 195 5.49% 3,018 174 5.77%
------- ------- ------- ------
Total interest-earning
assets 42,988 3,629 8.44% 40,500 3,423 8.45%
------- ------
Noninterest-earning assets 4,278 4,318
------- -------
Total assets $47,266 $44,818
======= =======
Interest-bearing liabilities:
Demand, money market and
NOW deposits $ 8,573 240 2.80% $ 8,181 215 2.63%
Savings 5,369 175 3.26% 5,214 163 3.13%
Certificates of deposit 22,073 1,286 5.83% 21,263 1,232 5.79%
Other interest-bearing liabilities - - - % 6 - 5.90%
------- ------- ------- ------
Total interest-bearing
liabilities 36,015 1,701 4.72% 34,664 1,610 4.64%
------- ------
Noninterest-bearing liabilities 7,167 6,323
Stockholders' equity 4,084 3,831
------ -------
Total liabilities and
stockholders' equity $47,266 $44,818
======= =======
Net interest/dividend income $ 1,928 $1,813
======= ======
Interest-rate spread(3) 3.72% 3.81%
==== ====
Net interest margin(4) 4.48% 4.48%
==== ====
Ratio of average interest-earning assets
to average interest-bearing
liabilities 119.36% 116.84%
======= =======
</TABLE>
- -------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits in other banks and federal funds sold.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
76
<PAGE> 86
The following tables set forth certain information regarding changes in
interest income and interest expense of CNB for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in interest rate
(change in rate multiplied by prior volume), (ii) changes in the volume (change
in volume multiplied by prior rate) and (iii) changes in rate-volume (change in
rate multiplied by change in volume).
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 VS. 1996
INCREASE (DECREASE) DUE TO
------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ (8) $ 113 $ - $ 105
Investment and mortgage-backed securities (13) (1) - (14)
Other interest-earning assets 2 (22) - (20)
---- ----- ---- -----
Total (19) 90 - 71
---- ----- ---- -----
Interest-bearing liabilities:
Demand, money market and NOW deposits 28 4 - 32
Savings (3) (9) - (12)
Certificates of deposit (29) - - (29)
---- ----- ---- -----
Total (4) (5) - (9)
---- ----- ---- -----
Net change in net interest income $(15) $ 95 $ - $ 80
==== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 VS. 1995
INCREASE (DECREASE) DUE TO
--------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 10 $ 210 $ - $ 220
Investment and mortgage-backed securities (16) (20) 1 (35)
Other interest-earning assets (8) 31 (2) 21
---- ----- ---- -----
Total (14) 221 (1) 206
---- ----- ---- -----
Interest-bearing liabilities:
Demand, money market and NOW deposits 14 10 1 25
Savings 7 5 - 12
Certificates of deposit 7 47 - 54
---- ----- ---- -----
Total 28 62 1 91
---- ----- ---- -----
Net change in net interest income $(42) $ 159 $ (2) $ 115
==== ===== ==== =====
</TABLE>
77
<PAGE> 87
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
General
Net earnings for the six months ended June 30, 1997 were $152,000, or $.37
per share, compared to net earnings of $159,000, or $.38 per share, for the six
months ended June 30, 1996. The nominal decline in CNB's net earnings was
primarily due to increases in noninterest expenses and declines in noninterest
income, which was increased by accrued interest income.
Interest Income and Expense
Interest income increased by $71,000 from $1,833,000 for the six months
ended June 30, 1996, to $1,904,000 for the six months ended June 30, 1997.
Interest income on loans increased $105,000 due to an increase in the average
loan portfolio balance outstanding from $31.8 million for the six months ended
June 30, 1996, to $34.2 million for the comparable 1997 period, which was
partially offset by a decrease in the weighted average yield of 5 basis points.
Interest on investment and mortgage-backed securities decreased $14,000 due to a
decrease in the average yield earned from 6.13% in 1996 to 5.73% in 1997.
Interest on other interest-earning assets declined as a result of a decrease in
the average other interest-earning assets from $5.1 million in 1996 to $4.3
million in 1997, partially offset by an increase in the average yield earned
from 5.31% in 1996 to 5.38% in 1997.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the total
allowance for credit losses to a level deemed appropriate by management, which
is based upon historical experience, the volume and type of lending conducted by
CNB, the amounts of nonperforming loans, general economic conditions,
particularly as they relate to CNB's market areas, and other factors related to
the collectibility of CNB's loan portfolio. The provision remained constant for
the six months ended June 30, 1997 and 1996. Nonperforming loans and other real
estate owned to total assets were 1.30% at June 30, 1997 compared to 1.90% at
June 30, 1996. CNB's allowance for loan losses increased to 1.39% of loans
outstanding at June 30, 1997 as compared to 1.22% at June 30, 1996. Net
charge-offs as a percentage of average loans outstanding decreased from .38% for
the six months ended June 30, 1996 to .13% for the six months ended June 30,
1997. Based upon the decreases in nonperforming assets and net charge-offs,
CNB's management believed that the provision for credit losses for the six
months ended June 30, 1997 was appropriate.
Other Income
Total other income decreased $34,000 for the six months ended June 30,
1997, compared to 1996, principally due to a $12,000 decrease in other service
charges on deposit accounts and a $22,000 decrease in all other income.
Other Expense
Total other expense increased $77,000 for the six months ended June 30,
1997, compared to 1996 principally due to increased compensation and employee
benefits expense of $26,000, supplies expense of $18,000 (substantially all of
which were related to the Merger) and a theft loss of approximately $100,000
(before income taxes), offset by reductions in occupancy expenses of $79,000.
OCC Agreement
On July 23, 1997, Clewiston National Bank entered into an agreement with
the OCC that imposes certain restrictions and requirements on Clewiston
National Bank's operations. Among other things, this agreement calls for
improvement in the areas of compliance, executive management, loan
administration, strategic planning, liquidity management, independent loan
review, and loan quality. Clewiston National Bank also must maintain certain
capital ratios, develop a three-year capital plan, and develop a dividend
policy that permits the payment of dividends only with the prior approval of
the OCC. Clewiston National Bank's management believes that the OCC agreement
was prompted in part by the failure to address concerns raised by the OCC in
prior examination reports and the additional loan loss reserves mandated by
the OCC for two loans. In response to the OCC agreement, Clewiston National
Bank appointed a new President and Chief Executive Officer. In addition, one of
the two loans for which the OCC required additional reserves was paid in the
first quarter of 1997. Clewiston National Bank management believes that the
allowances for credit losses at June 30, 1997 was adequate. Clewiston National
Bank management believes that Clewiston National Bank has substantially
complied with all requirements of the OCC agreement, including the maintenance
of the required minimum capital levels. Clewiston National Bank's management
does not anticipate any significant impact on the results of operations and
financial condition of Clewiston National Bank or CNB as a result of the OCC
agreement.
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<PAGE> 88
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
General
Net earnings for the year ended December 31, 1996 were $169,000 compared
to net earnings of $236,000 for the year ended December 31, 1995. This decrease
in CNB's net earnings was primarily due to the increases in the provision for
credit losses and noninterest expenses in 1996 versus 1995, partially offset by
increased net interest income and a lower provision for income taxes for 1996 as
compared with 1995 (which resulted in part from the recognition of an
alternative minimum tax credit of $48,000 in 1996).
Interest Income and Expense
Interest income increased by $206,000 from $3,423,000 for the year ended
December 31, 1995, to $3,629,000 for the year ended December 31, 1996. Interest
income on loans increased $220,000 due to an increase in the average loan
portfolio balance outstanding from $30.3 million for the year ended December 31,
1995, to $32.5 million for the comparable 1996 period, and by an increase in the
weighted average yield of 3 basis points. Interest on investment and
mortgage-backed securities decreased $35,000 due to a decrease in the average
yield earned from 6.22% in 1995 to 6.00% in 1996, and a decrease in the average
investment and mortgage-backed securities portfolio outstanding to $6.9 million
in 1996 from $7.2 million in 1995. Interest on other interest-earning assets
increased $21,000 primarily due to an increase in the average other
interest-earning assets from $3.0 million in 1995 to $3.6 million in 1996,
partially offset by a decrease in the average yield earned from 5.77% in 1995 to
5.49% in 1996.
Interest expense increased to $1,701,000 for the year ended December 31,
1996, from $1,610,000 for the year ended December 31, 1995. Interest expense on
deposit accounts increased because of an increase in the average balance of
deposit accounts outstanding from $34.7 million during 1995 to $36.0 million
during 1996, and an increase in the weighted average rate paid on deposit
accounts from 4.64% during 1995 to 4.72% during 1996.
Provision for Credit Losses
The provision for credit losses is charged to earnings to bring the total
allowance for credit losses to a level deemed appropriate by management, which
is based upon historical experience, the volume and type of lending conducted by
CNB, the amounts of nonperforming loans, general economic conditions,
particularly as they relate to CNB's market areas, and other factors related to
the collectibility of CNB's loan portfolio. The provision increased from $94,000
for the year ended December 31, 1995, to $128,000 for the year ended December
31, 1996. The increase resulted from CNB management's assessment of the economic
environment and the level of nonperforming assets.
Other Income
Total noninterest income increased $23,000 for the year ended December 31,
1996, compared to 1995, principally due to an increase in miscellaneous income.
Other Expense
Total noninterest expense increased approximately $264,000 to $2,156,000
for the year ended December 31, 1996, from $1,892,000 for the year ended
December 31, 1995, primarily due to an increase in deferred compensation for the
directors and a former officer of the Bank totaling approximately $185,000, an
increase in salaries of approximately $52,000, an increase in other expenses of
approximately $116,000, and offset by a
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<PAGE> 89
decrease in repairs and maintenance expenses and depreciation of $55,000 and a
decrease in deposit insurance premiums totaling $36,000.
ASSET/LIABILITY MANAGEMENT
A principal objective of CNB's asset/liability management strategy is to
minimize CNB's exposure to changes in interest rates by matching the maturity
and repricing horizons of interest-earning assets and interest-bearing
liabilities. This strategy is monitored by an Asset and Liability Committee (the
"ALCO Committee") which establishes policies and monitors results to control
interest rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk which are determined by the ALCO
Committee. The ALCO Committee uses computer models prepared by a third party to
measure the Bank's interest rate sensitivity. From these reports, the ALCO
Committee can estimate the net income effect of various interest rate scenarios.
As a part of CNB's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate sensitive" and monitors Clewiston National Bank's interest rate sensitivity
"gap." An asset or liability is considered to be interest rate sensitive if it
will reprice or mature within the time period analyzed, usually one year or
less. The interest rate sensitivity gap is the difference between
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within such time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds interest rate sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. During a period of falling interest rates, a negative gap would
tend to result in an increase in net interest income, while a positive gap would
tend to adversely affect net interest income. If the repricing of CNB's assets
and liabilities were equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income would be minimal.
The ALCO Committee's policy is to maintain a cumulative one-year gap which
falls in the range of negative 20% to positive 20% of total rate sensitive
assets. Management attempts to conform to this policy by managing the maturity
distribution of its investment portfolio and emphasizing originations and
purchases of adjustable rate loans, and by managing the product mix and maturity
of its deposit accounts.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment (on loans) and early withdrawal (of deposit accounts)
levels also could deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also may
decrease in the event of an interest rate increase.
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<PAGE> 90
Management's strategy is to maintain a balanced interest rate risk
position to protect its net interest margin from market fluctuations. To this
end, the ALCO Committee reviews, on a monthly basis, the maturity and repricing
of assets and liabilities.
CNB's cumulative one-year gap at December 31, 1996 was a negative 5.83%
of assets, which was in the target range established by the ALCO Committee.
At June 30, 1997, the cumulative one-year gap was a positive 3.30%, which
was within the target range established by the ALCO Committee. Management
believes that the foregoing interest rate sensitivity analysis does not take
into account the potential impact of prepayments on fixed rate loans (which
would tend to mitigate the effect of a negative gap) and that the analysis
assumes all NOW and statement savings accounts will reprice immediately,
although management considers at least a portion of such accounts to be "core
deposits" which management believes would not reprice in direct response to
changes in market interest rates, and therefore would tend to mitigate the
effect of a negative gap.
Principal among CNB's asset/liability management strategies has been the
emphasis on managing its interest rate sensitive liabilities in a manner
designed to attempt to reduce CNB's exposure during periods of fluctuating
interest rates. Management believes that the type and amount of CNB's interest
rate sensitive liabilities may reduce the potential impact that a rise in
interest rates might have on CNB's net interest income. CNB seeks to maintain a
core deposit base by providing quality services to its customers without
significantly increasing its cost of funds or operating expenses. CNB's demand,
money market, and NOW deposit accounts, approximated 37.6%, 36.4% and 33.0% of
total deposits at June 30, 1997, and December 31, 1996 and 1995, respectively.
These accounts bore a weighted average rate of 1.81%, 1.72% and 1.57% during the
six months ended June 30, 1997 and the years ended December 31, 1996 and 1995,
respectively. Management anticipates that these accounts will continue to
comprise a significant portion of CNB's total deposit base. At June 30, 1997,
and December 31, 1996 and 1995, 20.3%, 11.9%, and 19.4%, respectively, of CNB's
total assets consisted of cash and cash equivalents and short-term investment
securities. In addition, at June 30, 1997 and December 31, 1996, CNB's liquidity
ratio was 75.8% and 44.5%, respectively. CNB also maintains a "floor," or
minimum rate, on certain of its floating or prime based loans. These floors
allow CNB to continue to earn a higher rate when the floating rate falls below
the established floor rate.
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<PAGE> 91
The following tables set forth certain information relating to CNB's
interest-earning assets and interest-bearing liabilities at June 30, 1997 that
were estimated to mature or were scheduled to reprice within the period shown:
<TABLE>
<CAPTION>
UNDER 3 TO 12 OVER
3 MONTHS MONTHS 1-5 YEARS 5 YEARS TOTALS
-------- ------- --------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 6,623 $ - $ - $ - $ 6,623
Investment securities available-for-sale (1) 1,597 3,952 - 46 5,595
Mortgage-backed securities available-for-sale (1) - 268 - - 268
Loans receivable (2) 14,734 5,288 8,099 5,100 33,221
------- ------- ------ ------ -------
Total rate-sensitive assets $22,954 $ 9,508 $8,099 $5,146 $45,707
======= ======= ====== ====== =======
Money market and NOW accounts (1) $ 9,572 $ - $ - $ - $ 9,572
Savings accounts (1) 5,359 - - - 5,359
Certificates of deposit (1) 5,532 10,367 6,595 - 22,494
------- ------- ------ ------ -------
Total rate-sensitive liabilities $20,463 $10,367 $6,595 $ - $37,425
======= ======= ====== ====== =======
Gap (repricing differences) $ 2,491 $ (859 $1,504 $5,146 $ 8,282
======= ======= ====== ====== =======
Cumulative Gap $ 2,491 $ 1,632 $3,136 $8,282
======= ======= ====== ======
Cumulative Gap/total assets 5.04% 3.30% 6.34% 16.74%
======= ======= ====== ======
Total Assets $49,462
=======
</TABLE>
- -----------------------------
(1) Investments were scheduled through their contractual maturity dates
except for one mortgage-backed security that reprices annually. Excludes
noninterest bearing deposit accounts. Money market, NOW, and savings
deposits were regarded as maturing immediately. All other time deposits
were scheduled through the maturity dates.
(2) In preparing the table above, adjustable rate loans were included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans were
scheduled according to their contractual maturities. Nonaccrual loans of
$426 were excluded from above.
FINANCIAL CONDITION
Lending Activities
A significant source of income for CNB is the interest earned on loans.
At June 30, 1997, CNB's total assets were $49.5 million of which net loans were
$33.1 million or 66.99% of total assets. At December 31, 1996, CNB's total
assets were $46.8 million, of which net loans were $34.2 million or 72.98% of
total assets. At December 31, 1995, CNB's total assets were $45.3 million and
net loans were $31.4 million or 69.26% of total assets. CNB's primary market
area consists of the Clewiston, Florida community. Clewiston is located
approximately 56 miles southwest of Okeechobee.
Coinciding with the general increase in interest rates during 1996,
residential real estate sales in Hendry County increased approximately 10.55% in
1996 over the previous year. The housing trend has increased due in
part to the
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<PAGE> 92
relocation of Northern residents to the Clewiston area. In Clewiston and the
surrounding areas, the 12-month average sales price for homes sold in 1996 was
$54,932 compared to $54,542 in 1995.
The labor force in Hendry County, Florida has increased over the past
five years. In 1990, the average size of the county's labor force was
approximately 11,151 workers, average employment was approximately 41.5%, and
the unemployment rate was approximately 12.9%. In 1995, the average Hendry
County labor force was approximately 15,713 workers, average employment was
approximately 54.7, and the annual unemployment rate was approximately 15.1%. A
contributing factor to the growth in the labor force is that a number of large
companies have established operations in Hendry County. Among such companies are
U.S. Sugar Corporation, Berry Citrus Processing, A. Duda & Sons, LaBelle Plant
World and Southern Gardens Processing. In addition to growth, the Hendry County
economy also has experienced diversification over the past 15 years. In the
early 1980's, Hendry County was essentially a rural community, dependent on
several seasonal or cyclical industries. As the Ft. Myers and West Palm Beach
business markets have experienced expansion over the past 10 years, Hendry
County's location between these two metropolitan areas has afforded relocation
and business opportunities for industries desiring a proximate location to two
of Florida's major growth regions.
There is no assurance that the Clewiston community, or Hendry County,
will continue to experience economic growth. Adverse conditions in any one or
more of the industries operating in such markets or a slow-down in general
economic conditions could have an adverse effect on Clewiston National Bank.
Lending activities are conducted pursuant to a written policy which has
been adopted by CNB. Each loan officer has defined lending authority beyond
which loans, depending upon their type and size, must be reviewed and approved
by a loan committee comprised of certain directors of CNB.
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<PAGE> 93
The following table sets forth information concerning CNB's loan
portfolio by type of loan at the dates indicated:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
------------------- ------------------------------------------
1997 1996 1995
------------------- ------------------- ------------------
% OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial loans $ 5,541 16.5% $ 6,134 17.7% $ 3,703 11.6%
Commercial real estate loans 3,476 10.3 3,598 10.4 4,407 13.8
Residential mortgage loans 19,830 58.9 20,053 57.8 18,126 56.8
Consumer loans 4,800 14.3 4,888 14.1 5,654 17.8
------- ----- ------- ----- ------- -----
Total loans 33,647 100.0% 34,673 100.0% 31,890 100.0%
===== ===== =====
Less:
Deferred loan fees 45 44 58
Allowance for credit losses 468 475 436
------- ------- -------
Loans, net $33,134 $34,154 $31,396
======= ======= =======
</TABLE>
The following table reflects the contractual principal repayments by
period of CNB's loan portfolio at June 30, 1997:
<TABLE>
<CAPTION>
DUE AFTER 1
DUE IN 1 YEAR YEAR THROUGH DUE AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------------- ------------ --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial loans $2,508 $ 1,441 $ 1,592 $ 5,541
Commercial real estate loans 612 1,813 1,051 3,476
Residential mortgage loans 1,019 1,618 17,193 19,830
Consumer loans 483 3,280 1,037 4,800
------ ------- ------- ------
Total loans $4,622 $ 8,152 $20,873 $33,647
====== ======= ======= =======
Loans with maturities over one year consist of:
Fixed rate $11,274
Variable rate 17,751
-------
Total Loans $29,025
=======
</TABLE>
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<PAGE> 94
The following table sets forth total loans originated and principal
reductions during the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------
1997 1996 1996 1995
---- ---- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Originations:
Commercial loans $ 2,637 $ 2,272 $ 4,472 $ 3,863
Commercial real estate loans 287 240 345 67
Residential mortgage loans 2,202 2,072 3,566 2,944
Consumer loans 1,221 1,336 2,795 2,469
------- ------- ------- -------
Total loans originated 6,347 5,920 11,178 9,343
Principal reductions 7,373 5,808 8,395 7,102
------- ------- ------- -------
Increase (decrease) in total loans $(1,026) $ 112 $ 2,783 $ 2,241
======= ======= ======= =======
</TABLE>
Asset Quality
Management seeks to maintain a high quality of assets through conservative
underwriting and sound lending practices. As of June 30, 1997, and December 31,
1996 and 1995, approximately 69.2%, 68.2% and 70.6%, respectively, of the total
loan portfolio was collateralized by commercial and residential real estate
mortgages. The level of delinquent loans and real estate owned also is relevant
to the credit quality of a loan portfolio. As of June 30, 1997, total
nonperforming assets were $642,000, or 1.3% of total assets, while as of
December 31, 1996, total non-performing assets were $621,000, or 1.3% of total
assets, and at December 31, 1995, total non-performing assets amounted to
$1,006,000, or 2.2% of total assets.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. In view of the relative
significance of real estate related loans, a downturn in the value of the real
estate could have an adverse impact on CNB's profitability. However, as part of
its loan portfolio management strategy, CNB generally limits its loans to a
maximum of 80% of the value of the underlying real estate as determined by
appraisal. In addition, knowledgeable members of management generally make
physical inspections of properties being considered for mortgage loans.
Commercial loans also entail risks since repayment is usually dependent
upon the successful operation of the commercial enterprise. They also are
subject to adverse conditions in the economy. Commercial loans are generally
riskier than mortgage loans because they are typically underwritten on the basis
of the ability to repay from the cash flow of a business rather than on the
ability of the borrower or guarantor to repay. Further, the collateral
underlying a commercial loan may depreciate over time, cannot be appraised with
as much precision as real estate, and may fluctuate in value based on the
success of the business.
The repayment of consumer installment loans and other loans to individuals
is closely linked to the economic conditions of the communities in which CNB
operates (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Lending Activities"). While
Clewiston and the surrounding communities have cyclical employment patterns and
several large employers dominate, Hendry County's economy has experienced
diversification over the past 15 years. The majority of these consumer loans
are secured by collateral which limits, to a degree, any loss CNB would suffer
upon default.
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<PAGE> 95
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted by
economic or other conditions. CNB, on a routine basis, monitors these
concentrations in order to consider adjustments in its lending practices to
reflect economic conditions, loan to deposit ratios, and industry trends.
Concentrations of loans in the following categories constituted the total loan
portfolio as of June 30, 1997:
Commercial loans 16.5%
Real estate mortgage loans 69.2
Installment and other loans 14.3
-----
100.0%
=====
The Loan Committee of the Board of Directors of CNB concentrates its
efforts and resources, and that of its senior management and lending officers,
on loan review and underwriting procedures. Internal controls include ongoing
reviews of loans made to monitor documentation and the existence and valuations
of collateral. In addition, management of CNB has established a review process
with the objective of identifying, evaluating, and initiating necessary
corrective action for marginal loans. The goal of the loan review process is to
address classified and non-performing loans as early as possible.
Classification of Assets
Generally, interest on loans accrues and is credited to income based upon
the principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan as non-accrual when principal or
interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans are generally charged-off after 120 days of delinquency unless
adequately collateralized and in the process of collection. Loans are not
returned to accrual status until principal and interest payments are brought
current and future payments appear reasonably certain. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the outstanding
principal balance.
The interest income earned but not recorded by CNB pursuant to its
nonaccrual policy totaled $15,835, $9,151, and $99,461 for the six months ended
June 30, 1997, and the years ended December 31, 1996 and 1995, respectively.
Interest income received on impaired and nonaccrual loans during the same
periods and included in income on a cash basis totaled $9,098, $48,720, and
$47,917, respectively.
Real estate acquired by CNB as a result of foreclosure or by deed in lieu
of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further allowances for
losses in OREO are recorded by a charge to operations at the time management
believes additional deterioration in value has occurred.
Management has adopted SFAS No. 114, which considers a loan to be impaired
if it is probable that CNB will be unable to collect all amounts due under the
contractual terms of the loan agreement. If a loan is considered impaired, its
value generally should be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate. As a practical
expedient, however, the loan's value may be based on (i) the loan's market price
or (ii) the fair value of the loan's collateral, less discounted estimated
costs to sell, if the collateral is expected to be the sole source of repayment.
If the value of the loan is less than the recorded investment in the loan, a
loss should be recognized by recording a valuation allowance and a
corresponding increase to the provision for credit losses charged to operating
expenses.
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<PAGE> 96
Situations may occur where (i) CNB receives physical possession of a
debtor's assets regardless of whether formal foreclosure proceedings have been
initiated or completed or (ii) the debtor has effectively surrendered control of
the underlying collateral in contemplation of foreclosure. These situations are
referred to as "in-substance foreclosures." SFAS No. 114 recognizes the
practical problems of accounting for the operation of an asset the creditor does
not possess, and states that a loan for which foreclosure is probable should
continue to be accounted for as a loan.
At June 30, 1997 and December 31, 1996 and 1995, loans totaling
approximately $404,000, $372,000, and $670,000 respectively, were classified by
management as impaired. At June 30, 1997 and December 31, 1996 and 1995, no
loans were considered by management to be in-substance foreclosed.
The following table sets forth certain information on nonaccrual loans and
other real estate owned, the ratio of such loans and other real estate owned to
total loans and total assets as of the dates indicated, and certain other
related information:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- --------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans:
Real estate loans $ 341 $ 371 $ 653
Installment loans 22 1 -
Credit cards and related plans - - -
Commercial and other loans 63 - 17
----- ------ ------
Total nonaccrual loans 426 372 670
Accruing loans 90 days or more past due 43 189 107
Troubled debt restructurings - - -
----- ------ ------
Total nonperforming loans 469 561 777
Other real estate:
Real estate acquired by foreclosure or deed
in lieu of foreclosure 173 60 229
----- ------ ------
Total nonperforming loans and other
real estate owned $ 642 $ 621 $1,006
===== ====== ======
Total nonperforming loans and real estate
owned to total assets 1.30% 1.33% 2.22%
===== ====== ======
Total nonperforming loans as a percentage
of total loans 1.40% 1.62% 2.44%
===== ====== ======
Total nonperforming loans as a percentage
of total assets .95% 1.20% 1.71%
===== ====== ======
</TABLE>
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<PAGE> 97
Allowance for Credit Losses
In originating loans, CNB recognizes that credit losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan and,
in the case of a collateralized loan, the quality of the collateral for the loan
as well as general economic conditions. It is management's policy to attempt to
maintain an adequate allowance for credit losses based on, among other things,
CNB's historical loan loss experience, evaluation of economic conditions and
regular reviews of any delinquencies and loan portfolio quality. Specific
allowances are provided for individual loans when ultimate collection is
considered questionable by management after reviewing the current status of
loans which are contractually past due and considering the fair value of the
collateral for the loan. Management recognizes the greater inherent risks in
connection with commercial and consumer lending. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Financial
Condition."
Management continues to actively monitor CNB's asset quality and to
charge-off loans against the allowance for credit losses when appropriate or to
provide specific loss allowances when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for credit losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in making
the initial determinations. CNB's allowance was $468,000, or 1.39% of total
loans at June 30, 1997, compared to $475,000 or 1.37% of total loans at December
31, 1996, and $436,000, or 1.37% of total loans at December 31, 1995.
88
<PAGE> 98
The following table sets forth information with respect to activity in
CNB's allowance for credit losses during the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------------- ----------------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period $ 475 $ 436 $ 436 $ 418
------- ------- ------- ------
Charge-offs:
Real estate loans 2 1 1 34
Installment loans 10 21 49 44
Credit cards and related plans 10 6 10 7
Commercial and all other loans 15 89 98 14
------- ------- ------- -------
Total loans charged-off 37 117 158 99
Recoveries 14 56 69 23
------- ------- ------- -------
Net charge-offs 23 61 89 76
------- ------- ------- -------
Provision for credit losses charged to
operating expenses 16 16 128 94
------- ------- ------- -------
Allowance at end of period $ 468 $ 391 $ 475 $ 436
======= ======= ======= =======
Net charge-offs as a percentage of average
loans outstanding .13% .38% 0.27% 0.25%
======= ======= ======= =======
Allowance for credit losses as a percentage of
period-end total loans 1.39% 1.22% 1.37% 1.37%
======= ======= ======= =======
Allowance for credit losses as a percentage of
nonperforming loans 99.79% 96.31% 84.67% 56.11%
======= ======= ======= =======
Period-end total loans $33,602 $31,952 $34,629 $31,832
======= ======= ======= =======
Average loans outstanding, net $34,181 $31,774 $32,515 $30,250
======= ======= ======= =======
</TABLE>
89
<PAGE> 99
The following table presents information regarding CNB's total allowance
for credit losses as well as the allocation of such amounts to the various
categories of loans:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
-------------------------- ---------------------------------------------------
1997 1996 1995
-------------------------- ----------------------- ------------------------
% OF % OF % OF
LOANS TO LOANS TO LOANS TO
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate loans $ 82 45.3% $ 133 42.0% $ 28 42.5%
Installment loans 84 14.7 89 16.4 99 14.6
Credit cards and related plans 8 .9 7 .8 11 .9
Commercial loans and all other plans 294 39.1 246 40.8 298 42.0
----- ----- ----- ----- ----- -----
Total allowance for credit losses $ 468 100.0% $ 475 100.0% $ 436 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
The allowance for credit losses represented 1.39% of the total loans
outstanding as of June 30, 1997, compared with 1.37% of the total loans
outstanding as of December 31, 1996. The amount of the provision for credit
losses charged to expense in each of the periods presented above represents
management's best estimate during those periods of the additions necessary to
establish appropriate allowances for estimated credit losses. Such estimates
were based on management's assessment of the current and future general economic
conditions in CNB's market area, the risk levels associated with the particular
composition of the loan portfolio during such periods, and CNB's past collection
experience.
During the first quarter of 1997, the OCC completed an examination that
included findings that CNB's allowance for loan losses was understated by
approximately $83,000 at December 31, 1996. Management restated its 1996 results
from operations to include an increased provision and corresponding reserve. At
January 31, 1997, one loan that the OCC had provided a specific reserve in the
amount of $50,000 was paid off. This was not considered by the OCC in its
conclusion to increase the reserve levels at December 31, 1996. The remaining
portion of the required increase was principally due to one unsecured loan to a
former director in the amount of $30,000. Management was not required by the OCC
to change its methodology for determining the allowance and the OCC did not
require CNB to provide for additional reserves in the future.
The provision for credit losses remained constant at $16,000 for the six
months ended June 30, 1997 and 1996, and increased from $94,000 for the year
ending December 31, 1995 to $128,000 for the year ending December 31, 1996. The
changes in the provision for credit losses in those periods reflect CNB
management's assessment of the economic environment, trends in nonperforming
loans and an assessment of the exposure in its nonperforming loans and loans
criticized by CNB's regulators. Total nonperforming loans and other real estate
owned as a percentage of total assets decreased from 2.22% at December 31, 1995
to 1.30% at June 30, 1997. During the year ended December 31, 1996, net
charge-offs as a percentage of average loans outstanding increased slightly to
0.27% versus the year ended December 31, 1995 of 0.25%. Charge-offs decreased
during the six months ended June 30, 1997 versus the comparable period in 1996
from .38% to .13%. Considering the nature of CNB's loan portfolio, management
believes that the $468,000 allowance for credit losses at June 30, 1997 was
adequate.
90
<PAGE> 100
Investment Securities
The following table sets forth the amortized cost of CNB's investment
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
----------- ---------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Investment securities:
<S> <C> <C> <C>
Government and agency securities $5,493 $6,491 $5,573
FNMA collateralized mortgage obligation 271 309 363
Obligations of states and municipalities 95 180 431
Other 46 46 46
------ ------ ------
Total $5,905 $7,026 $6,413
====== ====== ======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the investment securities portfolio as follows:
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS AFTER TEN YEARS TOTAL
------------------ ----------------- ------------------ ----------------- ----------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997:
U.S. Government and
agency securities $1,501 5.94% $3,952 5.86% $ - -% $ - -% $5,453 5.88%
FNMA collateralized
mortgage obligations - -% 33 5.21% - -% 235 9.73% 268 9.17%
Obligations of states
and municipalities 96 7.90% - -% - -% - -% 96 7.90%
Other securities - -% - -% - -% 46 4.70% 46 4.70%
------ ------ ---- ---- ------
Total $1,597 6.06% $3,985 5.85% $ - -% $281 8.91% $5,863 6.05%
====== ====== ==== ==== ======
December 31, 1996:
U.S. Government and
agency securities $2,002 5.57% $4,459 5.74% $ - -% $ - -% $6,461 5.69%
FNMA collateralized
mortgage obligations - -% 62 7.57% - -% 245 9.73% 307 9.29%
Obligations of states
and municipalities 85 7.70% 97 7.90% - -% - -% 182 7.81%
Other securities - -% - -% - -% 46 4.70% 46 4.70%
------ ------ ---- ---- ------
Total $2,087 5.66% $4,618 5.81% $ - -% $291 8.93% $6,996 5.90%
====== ====== ==== ==== ======
December 31, 1995:
U.S. Government and
agency securities $3,581 6.58% $2,004 6.37% $ - -% $ - -% 5,585 6.50%
FNMA collateralized
mortgage obligations - -% 64 7.59% 29 9.02% 274 9.73% 367 9.30%
Obligations of states
and municipalities - -% 185 7.81% 256 8.15% - -% 441 8.01%
Other securities - -% - -% - -% 46 4.70% 46 4.70%
------ ------ ---- ---- ------
Total $3,581 6.58% $2,253 6.52% $285 8.24% $320 9.01% $6,439 6.75%
====== ====== ==== ==== ======
</TABLE>
91
<PAGE> 101
Mortgage-backed Securities
CNB invests in mortgage-backed securities that are guaranteed as to
principal and interest by the Government National Mortgage Association ("GNMA"),
the Federal Home Loan Mortgage Corporation ("FHLMC"), or the Federal National
Mortgage Association ("FNMA"). Although mortgage-backed securities generally
have a lower yield than loans, mortgage-backed securities increase the quality
of CNB's assets by virtue of the guarantees that back them, are more liquid than
individual mortgage loans and may be used to collateralize borrowing or other
obligations of CNB. Due to repayment and prepayments of the underlying loans,
the actual maturities of mortgage-backed securities are substantially less than
the scheduled maturities. Changes in interest rates may also affect the average
life, yield to maturity, and related market value of BLF's mortgage-backed
securities. Changes in the market values of BLF's mortgage-backed securities may
result in volatility in capital based on how CNB classifies the securities. CNB
has adopted Statement of Financial Accounting Standards No. 115 ("FAS 115"),
which requires companies to classify mortgage-backed securities as either
held-to-maturity, available-for-sale, or trading securities. Securities
classified as held-to-maturity are carried at amortized cost. Securities
classified as available-for-sale are reported at fair value, with unrealized
gains and losses, net of tax effect, reported as a separate component of
stockholders' equity. Securities classified as trading securities are recorded
at fair value, with unrealized gains and losses included in earnings. At June
30, 1997, all mortgage-backed securities were classified as available-for-sale.
As a result of the adoption of FAS 115, under which CNB expects to continue to
hold certain of its mortgage-backed securities classified as available-for-sale,
changes in the underlying market values of such securities could have a material
adverse effect on CNB's capital position. Typically, an increase in interest
rates results in a decrease in underlying market value and an increase in the
level of principal repayments on mortgage-backed securities. During the past
year, interest rates have not varied significantly and a decrease in the market
value of available-for-sale mortgage-backed securities resulted in a decrease in
stockholders' equity of $2,000 at June 30, 1997. Such decrease represents the
impact of changes in interest rates on the value and maturity of these
investments.
The following table sets forth the amortized cost of CNB's mortgage-backed
securities portfolio as of the dates indicated:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
---------- ----------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Mortgage-backed securities:
Available-for-sale:
FNMA collateralized mortgage obligations $271 $309 $363
==== ==== ====
</TABLE>
Deposit Activities
Deposits are the major source of CNB's funds for lending and other
investment purposes. Deposits are attracted principally from within CNB's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established by
CNB on a periodic basis. The determination of rates and terms is predicated on
funds acquisition and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
92
<PAGE> 102
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest
on deposits offered by other insured depository institutions having the same
type of charter in such depository institutions's normal market area. Under
these regulations, "well capitalized" depository institutions may accept,
renew, or rollover deposits at such rates without restriction, "adequately
capitalized" depository institutions may accept, renew or rollover deposits at
such rates with a waiver from the FDIC (subject to certain restrictions on
payments of rates), and "undercapitalized" depository institutions may not
accept, renew or rollover deposits at such rates. The regulations contemplate
that the definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the prompt corrective action provisions of applicable law. See
"Supervision, Regulation and Governmental Policy -- Capital Requirements." As
of June 30, 1997, Clewiston National Bank met the definition of a "well
capitalized" depository institution.
The following table shows the distribution of, and certain other
information relating to, CNB's deposit accounts by type:
<TABLE>
<CAPTION>
AT JUNE 30 AT DECEMBER 31,
---------- --------------
1997 1996 1995
---------------------------- --------------------- -------------------------
% OF % OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT AMOUNT DEPOSIT
------ ------- ------ ------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 7,222 16.2% $7,263 17.3% $5,576 13.7%
NOW deposits 5,906 13.2 5,010 11.9 3,571 8.7
Money market deposits 3,666 8.2 3,011 7.2 4,276 10.5
Savings deposits 5,359 12.0 4,582 10.9 5,067 12.4
------- ----- ------ ----- ------- -----
Subtotal 22,153 49.6 19,866 47.3 18,490 45.3
------- ----- ------ ----- ------- -----
Certificates of deposit:
2.00% - 2.99% 283 0.6 124 0.3 1,302 3.2
3.00% - 3.99% 607 1.3 485 1.1 97 0.2
4.00% - 4.99% 5,918 13.3 7,638 18.2 3,621 8.9
5.00% - 5.99% 11,494 25.7 9,105 21.7 10,667 26.2
6.00% - 6.99% 3,196 7.2 2,703 6.4 5,747 14.1
7.00% - 7.99% 238 0.5 489 1.2 545 1.3
8.00% - 8.99% 758 1.8 1,592 3.8 323 0.8
------- ----- ------- ----- ------- -----
Total certificates of deposit (1) 22,494 50.4 22,136 52.7 22,302 54.7
------- ----- ------- ----- ------- -----
Total deposits $44,647 100.0% $42,002 100.0% $40,792 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
- --------------------------
(1) Includes individual retirement accounts ("IRAs") totaling $2,130,
$2,019 and $1,913 at June 30, 1997, and December 31, 1996 and 1995,
respectively, all of which are in the form of certificates of deposit.
93
<PAGE> 103
The following tables show the average amount of and the average rate paid on
each of the following deposit account categories during the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------
1997 1996
------------------------- -------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand, money market
and NOW $16,923 1.81% $15,105 1.60%
Savings deposits 4,990 3.13% 5,555 3.24%
Certificates of deposit 22,139 5.62% 22,124 5.89%
------- -------
Total deposits $44,052 3.87% $42,784 4.03%
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1997
------------------------- -------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Demand, money market
and NOW $13,981 1.72% $ 13,635 1.57%
Savings deposits 5,369 3.26% 5,214 3.13%
Certificates of deposit 22,073 5.83% 21,263 5.79%
------- --------
Total deposits $41,423 4.11% $ 40,112 4.01%
======= ========
</TABLE>
CNB does not have a concentration of deposits from any one source, the
loss of which would have a material adverse effect on the business of CNB.
Management believes that substantially all of CNB's depositors are residents in
its primary market area. CNB currently does not accept brokered deposits, but
has outstanding brokered deposits of $197,000 for each period ended June 30,
1997 and December 31, 1996 and 1995. As shown in the tables below, a significant
amount of CNB's certificates of deposit will mature during the year ending June
30, 1998. The high volume of maturities during this period is primarily due to
customer demand for certificates of deposit having original maturities of 12
months or less. Based upon current and anticipated levels of interest rates and
past practice, CNB management anticipates that substantially all of CNB's
certificates of deposit maturing during this time period will be renewed or
replaced by certificates of deposit issued to other customers at competitive
market rates, which may be higher or lower than the rates currently being paid.
Consequently, CNB management does not believe that the maturity of CNB's
certificates of deposit during the year ended June 30, 1998, will have a
material adverse effect on CNB's liquidity. However, if CNB is required to pay
substantially higher rates to obtain the renewal of these or other certificates
of deposit or alternative sources of funds, the higher net interest expense
could have a material adverse effect on CNB's net income.
94
<PAGE> 104
The following tables present by various interest rate categories the
amounts of certificates of deposit at June 30, 1997, and December 31, 1996 and
1995 which mature during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
------------------------------------------------------------------
1998 1999 2000 2001 2002 TOTAL
---- ---- ---- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997:
2.00% - 2.99% $ 76 $ 197 $ - $ - $ 10 $ 283
3.00% - 3.99% 590 15 - - 2 607
4.00% - 4.99% 5,236 458 70 56 98 5,918
5.00% - 5.99% 7,921 2,541 241 352 439 11,494
6.00% - 6.99% 1,582 1,001 176 77 360 3,196
7.00% - 7.99% - 122 69 - 47 238
8.00% - 8.99% 494 82 - 179 3 758
------- ------ ---- ---- ---- -------
Total certificates of deposit $15,899 $4,416 $556 $664 $959 $22,494
======= ====== ==== ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------------------------
TOTAL 1997 1998 1999 2000 2001 TOTAL
---- ---- ---- ---- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996:
2.00% - 2.99% $ 56 $ 56 $ - $ - $ 12 $ 124
3.00% - 3.99% 474 8 - - 3 485
4.00% - 4.99% 6,736 328 217 227 130 7,638
5.00% - 5.99% 6,212 1,531 343 561 458 9,105
6.00% - 6.99% 863 1,207 295 - 338 2,703
7.00% - 7.99% 133 198 79 - 79 489
8.00% - 8.99% 1,165 408 - - 19 1,592
------- ------ ---- ---- ------ -------
Total certificates of deposit $15,639 $3,736 $934 $788 $1,039 $22,136
======= ====== ==== ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------------------------
1996 1997 1998 1999 2000 TOTAL
---- ---- ---- ---- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995:
2.00% - 2.99% $ 558 $ 470 $ 213 $ - $ 61 $ 1,302
3.00% - 3.99% 67 - 30 - - 97
4.00% - 4.99% 1,723 794 454 367 283 3,621
5.00% - 5.99% 6,189 2,374 419 934 751 10,667
6.00% - 6.99% 1,225 3,489 530 - 503 5,747
7.00% - 7.99% 3 356 116 - 70 545
8.00% - 8.99% 144 147 6 - 26 323
------- ------ ------ ------ ------ -------
Total certificates of deposit $ 9,909 $7,630 $1,768 $1,301 $1,694 $22,302
======= ====== ====== ====== ====== =======
</TABLE>
95
<PAGE> 105
Jumbo certificates ($100,000 and over) mature as follows (in thousands):
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
---------- --------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Due in three months or less $1,349 $1,563 $ 200
Due from three months to one year 2,509 1,954 1,483
Due over one year 528 1,219 1,514
------ ------ -------
$4,386 $4,736 $ 3,197
====== ====== =======
</TABLE>
The following table sets forth the net deposit flows of Clewiston National Bank
during the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------- ----------------------
1997 1996 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net increase (decrease) before
interest credited $1,779 $1,082 $ (486) $ 758
Net interest credited 866 865 1,696 1,596
------ ------- ------ -------
Net deposit increase $2,645 $1,947 $1,210 $ 2,354
====== ====== ====== =======
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data concerning CNB
presented in this Proxy Statement have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of CNB is reflected
in increased operating costs. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, changes in interest rates have a more significant impact on the
performance of a financial institution than do the effects of changes in the
general rate of inflation and changes in prices. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices of
goods and services.
FUTURE ACCOUNTING REQUIREMENTS
SFAS No. 125 and its amendment SFAS No. 127 apply to certain transfers and
servicing of financial assets and extinguishments of liabilities effective
January 1, 1997 (except as deferred by SFAS No. 127). CNB has not transferred
and serviced significant financial assets nor does it anticipate that these
Statements will have any material impact on the financial statements of CNB.
SFAS Nos. 128 and 129 addressing earnings per share and disclosure of
information about the capital structure, respectively, are effective for CNB's
financial statements issued after December 15, 1997. SFAS No. 128 establishes
standards for the computation and presentation of earnings per share ("EPS").
This statement is not expected to have a material impact on the financial
statements of CNB. SFAS No. 129 requires only additional disclosure and will not
have any material impact on the financial statements of CNB.
96
<PAGE> 106
BUSINESS OF CNB
GENERAL
CNB was incorporated as a Florida corporation on April 25, 1990 for the
purpose of owning all the voting shares of Clewiston National Bank. CNB is a
registered bank holding company under the BHC Act. CNB has no significant
operations other than owning all of the outstanding stock of Clewiston National
Bank. Clewiston National Bank, which is a national banking association, is the
only source of revenue for CNB.
Clewiston National Bank provides a range of consumer and commercial
banking services to individuals, businesses and industries. The basic services
offered by Clewiston National Bank include: demand interest bearing and
noninterest bearing accounts, money market deposit accounts, NOW accounts, time
deposits, safe deposit services, credit cards, cash management, direct deposits,
notary services, money orders, night depository, travelers' checks, cashier's
checks, domestic collections, savings bonds, bank drafts, automated teller
services, drive-in tellers, and banking by mail. In addition, Clewiston National
Bank makes secured and unsecured commercial and real estate loans and issues
stand-by letters of credit. Clewiston National Bank provides automated teller
machine (ATM) cards, as a part of the HONOR ATM network, thereby permitting
customers to utilize the convenience of larger ATM networks. Clewiston National
Bank does not have trust powers and, accordingly, no trust services are
provided.
The revenues of Clewiston National Bank are primarily derived from
interest on, and fees received in connection with, real estate and other loans,
and from interest and dividends from investment and mortgage-backed securities,
and short-term investments. The principal sources of funds for Clewiston
National Bank's lending activities are its deposits, repayment of loans, and the
sale and maturity of investment securities. The principal expenses of Clewiston
National Bank are the interest paid on deposits, and operating and general
administrative expenses.
As is the case with banking institutions generally, Clewiston National
Bank's operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Federal Reserve and the OCC.
Deposit flows and costs of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn are affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds.
Clewiston National Bank faces strong competition in the attraction of deposits
(its primary source of lendable funds) and in the origination of loans. See
"Competition."
OCC AGREEMENT
On July 23, 1997, Clewiston National Bank entered into an agreement with
the OCC which imposes certain restrictions and requirements on Clewiston
National Bank's operations. Among other things, the agreement requires Clewiston
National Bank to appoint a Compliance Committee responsible for monitoring and
coordinating Clewiston National Bank's adherence to the provisions of the
Agreement and submitting written progress reports regarding such compliance;
appoint a new president and chief executive officer, which Clewiston National
Bank has done through the appointment of Frederick W. Gesell (as President and
Chief Executive Officer); hire a senior lending officer; maintain a total
risk-weighted capital ratio of at least 12% and a tier 1 capital ratio of at
least 6%; develop a three-year capital program to provide for the maintenance of
adequate capital and other related issues; develop a dividend policy which
permits the payment of dividends only with the prior approval of the OCC; review
Clewiston National Bank's liquidity on a monthly basis; implement an independent
internal audit program; implement a strategic plan for Clewiston National Bank
covering at least a three-year period; implement a program to improve Clewiston
National Bank's loan administration and adopt a
97
<PAGE> 107
policy setting forth criteria under which renewals of extensions of credit may
be approved; obtain current and satisfactory credit information on all loans and
insure proper collateral documentation is maintained; protect its interest in,
and implement a program designed to eliminate the basis of criticism of, assets
cited by the OCC in recent reports of examination; and provide for an
independent loan review system to periodically review Clewiston National Bank's
loan portfolio to assure timely identification and categorization of problem
credits.
LENDING ACTIVITIES
Clewiston National Bank offers a range of lending services, including real
estate, consumer and commercial loans, to individuals and small businesses and
other organizations that are located in or conduct a substantial portion of
their business in Clewiston National Bank's market area. Clewiston National
Bank's total loans at June 30, 1997 were $33.6 million, or 67.9% of total
assets. The interest rates charged on loans vary with the degree of risk,
maturity, and amount of the loan, and are further subject to competitive
pressures, money market rates, availability of funds, and government
regulations. Clewiston National Bank has no foreign loans or loans for highly
leveraged transactions.
Clewiston National Bank's loans are concentrated in three major areas:
commercial loans, real estate loans, and consumer loans. Approximately 26.8% of
Clewiston National Bank's loan portfolio at June 30, 1997 consisted of
commercial loans. A majority of Clewiston National Bank's loans are made on a
secured basis. As of June 30, 1997, approximately 69.2% of the loan portfolio
consisted of loans secured by mortgages on real estate.
Clewiston National Bank's commercial loans include loans to individuals
and small-to-medium sized businesses located primarily in Hendry and Glades
Counties for working capital, equipment purchases, and various other business
purposes. A majority of Clewiston National Bank's commercial loans are secured
by equipment or similar assets, but these loans may also be made on an unsecured
basis. Commercial loans may be made at variable or fixed rates of interest.
Commercial lines of credit are typically granted on a one-year basis, with loan
covenants and monetary thresholds. Other commercial loans with terms or
amortization schedules of longer than one year will normally carry interest
rates which vary with the prime lending rate and will become payable in full and
are generally refinanced in three to five years.
Clewiston National Bank's real estate loans are secured by mortgages and
consist primarily of loans to individuals and businesses for the purchase,
improvement of or investment in real estate and for the construction of
single-family residential units or the development of single-family residential
building lots. These real estate loans may be made at fixed or variable interest
rates. Clewiston National Bank generally does not make fixed-rate commercial
real estate loans for terms exceeding five years. Loans in excess of five years
are generally adjustable. Clewiston National Bank's residential real estate
loans generally are repayable in monthly installments based on up to a 30-year
amortization schedule with variable interest rates.
Clewiston National Bank's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes, but includes some business
purpose loans which are payable on an installment basis. The majority of these
loans are for terms of less than five years and are secured by liens on various
personal assets of the borrowers, but consumer loans may also be made on an
unsecured basis. Consumer loans are made at fixed and variable interest rates,
and are often based on up to a five-year amortization schedule.
For additional information regarding Clewiston National Bank's loan
portfolio, see "CNB'S Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition."
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DEPOSIT ACTIVITIES
Deposits are the major source of Clewiston National Bank's funds for
lending and other investment activities. Clewiston National Bank considers the
majority of its regular savings, demand, NOW and money market deposit accounts
to be core deposits. These accounts comprised approximately 49.6% of Clewiston
National Bank's total deposits at June 30, 1997. Approximately 50.4% of
Clewiston National Bank's deposits at June 30, 1997, were certificates of
deposit. Generally, Clewiston National Bank attempts to maintain the rates paid
on its deposits at a competitive level. Time deposits of $100,000 and over made
up approximately 9.8% of Clewiston National Bank's total deposits at June 30,
1997. The majority of the deposits of Clewiston National Bank are generated from
Hendry and Glades Counties. Clewiston National Bank no longer accepts brokered
deposits, which represent less than .4% of Clewiston National Bank's total
deposits at June 30, 1997. For additional information regarding Clewiston
National Bank's deposit accounts, see "CNB'S Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition."
EMPLOYEES
At June 30, 1997, CNB and Clewiston National Bank employed 35 full-time
(including its executive officers) and no part-time employees. The employees are
not represented by a collective bargaining unit. CNB and Clewiston National Bank
consider relations with employees to be good.
PROPERTIES
The main office of CNB and Clewiston National Bank is located at 950 West
Ventura Avenue, Clewiston, Florida 33440, in a one-story building of
approximately 5,700 square feet, which is owned by Clewiston National Bank.
Clewiston National Bank also has banking offices located at 401 E. Sugarland
Highway, Clewiston, Florida 33440, in a one-story building of approximately
1,600 square feet, which is leased by Clewiston National Bank (under a lease
which, with renewal options, expires in 2001), a branch at 6th Street and
Highway 27, Moore Haven, Florida 33471, in a one-story building of approximately
2,800 square feet, which is leased by Clewiston National Bank (under a lease
which, with renewal options, expires in 1998), and a branch at 17 N. Lee Street,
LaBelle, Florida 33935, in a one-story building of approximately 1,960 square
feet, which is owned by Clewiston National Bank. Clewiston National Bank also
owns a one-story building of approximately 1,600 square feet located at 100 S.
Berner, Clewiston, Florida 33440, which is leased to a third party with purchase
and renewal options. The lease term expires in 2002.
LITIGATION
CNB and/or Clewiston National Bank are periodically parties or a party to
or otherwise involved in legal proceedings arising in the normal course of
business, such as claims to enforce liens, claims involving the making and
servicing of real property loans, and other issues incident to its business.
Management does not believe that there is any pending or threatened proceeding
against CNB and/or Clewiston National Bank which, if determined adversely, would
have a material adverse effect on the business, results of operations, or
financial position of CNB and/or Clewiston National Bank.
MANAGEMENT
Board of Directors. The Board of Directors of CNB currently consists of
eight directors, each of whom holds office until the next annual meeting of CNB
to be held in 1998. Each director of CNB currently also serves as
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a director of Clewiston National Bank. The following table sets forth certain
information with respect to the directors of CNB.
<TABLE>
<CAPTION>
DIRECTOR OR OFFICER PRINCIPAL OCCUPATION
OF CNB OR AND BUSINESS
CLEWISTON NATIONAL BANK EXPERIENCE DURING
NAME AND AGE SINCE PAST FIVE YEARS
------------ ----------------------- ------------------------
<S> <C> <C>
John Boy, Jr.,43 1985 Accountant/Owner of
Boy & Associates, P.A.
John Corbin, 76 1974 Retired
Curtis S. Fry, 58 1974 Owner of Fry Hardware and Cane
Brake Apartments
Frederick W. Gesell, 39 1994 President and Chief Executive Officer
(1997 to Present) and Executive Vice
President, Chief Financial Officer and
Cashier (1994 to 1997) of CNB and
Clewiston National Bank; Vice
President of D'Elegance Management
Ltd., Inc. (1993 to 1994); and Vice
President, Controller, Data Processing
Manager, and Auditor of First
Community Bank of Palm Beach
County (formerly Bank of Pahokee)
(1984 to 1992)
W. R. Howard , Jr., 43 1995 Businessman/Owner of W.R. Howard,
Jr., P.E., Inc.
Dan M. McCarthy, 74 1974 Secretary/Treasurer of Glades Gas Co.
Bobby F. Paige, 71 1974 Cattle Rancher
Thomas A. Smith, 60 1987 Businessman/Owner of
LaBelle Plant World
</TABLE>
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Executive Officers. The following sets forth information regarding the
sole executive officer of Clewiston National Bank. The sole officer of Clewiston
National Bank serves at the pleasure of the Board of Directors of Clewiston
National Bank.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AND BUSINESS
EXPERIENCE DURING
NAME AND AGE PAST FIVE YEARS
- ------------ ----------------------------------------------------------------------
<S> <C>
Frederick W. Gesell President and Chief Executive Officer (1997 to Present) and Executive
Vice President, Chief Financial Officer and Cashier (1994 to 1997) of
CNB and Clewiston National Bank; Vice President of D'Elegance
Management Ltd., Inc. (1993 to 1994); and Vice President, Controller,
Data Processing Manager, and Auditor of First Community Bank of
Palm Beach County (formerly Bank of Pahokee) (1984 to 1992)
</TABLE>
COMPENSATION AND BENEFITS
The table below sets forth certain information with respect to
compensation paid to Mr. Gesell (the President and Chief Executive Officer of
CNB and Clewiston National Bank) during the years presented. No executive
officer of CNB received a total salary and bonus in excess of $100,000 in 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION COMPENSATION(1)
- ------------------ ---- --------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Frederick W. Gesell, 1996 $ 45,492 $ - $ - $ -
President and Chief
Executive Officer of CNB 1995 $ 44,845 $ - $ - $ -
and Clewiston National
Bank 1994 $ 8,462(1) $ - $ - $ -
</TABLE>
- ------------------
(1) Represents salary paid to Mr. Gesell after he was employed by Clewiston
National Bank in October 1994.
Directors of CNB receive no directors fees. Non-employee directors of
Clewiston National Bank are paid fees of $300 per meeting of the Board of
Directors.
Pension Plan. Clewiston National Bank sponsors a defined contribution
pension plan that covers substantially all employees. Clewiston National Bank
funds the annual expense through contributions to the plan.
CERTAIN TRANSACTIONS
Clewiston National Bank has had, and expects to have in the future,
banking transactions in the ordinary course of business with certain of its
directors and executive officers and their associates. As of June 30, 1997, the
directors and executive officers of Clewiston National Bank and their
associates, as a group, were indebted
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to Clewiston National Bank in the aggregate amount of approximately $.9 million.
All loans included in such transactions were made in the ordinary course of
business, on substantially the same terms (including interest rate and
collateral) as those prevailing at the time for comparable transactions with
other persons, and in the opinion of management of Clewiston National Bank did
not involve more than the normal risk of collectibility or present other
unfavorable features.
MANAGEMENT AND PRINCIPAL STOCK OWNERSHIP
The following table sets forth the beneficial ownership of outstanding
shares of CNB Common Stock as of June 30, 1997 by CNB's current directors, and
by current directors and executive officers as a group. The individuals listed
below, beneficially owning more than 5% of CNB Common Stock on June 30, 1997,
were the only individuals known to CNB to own more than 5% of outstanding shares
as of such date:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT/NATURE OF PERCENT
(AND ADDRESS OF 5% OWNER) BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------- ----------------------- --------
<S> <C> <C>
John Boy, Jr. 867 *
John Corbin 6,944(2) 1.7%
Curtis S. Fry, 58 77,898(3) 18.7%
111 North San Benito Street
Clewiston, FL 33440
Frederick W. Gesell 250 *
W. R. Howard, Jr. 278 *
Dan M. McCarthy 10,124(4) 2.4%
Bobby F. Paige, 71 20,837 5.0%
Route 1 Box 101-T
Clewiston, FL 33440
Thomas A. Smith, 60 25,288(5) 6.0%
P. O. Box 399
LaBelle, FL 33935
All directors and executive
officers as a group (eight persons) 142,486 34.2%
</TABLE>
- -----------------------
* Less than 1%
(1) Information related to beneficial ownership is based upon the information
available to CNB.
(2) Includes 3,472 shares held by his spouse.
(3) Consists of 35,114 shares held by a company owned by him, 36,748 shares
held as trustee, and 6,000 shares held jointly with his children.
(4) Consists of 346 shares held by his grandchildren, 1,404 shares held
jointly with his spouse and 8,374 shares held jointly with his children.
(5) Includes 22,160 shares held jointly with his spouse and 867 shares held
jointly with his son.
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COMPETITION
BLF and CNB encounter strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as an
increasing level of interstate banking have created a highly competitive
environment for commercial banking in Okeechobee, Hendry, Highlands and Glades
Counties. In one or more aspects of their businesses, BLF and CNB compete with
other commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies and other financial intermediaries operating in Okeechobee, Hendry,
Highlands and Glades Counties and elsewhere. Most of these competitors, some of
which are affiliated with bank holding companies, have substantially greater
resources and lending limits, and may offer certain services that neither BLF
nor CNB currently provide. In addition, many of BLF's and CNB's non-bank
competitors are not subject to the same extensive federal regulations that
govern bank holding companies and federally insured banks. Recent federal and
state legislation has heightened the competitive environment in which financial
institutions must conduct their business, and the potential for competition
among financial institutions of all types has increased significantly. See
"Supervision, Regulation and Governmental Policy -- Interstate Banking."
To compete, BLF and CNB rely upon specialized services, responsive
handling of customer need, personalized service and personal contacts by their
officers, directors, and staff. The large multi-branch banks compete primarily
by rate and location of branches and smaller independent financial institutions
tend to compete primarily by rate and personalized services.
SUPERVISION, REGULATION AND GOVERNMENTAL POLICY
Banks and their holding companies, and many of their affiliates, are
extensively regulated under both federal and state law. The following is a brief
summary of certain statutes, rules, and regulations affecting BLF, CNB, Big Lake
National Bank and Clewiston National Bank. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of BLF, CNB, Big Lake
National Bank or Clewiston National Bank. Supervision, regulation, and
examination of banks by regulatory agencies are intended primarily for the
protection of depositors, rather than shareholders.
Bank Holding Company Regulation. BLF and CNB are bank holding companies,
registered with the Federal Reserve under the BHC Act. As such, BLF and CNB are
subject to the supervision, examination and reporting requirements of the BHC
Act and the regulations of the Federal Reserve. The BHC Act requires that a bank
holding company obtain the prior approval of the Federal Reserve before (i)
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any bank, (ii) taking any action that causes a bank to become a
subsidiary of the bank holding company, or (iii) merging or consolidating with
any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues includes the parties'
performance under the Community Reinvestment Act of 1977 (the "CRA"), both of
which are discussed below.
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<PAGE> 113
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment is required of
any bank which has applied to (i) charter a national bank, (ii) obtain deposit
insurance coverage for a newly chartered institution, (iii) establish a new
branch office that will accept deposits, (iv) relocate an office, or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the record of each subsidiary bank of the applicant
bank holding company, and such records may be the basis for denying the
application.
The BHC Act generally prohibits a bank holding company from engaging in
activities other than banking, or managing or controlling banks or other
permissible subsidiaries, and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is permissible, the Federal Reserve must consider
whether the performance of such an activity can reasonably be expected to
produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency that outweigh possible adverse effects, such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest, or unsound banking practices. For example, factoring accounts
receivable, acquiring or servicing loans, leasing personal property, conducting
securities brokerage activities, performing certain data processing services,
acting as agent or broker in selling credit life insurance and certain other
types of insurance in connection with credit transactions, and certain insurance
underwriting activities have all been determined by regulations of the Federal
Reserve to be permissible activities of bank holding companies. Despite prior
approval, the Federal Reserve has the power to order a holding company or its
subsidiaries to terminate any activity or terminate its ownership or control of
any subsidiary, when it has reasonable cause to believe that continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
Bank Regulation. Each of BLF and CNB is chartered under the national
banking laws and their deposits are insured by the FDIC to the extent provided
by law. Each bank is subject to comprehensive regulation, examination and
supervision by the OCC and to other laws and regulations applicable to banks.
Such regulations include limitations on loans to a single borrower and to its
directors, officers and employees; restrictions on the opening and closing of
branch offices; the maintenance of required capital and liquidity ratios; the
granting of credit under equal and fair conditions; and the disclosure of the
costs and terms of such credit. BLF and CNB are examined periodically by the
OCC, to whom they submit periodic reports regarding their financial condition
and other matters. The OCC has a broad range of powers to enforce regulations
under its jurisdiction, and to take discretionary actions determined to be for
the protection and safety and soundness of banks, including the institution of
cease and desist orders and the removal of directors and officers. The OCC also
has the authority to approve or disapprove mergers, consolidations, and similar
corporate actions.
There are various statutory limitations on the ability of BLF and CNB to
pay dividends. The OCC also has the general authority to limit the dividend
payment by banks if such payment may be deemed to constitute an unsafe and
unsound practice. For information on the restrictions on the right of Big Lake
National Bank and Clewiston National Bank to pay dividends to the Combined
Corporation, see "Market and Dividend Information."
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, banks are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit or
the providing of any property or service.
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The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") imposed major regulatory reforms, stronger capital standards for
savings and loan associations and stronger civil and criminal enforcement
provisions. FIRREA also provides that a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC after August 9, 1989 in connection with (i) the default of
a commonly controlled FDIC insured depository institution, or (ii) any
assistance provided by the FDIC to a commonly controlled FDIC insured
institution in danger of default.
The FDIC Improvement Act of 1993 ("FDICIA") made a number of reforms
addressing the safety and soundness of deposit insurance funds, supervision,
accounting, and prompt regulatory action, and also implemented other regulatory
improvements. FDICIA also recapitalized the Bank Insurance Fund, based on an
assessment rate schedule that may extend to 15 years. Annual full-scope, on-site
examinations are required of all insured depository institutions. The cost for
conducting an examination of an institution may be assessed to that institution,
with special consideration given to affiliates and any penalties imposed for
failure to provide information requested. Insured state banks also are precluded
from engaging as principal in any type of activity that is impermissible for a
national bank, including activities relating to insurance and equity
investments. The Act also recodified current law restricting extensions of
credit to insiders under the Federal Reserve Act.
Also important in terms of its effect on banks has been the deregulation
of interest rates paid by banks on deposits and the types of deposit accounts
that may be offered by banks. Most regulatory limits on permissible deposit
interest rates and minimum deposit amounts expired several years ago. The effect
of the deregulation of deposit interest rates generally has been to increase the
costs of funds to banks and to make their costs of funds more sensitive to
fluctuations in money market rates. A result of the pressure on banks interest
margins due to deregulation has been a trend toward expansion of services
offered by banks and an increase in the emphasis placed on fee or non-interest
income.
Capital Requirements. Regulatory agencies have approved guidelines to
implement a risk-based capital framework that makes capital requirements more
sensitive to the risk profiles of individual banking companies. These guidelines
define capital as either core (Tier 1) capital or supplementary (Tier 2)
capital. Tier 1 capital consists primarily of shareholders' equity, while Tier 2
capital is comprised of certain debt instruments and a portion of the reserve
for loan losses. Big Lake National Bank and Clewiston National Bank are each
required to have a Tier 1 capital ratio of at least 4.00% and a total risk-based
capital ratio (Tier 1 plus Tier 2) of at least 8.00%. At June 30, 1997, Big Lake
National Bank's Tier 1 and total risk-based capital ratios were 10.79% and
12.04%, respectively. Also at June 30, 1997, Clewiston National Bank's Tier 1
and total risk-based capital ratios were 13.94% and 15.19% respectively.
FDICIA contains "prompt corrective action" provisions pursuant to which
banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized."
The OCC has issued final regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows: (i) an institution is "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv) an institution is "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less than 3% or a leverage ratio that is less than 3%; and (v) an
institution is
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"critically undercapitalized" if its "tangible equity" is equal to or less than
2% of its total assets. The OCC also, after an opportunity for a hearing, has
authority to downgrade an institution from "well capitalized" to "adequately
capitalized" or to subject an "adequately capitalized" or "undercapitalized"
institution to the supervisory actions applicable to the next lower category,
for supervisory concerns.
Generally, FDICIA requires that an "undercapitalized" institution must
submit an acceptable capital restoration plan to the appropriate federal banking
agency within 45 days after the institution becomes "undercapitalized" and the
agency must take action on the plan within 60 days. The appropriate federal
banking agency may not accept a capital restoration plan unless, among other
requirements, each company having control of the institution has guaranteed that
the institution will comply with the plan until the institution has been
adequately capitalized on average during each of the three consecutive calendar
quarters and has provided adequate assurances of performance. The aggregate
liability under this provision of all companies having control of an institution
is limited to the lesser of (i) 5% of the institution's total assets at the time
the institution becomes "undercapitalized" or (ii) the amount which is
necessary, or would have been necessary, to bring the institution into
compliance with all capital standards applicable to the institution as of the
time the institution fails to comply with the plan filed pursuant to FDICIA.
An "undercapitalized" institution may not acquire an interest in any
company or any other insured depository institution, establish or acquire
additional branch offices or engage in any new business unless the appropriate
federal banking agency has accepted its capital restoration plan, the
institution is implementing the plan, and the agency determines that the
proposed action is consistent with and will further the achievement of the plan,
or the appropriate Federal banking agency determines the proposed action will
further the purpose of the "prompt corrective action" sections of FDICIA.
If an institution is "critically undercapitalized," it must comply with
the restrictions described above. In addition, the appropriate Federal banking
agency is authorized to restrict the activities of any "critically
undercapitalized" institution and to prohibit such an institution, without the
appropriate Federal banking agency's prior written approval, from: (i) entering
into any material transaction other than in the usual course of business; (ii)
engaging in any covered transaction with affiliates (as defined in Section
23A(b) of the Federal Reserve Act); (iii) paying excessive compensation or
bonuses; and (iv) paying interest on new or renewed liabilities at a rate that
would increase the institution's weighted average costs of funds to a level
significantly exceeding the prevailing rates of interest on insured deposits in
the institution's normal market areas.
The "prompt corrective action" provisions of FDICIA also provide that in
general no institution may make a capital distribution if it would cause the
institution to become "undercapitalized". Capital distributions include cash
(but not stock) dividends, stock purchases, redemptions, and other distributions
of capital to the owners of an institution.
Additionally, FDICIA requires, among other things, that (i) only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and (ii) the appropriate federal banking agency annually
examine all insured depository institutions, with some exceptions for small,
"well capitalized" institutions and state-chartered institutions examined by
state regulators. FDICIA also contains a number of consumer banking provisions,
including disclosure requirements and substantiative contractual limitations
with respect to deposit accounts.
As of June 30, 1997, Big Lake National Bank and Clewiston National Bank
met the capital requirements of a "well capitalized" institution.
The OCC has proposed revising its risk-based capital requirements to
ensure that such requirements provide for explicit consideration by commercial
banks of interest rate risk. Under the proposed rule, a bank's
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interest rate risk exposure would be quantified using either the measurement
system set forth in the proposal or the bank's internal model for measuring such
exposure, if such model is determined to be adequate by the bank's examiner. If
the dollar amount of a bank's interest rate risk exposure, as measured by either
measurement system, exceeds 1% of the bank's total assets, the bank would be
required under the proposed rule to hold additional capital equal to the dollar
amount of the excess. It is anticipated that the regulatory agencies will issue
a revised proposed rule for further public comment. Pending issuance of such
revised proposal, BLF's and CNB's managements cannot determine what effect, if
any, an interest rate risk component would have on the capital of their
subsidiary banks.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and orders.
Among other things, the agencies may require that institutions cease and desist
from certain activities, may preclude persons from participating in the affairs
of insured depository institutions, may suspend or remove deposit insurance, and
may impose civil money penalties against institution-affiliated parties for
certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida law
contains provisions on interest rates that may be charged by banks and other
lenders on certain types of loans. Numerous exceptions exist to the general
interest limitations imposed by Florida law. The relative importance of these
interest limitation laws to the financial operations of Big Lake National Bank
and Clewiston National Bank will vary from time to time, depending on a number
of factors, including conditions in the money markets, the costs and
availability of funds, and prevailing interest rates.
Bank Branching. Banks in Florida are permitted to branch state wide. Such
branch banking, however, is subject to prior approval by the OCC. Any such
approval would take into consideration several factors, including the bank's
level of capital, the prospects and economics of the proposed branch office, and
other conditions deemed relevant by the OCC for purposes of determining whether
approval should be granted to open a branch office.
Change of Control. Federal law restricts the amount of voting stock of a
bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of CNB and BLF may be less likely to
benefit from the rapid increases in stock prices that may result from tender
offers or similar efforts to acquire control of other companies. Federal law
also imposes restrictions on acquisitions of stock in a bank holding company and
a state bank. Under the federal Change in Bank Control Act and the regulations
thereunder, a person or group must give advance notice to the Federal Reserve
before acquiring control of any bank holding company and the OCC before
acquiring control of any national bank (suational Bank). Upon receipt of such
notice, the OCC may approve or disapprove the acquisition. The Change in Bank
Control Act creates a rebuttable presumption of control if a member or group
acquires a certain percentage or more of a bank holding company's or state
bank's voting stock, or if one or more other control factors set forth in the
Act are present.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1996, provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state will be
permissible one year after enactment. Interstate branching and consolidation of
existing bank subsidiaries in different states will be permissible beginning
June 1, 1997. The Florida legislature also recently enacted a law that allows
out-of-state bank holding companies (located in states that allow Florida bank
holding companies to acquire banks and bank holding companies in that state) to
acquire Florida banks and Florida bank holding companies. The law, which became
effective May 1, 1997, essentially provides for out-of-state entry by
acquisition only (and not by interstate branching) and requires the acquired
Florida bank to have been in existence for at least two years.
107
<PAGE> 117
Effect of Governmental Policies. The earnings and businesses of BLF, Big
Lake National Bank, CNB, and Clewiston National Bank are affected by the
policies of various regulatory authorities of the United States, especially the
Federal Reserve. The Federal Reserve, among other things, regulates the supply
of credit and deals with general economic conditions within the United States.
The instruments of monetary policy employed by the Federal Reserve for those
purposes influence in various ways the overall level of investments, loans,
other extensions of credit, and deposits, and the interest rates paid on
liabilities and received on assets.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of BLF consists of 1,000,000 shares of BLF
Common Stock. As of the date of this Proxy Statement, there were 308,711 shares
of BLF Common Stock outstanding and held by approximately 226 shareholders of
record.
After the Merger, the Combined Corporation Articles will govern the
outstanding shares of Combined Corporation Stock, which will consist of the
shares of BLF Common Stock outstanding at the Effective Time and the shares of
Combined Corporation Stock issued to CNB shareholders in the Merger.
The following discussion is a brief summary of certain rights relating to
Combined Corporation Stock, as determined by the Combined Corporation Articles
and the Combined Corporation's Bylaws. The following discussion is not intended
to be a complete description of such capital stock and is qualified in its
entirety by reference to governing laws and the Articles of Incorporation of BLF
and the Combined Corporation Bylaws (copies of which are filed as exhibits to
the Registration Statement).
COMMON STOCK
Holders of shares of Combined Corporation Stock are entitled to receive
such dividends as may from time to time be declared by the Board of Directors of
the Combined Corporation out of funds legally available therefor. Holders of
Combined Corporation Stock are entitled to one vote per share on all matters on
which the holders are entitled to vote and do not have any cumulative rights.
Holders of Combined Corporation Stock have no preemptive, conversion, redemption
or sinking fund rights. In the event of a liquidation, dissolution or winding-up
of the Combined Corporation, holders of Combined Corporation Stock are entitled
to share equally and ratably in the assets of the Combined Corporation, if any,
remaining after the payment of all debts and liabilities of the Combined
Corporation and the liquidation preferences of any outstanding shares of
Combined Corporation preferred stock. The outstanding shares of Combined
Corporation Stock after the Merger will be fully paid and nonassessable. The
rights, preferences and privileges of holders of Combined Corporation Stock will
be subject to any classes or series of Combined Corporation preferred stock that
the Combined Corporation may issue in the future.
PREFERRED STOCK
The Combined Corporation Articles provide that the Board of Directors of
the Combined Corporation is authorized, without further action by the holders of
Combined Corporation Stock, to provide for the issuance of shares of preferred
stock in one or more classes or series and to fix the designations, powers,
preferences and relative, participating, optional and other rights,
qualifications, limitations and restrictions thereof, including the dividend
rate, conversion rights, voting rights, redemption price and liquidation
preference, and to fix the number of shares to be included in any such classes
or series. Any preferred stock so issued may rank senior to the
108
<PAGE> 118
Combined Corporation Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding-up, or both. In addition, any such
shares of preferred stock may have class or series voting rights. Upon
completion of the Merger, the Combined Corporation will not have any shares of
preferred stock outstanding. Issuance of preferred stock, while providing the
Combined Corporation with flexibility in connection with general corporate
purposes, may, among other things, have an adverse effect on the rights of
holders of Combined Corporation Stock. See "Effect of the Merger on Rights of
Shareholders."
INDEMNIFICATION OF OFFICERS, DIRECTORS AND EMPLOYEES
The Bylaws of the Combined Corporation authorize it to indemnify any
director, officer, employee, or agent of the Combined Corporation against
judgments, fines, penalties, amounts paid in settlement, and expenses incurred
in any pending, threatened, or completed civil, criminal, administrative, or
investigative proceeding (except an action by the Combined Corporation) against
him in his capacity as a director, officer, employee, or agent of the Combined
Corporation, or another company if serving in such capacity at the Combined
Corporation's request, if he: (i) acted in good faith, (ii) acted in a manner in
which he reasonably believed to be in, and not opposed to, the best interests of
the Combined Corporation, and (iii) with respect to any criminal proceeding, had
no reasonable cause to believe his conduct was unlawful. In addition, the
Combined Corporation may indemnify any director, officer, employee, or agent
against expenses incurred in defense or settlement of any proceeding against him
in his official capacity, brought by the Combined Corporation, if he: (i) acted
in good faith, (ii) acted in a manner in which he reasonably believed to be in,
or not opposed to, the best interests of the Combined Corporation, and (iii) is
not adjudged to be liable (unless the Court finds that he is nevertheless
reasonably entitled to indemnity for expenses for which the Court deems proper).
The Combined Corporation must pay the actual and reasonable expenses of any
director, officer, employee, or agent who is successful on the merits or
otherwise in defense of any proceeding against him in his capacity as such.
The Bylaws of the Combined Corporation also authorize it to make any other
or further indemnification or advancement of expenses of any of its directors,
officers, employees or agents, except for acts or omissions which
constitute (i) a violation of the criminal law (unless the individual had
reasonable cause to believe his conduct was lawful or no reasonable cause to
believe it was unlawful), (ii) a transaction in which the individual derived an
improper personal benefit, (iii) in the case of a director, a circumstance
under which certain liability provisions of the Florida Act are applicable
(related to payment of dividends or other distributions or repurchases of
shares in violation of such Act, or (iv) willful misconduct or a conscious
disregard for the best interests of the Combined Corporation in a proceeding by
the Combined Corporation or by a Combined Corporation shareholder. The Combined
Corporation's Bylaws permit the Combined Corporation to, and it may, purchase
and maintain insurance for the purpose of indemnifying its directors, officers,
employees, and agents.
LEGAL MATTERS
Certain legal matters in connection with the shares of the Combined
Corporation Stock to be issued upon consummation of the Merger will be passed
upon for the Combined Corporation by Smith, Mackinnon, Greeley, Bowdoin &
Edwards, P.A. Certain legal matters in connection with the Merger will be passed
upon for CNB by Humphrey & Knott, P.A.
EXPERTS
The financial statements of BLF as of December 31, 1996 and 1995, and for
the years then ended appearing in this Proxy Statement were audited by Stevens,
Thomas, Schemer & Sparks, P.A., independent auditors, as stated in their report
herein.
109
<PAGE> 119
The consolidated financial statements of CNB at December 31, 1996 and
1995, and for the years then ended appearing in this Proxy Statement were
audited by Stevens, Thomas, Schemer & Sparks, P.A., independent auditors, as
stated in their report herein.
110
<PAGE> 120
INDEX TO FINANCIAL STATEMENTS
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets, June 30, 1997 and 1996.............................................F-1
Consolidated Condensed Statements of Income for the six months ended
June 30, 1997 and 1996.................................................................................F-2
Consolidated Condensed Statements of Cash Flows for the six months
ended June 30, 1997 and 1996...........................................................................F-3
Notes to Financial Statements.............................................................................F-4
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report.............................................................................F-10
Consolidated Statements of Financial Condition, December 31, 1996 and 1995 ..............................F-11
Consolidated Statements of Income for the years ended December 31, 1996 and 1995.........................F-13
Statements of Changes in Stockholders' Equity for the years ended December 31, 1996 and 1995.............F-14
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995.....................F-15
Parent Company Only Balance Sheets, December 31, 1996 and 1995...........................................F-17
Parent Company Only Statements of Income for the years ended December 31,
1996 and 1995.........................................................................................F-18
Parent Company Only Statements of Cash Flows for the years ended December 31,
1996 and 1995.........................................................................................F-19
Notes to Financial Statements............................................................................F-20
CNB FINANCIAL CORPORATION AND SUBSIDIARY
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets, June 30, 1997 and 1996............................................F-39
Consolidated Condensed Statements of Income for the six months ended
June 30, 1997 and 1996................................................................................F-40
Consolidated Condensed Statements of Cash Flows for the six months
ended June 30, 1997 and 1996..........................................................................F-41
Notes to Financial Statements............................................................................F-42
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report.............................................................................F-47
Consolidated Statements of Financial Condition, December 31, 1996 and 1995 ..............................F-48
Consolidated Statements of Income for the years ended December 31, 1996 and 1995.........................F-49
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996 and 1995............................................................................F-50
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995.....................F-51
Parent Company Only Balance Sheets, December 31, 1996 and 1995...........................................F-52
Parent Company Only Statements of Income for the years ended December 31,
1996 and 1995.........................................................................................F-53
Parent Company Only Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996 and 1995......................................................................F-54
Parent Company Only Statements of Cash Flows for the years ended December 31,
1996 and 1995.........................................................................................F-55
Notes to Financial Statements............................................................................F-56
</TABLE>
111
<PAGE> 121
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
June 30,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,875 $ 1,743
Federal funds sold 3,105 307
Investment securities:
Available-for-sale at fair value 14,988 17,415
Held-to-maturity at amortized cost 801 801
Loans receivable less allowance for credit losses 41,382 32,283
Accrued interest receivable 514 497
Bank premises and equipment - net 1,613 1,397
Intangible assets 659 742
Other assets 180 167
--------- ---------
TOTAL $ 66,117 $ 55,352
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 11,169 $ 8,326
Interest-bearing 49,112 42,357
--------- ---------
Total deposits 60,281 50,683
Accrued interest on deposits 436 345
Other accrued expenses and liabilities 174 (63)
--------- ---------
Total liabilities 60,891 50,965
--------- ---------
Commitments and contingencies -- --
--------- ---------
Stockholders' equity:
Common stock 3 3
Additional paid-in-capital 3,068 3,068
Retained earnings 2,271 1,602
Treasury stock at cost (59) (59)
Unrealized loss on available-for-sale securities (57) (227)
--------- ---------
Total stockholders' equity 5,226 4,387
--------- ---------
TOTAL $ 66,117 $ 55,352
========= =========
Book value per common share $ 16.93 $ 14.21
========= =========
Common shares outstanding 308,711 308,711
========= =========
</TABLE>
F-1
<PAGE> 122
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the six months ended
June 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Interest and fees on loans $ 1,852 $ 1,457
Investment income on investment securities 467 525
Other interest income 62 92
-------- --------
Total interest income 2,381 2,074
Interest expense on deposits 913 882
-------- --------
Net interest income before provision for credit losses 1,468 1,192
Provision for credit losses 60 60
-------- --------
Net interest income 1,408 1,132
-------- --------
Fees and service charges 304 257
Other income 51 29
-------- --------
Total other income 355 286
-------- --------
Other expenses:
Salaries and employee benefits 591 518
Expenses of bank premises and fixed assets 155 140
Other operating expenses 453 398
-------- --------
Total other expenses 1,199 1,056
-------- --------
Income before provision for income taxes 564 362
Provision for income taxes 188 123
-------- --------
Net income $ 376 $ 239
======== ========
Earnings per share $ 1.22 $ 0.77
======== ========
Weighted average common shares outstanding during period 308,711 308,711
======== ========
</TABLE>
F-2
<PAGE> 123
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the six months ended
June 30,
------------------------
1997 1996
------- -------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 695 $ (218)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in:
Federal funds sold (2,113) 9,317
Investment securities 241 (6,531)
Loans (5,180) (3,680)
Purchases of premises and equipment, net (214) (25)
Net decrease in other real estate -- 96
------- -------
NET CASH USED BY INVESTING ACTIVITIES (7,266) (823)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 6,036 (110)
Cash paid in lieu of fractional shares -- (2)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,036 (112)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (535) (1,153)
CASH AND CASH EQUIVALENTS AT JANUARY 1 3,410 2,896
------- -------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 2,875 $ 1,743
======= =======
</TABLE>
F-3
<PAGE> 124
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Big Lake Financial
Corporation (the "Company") and its wholly owned subsidiary Big Lake National
Bank (the"Bank"). The information contained in the financial statements is
unaudited. In the opinion of management, all adjustments have been made
(consisting only of normal recurring accruals) necessary to present a fair
statement of the results for interim periods. The results for interim periods
are not necessarily indicative of trends or results to be expected for a full
year. It is suggested that these financial statements and notes be read in
conjunction with the Company's financial statements for the year ended December
31, 1996.
Use of Estimates
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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate Owned"). In connection with the
determination of the allowances for credit losses on loans and foreclosed real
estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Management does not anticipate that the allowances for credit losses on loans
and foreclosed real estate will change materially in the near term.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, due from banks, federal
funds sold, investment securities, loans receivable, accrued interest
receivable, deposits, accrued interest payable, and off-balance sheet
commitments such as commitments to extend credit and standby letters of credit.
Management considers the cost of providing estimated fair values by each class
of financial instrument to exceed the benefits derived. In management's opinion,
the carrying amount of financial instruments approximates fair value.
F-4
<PAGE> 125
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES (Continued)
Investment Securities
The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
SFAS 115 applies to all debt securities and to equity securities that have
readily determinable fair values. SFAS 115 requires the Company to carry its
securities classified "available-for-sale" at fair market value. The Bank's
investments in securities are classified in two categories and accounted for as
follows:
Available-for-Sale. Securities available-for-sale consist of bonds,
notes, debentures, and certain equity securities not classified as
trading securities or as securities held-to-maturity.
Held-to-Maturity. Bonds, notes, and debentures for which the Bank has
the positive intent and ability to hold to maturity are reported at
cost and adjusted for amortization of premiums and accretion of
discounts. Such adjustments are recognized in interest income using the
interest method over the period to maturity.
Unrealized holding gains and losses, net of tax, on securities
available-for-sale are reported as a net amount in a separate component of
stockholders' equity until realized. Gains and losses on the sale of securities
available-for-sale are determined using the specific-identification method.
Mortgage-backed Securities
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal balances,
adjusted for unamortized premiums and unearned discounts. Premiums and discounts
are amortized using methods approximating the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments. Should any
be sold, cost of securities sold is determined using the specific identification
method.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts. Unearned discounts on
installment loans are recognized as income over the term of the loans using a
method that approximates the interest method. Nonrefundable loan fees and
certain direct loan origination costs are deferred and the net amount is
recognized into income over the life of the loans as a yield adjustment.
F-5
<PAGE> 126
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES (Continued)
The Company has adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). For loans
considered impaired under SFAS 114, the Company is required to compute the
present value of expected cash flows from the impaired loan and adjust credit
losses accordingly. A loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. The
provision for depreciation is computed by the straight-line method over the
estimated useful lives of the assets. For income tax purposes, the Company
utilizes straight-line and accelerated depreciation methods.
Other Real Estate Owned
Foreclosed real estate includes formally foreclosed property and in-substance
foreclosed property. In-substance foreclosed properties are those properties for
which the Bank has taken possession, regardless of whether formal foreclosure
proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the Bank's cost or the asset's fair value less costs to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date of
acquisition are charged to the allowance for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value less
cost to sell. Costs incurred in maintaining foreclosed real estate and
subsequent write-downs to reflect declines in the fair value of the property are
included in income (loss) on foreclosed real estate.
F-6
<PAGE> 127
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES (Continued)
Interest Income on Loans
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such discontinuance, all unpaid
accrued interest is reversed.
Employee Benefits
Profit-sharing costs are charged to salaries and employee benefits expense and
are funded as accrued.
Income Taxes
Deferred income taxes are provided for temporary differences between items of
income or expense reported in the financial statements and those reported for
income tax purposes. The principal temporary differences are depreciation and
amortization, loan loss provisions, the use of cash basis accounting for income
tax purposes, and unrealized gain (loss) on securities available-for-sale.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit and commercial
and standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows,
cash and cash equivalents are defined as those amounts included in the
statements of financial condition caption "Cash and Due from Banks."
Intangible Assets
Intangible assets (consisting of core deposit premium and goodwill) are
amortized on a straight-line basis over seven and fifteen years, respectively.
For income tax purposes, intangibles are amortized over fifteen years on a
straight-line basis.
F-7
<PAGE> 128
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 2 - LOANS
Loans at June 30 consist of (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Real estate $ 33,885 $ 25,587
Installment 5,527 5,359
Commercial and all others 2,600 1,814
-------- --------
Total loans, gross 42,012 32,760
Deferred loan fees (69) (64)
Allowance for credit losses (561) (413)
-------- --------
Net loans $ 41,382 $ 32,283
======== ========
</TABLE>
NOTE 3 - ALLOWANCE FOR CREDIT LOSSES
The Company's Board of Directors monitors the loan portfolio quarterly in order
to enable it to evaluate the adequacy of the allowance for credit losses. In
addition to reviews by regulatory agencies and the Company's certified public
accountants, the services of outside lending professionals have been engaged to
assist in the valuation of credit quality and loan administration. These
professionals compliment the system implemented by the Company which identifies
potential problem credits as early as possible, categorizes the credits as to
risk, and puts a reporting process in place to monitor the progress of the
credits.
The Company maintains the allowance for credit losses at a level sufficient to
absorb all estimated losses inherent in the loan portfolio. Activity in the
allowance for loan losses from January 1 through June 30 follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance, January 1, $ 470 $ 363
Recoveries 34 8
Chargeoffs (3) (18)
Provision charged to expense 60 60
-------- --------
Balance, June 30 $ 561 $ 413
======== ========
</TABLE>
F-8
<PAGE> 129
NOTE 4 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments included commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit, and interest rate
risk in excess of the amounts recognized in the balance sheet. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
Financial instruments at June 30, 1997, consisted of commitments to extend
credit approximating $2.5 million and letters of credit of $24,000.
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.
F-9
<PAGE> 130
[STEVENS, THOMAS, SCHEMER & SPARKS, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Big Lake Financial Corporation
Okeechobee, Florida
We have audited the accompanying consolidated statements of condition of Big
Lake Financial Corporation and Subsidiary (the "Company") as of December 31,
1996 and 1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. We have audited
the accompanying parent company only balance sheets of Big Lake Financial
Corporation ("BLFC") as of December 31, 1996 and 1995, and the related parent
company only statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These consolidated and parent company only
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these 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 audits to obtain
reasonable assurance about whether the consolidated and parent company only
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated and parent company only financial statements. An audit 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 and parent company only financial statements
referred to above present fairly, in all material respects, the financial
position of the Company and BLFC as of December 31, 1996 and 1995, and the
results of its consolidated and parent company only operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As more fully described in Note 20, subsequent to the issuance of the Company's
and parent company only 1996 financial statements and our report thereon dated
January 24, 1997, the Bank was required to make additional disclosures for its
filing of Form S-4 Registration Statement pursuant to the Securities Act of
1933, as amended. In our original report, we expressed an unqualified opinion on
the 1996 financial statements, and our opinion on the revised statements, as
expressed herein, remains unqualified.
Stevens, Thomas, Schemer & Sparks, P.A.
- ---------------------------------------
Jacksonville, Florida
January 24, 1997, except as to the fourth paragraph above and Notes 1 and 16,
which are as of August 15, 1997
F-10
<PAGE> 131
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash and due from banks $ 3,410,003 $ 2,896,165
Federal funds sold 992,000 9,624,000
Investment securities (Notes 1 and 2)
Available-for-sale at fair value 15,214,809 10,368,162
Held-to-maturity at amortized cost 800,740 1,554,160
Loans less allowance for credit losses of $469,673
and $363,128, respectively (Notes 1, 3, and 4) 36,262,111 28,662,594
Premises and equipment - net (Notes 1 and 5) 1,449,755 1,413,991
Other assets (Notes 1, 6, and 19) 1,388,625 1,304,940
----------- -----------
TOTAL $59,518,043 $55,824,012
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 132
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Deposits:
Noninterest-bearing $ 10,082,781 $ 6,845,549
Interest-bearing:
NOW and Super NOW 6,859,782 8,210,196
Money market 4,297,139 3,470,381
Savings 6,491,938 6,465,878
Time of $100,000 or more (Note 7) 3,901,915 4,709,360
Other time 22,611,618 21,092,044
------------ ------------
Total deposits 54,245,173 50,793,408
Accrued expenses and other liabilities (Note 8) 419,048 644,722
------------ ------------
Total liabilities 54,664,221 51,438,130
------------ ------------
Commitments and contingencies (Note 12) -- --
------------ ------------
Stockholders' equity (Notes 14 and 17):
Common stock; $.01 par value; 1,000,000 shares
authorized; shares issued and outstanding of
313,435 in 1996 and 306,035 in 1995 3,134 3,060
Capital surplus 3,069,763 2,995,837
Retained earnings 1,911,446 1,436,331
------------ ------------
Subtotal 4,984,343 4,435,228
Less treasury stock at cost (Note 18) (59,050) (59,050)
Unrealized gain (loss) on available-for-sale securities
(net of deferred income taxes of $(43,120) in 1996
and $5,854 in 1995) (Note 2) (71,471) 9,704
------------ ------------
Total stockholders' equity 4,853,822 4,385,882
------------ ------------
TOTAL $ 59,518,043 $ 55,824,012
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 133
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 3,087,645 $ 2,521,396
Investment securities:
Available-for-sale 993,409 429,852
Nontaxable held-to-maturity 48,334 33,727
Federal funds sold 99,830 210,267
----------- -----------
Total interest income 4,229,218 3,195,242
Interest expense - deposits and federal funds purchased (1,735,966) (1,210,586)
----------- -----------
Net interest income 2,493,252 1,984,656
Provision for credit losses (Note 4) (132,000) (70,000)
----------- -----------
Net interest income after provision for credit losses 2,361,252 1,914,656
----------- -----------
Other income:
Customer service fees 548,848 441,141
Gain (loss) on sale of other real estate (7,810) 18,329
Miscellaneous income 47,517 58,045
----------- -----------
Total other income 588,555 517,515
----------- -----------
Other expenses:
Salaries and employee benefits 1,062,595 788,855
Occupancy expense 136,160 106,884
Furniture and equipment expense 142,229 161,164
Miscellaneous expenses 771,030 516,841
----------- -----------
Total other expenses 2,112,014 1,573,744
----------- -----------
Income before provision for income taxes 837,793 858,427
Provision for income taxes (Notes 1 and 9) (286,743) (307,901)
----------- -----------
Net income $ 551,050 $ 550,526
=========== ===========
Earnings per share (Note 1) $ 1.79 $ 1.78
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 134
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
BIG LAKE FINANCIAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN(LOSS) ON
COMMON STOCK TREASURY AVAILABLE- TOTAL
------------------ CAPITAL RETAINED STOCK AT FOR-SALE STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS COST SECURITIES EQUITY
------- ------ ---------- ----------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 298,808 $2,988 $2,925,232 $ 958,071 $(59,050) $(82,831) $ 3,744,410
Stock dividend
declared (Note 15) 7,227 72 70,605 (70,677) - - -
Cash paid in lieu
of fractional
shares (Note 15) - - - (1,589) - - (1,589)
Net changes in
appreciation on
available-for-sale
securities (Note 2) - - - - - 92,535 92,535
Net income - - - 550,526 - - 550,526
------- ------ ---------- ----------- -------- -------- -----------
Balance,
December 31, 1995 306,035 3,060 2,995,837 1,436,331 (59,050) 9,704 4,385,882
Stock dividend
declared (Note 15) 7,400 74 73,926 (74,000) - - -
Cash paid in lieu
of fractional
shares (Note 15) - - - (1,935) - - (1,935)
Net changes in
appreciation on
available-for-sale
securities (Note 2) - - - - - (81,175) (81,175)
Net income - - - 551,050 - - 551,050
------- ------ ---------- ----------- -------- -------- -----------
Balance,
December 31, 1996 313,435 $3,134 $3,069,763 $ 1,911,446 $(59,050) $(71,471) $ 4,853,822
======= ====== ========== =========== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 135
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 551,050 $ 550,526
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 189,686 117,456
Provision for credit losses 132,000 70,000
Deferred income taxes (2,491) (27,350)
Net (gain) loss on sale of other real estate 7,810 (18,329)
Net premium amortization and discount accretion 291 13,762
(Increase) decrease in:
Accrued interest receivable (111,467) (88,541)
Other assets (89,851) (8,205)
Increase (decrease) in accrued expenses and
other liabilities (236,380) 484,776
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 440,648 1,094,095
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold 8,632,000 (7,145,000)
Proceeds from sales and maturities of investment securities 8,012,039 2,975,494
Purchase of investment securities (12,235,706) (8,256,013)
Net increase in loans (7,731,517) (4,152,117)
Purchases of premises and equipment (141,712) (360,994)
Increase in other real estate (54,547) (199,948)
Proceeds from sale of other real estate 142,803 129,832
Premium paid on acquisition of Lake Placid Branch - (784,265)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (3,376,640) (17,793,011)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits other than time 2,739,636 3,827,588
Net increase in time deposits 712,129 13,666,453
Cash paid in lieu of fractional shares (1,935) (1,589)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,449,830 17,492,452
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 513,838 793,536
CASH AND CASH EQUIVALENTS AT JANUARY 1 2,896,165 2,102,629
------------ ------------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 3,410,003 $ 2,896,165
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 136
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash received during the year for:
Interest $ 4,118,042 $3,120,463
=========== ==========
Cash paid during the year for:
Interest $ 1,791,814 $ 911,252
=========== ==========
Income taxes $ 528,331 $ 168,772
=========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES:
Unrealized gain (loss) on available-for-sale
securities during the year $ (130,150) $ 148,363
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 137
BIG LAKE FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 105,178 $ 76,969
Investment in subsidiary, at equity 4,173,830 3,714,878
Land 200,000 200,000
Building 576,637 576,637
Less accumulated depreciation (201,823) (182,602)
----------- -----------
TOTAL $ 4,853,822 $ 4,385,882
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ - $ -
----------- -----------
Stockholders' equity (Notes 14 and 17):
Common stock; $.01 par value; 1,000,000 shares
authorized; shares issued and outstanding of
313,435 in 1996 and 306,035 in 1995 3,134 3,060
Capital surplus 3,069,763 2,995,837
Retained earnings 1,911,446 1,436,331
----------- -----------
Subtotal 4,984,343 4,435,228
Less treasury stock at cost (Note 18) (59,050) (59,050)
Unrealized gain (loss) on available-for-sale
securities (Note 2) (71,471) 9,704
----------- -----------
Total stockholders' equity 4,853,822 4,385,882
----------- -----------
TOTAL $ 4,853,822 $ 4,385,882
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 138
BIG LAKE FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revenue
Rental income $ 45,600 $ 40,002
Interest income 2,166 1,728
-------- --------
Total revenue 47,766 41,730
-------- --------
Expenses
Accounting and audit fees 10,198 15,800
Depreciation 19,221 19,221
Other expenses 7,424 5,019
-------- --------
Total expenses 36,843 40,040
-------- --------
Income before income taxes and equity in
undistributed earnings of subsidiary 10,923 1,690
Equity in undistributed earnings of subsidiary 540,127 548,836
-------- --------
Income before income taxes 551,050 550,526
Income taxes allocated (Note 9) - -
-------- --------
Net income $551,050 $550,526
======== ========
Earnings per share (Note 1) $ 1.79 $ 1.78
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 139
BIG LAKE FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Net income $ 551,050 $ 550,526
Adjustments to reconcile net income to net cash
provided by investing activities:
Depreciation 19,221 19,221
Equity in undistributed earnings of subsidiary (540,127) (548,836)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 30,144 20,911
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid in lieu of fractional shares (1,935) (1,589)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (1,935) (1,589)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 28,209 19,322
CASH AND CASH EQUIVALENTS AT JANUARY 1 76,969 57,647
--------- ---------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 105,178 $ 76,969
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash received during the year for:
Interest $ 2,166 $ 1,728
========= =========
Cash paid during the year for:
Interest $ - $ -
========= =========
Income taxes $ - $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 140
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Big Lake Financial Corporation and
Subsidiary (the "Company") conform to generally accepted accounting principles
and prevailing practices within the banking industry. The Company carries its
assets and liabilities on the historical cost basis (except as discussed in Note
1, "Investment Securities") and follows the accrual method of accounting.
Big Lake National Bank (the "Bank"), which opened in July 1986, is a national
banking association with its main office at 1409 South Parrott Avenue,
Okeechobee, Florida. In addition, the Bank has one branch located in Okeechobee,
Florida, which opened in November 1992. On December 15, 1995, the Bank purchased
certain assets and assumed deposit liabilities and related accrued interest of
the Lake Placid Branch of First of America Bank - Florida, FSB (see Note 19 for
additional discussion of this acquisition).
At December 31, 1996, the Bank's primary trade area encompassed Okeechobee and
Highlands County. The majority of the Bank's loans are currently to customers
located in Okeechobee County.
Basis of Consolidation
The consolidated financial statements include the accounts of Big Lake Financial
Corporation and its wholly-owned subsidiary, Big Lake National Bank, after
elimination of all material intercompany accounts and transactions.
Use of Estimates
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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate Owned"). In connection with the
determination of the allowances for credit losses on loans and foreclosed real
estate, management obtains independent appraisals for significant properties.
F-20
<PAGE> 141
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Management does not anticipate that the allowances for credit losses on loans
and foreclosed real estate will change materially in the near term.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, due from banks, federal
funds sold, investment securities, loans receivable, accrued interest
receivable, deposits, accrued interest payable, and off-balance sheet
commitments such as commitments to extend credit and standby letters of credit.
Management considers the cost of providing estimated fair values by each class
of financial instrument to exceed the benefits derived. In management's opinion,
the carrying amount of financial instruments approximates fair value.
Investment Securities
The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
SFAS 115 applies to all debt securities and to equity securities that have
readily determinable fair values. SFAS 115 requires the Company to carry its
securities classified "available-for-sale" at fair market value. The Bank's
investments in securities are classified in two categories and accounted for as
follows:
Available-for-Sale. Securities available-for-sale consist of bonds,
notes, debentures, and certain equity securities not classified as
trading securities or as securities held-to-maturity.
Held-to-Maturity. Bonds, notes, and debentures for which the Bank has
the positive intent and ability to hold to maturity are reported at
cost and adjusted for amortization of premiums and accretion of
discounts. Such adjustments are recognized in interest income using the
interest method over the period to maturity.
Unrealized holding gains and losses, net of tax, on securities
available-for-sale are reported as a net amount in a separate component of
stockholders' equity until realized. Gains and losses on the sale of securities
available-for-sale are determined using the specific-identification method.
F-21
<PAGE> 142
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgage-backed Securities
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal
balances, adjusted for unamortized premiums and unearned discounts. Premiums
and discounts are amortized using methods approximating the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Should any be sold, cost of securities sold is determined using
the specific identification method.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts. Unearned discounts on
installment loans are recognized as income over the term of the loans using a
method that approximates the interest method. Nonrefundable loan fees and
certain direct loan origination costs are deferred and the net amount is
recognized into income over the life of the loans as a yield adjustment.
The Company has adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). For loans
considered impaired under SFAS 114, the Company is required to compute the
present value of expected cash flows from the impaired loan and adjust credit
losses accordingly. A loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. At December 31,
1996 and 1995, the Bank had no material amounts of loans classified as impaired
under SFAS 114.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
F-22
<PAGE> 143
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. The
provision for depreciation is computed by the straight-line method over the
estimated useful lives of the assets. For income tax purposes, the Company
utilizes straight-line and accelerated depreciation methods.
Other Real Estate Owned
Foreclosed real estate includes formally foreclosed property and in-substance
foreclosed property. In-substance foreclosed properties are those properties
for which the Bank has taken possession, regardless of whether formal
foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the Bank's cost or the asset's fair value less costs to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date
of acquisition are charged to the allowance for loan losses. After foreclosure,
these assets are carried at the lower of their new cost basis or fair value
less cost to sell. Costs incurred in maintaining foreclosed real estate and
subsequent write-downs to reflect declines in the fair value of the property
are included in income (loss) on foreclosed real estate.
Interest Income on Loans
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such discontinuance, all
unpaid accrued interest is reversed.
F-23
<PAGE> 144
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Employee Benefits
Profit-sharing costs are charged to salaries and employee benefits expense and
are funded as accrued.
Income Taxes
Deferred income taxes are provided for temporary differences between items of
income or expense reported in the financial statements and those reported for
income tax purposes. The principal temporary differences are depreciation and
amortization, loan loss provisions, the use of cash basis accounting for income
tax purposes, and unrealized gain (loss) on securities available-for-sale.
Earnings Per Share
Earnings per share of common stock is computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the
period. For purposes of computing earnings per share, the shares of common
stock issued for the stock dividend (see Note 15) have been treated as
outstanding from January 1, 1995. The weighted-average number of shares
outstanding for both 1996 and 1995 used in the computation was 308,711, net of
treasury stock of 4,724 shares (see Note 18). The dilutive effect of the
exercisable stock options discussed at Note 16 has not been considered in the
computation of earnings per share. Management considers the potential dilution
to be immaterial.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit and commercial
and standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
Cash and Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows,
cash and cash equivalents are defined as those amounts included in the
statements of financial condition caption "Cash and Due from Banks."
Intangible Assets
Intangible assets (consisting of core deposit premium and goodwill) are
amortized on a straight-line basis over seven and fifteen years, respectively
(see Note 6). For income tax purposes, intangibles are amortized over fifteen
years on a straight-line basis.
F-24
<PAGE> 145
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain amounts in 1995 have been reclassified to conform with 1996
presentation.
NOTE 2 - INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the Consolidated
Statements of Financial Condition of the Company and their approximate fair
values at December 31 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
December 31, 1996:
U.S. Government and
agency securities $ 15,236,900 $ 5,424 $ 120,015 $15,122,309
Other securities 92 500 - - 92,500
------------- ----- ----------- -----------
$ 15,329,400 5,424 120,015 $15,214,809
============= ========== =========== ===========
December 31, 1995:
U.S. Government and
agency securities $ 10,260,104 $ 20,188 $ 4,630 $10,275,662
Other securities 92 500 - - 92,500
------------- ----- ----------- -----------
$ 10,352,604 $ 20,188 $ 4,630 $10,368,162
============= ========== =========== ===========
Held-to-maturity securities:
December 31, 1996:
State and municipal securities $ 800,740 $ 25,352 $ 2,638 $ 823,454
============= ========== =========== ===========
December 31, 1995:
State and municipal securities $ 1,595,380 $ 41,220 $ - $ 1,595,380
============= ========== =========== ===========
</TABLE>
Securities carried at approximately $2,064,857 at December 31, 1996, and
$2,152,081 at December 31, 1995, were pledged to secure public deposits and for
other purposes required or permitted by law.
F-25
<PAGE> 146
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - INVESTMENT SECURITIES (Continued)
The scheduled maturities of available-for-sale and held-to-maturity securities
at December 31, 1996, were:
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 499,160 $ 501,279 $ - $ -
Due from one year to five years 14,737,740 14,621,030 599,786 609,367
Due from five years to ten years - - 49,820 49,643
Due after ten years 92,500 92,500 151,134 164,444
----------- ----------- ---------- ----------
$15,329,400 $15,214,809 $ 800,740 $ 823,454
=========== =========== ========== ==========
</TABLE>
NOTE 3 - LOANS
The components of loans in the Consolidated Statements of Financial Condition
were:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Loans secured by 1 to 4-family
residential properties $ 17,994,976 $ 14,247,137
Loans secured by multi-family
and non-farm, non-residential
properties 10,365,268 7,287,885
Other loans secured by real estate 1,031,132 889,696
Commercial and industrial loans 1,945,067 1,965,340
Consumer loans 5,426,916 4,673,227
Other loans 29,727 25,069
Less unearned and deferred income (61,302) (62,632)
------------ ------------
Total loans 36,731,784 29,025,722
Allowance for credit losses (469,673) (363,128)
------------ ------------
Net loans $ 36,262,111 $ 28,662,594
============ ============
</TABLE>
Nonaccrual loans are loans on which interest is not being recognized or is
being recognized only when received. Reduced-rate loans are loans on which the
original contractual interest rate has been reduced because of the borrower's
weakened financial condition.
F-26
<PAGE> 147
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 3 - LOANS (Continued)
Nonaccrual loans totalled $111,163 and $30,342 at December 31, 1996 and 1995,
respectively, or .30% and .10% of total loans. The reduction in interest income
associated with nonaccrual loans was not material in 1996 or 1995.
NOTE 4 - ALLOWANCE FOR CREDIT LOSSES
An analysis of the changes in the allowance for credit losses follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Balance at January 1 $ 363,128 $ 323,046
--------- ---------
Credits charged off (46,914) (35,547)
Recoveries 21,459 5,629
--------- ---------
Net credits charged off (25,455) (29,918)
--------- ---------
Provision for credit losses 132,000 70,000
--------- ---------
Balance at December 31 $ 469,673 $ 363,128
========= =========
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
The components of premises and equipment included in the Consolidated
Statements of Financial Condition at December 31, 1996 and 1995, were:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 438,115 $ 438,115
Buildings 1,014,000 1,014,000
Furniture, fixtures, and equipment 862,752 726,495
Other fixed assets 15,924 10,791
----------- -----------
Total 2,330,791 2,189,401
Less accumulated depreciation (881,036) (775,410)
----------- -----------
Premises and equipment - net $ 1,449,755 $ 1,413,991
=========== ===========
</TABLE>
F-27
<PAGE> 148
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 5 - PREMISES AND EQUIPMENT (Continued)
Depreciation expense amounted to $105,948 and $117,456 for the years ended
December 31, 1996 and 1995, respectively.
The Company did not have any material noncancellable leases at December 31,
1996 or 1995.
NOTE 6 - OTHER ASSETS
The components of other assets in the Consolidated Statements of Financial
Condition at December 31, 1996 and 1995, were:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Accrued interest receivable $ 440,427 $ 328,960
Other real estate owned - 96,066
Repossessed equipment - 1,725
Prepaid expenses 182,248 90,676
Income taxes receivable 59,644 -
Deferred income tax asset 2,527 -
Core deposit premium (net of accumulated amortization
of $58,975) 353,851 412,826
Goodwill (net of accumulated amortization of $24,763) 346,676 371,439
Miscellaneous 3,252 3,248
------------ -----------
$ 1,388,625 $ 1,304,940
============ ===========
</TABLE>
The amortization for core deposit premium and goodwill began in 1996 and
amounted to $83,738.
NOTE 7 - DEPOSITS
Included in interest-bearing deposits are certificates of deposit issued in
amounts of $100,000 or more. These certificates and their remaining
maturities at December 31, 1996 and 1995, were:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Three months or less $ 1,834,974 $ 1,802,448
Over three through twelve months 1,766,941 2,606,912
Over twelve months 300,000 300,000
----------- -----------
$ 3,901,915 $ 4,709,360
=========== ===========
</TABLE>
F-28
<PAGE> 149
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 8 - ACCRUED EXPENSES AND OTHER LIABILITIES
The components of accrued expenses and other liabilities in the Consolidated
Statements of Financial Condition at December 31, 1996 and 1995, were:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accrued interest payable $ 304,963 $ 360,811
Accounts payable and other accrued expenses 106,144 48,899
Income taxes payable - 179,455
Deferred income tax liability - 48,938
Miscellaneous 7,941 6,619
----------- -----------
$ 419,048 $ 644,722
=========== ===========
</TABLE>
NOTE 9 - INCOME TAXES
The consolidated provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Currently payable:
Federal $ 234,044 $ 284,168
State 40,063 48,644
----------- -----------
274,107 332,812
----------- -----------
Deferred income taxes:
Federal 10,789 (21,270)
State 1,847 (3,641)
----------- -----------
12,636 (24,911)
----------- -----------
Total $ 286,743 $ 307,901
=========== ===========
</TABLE>
F-29
<PAGE> 150
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 9 - INCOME TAXES (Continued)
The following is a reconciliation of income tax rates that would result if
federal and state statutory rates were applied to income before income tax
expense using the regular tax system:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Statutory rate 34.0% 34.0%
Increase (decrease) resulting from:
Effect of tax-exempt income (2.0%) (1.3%)
State tax - net of federal benefit 3.5% 3.5%
Other (net) (1.3%) (.3%)
----- ----
34.2% 35.9%
===== ====
</TABLE>
The components of the deferred income tax asset (liability) included in the
statements of financial condition were:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred income tax asset:
Federal $ 87,363 $ 22,873
State 14,954 3,915
----------- -----------
102,317 26,788
----------- -----------
Deferred income tax liability:
Federal (85,204) (64,658)
State (14,586) (11,068)
----------- -----------
(99,790) (75,726)
----------- -----------
Net deferred income tax asset (liability) $ 2,527 $ (48,938)
=========== ===========
</TABLE>
F-30
<PAGE> 151
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 9 - INCOME TAXES (Continued)
The tax effects of each type of income and expense item that gave rise to
deferred taxes are:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net unrealized gain (loss) on
securities available-for-sale $ 43,120 $ (5,854)
Depreciation (43,245) (45,399)
Cash versus accrual for tax (56,545) (20,348)
Allowance for credit losses 47,863 86,788
Other 11,334 (64,125)
----------- -----------
Net deferred income tax asset (liability) $ 2,527 $ (48,938)
=========== ===========
</TABLE>
The Company has adopted an income tax allocation agreement, which calls for
allocating income tax expense between members of the consolidated group as if
each member filed a separate income tax return. In 1996 and 1995, no allocation
of income tax expense was made to the parent company since the amounts were
immaterial.
NOTE 10 - EMPLOYEE BENEFIT PLAN
The Bank sponsors a 401(k) Profit Sharing Plan that covers substantially all
employees. Bank contributions under this plan are made at the discretion of the
Board of Directors. During 1996 and 1995, the employer contribution approved by
the Board of Directors amounted to 50% of a participant's contributions,
subject to a maximum of 3% of the participant's salary. The 401(k) Profit
Sharing Plan is a prototype plan and has been approved by the Internal Revenue
Service.
The Bank funds the annual expense through contributions to the plan. The
matching contribution for 1996 is estimated at $14,000. The amount of matching
contribution paid in 1996 for 1995 totalled $7,161. The amounts included in
salaries and employee benefits as pension expense for 1996 and 1995 totalled
$7,011 and $7,261, respectively.
F-31
<PAGE> 152
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 11 - RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, executive officers,
significant shareholders and their affiliates (Related Parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features.
The aggregate extensions of credit to such related parties at December 31, 1996
and 1995, were $1,331,755 and $1,268,845, respectively. During 1996, extensions
of credit to such parties amounted to $738,831 and repayments amounted to
$675,921. Unfunded commitments to the same parties totalled $566,367 at
December 31, 1996.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities that arise in the normal course of
business and involve elements of credit risk, interest rate risk, and liquidity
risk. These commitments and contingent liabilities of the Bank, which include
unfunded commitments to related parties (see Note 11), are commitments to
extend credit and commercial and standby letters of credit. A summary of the
Bank's commitments and contingent liabilities at December 31, 1996, follows:
Commitments to extend credit $2,413,648
Commercial and standby letters of credit 73,680
----------
$2,487,328
==========
F-32
<PAGE> 153
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)
Commitments to extend credit and commercial letters of credit all include
exposure to some credit loss in the event of non-performance of the customer.
The Bank's credit policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit instruments that are
recorded in the Consolidated Statements of Financial Condition. In the opinion
of management, these instruments do not generally present any significant
liquidity risk to the Bank. The Bank's experience has been that approximately
70% to 80% of loan commitments are drawn upon by customers. The Bank did not
incur any losses on its commitments in either 1996 or 1995.
The Company is a party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the financial position of the Company.
The Bank has confirmed overnight Federal Funds accommodation lines of credit in
the amounts of $650,000 with Independent Bankers' Bank of Florida ("IBB") and
$500,000 with Compass Bank. The accommodation lines are unsecured and subject
to ongoing financial analysis and market conditions. Therefore, the
accommodation lines are not a contractual commitment by IBB or Compass Bank.
The Bank has entered into a purchase/resale agreement with IBB that allows the
Bank to sell certain types of securities, in lieu of borrowing, on the
condition that those securities be resold to the Bank at an agreed upon future
time and price. At December 31, 1996, no such securities had been sold by the
Bank under the purchase/resale agreement.
NOTE 13 - CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments, and commercial and standby
letters of credit have been granted to customers in the Bank's market area.
Substantially all such customers are depositors of the Bank. The concentrations
of credit by type of loan are set forth in Note 3. The distribution of
commitments to extend credit approximates the distribution of loans
outstanding. Letters of credit were granted to commercial borrowers. The Bank,
as a matter of policy, does not extend credit to any single borrower or group
of related borrowers in excess of its legal lending limit.
F-33
<PAGE> 154
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 14 - REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that it
may declare without prior regulatory approval. At December 31, 1996,
approximately $1,454,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency ("OCC") 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 I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
F-34
<PAGE> 155
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 14 - REGULATORY MATTERS (Continued)
The Bank's actual capital amounts (dollars in thousands) and ratios are also
presented in the table below:
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------ ----------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
----------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets) $3,952 12.12% >=$2,609 >=8.0% >=$3,262 >=10.0%
Tier I Capital (to Risk Weighted Assets) $3,544 10.87% >=$1,305 >=4.0% >=$1,957 >= 6.0%
Tier I Capital (to Average Assets) $3,544 7.37% >=$1,442 >=4.0% >=$2,403 >= 5.0%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets) $3,271 11.69% >=$2,239 >=8.0% >=$2,799 >=10.0%
Tier I Capital (to Risk Weighted Assets) $2,921 10.43% >=$1,120 >=4.0% >=$1,680 >= 6.0%
Tier I Capital (to Average Assets) $2,921 6.74% >=$1,299 >=4.0% >=$2,165 >= 5.0%
</TABLE>
NOTE 15 - STOCK DIVIDEND
On February 21, 1996, the Company's Board of Directors declared a stock
dividend payable at a rate of 2.5% of shares issued and outstanding to
stockholders of record on February 29, 1996, payable on or before March 21,
1996. Cash in lieu of fractional shares was paid at the rate of $14.56 per
share, which was the estimated fair market value at that time. The total cash
paid in lieu of fractional shares amounted to $1,935.
On February 15, 1995, the Company's Board of Directors declared a stock
dividend payable at a rate of 2.5% of shares issued and outstanding to
stockholders of record on February 16, 1995, payable on or before March 16,
1995. Cash in lieu of fractional shares was paid at the rate of $12.73 per
share, which was the estimated fair market value at that time. The total cash
paid in lieu of fractional shares amounted to $1,589.
NOTE 16 - STOCK OPTION PLAN
The Company has adopted a Stock Option Plan (as amended) that permits certain
directors to purchase additional shares of the Company's common stock at a
purchase price of $10.00 per share. The number of shares permitted for purchase
by each participant originated at 2,750 shares, and has been adjusted for
subsequent stock dividends according to the terms of the plan. At December 31,
1996, the approximate number of shares under this plan totalled 3,035 shares
per participant. Options totalling approximately 18,213 shares are outstanding
and exercisable until the expiration date, which has been extended until June
30, 1998.
F-35
<PAGE> 156
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 16 - STOCK OPTION PLAN (Continued)
For the year ended December 31, 1996, Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
became effective. SFAS 123 permits application of the accounting requirements
of an earlier issued APB Opinion No. 25 and, accordingly, no compensation cost
has been recognized in 1996 or 1995. However, the Company must comply with
certain additional disclosures under SFAS 123. A summary of the disclosures
follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Exercise Price
--------- ---------------
<S> <C> <C>
Outstanding at December 31, 1994 17,335 $ 10.00
Increase due to stock dividend 431 10.00
------ -----------
Outstanding at December 31, 1995 17,766 10.00
Increase due to stock dividend 447 10.00
------ -----------
Outstanding at December 31, 1996 18,213 $ 10.00
====== ===========
</TABLE>
All outstanding options were fully vested and exercisable at December 31, 1996,
1995, and 1994, with a weighted average remaining contractual life of 18 months
at December 31, 1996. Since no additional options have been granted or
exercised in 1996 or 1995, net income and earnings per share would not differ
from reported results had the Company adopted the accounting treatment under
SFAS 123.
NOTE 17 - PREFERRED STOCK
In addition to the 1,000,000 shares of authorized common stock, the Company's
articles of incorporation authorize up to 500,000 shares of non-voting
preferred stock at $1.00 par value. The Board of Directors are further
authorized to establish designations, powers, preferences, rights, and other
terms for preferred stock by resolution.
On March 26, 1986, the Board of Directors, designated 2,000 shares as
Redeemable Preferred Stock, Series 1 ("Series 1"). Series 1 shares have no
voting or conversion rights and pay no dividends. However, Series 1 shares
have preference on liquidation at the rate of $10 per share after January
1, 1987.
No shares of preferred stock, including Series 1 shares, have been issued.
F-36
<PAGE> 157
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 18 - TREASURY STOCK
Treasury stock is shown at cost, and as of December 31, 1996 and 1995,
consisted of 4,724 shares of common stock at a recorded cost of $12.50 per
share. There were no treasury stock transactions during 1996 or 1995.
NOTE 19 - BRANCH ACQUISITION
In 1995, the Company entered into negotiations with First of America Bank -
Florida, FSB ("FOAB"), to acquire certain assets and assume deposit liabilities
and related accrued interest of FOAB's Lake Placid Branch ("Branch"). The
Branch acquisition was approved by the OCC and the Company's Board of
Directors, and consummated on December 15, 1995. A summary of the transaction
follows:
Liabilities Assumed:
Deposits $11,203,790
Accrued interest payable 86,589
-----------
11,290,379
-----------
Less Assets Purchased:
Branch cash on hand 36,910
Personal property 15,664
Real property 275,542
Core deposit premium 412,826
Goodwill 371,439
Loans and accrued interest 3,939
-----------
1,116,320
-----------
Less Expenses at Closing: 1,789
-----------
Cash Received at Closing $10,172,270
===========
F-37
<PAGE> 158
BIG LAKE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED AND PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 20 - SUBSEQUENT EVENTS
The Company has signed an agreement with CNB Financial Corporation to merge.
The merger is anticipated to be accounted for as a purchase by the Company and
is expected to be consummated in 1997 subject to regulatory approval. The terms
of the merger are outlined in the agreement. The purchase is based on the fair
market values of the Company and CNB Financial Corporation determined by
independent experts.
Subsequent to the issuance of the Company's and parent company only financial
statements for 1996 and our report thereon dated January 24, 1997, the Company
was required to make additional disclosures for its filing of Form S-4
Registration Statement pursuant to the Securities Act of 1933, as amended. The
additional disclosures related to the fair value of financial instruments (Note
1) and stock options (Note 16) had no effect on the Company's financial
position or results of operations for 1996 or 1995.
F-38
<PAGE> 159
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
June 30,
--------------------------
1997 1996
-------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,824 $ 1,837
Federal funds sold 6,623 4,264
Investment securities available-for-sale at fair value 5,595 6,881
Mortgage-backed securities available-for-sale at fair value 268 326
Loans receivable less allowance for credit losses 33,134 31,561
Accrued interest receivable 390 380
Bank premises and equipment - net 997 1,076
Other real estate owned 173 495
Other assets 458 627
-------- --------
TOTAL $ 49,462 $ 47,447
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 7,222 $ 6,498
Interest-bearing 37,425 36,241
-------- --------
Total deposits 44,647 42,739
Accrued interest on deposits 221 226
Other accrued expenses and liabilities 316 394
-------- --------
Total liabilities 45,184 43,359
-------- --------
Commitments and contingencies - -
-------- --------
Stockholders' equity:
Common stock 4 4
Additional paid-in-capital 1,196 1,196
Retained earnings 3,106 2,943
Unrealized loss on available-for-sale securities (28) (55)
-------- --------
Total stockholders' equity 4,278 4,088
-------- --------
TOTAL $ 49,462 $ 47,447
======== ========
Book value per common share $ 10.28 $ 9.82
======== ========
Common shares outstanding 416,279 416,279
======== ========
</TABLE>
F-39
<PAGE> 160
CNB FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the six months ended
June 30,
-----------------------
1997 1996
------ ------
<S> <C> <C>
Interest and fees on loans $ 1,600 $ 1,495
Investment income on investment and mortgage-backed securities 188 202
Other interest income 116 136
------- -------
Total interest income 1,904 1,833
Interest expense on deposits 853 862
------- -------
Net interest income before provision for credit losses 1,051 971
Provision for credit losses 16 16
------- -------
Net interest income 1,035 955
------- -------
Fees and service charges 210 222
Other income 23 45
------- -------
Total other income 233 267
------- -------
Other expenses:
Salaries and employee benefits 531 505
Expenses of bank premises and fixed assets 229 150
Other operating expenses 286 314
------- -------
Total other expenses 1,046 969
------- -------
Income before provision for income taxes 222 253
Provision for income taxes 70 94
------- -------
Net income $ 152 $ 159
======= =======
Earnings per share $ 0.37 $ 0.38
======= =======
Weighted average common shares outstanding during period 416,279 416,279
======= =======
</TABLE>
F-40
<PAGE> 161
CNB FINANCIAL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the six months ended
June 30,
--------------------------
1997 1996
------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 370 $ 727
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in:
Federal funds sold (5,585) (2,369)
Investment securities 1,124 (840)
Loans 1,004 (181)
Purchases of premises and equipment, net (43) (31)
Net increase in other real estate (113) (266)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (3,613) (3,687)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 2,645 1,947
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,645 1,947
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (598) (1,013)
CASH AND CASH EQUIVALENTS AT JANUARY 1 2,422 2,850
------- -------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 1,824 $ 1,837
======= =======
</TABLE>
F-41
<PAGE> 162
CNB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements include the accounts of CNB Financial
Corporation (the "Company") and its wholly owned subsidiary Clewiston National
Bank (the"Bank"). The information contained in the financial statements is
unaudited. In the opinion of management, all adjustments have been made
(consisting only of normal recurring accruals) necessary to present a fair
statement of the results for interim periods. The results for interim periods
are not necessarily indicative of trends or results to be expected for a full
year. It is suggested that these financial statements and notes be read in
conjunction with the Company's financial statements for the year ended December
31, 1996.
Use of Estimates
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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate Owned"). In connection with the
determination of the allowances for credit losses on loans and foreclosed real
estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowances based
on their judgments about information available to them at the time of
their examination. Management does not anticipate that the allowances for
credit losses on loans and foreclosed real estate will change materially in the
near term.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, due from banks, federal
funds sold, investment securities, loans receivable, accrued interest
receivable, deposits, accrued interest payable, and off-balance sheet
commitments such as commitments to extend credit and standby letters of credit.
Management considers the cost of providing estimated fair values by each class
of financial instrument to exceed the benefits derived. In management's
opinion, the carrying amount of financial instruments approximates fair value.
F-42
<PAGE> 163
CNB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - ACCOUNTING POLICIES (Continued)
Investment Securities Available-for-Sale
Available-for-sale securities consist of bonds, notes, debentures, and certain
equity securities not classified as trading securities nor as held-to-maturity
securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of
stockholders' equity until realized.
Gains and losses on the sale of available-for-sale securities are determined
using the specific-identification method.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs. Unearned discounts on installment loans
are recognized as income over the term of the loans using a method that
approximates the interest method. Nonrefundable loan fees and certain direct
loan origination costs are deferred and the net amount is recognized into
income over the life of the loans as a yield adjustment.
The Bank has adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan. For a loan considered impaired under FASB Statement No. 114, its
value generally should be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate. As a practical
expedient, however, the loan's value may be based on (i) the loan's market
price or (ii) the fair value of the loan's collateral, less discounted
estimated costs to sell, if the collateral is expected to be the sole source of
repayment. If the value of the loan is less than the recorded investment in the
loan, a loss should be recognized by recording a valuation allowance and a
corresponding increase to the provision for credit losses charged to operating
expenses. Management considers a loan to be impaired if it is probable that the
Bank will be unable to collect all amounts due under the contractual terms of
the loan agreement.
F-43
<PAGE> 164
CNB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans are place on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in loss on foreclosed real
estate.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Premises and Equipment
Land is carried at cost. Bank premises, furniture and equipment, and leasehold
improvements are carried at cost, less accumulated depreciation and
amortization computed principally by the straight-line method.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, and commercial and standby letters of credit.
Such financial instruments are recorded in the financial statements when they
become payable.
F-44
<PAGE> 165
CNB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
For the purpose of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts included in the statements of
condition caption "Cash and due from banks."
NOTE 2 - LOANS
Loans at June 30 consist of (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Commercial loans $ 5,541 $ 4,453
Commercial real estate loans 3,476 3,274
Residential mortgage loans 19,830 19,475
Consumer loans 4,800 4,800
-------- --------
Total loans, gross 33,647 32,002
Unearned income (45) (50)
Allowance for credit losses (468) (391)
-------- --------
Net loans $ 33,134 $ 31,561
======== ========
</TABLE>
NOTE 3 - ALLOWANCE FOR CREDIT LOSSES
The Company's Board of Directors monitors the loan portfolio quarterly in order
to enable it to evaluate the adequacy of the allowance for credit losses. In
addition to reviews by regulatory agencies and the Company's certified public
accountants, the services of outside lending professionals have been engaged to
assist in the valuation of credit quality and loan administration. These
professionals compliment the system implemented by the Company which identifies
potential problem credits as early as possible, categorizes the credits as to
risk, and puts a reporting process in place to monitor the progress of the
credits.
The Company maintains the allowance for credit losses at a level sufficient to
absorb all estimated losses inherent in the loan portfolio. Activity in the
allowance for loan losses from January 1 through June 30 follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Balance, January 1, $ 475 $ 436
Recoveries 14 56
Chargeoffs (37) (117)
Provision charged to expense 16 16
----- -----
Balance, June 30 $ 468 $ 391
===== =====
</TABLE>
F-45
<PAGE> 166
CBN FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 4 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments included commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit, and interest rate
risk in excess of the amounts recognized in the balance sheet. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
Financial instruments at June 30, 1997, consisted of commitments to extend
credit approximating $3.1 million and letters of credit of $89,000.
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.
NOTE 5 - OCC AGREEMENT
On July 23, 1997, Clewiston National Bank entered into an agreement with
the OCC that imposes certain restrictions and requirements on Clewiston
National Bank's operations. Among other things, this agreement calls for
improvement in the areas of compliance, executive management, loan
administration, strategic planning, liquidity management, independent loan
review, and loan quality. Clewiston National Bank also must maintain certain
capital ratios, develop a three-year capital plan, and develop a dividend
policy that permits the payment of dividends only with the prior approval of
the OCC. Clewiston National Bank's management believes that the OCC agreement
was prompted in part by the failure to address concerns raised by the OCC in
prior examination reports and the additional loan loss reserves mandated by
the OCC for two loans. In response to the OCC agreement, Clewiston National
Bank appointed a new President and Chief Executive Officer. In addition, one of
the two loans for which the OCC required additional reserves was paid in the
first quarter of 1997. Clewiston National Bank management believes that the
allowances for credit losses at June 30, 1997 was adequate. Clewiston National
Bank management believes that Clewiston National Bank has substantially
complied with all requirements of the OCC agreement, including the maintenance
of the required minimum capital levels. Clewiston National Bank's management
does not anticipate any significant impact on the results of operations and
financial condition of Clewiston National Bank or CNB as a result of the OCC
agreement.
F-46
<PAGE> 167
[STEVENS, THOMAS, SCHEMER & SPARKS, P.A. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
CNB Financial Corporation
Clewiston, Florida
We have audited the accompanying consolidated statements of condition of CNB
Financial Corporation and Subsidiary (the "Company") and the balance sheets of
CNB Financial Corporation (parent company only) as of December 31, 1996 and
1995, and the related consolidated and parent company only statements of
income, changes in stockholders' equity, and cash flows for the years then
ended. These consolidated and parent company only financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated and parent company only
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated and parent company only financial statements
referred to above present fairly, in all material respects, the financial
position of the CNB Financial Corporation and Subsidiary and CNB Financial
Corporation (parent company only) as of December 31, 1996 and 1995, and the
results of its consolidated and parent company only operations and their
consolidated and parent company only cash flows for the years then ended in
conformity with generally accepted accounting principles.
As more fully described in Note 16, subsequent to the issuance of the Company's
and parent company only 1996 financial statements and our report thereon dated
February 13, 1997, the Bank was required to make a regulatory addition to the
allowance for credit losses and to make additional disclosures for its filing
of Form S-4 Registration Statement pursuant to the Securities Act of 1933, as
amended. In our original report we expressed an unqualified opinion on the 1996
financial statements, and our opinion on the revised statements, as expressed
herein, remains unqualified.
Stevens, Thomas, Schemer & Sparks, P.A.
- ---------------------------------------
Jacksonville, Florida
February 13, 1997, except as to the fourth paragraph above
and Notes 1, 2, 3, 12 and 16, which are as of August 15, 1997
F-47
<PAGE> 168
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash and due from banks $ 2,422,099 $ 2,849,864
Interest-bearing deposits with banks - 485,721
Federal funds sold 1,038,000 1,895,000
Investment securities available-for-sale, at fair value 6,995,921 6,439,009
Loans less allowance for credit losses of $474,613
in 1996, and $435,670 in 1995 34,154,467 31,396,007
Accrued interest receivable 412,293 380,159
Premises and equipment - net 1,012,577 1,115,443
Foreclosed real estate 60,484 229,120
Other assets 704,021 539,333
----------- -----------
TOTAL $46,799,862 $45,329,656
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits $13,713,125 $12,070,505
Savings and NOW accounts 6,153,065 6,420,423
Other time deposits 22,135,728 22,301,138
----------- -----------
Total deposits 42,001,918 40,792,066
Accrued expenses and other liabilities 663,638 536,699
----------- -----------
Total liabilities 42,665,556 41,328,765
----------- -----------
Commitments and contingencies - -
----------- -----------
Stockholders' equity:
Common stock; $.01 par value; 10,000,000 shares
authorized; 416,279 shares issued and outstanding 4,163 4,163
Capital surplus 1,195,837 1,195,837
Unrealized gains (losses) on securities available-for-sale (19,105) 16,945
Retained earnings 2,953,411 2,783,946
----------- -----------
Total stockholders' equity 4,134,306 4,000,891
----------- -----------
TOTAL $46,799,862 $45,329,656
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 169
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
INTEREST INCOME:
Loans receivable $3,019,399 $2,798,685
Securities available-for-sale 415,151 449,894
Federal funds sold 182,873 155,305
Deposits with banks 12,049 18,893
---------- ----------
Total interest income 3,629,472 3,422,777
---------- ----------
INTEREST EXPENSE:
Deposits 1,700,843 1,609,774
Federal funds purchased - 378
---------- ----------
Total interest expense 1,700,843 1,610,152
---------- ----------
NET INTEREST INCOME 1,928,629 1,812,625
PROVISION FOR LOAN LOSSES 128,003 94,322
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,800,626 1,718,303
---------- ----------
NON-INTEREST INCOME:
Customer service fees 402,333 484,855
Other income 137,578 33,202
Security losses - (901)
---------- ----------
Total non-interest income 539,911 517,156
---------- ----------
NON-INTEREST EXPENSES:
Salaries 790,547 792,201
Employee benefits 200,671 214,122
Occupancy expense 131,240 78,347
Furniture and fixtures expense 155,292 206,593
Deposit insurance premium 29,051 65,534
Other expenses 849,635 535,661
---------- ----------
Total non-interest expenses 2,156,436 1,892,458
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 184,101 343,001
PROVISION FOR INCOME TAXES 14,636 107,524
---------- ----------
NET INCOME $ 169,465 $ 235,477
========== ==========
EARNINGS PER SHARE $ .41 $ .57
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE> 170
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK NET TOTAL
------------------- CAPITAL UNREALIZED RETAINED STOCKHOLDERS'
SHARES AMOUNT SURPLUS GAINS/LOSSES EARNINGS EQUITY
------- ------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 396,583 $3,966 $1,196,034 $ (64,832) $2,548,469 $3,683,637
Net income - - - - 235,477 235,477
Increase in unrealized gain
on investment securities
available-for-sale, net of
deferred taxes - - - 81,777 - 81,777
Stock split effected by a
dividend 19,696 197 (197) - - -
------- ------ ---------- --------- ---------- ----------
Balance,
December 31, 1995 416,279 4,163 1,195,837 16,945 2,783,946 4,000,891
Net income - - - - 169,465 169,465
Increase in unrealized loss
on investment securities
available-for-sale, net of
deferred taxes - - - (36,050) - (36,050)
------- ------ ---------- --------- ---------- ----------
Balance,
December 31, 1996 416,279 $4,163 $1,195,837 $ (19,105) $2,953,411 $4,134,306
======= ====== ========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE> 171
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 169,465 $ 235,477
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 118,145 141,783
Amortization 5,063 15,191
Provision for credit losses 128,003 94,322
Provision for losses on foreclosed properties 6,174 -
Net loss on sale of foreclosed properties 6,973 2,066
Deferred income taxes (71,460) 13,766
Net realized loss on available-for-sale securities - 901
Net premium amortization and discount accretion (3,301) (44,709)
Increase in accrued interest receivable (32,134) (118,588)
(Increase) decrease in other assets (79,720) 100,651
Increase (decrease) in accrued expenses and other liabilities 126,939 (83,516)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 374,147 357,344
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest-bearing deposits with banks 485,721 (485,721)
Net decrease in federal funds sold 857,000 1,198,000
Proceeds from sales of available-for-sale securities - 1,500,313
Proceeds from the maturity of available-for-sale securities 5,378,765 4,649,876
Purchase of available-for-sale securities (5,986,996) (7,068,295)
Net increase in loans (2,938,123) (2,139,375)
Net purchases of premises and equipment (15,279) (27,305)
Proceeds from sale of foreclosed properties 207,148 93,052
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (2,011,764) (2,279,455)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing demand,
savings, and NOW deposit accounts 1,375,262 (658,348)
Net increase (decrease) in time deposits (165,410) 3,012,680
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,209,852 2,354,332
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (427,765) 432,221
CASH AND CASH EQUIVALENTS AT JANUARY 1 2,849,864 2,417,643
---------- -----------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 2,422,099 $ 2,849,864
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,695,716 $ 1,596,723
=========== ===========
Income taxes $ 169,330 $ 67,078
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE> 172
CNB FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
Cash $ 12,674 $ 12,874
Investment in subsidiary, at equity 4,107,223 3,970,526
Other assets 14,409 17,491
----------- -----------
TOTAL $ 4,134,306 $ 4,000,891
=========== ===========
STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock; $.01 par value; 10,000,000 shares
authorized; 416,279 shares issued and outstanding $ 4,163 $ 4,163
Capital surplus 1,195,837 1,195,837
Unrealized gains (losses) on securities available-
for-sale (19,105) 16,945
Retained earnings 2,953,411 2,783,946
----------- -----------
TOTAL $ 4,134,306 $ 4,000,891
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE> 173
CNB FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Dividend and other income:
Dividend income from subsidiary $ - $ -
Expenses
Other expenses 5,263 16,505
---------- ----------
Loss before income taxes and equity in
undistributed earnings of subsidiary (5,263) (16,505)
Equity in undistributed earnings of subsidiary 172,747 245,771
---------- ----------
Income before income taxes 167,484 229,266
Income taxes (1,981) (6,211)
---------- ----------
Net income $ 169,465 $ 235,477
========== ==========
Earnings per share $ .41 $ .57
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE> 174
CNB FINANCIAL CORPORATION AND SUBSIDIARY
(PARENT COMPANY ONLY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK NET TOTAL
------------------- CAPITAL UNREALIZED RETAINED STOCKHOLDERS'
SHARES AMOUNT SURPLUS GAINS/LOSSES EARNINGS EQUITY
------ ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 396,583 $3,966 $1,196,034 $( 64,832) $2,548,469 $3,683,637
Net income - - - - 235,477 235,477
Increase in unrealized gain
on investment securities
available-for-sale, net of
deferred taxes - - - 81,777 - 81,777
Stock split effected by a
dividend 19,696 197 (197) - - -
------- ------ ---------- --------- ---------- ----------
Balance,
December 31, 1995 416,279 4,163 1,195,837 16,945 2,783,946 4,000,891
Net income - - - - 169,465 169,465
Increase in unrealized loss
on investment securities
available-for-sale, net of
deferred taxes - - - (36,050) - (36,050)
------- ------ ---------- --------- ----------
Balance,
December 31, 1996 416,279 $4,163 $1,195,837 $ (19,105) $2,953,411 $4,134,306
======= ====== ========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE> 175
CNB FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Net income $ 169,465 $ 235,477
Adjustments to reconcile net income to net income
provided by investing activities:
Amortization 5,063 15,191
Equity in undistributed earnings (172,747) (245,771)
Increase in other assets (1,981) (6,210)
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (200) (1,313)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid - -
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (200) (1,313)
CASH AND CASH EQUIVALENTS AT JANUARY 1 12,874 14,187
--------- ---------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 12,674 $ 12,874
========= =========
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE> 176
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CNB Financial Corporation and
Subsidiary (the "Company") conform to generally accepted accounting principles
and prevailing practices within the banking industry. The Company carries its
assets and liabilities on the historical cost basis, except for investment
securities available-for-sale and foreclosed real estate, and follows the
accrual method of accounting.
The Bank is a national banking association with its main office at 950 W.
Ventura Avenue, Clewiston, Florida. In addition, the Bank has one branch each
located in Clewiston, LaBelle, and Moore Haven, Florida.
The Bank's primary trade area encompasses Hendry, Glades, and Palm Beach
Counties. The majority of the Bank's loans are currently to customers located
in Hendry and Glades Counties.
Basis for Consolidation
The consolidated financial statements include the accounts of CNB Financial
Corporation and its subsidiary, Clewiston National Bank (the Bank), after
elimination of all material intercompany accounts and transactions.
Use of Estimates
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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for credit losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination. Management does not anticipate that the allowances for credit
losses on loans and foreclosed real estate will change materially in the near
term.
F-56
<PAGE> 177
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
Financial instruments of the Bank consist of cash, due from banks, federal funds
sold, investment securities, loans receivable, accrued interest receivable,
deposits, accrued interest payable, and off-balance sheet commitments such as
commitments to extend credit and standby letters of credit. Management considers
the cost of providing estimated fair values by each class of financial
instrument to exceed the benefits derived. In management's opinion, the carrying
amount of financial instruments approximates fair value.
Investment Securities Available-for-Sale
Available-for-sale securities consist of bonds, notes, debentures, and certain
equity securities not classified as trading securities nor as held-to-maturity
securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of stockholders'
equity until realized.
Gains and losses on the sale of available-for-sale securities are determined
using the specific-identification method.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs. Unearned discounts on installment loans
are recognized as income over the term of the loans using a method that
approximates the interest method. Nonrefundable loan fees and certain direct
loan origination costs are deferred and the net amount is recognized into income
over the life of the loans as a yield adjustment.
The Bank has adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan. For a loan considered impaired under FASB Statement No. 114, its
value generally should be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate. As a practical
expedient, however, the loan's value may be based on (i) the loan's market price
or (ii) the fair value of the loan's collateral, less discounted estimated costs
to sell, if the collateral is expected to be the sole source of repayment. If
the value of the loan is less than the recorded investment in the loan, a loss
should be recognized by recording a valuation allowance and a corresponding
increase to the provision for credit losses charged to operating expenses.
Management considers a loan to be impaired if it is probable that the Bank will
be unable to collect all amounts due under the contractual terms of the loan
agreement.
F-57
<PAGE> 178
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans are place on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in loss on foreclosed real
estate.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Premises and Equipment
Land is carried at cost. Bank premises, furniture and equipment, and leasehold
improvements are carried at cost, less accumulated depreciation and
amortization computed principally by the straight-line method.
Earnings Per Share
Earnings per share of common stock is computed by dividing net income by the
weighted average of shares of common stock outstanding during the period. The
average number of shares outstanding were as follows:
1996 - 416,279 1995 - 416,279
F-58
<PAGE> 179
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, and commercial and standby letters of credit.
Such financial instruments are recorded in the financial statements when they
become payable.
Reclassifications
Certain amounts in 1995 have been reclassified to conform with 1996
presentation.
Cash and Cash Equivalents
For the purpose of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts included in the statements of
condition caption "Cash and due from banks."
NOTE 2 - INVESTMENT SECURITIES
Investment securities consisted of the following:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Approximate
Cost Gain Loss Fair Value
---- ---- ---- ----------
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasury securities and
other government agencies $6,490,317 $10,992 $ (40,479) $6,460,830
Mortgage-backed securities 308,550 - (1,409) 307,141
State and political subdivisions 180,000 2,047 (97) 181,950
Other securities 46,000 - - 46,000
---------- ------- --------- ----------
Total $7,024,867 $13,039 $ (41,985) $6,995,921
========== ======= ========= ==========
December 31, 1995:
U.S. Treasury securities and
other government agencies $5,573,148 $11,388 $ - $5,584,536
Mortgage-backed securities 363,269 3,369 - 366,638
State and political subdivisions 430,918 10,917 - 441,835
Other securities 46,000 - - 46,000
---------- ------- --------- ----------
Total $6,413,335 $25,674 $ - $6,439,009
========== ======= ========= ==========
</TABLE>
Securities with amortized cost of $5,427,849 and $5,238,463, with approximate
fair values of $5,390,651 and $5,261,921 at December 31, 1996 and 1995,
respectively, were pledged to secure public deposits and for other purposes
required or permitted by law.
F-59
<PAGE> 180
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - INVESTMENT SECURITIES (Continued)
Gross realized losses on sales of available-for-sale securities were $901 in
1995. There were no gross realized gains or losses in 1996.
The maturities of investment securities at December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Amortized Approximate
Cost Fair Value
---- ----------
<S> <C> <C>
Available-for-Sale:
Due in one year or less $2,085,212 $2,086,927
Due from one year to five years 4,646,180 4,618,097
Due from five years to ten years - -
Due after ten years 247,475 244,897
---------- ----------
Total 6,978,867 6,949,921
Other securities 46,000 46,000
---------- ----------
Total $7,024,867 $6,995,921
========== ==========
NOTE 3 - LOANS
The components of loans in the statements of condition were as follows:
1996 1995
---- ----
Loans secured by 1 to 4-family residential properties $18,197,612 $16,530,898
Loans secured by multi-family and non-farm,
non-residential properties 1,855,552 1,595,356
Other loans secured by real estate 3,598,066 4,406,995
Commercial and industrial loans 5,156,444 3,569,109
Consumer loans 4,887,310 5,653,950
Other loans 977,667 133,398
Unearned income (43,571) ( 58,029)
----------- -----------
Total loans 34,629,080 31,831,677
Allowance for credit losses (474,613) (435,670)
----------- -----------
Net loans $34,154,467 $31,396,007
=========== ===========
</TABLE>
F-60
<PAGE> 181
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 3 - LOANS (Continued)
An analysis of the changes in the allowance for credit losses follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance at January 1 $ 435,670 $ 418,090
--------- ---------
Credits charged off 157,912 (99,921)
Recoveries 68,852 23,179
--------- ---------
Net credits charged off (89,060) (76,742)
--------- ---------
Provision for credit losses 128,003 94,322
--------- ---------
Balance at December 31 $ 474,613 $ 435,670
========= =========
</TABLE>
Impairment of loans having recorded investments of $372,388 in 1996, and
$669,908 in 1995, has been recognized in conformity with FASB Statement No.
114. The total allowance for loan losses related to these loans was $10,425 and
$114,607 in 1996 and 1995, respectively, and the amount of recorded investment
for which there is no related allowance for loan losses totaled $361,963 and
$555,301, respectively. The average recorded investment in such impaired loans
during 1996 and 1995 was $377,725 and $883,026, respectively.
The impaired loans for 1996 and 1995 were also classified as nonaccrual loans
by the Bank. The interest income earned but not recorded by the Bank pursuant
to its nonaccrual policy totaled $9,151 and $99,461 in 1996 and 1995,
respectively. Interest income received on impaired and nonaccrual loans during
1996 and 1995 and included in income on a cash basis totaled $48,720 and
$47,917, respectively. Interest income on impaired loans resulting from the
passage of time was not considered material and no such amounts was recognized
in 1996 or 1995.
Loans having carrying values of $51,658 and $254,843 were transferred to
foreclosed real estate in 1996 and 1995, respectively.
The Bank is not committed to lend additional funds to debtors whose loans have
been modified.
F-61
<PAGE> 182
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 4 - PREMISES AND EQUIPMENT
The components of premises and equipment included in the statements of
condition at December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 339,280 $ 381,687
Buildings 725,396 703,496
Furniture, fixtures, and equipment 1,303,277 1,279,750
Other fixed assets 195,078 182,334
----------- -----------
Total 2,563,031 2,547,267
Accumulated depreciation (1,550,454) (1,431,824)
----------- -----------
Premises and equipment - net $ 1,012,577 $ 1,115,443
=========== ===========
</TABLE>
Depreciation expense amounted to $118,145 and $141,783 for the years ended
December 31, 1996 and 1995, respectively.
The Bank leases property at two branch locations under noncancelable operating
leases expiring in 1997 and 2001. Minimum future rental payments under the
leases as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $28,512
1998 14,124
1999 14,124
2000 14,124
2001 3,531
</TABLE>
Lease payments charged to operations for the above leases were approximately
$24,717 and $21,214 for the years ended December 31, 1996 and 1995,
respectively.
F-62
<PAGE> 183
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 5- OTHER ASSETS
The components of other assets in the statements of condition at December 31,
1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accounts receivable $131,790 $ 91,748
Cash surrender value of insurance - deferred
compensation plan 138,055 107,299
Prepaid expenses 107,947 99,855
Refundable income taxes 96,387 27,424
Deferred income tax benefit 207,828 117,797
Miscellaneous 22,014 95,210
-------- --------
Total $704,021 $539,333
======== ========
</TABLE>
NOTE 6 - DEPOSITS
Included in interest-bearing deposits are certificates of deposit issued in
amounts of $100,000 or more. These certificates and their remaining maturities
at December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Three months or less $ 862,580 $ 100,000
Over three through twelve months 553,690 877,321
Over twelve months 221,675 1,113,601
---------- ----------
Total $1,637,945 $2,090,922
========== ==========
</TABLE>
NOTE 7 - LOAN ORIGINATION
Direct costs of salary and employee benefits of $35,397 and $54,666 were netted
against related fees in 1996 and 1995, respectively.
F-63
<PAGE> 184
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 8 - INCOME TAXES
The provision for income taxes for the years ended December 31, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current $ 86,096 $ 93,758
Deferred (71,460) 13,766
-------- --------
Total $ 14,636 $107,524
======== ========
</TABLE>
The effective tax rate is less than the statutory federal income tax rate of
34% for the year ended December 31, 1996 and 1995 for the following reasons:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Provision at federal income tax rate $ 62,594 34.0 $116,620 34.0
Surtax exemption - - - -
Alternative minimum tax (48,257) (26.2) - -
Tax exempt income (4,223) (2.3) (6,715) (2.0)
State income tax net of federal benefit 6,281 3.4 2,004 0.6
Other (net) (1,759) (1.0) (4,385) (1.3)
-------- ----- -------- ----
Total $ 14,636 7.9 $107,524 31.3
======== ===== ======== ====
</TABLE>
F-64
<PAGE> 185
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 8 - INCOME TAXES (Continued)
The components of the deferred income tax benefit included in the statement of
condition were:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Loan loss reserve $117,112 $ 92,151
Interest on non-accrual loans 3,406 23,395
Other real estate owned 1,634 3,054
Repossessed equipment - 166
Deferred compensation payable 142,190 79,311
Net unrealized depreciation on available-for-sale securities 9,842 -
-------- --------
Total 274,184 198,077
-------- --------
Deferred tax liability:
Depreciation 64,033 71,551
Chargeoffs on foreclosed properties 2,323 -
Net unrealized appreciation on available-for-sale securities - 8,729
-------- --------
Total 66,356 80,280
-------- --------
Net deferred tax assets $207,828 $117,797
======== ========
</TABLE>
The Company has an income tax allocation agreement with the Bank which calls
for the allocation of income tax expense between members of the consolidated
group as if each member filed a separate income tax return. The allocation of
the income tax expense to the Company was a tax benefit of $1,981 and $6,211
for 1996 and 1995, respectively.
At December 31, 1996, the Bank had an alternative minimum tax credit carryover
of approximately $33,065 available to offset regular income tax in a year(s)
when regular tax exceeds the alternative minimum tax. The carryover period is
indefinite.
NOTE 9 - PENSION PLAN
The Bank sponsors a defined contribution pension plan that covers substantially
all employees. The Bank funds the annual expense through contributions to the
plan. Pension expense for the years ended December 31, 1996 and 1995 amounted
to $43,024 and $38,759, respectively. A favorable determination letter has been
received from the Internal Revenue Service that the plan is qualified.
F-65
<PAGE> 186
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 10 - DEFERRED COMPENSATION ARRANGEMENT
The Bank has agreements with its electing directors to compensate them for
their service to the Bank in lieu of receiving current director fees. An
agreement is executed with each electing director whereby the director agrees
to serve the Bank for five years. The Bank will pay the director an agreed upon
future annual income for ten years beginning at age 65. In the event of death,
the specified monthly payments will be paid to the director's beneficiary(ies).
The arrangement is funded with key man life insurance.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, executive officers,
significant shareholders and their affiliates (Related Parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. The aggregate extensions of credit to
such related parties at December 31, 1996 and 1995 were $1,351,001 and
$1,255,017, respectively. During 1996, new credit to such parties amounted to
$579,977 and repayments and reductions amounted to $483,993. Unfunded
commitments to the same parties totaled $76,242 at December 31, 1996.
NOTE 12 - STOCK OPTIONS
The Bank has granted stock options to its President under an employment
agreement dated May 14, 1994, equal to 5% of the stock outstanding at the date
of the agreement. The options increase 1.5% each year for the next five years,
for a total of 12.5%. The options are exercisable at any time during the tenure
of the President and/or within 120 days of his leaving the employment of the
Bank. The options are exercised at the lower of book value of the Bank at May
14, 1994; at December 31, 1994; or at December 31, 1995. At December 31, 1996,
the number of shares under option amounted to approximately 33,302. No options
were exercised during 1996, 1995, or 1994.
For the year ended December 31, 1996, FASB Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, became effective.
FASB Statement No. 123 permits application of the accounting requirements of
an earlier issued APB Opinion No. 25 and, accordingly, no compensation cost has
been recognized in 1996 or 1995. However, the Bank must comply with certain
additional disclosures under FASB Statement No. 123. A summary of the
disclosures follows:
<TABLE>
<CAPTION>
Number Weighted Average
of Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1994 19,829 $ 8.90
Options granted 7,229 8.90
------ ------
Outstanding at December 31, 1995 27,058 8.90
Options granted 6,244 8.90
------ ------
Outstanding at December 31, 1996 33,302 $ 8.90
====== ======
</TABLE>
F-66
<PAGE> 187
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 12 - STOCK OPTIONS (Continued)
All outstanding options were fully vested and exercisable at December 31, 1996,
1995, and 1994, with no stated contractual life. Under FASB Statement No. 123,
the fair values of options granted during 1996 and 1995 are to be estimated by
use of pricing models and the assumptions used in the pricing models are to be
disclosed. However, since the value to be received for Company shares in the
pending merger transaction with Big Lake Financial Corporation is less than the
weighted average exercise price of the underlying options, no value has been
assigned to the options granted during 1996 and 1995 (see Note 16). Net income
and earnings per share would not materially differ from reported results had
the Company adopted the accounting treatment under FASB Statement No. 123.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Bank's financial statements do not reflect various commitments and
contingent liabilities that arise in the normal course of business and involve
elements of credit risk, interest rate risk and liquidity risk. These
commitments and contingent liabilities which include unfunded commitments to
related parties (see Note 11) are commitments to extend credit, commercial
letters of credit and standby letters of credit.
A summary of the Bank's commitments and contingent liabilities at December 31,
1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Commitments to extend credit $3,645,045
Credit card arrangements 360,941
Commercial and standby letters of credit 78,664
-----------
Total $4,084,650
===========
</TABLE>
Commitments to extend credit, credit card arrangements, commercial letters of
credit and standby letters of credit all include exposure to some credit loss
in the event of nonperformance of the customer. The Bank's credit policies and
procedures for credit commitments and financial guarantees are the same as
those for extension of credit instruments that are recorded in the statements
of condition. In the opinion of management, these instruments do not generally
present any significant liquidity risk to the Bank. The Bank's experience has
been that approximately 70% of loan commitments are drawn upon by customers.
The Bank did not incur any losses on its commitments in either 1996 or 1995.
The Bank is a party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material to the financial position.
F-67
<PAGE> 188
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 14 - CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments, and commercial and standby
letters of credit have been granted to customers in the Bank's market area.
Substantially all such customers are depositors of the Bank. The concentrations
of credit by type of loan are set forth in Note 3. The distribution of
commitments to extend credit approximates the distribution of loans
outstanding. Commercial and standby letters of credit were granted primarily to
commercial borrowers. The Bank, as a matter of policy, does not extend credit
to any single borrower or group of related borrowers in excess of its legal
lending limit.
NOTE 15 - REGULATORY MATTERS
The Bank, as a national bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency ("OCC"). Under such restrictions, the Bank
may not, without the prior approval of the Comptroller of the Currency, declare
dividends in excess of the sum of the current year's earnings (as defined) plus
the retained earnings (as defined) from the prior two years. The dividends, as
of December 31, 1996, that the Bank could declare, without the approval of the
Comptroller of the Currency, amounted to approximately $648,481.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the OCC 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 I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
F-68
<PAGE> 189
CNB FINANCIAL CORPORATION AND SUBSIDIARY
CNB FINANCIAL CORPORATION (PARENT COMPANY ONLY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 15 - REGULATORY MATTERS (Continued)
The Bank's actual capital amounts (dollars in thousands) and ratios are also
presented in the table below:
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital For Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
------ ----------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets) $4,517 14.49% >=$2,494 >=8.0% >=$3,117 >=10.0%
Tier I Capital (to Risk Weighted Assets) $4,126 13.24% >=$1,287 >=4.0% >=$1,870 >= 6.0%
Tier I Capital (to Average Assets) $4,126 8.85% >=$1,865 >=4.0% >=$2,331 >= 5.0%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets) $4,328 14.47% >=$2,392 >=8.0% >=$2,990 >=10.0%
Tier I Capital (to Risk Weighted Assets) $3,954 13.22% >=$1.196 >=4.0% >=$1,794 >= 6.0%
Tier I Capital (to Average Assets) $3,954 8.92% >=$1,793 >=4.0% >=$2,241 >= 5.0%
</TABLE>
NOTE 16 - SUBSEQUENT EVENTS
The Company has signed an agreement with Big Lake Financial Corporation to
merge. The merger is anticipated to be accounted for as a purchase by Big Lake
Financial Corporation and is expected to be consummated in 1997 subject to
regulatory and stockholders' approval. The terms of the merger are outlined in
the agreement. The purchase is based on the fair market value of the Company
determined by an independent expert.
Subsequent to the issuance of the Company and parent company only financial
statements for 1996 and our report thereon dated February 13, 1997, the Company
was required to make a regulatory addition to the allowance for credit losses
totalling $83,672 as of December 31, 1996. The addition resulted from the
Office of the Controller of the Currency regulatory audit of the Clewiston
National Bank in 1997, as of December 31, 1996, and was based on their
judgments about information available to them at the time of their examination.
The regulatory addition has the effect of reducing net loans by $83,672,
increasing other assets by $9,456, and reducing net income by $74,216 ($.18 per
share).
Subsequent to the issuance of the Company's and parent company only financial
statements for 1996 and our report thereon dated February 13, 1997, the Company
was required to make additional disclosures for its filing of Form S-4
Registration Statement pursuant to the Securities Act of 1933, as amended. The
additional disclosures related to the fair value of financial instruments and
loans (Note 1), mortgage-backed securities (Note 2), impaired loans (Note 3),
and stock options (Note 12) had no effect on the Company's financial position
or results of operations for 1996 or 1995.
F-69
<PAGE> 190
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
BIG LAKE FINANCIAL CORPORATION
CNB FINANCIAL CORPORATION
BIG LAKE NATIONAL BANK
AND
CLEWISTON NATIONAL BANK
<PAGE> 191
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE - THE MERGER.................................................................................. 2
1.1 Consummation of Merger; Closing Date.................................................... 2
1.2 Effect of Merger........................................................................ 2
1.3 Further Assurances...................................................................... 3
1.4 Directors and Officers.................................................................. 3
1.5 Name of Combined Corporation............................................................ 3
ARTICLE TWO - CLEWISTON NATIONAL BANK..................................................................... 4
2.1 Effect of Merger........................................................................ 4
2.2 Directors and Officers; Compensation.................................................... 4
ARTICLE THREE - CONVERSION OF SHARES...................................................................... 4
3.1. Manner of Conversion of CNB Shares...................................................... 4
3.2 CNB Stock Options and Related Matters................................................... 5
3.3 Fractional Shares....................................................................... 5
3.4 Effectuating Conversion................................................................. 5
3.5 Laws of Escheat......................................................................... 7
3.6 BLF Shares.............................................................................. 7
ARTICLE FOUR - REPRESENTATIONS AND WARRANTIES OF CNB
AND CLEWISTON NATIONAL BANK............................................................................... 7
4. Representations and Warranties of CNB and Clewiston National Bank....................... 7
4(a) Organization, Qualification, and Corporate Power........................................ 8
4(b) Capitalization.......................................................................... 9
4(c) CNB Subsidiaries........................................................................ 9
4(d) Authorization of Transaction............................................................ 9
4(e) Noncontravention........................................................................ 10
4(f) Financial Statements.................................................................... 10
4(g) Undisclosed Liabilities................................................................. 11
</TABLE>
<PAGE> 192
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4(h) Brokers' Fees........................................................................... 11
4(i) Taxes................................................................................... 11
4(j) Allowance for Loan or Credit Losses..................................................... 12
4(k) Properties; Insurance................................................................... 12
4(l) Material Contracts...................................................................... 13
4(m) Material Contract Defaults.............................................................. 13
4(n) Compliance with Laws.................................................................... 13
4(o) Employee Benefit Plans.................................................................. 14
4(p) Legal Proceedings....................................................................... 16
4(q) Absence of Certain Changes or Events.................................................... 16
4(r) Reports................................................................................. 17
4(s) Statements True and Correct............................................................. 17
4(t) Environmental Matters................................................................... 17
4(u) Labor Matters........................................................................... 19
ARTICLE FIVE - REPRESENTATIONS AND WARRANTIES OF BLF
AND BIG LAKE NATIONAL BANK................................................................................ 19
5. Representations and Warranties of BLF and Big Lake National Bank........................ 19
5(a) Organization, Qualification, and Corporate Power........................................ 19
5(b) Capitalization.......................................................................... 20
5(c) BLF Subsidiaries........................................................................ 20
5(d) Authorization of Transaction............................................................ 21
5(e) Noncontravention........................................................................ 21
5(f) Financial Statements.................................................................... 22
5(g) Undisclosed Liabilities................................................................. 22
5(h) Brokers' Fees........................................................................... 22
5(i) Taxes................................................................................... 22
5(j) Allowance for Loan or Credit Losses..................................................... 23
5(k) Properties; Insurance................................................................... 23
5(l) Material Contracts...................................................................... 24
5(m) Material Contract Defaults.............................................................. 24
5(n) Compliance with Laws.................................................................... 24
5(o) Employee Benefit Plans.................................................................. 25
5(p) Legal Proceedings....................................................................... 27
5(q) Absence of Certain Changes or Events.................................................... 27
5(r) Reports................................................................................. 27
5(s) Statements True and Correct............................................................. 28
5(t) Environmental Matters................................................................... 28
5(u) Labor Matters........................................................................... 29
</TABLE>
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ARTICLE SIX - COVENANTS AND AGREEMENTS.................................................................... 30
6. Covenants............................................................................... 30
6(a) Current Information..................................................................... 30
6(b) Regulatory Matters and Approvals........................................................ 30
6(c) Tax Opinion............................................................................. 32
6(d) Conduct of Business Prior to the Effective Time of the Merger........................... 32
6(e) Forbearance............................................................................. 32
6(f) Issuance of Securities.................................................................. 34
6(g) No Acquisitions......................................................................... 34
6(h) Other Actions........................................................................... 34
6(i) Government Filings...................................................................... 35
6(j) Tax-Free Reorganization Treatment....................................................... 35
6(k) Full Access............................................................................. 35
6(l) Notice of Material Adverse Developments................................................. 35
6(m) Exclusivity............................................................................. 36
6(n) Filings with the State Offices.......................................................... 36
6(o) Press Releases.......................................................................... 36
6(p) Agreements of Affiliates................................................................ 37
6(q) Miscellaneous Agreements and Consents................................................... 37
6(r) Indemnification......................................................................... 37
6(s) Fairness Opinions....................................................................... 38
6(t) Employee Benefit Plans.................................................................. 38
6(u) CNB Employment Agreement and Directors Deferred Plan.................................... 38
ARTICLE SEVEN - CONDITIONS TO THE OBLIGATIONS OF
CNB AND BLF............................................................................................... 39
7. Conditions to Obligation to Close....................................................... 39
7(a) Conditions to Obligation of BLF and Big Lake National Bank.............................. 39
7(b) Conditions to Obligation of CNB and Clewiston National Bank............................. 41
ARTICLE EIGHT - TERMINATION............................................................................... 44
8. Termination............................................................................. 44
8(a) Termination of Agreement................................................................ 44
8(b) Effect of Termination................................................................... 45
8(c) Acquisition Proposal Termination and Fee................................................ 45
</TABLE>
<PAGE> 194
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ARTICLE NINE - MISCELLANEOUS.............................................................................. 46
9. Miscellaneous........................................................................... 46
9(a) Survival................................................................................ 46
9(b) No Third Party Beneficiaries............................................................ 46
9(c) Entire Agreement........................................................................ 46
9(d) Successors and Assigns.................................................................. 46
9(e) Counterparts............................................................................ 46
9(f) Headings................................................................................ 47
9(g) Notices................................................................................. 47
9(h) Governing Law........................................................................... 48
9(i) Amendments and Waivers.................................................................. 48
9(j) Severability............................................................................ 48
9(k) Expenses................................................................................ 48
9(l) Construction............................................................................ 49
9(m) Incorporation of Exhibits and Schedules................................................. 49
9(n) Jurisdiction and Venue.................................................................. 49
9(o) Remedies Cumulative..................................................................... 49
</TABLE>
<PAGE> 195
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
BIG LAKE FINANCIAL CORPORATION
CNB FINANCIAL CORPORATION
BIG LAKE NATIONAL BANK
AND
CLEWISTON NATIONAL BANK
This Amended and Restated Agreement and Plan of Reorganization (the
"Agreement") is dated as of February 19, 1997, and amended and restated as of
June 19, 1997, by and between Big Lake Financial Corporation, a Florida
corporation ("BLF"), CNB Financial Corporation, a Florida corporation ("CNB"),
Big Lake National Bank, a national banking association ("Big Lake National
Bank"), and Clewiston National Bank, a national banking association ("Clewiston
National Bank"). BLF, CNB, Big Lake National Bank, and Clewiston National Bank
are individually referred to in this Agreement as a "Party" and collectively as
the "Parties."
WITNESSETH THAT:
WHEREAS, the respective Boards of Directors of CNB and BLF deem it in
the best interests of CNB and BLF, respectively, and of their respective
shareholders, that CNB and BLF merge pursuant to this Agreement in a
transaction that qualifies as a reorganization pursuant to Section 368(a) of
the Internal Revenue Code of 1986 (the "Internal Revenue Code") (the "Merger");
WHEREAS, the Boards of Directors of CNB and BLF have approved this
Agreement and the Merger and the CNB Board has directed that this Agreement and
the Merger be submitted to CNB shareholders for approval and adoption in
accordance with the laws of the State of Florida and the United States;
WHEREAS, CNB owns all the issued and outstanding capital stock of
Clewiston National Bank, and BLF owns all of the issued and outstanding capital
stock of Big Lake National Bank; and
WHEREAS, as a result of the Merger, Clewiston National Bank will
become a wholly-owned subsidiary of BLF.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and agreements herein contained, the
Parties agree as follows:
<PAGE> 196
ARTICLE I
THE MERGER
Section 1.1 Consummation of Merger; Closing Date. (a) Subject to the
provisions hereof, CNB shall be merged with and into BLF (which has heretofore
and shall hereinafter be referred to as the "Merger") pursuant to Sections
607.1101 and 607.1103 of the Florida Business Corporation Act, and BLF shall be
the surviving corporation (sometimes hereinafter referred to as "Combined
Corporation" when reference is made to it after the Effective Time of the
Merger (as defined below)). The Merger shall become effective on the date and
at the time on which the Articles of Merger relating to the Merger have been
duly filed with the Secretary of State of Florida, unless a later date is
specified in such Articles of Merger (such time is hereinafter referred to as
the "Effective Time of the Merger"). Subject to the terms and conditions
hereof, unless otherwise agreed upon by CNB and BLF, the Effective Time of the
Merger shall occur on the 10th business day following the later to occur of (i)
the effective date (including the expiration of any applicable waiting period)
of the last required Consent (as defined below) of any Regulatory Authority (as
defined below) having authority over the transactions contemplated pursuant to
this Agreement, (ii) the date on which the shareholders of CNB approve the
transactions contemplated by this Agreement, and (iii) the date of the
satisfaction or waiver of all other conditions precedent to the transactions
contemplated by this Agreement. As used in this Agreement, "Consent" shall mean
a consent, approval, authorization, waiver, clearance, exemption or similar
affirmation by any person pursuant to any contract, permit, law, regulation or
order, and "Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission (the "FTC"), the United States Department of Justice (the "Justice
Department"), the Board of Governors of the Federal Reserve System (the "FRB"),
the Federal Deposit Insurance Corporation (the "FDIC"), the Office of the
Comptroller of the Currency (the "OCC"), the Florida Department of Banking and
Finance (the "Florida Department"), the National Association of Securities
Dealers, Inc., all national securities exchanges and the Securities and
Exchange Commission (the "SEC").
(b) The closing of the Merger (the "Closing") shall take
place at such location as the Parties hereto shall determine at 10:00 a.m.
local time on the day that the Effective Time of the Merger occurs, or such
other date, time and place as the Parties may agree (the "Closing Date").
Subject to the provisions of this Agreement, at the Closing there shall be
delivered to each of the Parties hereto the opinions, certificates and other
documents and instruments required to be so delivered pursuant to this
Agreement.
(c) The executive offices of the Combined Corporation shall
be located at 1409 South Parrott Avenue, Okeechobee, Florida 34974.
Section 1.2 Effect of Merger. At the Effective Time of the Merger, CNB
shall be merged with and into BLF and the separate existence of CNB shall
cease. The Articles of Incorporation and Bylaws of BLF shall continue to be the
Articles of Incorporation and the
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<PAGE> 197
Bylaws of the Combined Corporation until further amended as provided therein
and in accordance with applicable law. Except as otherwise provided in this
Agreement, the Combined Corporation shall have all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of
a corporation organized under the laws of the State of Florida and shall
thereupon and thereafter possess all other privileges, immunities and
franchises of a private, as well as of a public nature, of each of the
constituent corporations. All property (real, personal and mixed) and all debts
on whatever account, including subscriptions to shares, and all choses in
action, all and every other interest, of or belonging to or due to each of the
constituent corporations so merged shall be taken and deemed to be transferred
to and vested in the Combined Corporation without further act or deed. The
title to any real estate, or any interest therein, vested in any of the
constituent corporations shall not revert or be in any way impaired by reason
of the Merger. Except as otherwise provided in this Agreement, the Combined
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of each of the constituent corporations so merged and any claim
existing or action or proceeding pending by or against either of the
constituent corporations may be prosecuted as if the Merger had not taken place
or the Combined Corporation may be substituted in its place. Neither the rights
of creditors nor any liens upon the property of any constituent corporation
shall be impaired by the Merger.
Section 1.3 Further Assurances. From and after the Effective Time of
the Merger, as and when requested by the Combined Corporation, the officers and
directors of CNB last in office shall execute and deliver or cause to be
executed and delivered in the name of CNB such deeds and other instruments and
take or cause to be taken such further or other actions as shall be necessary
in order to vest or perfect in or confirm of record or otherwise to the
Combined Corporation title to and possession of all of the property, interests,
assets, rights, privileges, immunities, powers, franchises and authority of
CNB.
Section 1.4 Directors and Officers. From and after the Effective
Time of the Merger, the directors of the Combined Corporation (the "Combined
Corporation Board") shall consist of John Boy, Jr., Curtis S. Fry and Tom Smith
(or, if any one or more of such individuals shall be unwilling or unable to
serve as a director of the Combined Corporation as of the Effective Time, then
such individual or individuals, as the case may be, as the Board of Directors
of CNB shall designate to fill such vacancy or vacancies) and the seven
individuals serving as directors of BLF as of the date of this Agreement (or,
if any one or more of such individuals shall be unwilling or unable to serve as
a director of the Combined Corporation as of the Effective Time, then such
individual or individuals, as the case may be, as the Board of Directors of BLF
shall designate to fill such vacancy or vacancies). From and after the
Effective Time of the Merger and until the first annual meeting of the
Directors of the Combined Corporation (subject to the terms of applicable
employment agreements), other management of the Combined Corporation shall
consist of: Chairman, President and Chief Executive Officer (Edwin E. Walpole,
III), and Executive Vice President and Chief Administrative Officer (Joe G.
Mullins).
3
<PAGE> 198
Section 1.5 Name of Combined Corporation. The name of the Combined
Corporation shall be Big Lake Financial Corporation.
ARTICLE II
CLEWISTON NATIONAL BANK
Section 2.1 Effect of Merger. At the Effective Time of the Merger,
Clewiston National Bank shall become a wholly-owned subsidiary of BLF. The
Articles of Association and Bylaws of Clewiston National Bank shall continue to
be the Articles of Association and Bylaws of Clewiston National Bank until
further amended as provided therein and in accordance with applicable law.
Section 2.2 Directors and Chairman; Compensation. From and after the
Effective Time of the Merger, the directors of Clewiston National Bank shall
consist of the individuals serving as directors of Clewiston National Bank as
of the Effective Time (or, if any one or more of such individuals shall be
unwilling or unable to serve as a director of Clewiston National Bank as of the
Effective Time of the Merger, then such individual or individuals, as the case
may be, as the Board of Directors of Clewiston National Bank shall designate to
fill such vacancy or vacancies) and Edwin E. Walpole, III and Joe G. Mullins
(or, if any one or more individuals shall be unwilling or unable to serve as a
director of Clewiston National Bank as of the Effective Time of the Merger,
then such individual or individuals, as the case may be, as the Board of
Directors of BLF shall designate to fill such vacancy or vacancies). From and
after the Effective Time of the Merger and until the first annual meeting of
the directors of Clewiston National Bank, the Chairman of Clewiston National
Bank shall consist of Curtis S. Fry.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Manner of Conversion of CNB Shares. Subject to the
provisions hereof, as of the Effective Time of the Merger and by virtue of the
Merger and without any further action on the part of the holder of any shares
of common stock of CNB, par value $.01 per share (the "CNB Shares"):
(a) All CNB Shares which are held by CNB as treasury stock,
if any, shall be canceled and retired and no consideration shall be paid or
delivered in exchange therefor.
(b) Subject to the terms and conditions of this Agreement,
including, without limitation, Section 3.3 hereof and except with regard to
Dissenting CNB Shares (as hereinafter defined), each CNB Share outstanding
immediately prior to the Effective Time of the Merger
4
<PAGE> 199
shall be converted into the right to receive .40 shares of common stock of BLF,
par value $.01 per share (the "BLF Shares"). The applicable amount of BLF
Shares issuable in the Merger for each CNB Share pursuant to the preceding
sentence, as may be adjusted as provided herein, shall be hereinafter referred
to as the "Conversion Ratio." The Conversion Ratio, including the number of BLF
Shares issuable in the Merger, shall be subject to an appropriate adjustment in
the event of any stock split, reverse stock split, dividend payable in BLF
Shares, reclassification or similar distribution whereby BLF issues BLF Shares
or any securities convertible into or exchangeable for BLF Shares without
receiving any consideration in exchange therefor, provided that the record date
of such transaction is a date after the date of the agreement and prior to the
Effective Time of the Merger.
(c) Each outstanding CNB Share, the holder of which has
perfected dissenters rights in accordance with Sections 607.1301 through
607.1320, inclusive, of the Florida Business Corporation Act (the "Dissent
Provisions"), to the extent applicable, and has not effectively withdrawn or
lost such holder's right to such appraisal (the "Dissenting CNB Shares"), shall
not be converted into or represent a right to receive the BLF Shares issuable
in the Merger but the holder thereof shall be entitled only to such rights as
are granted by the Dissent Provisions. CNB shall give BLF prompt notice upon
receipt by CNB of any written objection to the Merger and any written demands
for payment of the fair or appraised value of CNB Shares, and of withdrawals of
such demands, and any other instruments provided to CNB pursuant to the Dissent
Provisions (any shareholder duly making such demand being hereinafter called a
"Dissenting Shareholder"). Each Dissenting Shareholder who becomes entitled,
pursuant to the Dissent Provisions, to payment of fair value of any CNB Shares
held by such Dissenting Shareholder shall receive payment therefor from the
Combined Corporation (but only after the amount thereof shall have been agreed
upon or at the times and in the amounts required by the Dissent Provisions) and
all of such Dissenting Shareholder's CNB Shares shall be canceled. If any
Dissenting Shareholder shall have failed to perfect or shall have effectively
withdrawn or lost such right to demand payment of fair or appraised value, the
CNB Shares held by such Dissenting Shareholder shall thereupon be deemed to
have been converted into the right to receive the consideration to be issued in
the Merger as provided by this Agreement.
Section 3.2 CNB Stock Options and Related Matters. As of the Effective
Time of the Merger, CNB will have no CNB Shares issuable pursuant to the
exercise of stock purchase options.
Section 3.3 Fractional Shares. Notwithstanding any other provision of
this Agreement, if a holder of CNB Shares converted pursuant to the Merger is
otherwise entitled to receive a fraction of a BLF Share (after taking into
account all certificates delivered by such holder), then, in lieu thereof, such
fraction shall be rounded up to the next whole share if such fraction is .500
or greater and such fraction shall be rounded down to the next whole share if
such fraction is .499 or less.
5
<PAGE> 200
Section 3.4 Effectuating Conversion. (a) Big Lake Financial
Corporation, or such other institution as the Combined Corporation may
designate, shall serve as the exchange agent (the "Exchange Agent"). The
Exchange Agent may employ sub-agents in connection with performing its duties.
After the Effective Time of the Merger, the Combined Corporation shall cause
the Exchange Agent to deliver the consideration to be paid by the Combined
Corporation for the CNB Shares. As promptly as practicable after the Effective
Time of the Merger, the Exchange Agent shall send or cause to be sent to each
former holder of record of CNB Shares transmittal materials (the "Letter of
Transmittal") for use in exchanging their certificates formerly representing
CNB Shares for the consideration provided for in this Agreement. The Letter of
Transmittal shall contain instructions with respect to the surrender of
certificates representing CNB Shares and the receipt of the consideration
contemplated by this Agreement and shall require each holder of CNB Shares to
transfer good and marketable title to such CNB Shares to the Combined
Corporation, free and clear of all liens, claims and encumbrances. Amounts that
would have been payable to Dissenting Shareholders for CNB Shares but for the
fact of their dissent in accordance with the provisions of Section 3.1(c)
hereof shall be returned by the Exchange Agent to the Combined Corporation as
promptly as is practicable.
(b) At the Effective Time of the Merger, the stock transfer
books of CNB shall be closed as to holders of CNB Shares immediately prior to
the Effective Time of the Merger and no transfer of CNB Shares by any such
holder shall thereafter be made or recognized and each outstanding certificate
formerly representing CNB Shares shall, without any action on the part of any
holder thereof, no longer represent CNB Shares. If, after the Effective Time of
the Merger, certificates are properly presented to the Exchange Agent, such
certificates shall be exchanged for the consideration contemplated by this
Agreement into which the CNB Shares represented thereby were converted in the
Merger.
(c) In the event that any holder of CNB Shares is unable to
deliver the certificate which represents such holder's CNB Shares, the Combined
Corporation, in the absence of actual notice that any CNB Shares theretofore
represented by any such certificate have been acquired by a bona fide
purchaser, may, in its discretion, deliver to such holder the consideration
contemplated by this Agreement to which such holder is entitled in accordance
with the provisions of this Agreement upon the presentation of all of the
following:
(i) An affidavit or other evidence to the reasonable
satisfaction of the Combined Corporation that any such certificate has been
lost, wrongfully taken or destroyed;
(ii) Such security or indemnity as may be reasonably
requested by the Combined Corporation to indemnify and hold the Combined
Corporation harmless; and
(iii) Evidence to the satisfaction of the Combined
Corporation that such holder is the owner of the CNB Shares theretofore
represented by each certificate claimed by such holder to be lost, wrongfully
taken or destroyed and that such holder is the
6
<PAGE> 201
person who would be entitled to present each such certificate for exchange
pursuant to this Agreement.
(d) In the event that the delivery of the consideration
contemplated by this Agreement is to be made to a person other than the person
in whose name any certificate representing CNB Shares surrendered is
registered, such certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer), with the signature(s)
appropriately guaranteed, and otherwise in proper form for transfer, and the
person requesting such delivery shall pay any transfer or other taxes required
by reason of the delivery to a person other than the registered holder of such
certificate surrendered or establish to the satisfaction of the Combined
Corporation that such tax has been paid or is not applicable.
(e) No holder of CNB Shares shall be entitled to receive any
dividends or distributions declared or made with respect to the BLF Shares with
a record date before the Effective Time of the Merger. Neither the
consideration contemplated by this Agreement, nor any dividend or other
distribution with respect to BLF Shares where the record date thereof is on or
after the Effective Time of the Merger shall be paid to the holder of any
unsurrendered certificate or certificates representing CNB Shares as provided
for by this Agreement. Subject to applicable laws, following surrender of any
such certificate or certificates, there shall be paid to the holder of the
certificate or certificates then representing BLF Shares issued in the Merger,
without interest at the time of such surrender, the consideration contemplated
by this Agreement, and the amount of any dividends or other distributions with
respect to BLF Shares to which such holder is entitled as a holder of BLF
Shares.
Section 3.5 Laws of Escheat. If any of the consideration due or other
payments to be paid or delivered to the holders of CNB Shares is not paid or
delivered within the time period specified by any applicable laws concerning
abandoned property, escheat or similar laws, and if such failure to pay or
deliver such consideration occurs or arises out of the fact that such property
is not claimed by the proper owner thereof, the Combined Corporation or the
Exchange Agent shall be entitled to dispose of any such consideration or other
payments in accordance with applicable laws concerning abandoned property,
escheat or similar laws. Any other provision of this Agreement notwithstanding,
none of CNB, BLF, the Combined Corporation, the Exchange Agent, nor any other
person acting on their behalf shall be liable to a holder of CNB Shares for any
amount paid or property delivered in good faith to a public official pursuant
to and in accordance with any applicable abandoned property, escheat or similar
law.
Section 3.6 BLF Shares. The BLF Shares issued and outstanding at the
Effective Time of the Merger shall remain outstanding and unchanged after the
Merger as outstanding shares of stock of the Combined Corporation.
7
<PAGE> 202
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CNB
AND CLEWISTON NATIONAL BANK
Section 4. Representations and Warranties of CNB and Clewiston
National Bank. CNB and Clewiston National Bank represent and warrant to BLF and
Big Lake National Bank that the statements contained in this Article IV are
correct and complete as of the date of this Agreement and shall be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement through this Article IV),
except (i) representations and warranties which are confined to a specified
date shall speak only as of such date, (ii) as expressly contemplated by this
Agreement, and (iii) as set forth in the disclosure schedule prepared by CNB
and delivered prior to or as of the date of this Agreement (the "CNB Disclosure
Schedule") or the Schedules attached hereto. The CNB Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article IV.
(a) Organization, Qualification, and Corporate Power. CNB is
a corporation duly organized, validly existing, and in good standing under the
laws of Florida and is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). Clewiston National
Bank is a national banking association chartered as a commercial bank under the
National Bank Act, duly organized, validly existing, and in good standing under
the laws of Florida. Clewiston National Bank is duly authorized to engage in
the business of banking in Florida as an insured bank under the Federal Deposit
Insurance Act, as amended (the "FDIA"). Each Subsidiary of CNB, other than
Clewiston National Bank, is a corporation duly organized, validly existing, and
in good standing under the laws of Florida. For purposes of this Agreement, the
term "Subsidiary" means all those corporations, associations or other entities
of which the entity in question owns or controls 5% or more of the outstanding
equity securities either directly or through an unbroken chain of entities as
to each of which 5% or more of the outstanding equity securities is owned
directly or indirectly by its parent; provided, however, there shall not be
included any such entity acquired through foreclosure, any such entity which
owns or operates an automatic teller machine interchange network, any such
entity the equity securities of which are owned or controlled in a fiduciary
capacity or any such entity which is a general industry association or group.
Each of CNB and its Subsidiaries is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction in which the nature of its
business or the ownership or leasing of its properties requires such
qualification except where the lack of such qualification would not have a
material adverse effect on its (i) business, financial condition
or results of operations, or (ii) ability to consummate the transactions
contemplated by this Agreement (together, its "Condition"); it being understood
and agreed that, for purposes of this Agreement, a material adverse effect on
the Condition of a Party shall not include a decline in results of operations
resulting from any change in law, rule, regulation or generally accepted
accounting principles ("GAAP") which impacts banks or bank holding companies
generally in a substantially similar manner. Each of CNB and its Subsidiaries
has full corporate power
8
<PAGE> 203
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. True and complete copies of the
Articles of Incorporation and the Bylaws of CNB and Clewiston National Bank are
attached hereto as Schedule 4(a). CNB and each of its Subsidiaries has in
effect all federal, state, local and foreign governmental, regulatory and other
authorizations, permits and licenses necessary for it to own or lease its
properties and assets and to carry on its business as now conducted, the
absence of which would have a material adverse effect on the Condition of CNB
and its Subsidiaries on a consolidated basis.
(b) Capitalization. The authorized capital stock of CNB
consists of 10,000,000 CNB Shares, of which 416,279 CNB Shares are issued and
outstanding on the date of this Agreement. There are no other classes of
capital stock of CNB authorized. CNB holds no CNB Shares as treasury stock. All
of the issued and outstanding CNB Shares have been duly authorized and are
validly issued, fully paid and nonassessable. None of the outstanding CNB
Shares has been issued in violation of any preemptive rights of the current or
past stockholders of CNB. The authorized capital stock of Clewiston National
Bank consists of 62,500 Clewiston National Bank Shares, of which 62,500
Clewiston National Bank shares are issued and outstanding on the date of this
Agreement, all of which are owned by CNB. There are no other classes of capital
stock of Clewiston National Bank authorized. Clewiston National Bank holds no
Clewiston National Bank Shares as treasury stock. There are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights, or other agreements or commitments to which CNB
or any CNB Subsidiary is a party or which are binding upon CNB or any CNB
Subsidiary or, to the Knowledge of CNB and Clewiston National Bank, any other
party providing for the issuance, voting, transfer, disposition, or acquisition
of any of the capital stock of CNB or any CNB Subsidiary. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to CNB or any Subsidiary of CNB. For purposes of this Agreement,
the term "Knowledge" means actual knowledge after reasonable investigation of
the Chairman, President, Chief Financial Officer, Chief Accounting Officer or
any Executive or Senior Vice President of such Party.
(c) CNB Subsidiaries. Each CNB Subsidiary is disclosed on the
CNB Disclosure Schedule. All shares of the issued and outstanding capital stock
of each CNB Subsidiary are owned by CNB or a CNB Subsidiary. The outstanding
shares of capital stock or other equity interests of each CNB Subsidiary have
been duly authorized and are validly issued, fully paid and nonassessable. All
shares of capital stock or other equity interests of each CNB Subsidiary owned
by CNB or any of its Subsidiaries are set forth in the CNB Disclosure Schedule
and are owned by such person, either directly or indirectly, free and clear of
all liens, encumbrances or claims. None of the outstanding shares of the
capital stock of any CNB Subsidiary has been issued in violation of any
preemptive rights of the current or past stockholders of such CNB Subsidiary.
Except for shares of capital stock owned by CNB or any CNB Subsidiary, there
are no shares of capital stock of any CNB Subsidiary outstanding.
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(d) Authorization of Transaction. Each of CNB and Clewiston
National Bank has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligation
hereunder; provided, however, that CNB cannot consummate the Merger unless and
until all requisite approvals are received from the Regulatory Authorities and
the approval of the shareholders of CNB have been obtained. Subject to the
foregoing sentence, (i) this Agreement has been duly executed and delivered by
CNB and Clewiston National Bank and this Agreement constitutes a valid and
binding agreement of CNB and Clewiston National Bank, enforceable against them
in accordance with its terms, subject to applicable bankruptcy, insolvency and
other similar laws affecting creditors' rights generally, general equitable
principles and the discretion of courts in granting equitable remedies, (ii)
the performance by CNB and Clewiston National Bank of their obligations under
this Agreement and the consummation of the Merger and the other transactions
provided for under this Agreement have been duly and validly authorized by all
necessary corporate action on the part of CNB and Clewiston National Bank, and
(iii) the Boards of Directors of CNB and Clewiston National Bank have approved
the execution, delivery and performance of this Agreement and the consummation
of the Merger and the other transactions provided for under this Agreement.
Other than to or from the Regulatory Authorities or to or from the Internal
Revenue Service ("IRS") or the Pension Benefit Guaranty Corporation ("PBGC")
with respect to any employee benefit plans, none of CNB or any of its
Subsidiaries needs to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the Condition of CNB and its Subsidiaries on a consolidated basis.
(e) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (i) subject to the receipt of the approvals contemplated in
Section 4(d) above, violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which any of CNB and its
Subsidiaries is subject or any provision of the Articles of Incorporation or
Bylaws of any of CNB and its Subsidiaries or (ii) with the passing of time or
the giving of notice or both, conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other obligation to which any of CNB and its Subsidiaries is a party or by
which it is bound or to which any of its assets is subject or result in the
imposition of any Security Interest upon any of its assets) except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or Security Interest would not have a
material adverse effect on the Condition of CNB and its Subsidiaries on a
consolidated basis. For purposes of this Agreement, the term "Security
Interest" means any mortgage, pledge, security interest, encumbrance, charge,
or other lien, other than (a) mechanics, materialmen, and similar liens, (b)
liens for taxes not yet due and payable or for taxes that the taxpayer is
contesting in good
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faith through appropriate proceedings, (c) liens arising under workers
compensation, unemployment insurance, social security, retirement, and similar
legislation, (d) liens on goods in transit incurred pursuant to documentary
letters of credit, (e) purchase money liens and liens securing rental payments
under capital lease arrangements, and (f) other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
For purposes of this Agreement, the term "Ordinary Course of Business" means
the ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency).
(f) Financial Statements. CNB has delivered to BLF prior to
the execution of this Agreement copies of the following financial statements of
CNB (collectively referred to herein as the "CNB Financial Statements"):
audited consolidated balance sheets of CNB and its Subsidiaries at December 31,
1995 and 1996, and the related consolidated statements of (A) income, (B)
shareholders' equity and (C) cash flows for the years then ended and the notes
thereto as reported upon by Stevens, Thomas, Schemer & Sparks, P.A.,
independent certified public accountants.
The CNB Financial Statements (as of the dates thereof and for the
periods covered thereby): (i) have been prepared from the books and records of
CNB, which in all material respects account for those transactions which in
accordance with good business practices and applicable banking and other legal
requirements are required to be accounted for, and (ii) present fairly in all
material respects the consolidated financial position and the results of
operations and cash flows of CNB and its Subsidiaries as of the dates and for
the periods indicated, in accordance with GAAP, applied on a basis consistent
with prior periods except as disclosed in the notes thereto or, in the case of
unaudited quarterly statements, subject to normal recurring year-end
adjustments that are not material and the absence of certain footnote and cash
flow information.
(g) Undisclosed Liabilities. None of CNB and its Subsidiaries
has any liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities for future
disbursements on letters of credit, lines of credit and similar instruments or
unfunded loan commitments, (ii) liabilities accrued or reserved against in the
balance sheet dated as of December 31, 1996 included in the CNB Financial
Statements or reflected in the notes thereto, and (iii) liabilities which have
arisen after December 31, 1996 in the Ordinary Course of Business or in
connection with the transactions provided for in this Agreement (none
of which relates to any breach of contract, breach of warranty, tort,
infringement, or violation of law or arose out of any charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand and none of
which, individually or in the aggregate, materially and adversely affect the
Condition of CNB and its Subsidiaries on a consolidated basis). Since December
31, 1996, neither CNB nor any of its Subsidiaries has incurred or paid any
obligation or liability which would be material to the Condition of CNB and its
Subsidiaries on a consolidated basis, except in the Ordinary Course of
Business.
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(h) Brokers' Fees. None of CNB and its Subsidiaries, or any of their
officers, directors or employees, has any liability or obligation to pay any
fees or commissions to, or has employed, any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(i) Taxes.
(i) All federal, state, local and foreign tax returns required to
be filed by or on behalf of CNB or any of its Subsidiaries have been timely
filed or requests for extensions have been timely filed, granted and have not
expired, for periods ending on or before December 31, 1996, and all such
returns filed are true, complete and accurate in all material respects. CNB has
timely paid or caused to be paid all taxes shown to be due on such tax returns.
There is no audit examination, deficiency or refund litigation or matter in
controversy with respect to any taxes currently pending involving CNB or any of
its Subsidiaries. All material tax, interest, additions, and penalties due with
respect to completed and settled examinations or concluded litigation have been
paid, accrued or provided for.
(ii) Neither CNB nor any of its Subsidiaries have executed an
extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect.
(iii) Adequate provision for any federal, state, local or foreign
taxes due or to become due for CNB or any of its Subsidiaries for any period or
periods through and including December 31, 1996, has been made and is reflected
on the December 31, 1996 financial statements included in the CNB Financial
Statements.
(iv) Deferred taxes of CNB and its Subsidiaries have been provided
for in the CNB Financial Statements in accordance with GAAP, subject in the
case of interim financial statements to normal recurring year-end adjustments.
(v) All taxes which CNB and each of its Subsidiaries is required
by law to withhold or to collect for payment have been duly withheld and
collected, and have been paid to the proper governmental entity or are being
withheld by CNB, the failure of which would have a material adverse effect on
the Condition of CNB and its Subsidiaries on a consolidated basis.
(j) Allowance for Loan or Credit Losses. The allowance for loan or
credit losses ("Allowance") shown on the consolidated balance sheets of CNB and
its Subsidiaries as of December 31, 1996 included in the CNB Financial
Statements was, and the Allowance shown on the consolidated balance sheets of
CNB and its Subsidiaries as of dates subsequent to the execution of this
Agreement will to the Knowledge of CNB and Clewiston National Bank be, in each
case as of the dates thereof, adequate to provide for losses relating to or
inherent in the loan and lease portfolios (including accrued interest
receivable) of CNB and its Subsidiaries and other extensions of credit
(including letters of credit and commitments to
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make loans or extend credit) by CNB and its Subsidiaries, except where the
failure of the Allowance to be so adequate would not have a material adverse
effect on the Condition of CNB and its Subsidiaries on a consolidated basis.
(k) Properties; Insurance. CNB or a CNB Subsidiary has good and
marketable title free and clear of all material liens, encumbrances, charges,
defaults or equities of whatever character to all of the respective properties
and assets, tangible or intangible, reflected in the CNB Financial Statements,
except for liens disclosed in such Financial Statements, those arising in the
Ordinary Course of Business after December 31, 1996 or liens which are not
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the Condition of CNB and its Subsidiaries on a consolidated basis.
All buildings, and all fixtures, equipment and other property and assets which
are material to its business on a consolidated basis and which are held under
leases or subleases by CNB or a CNB Subsidiary are held under valid instruments
enforceable in accordance with their respective terms (except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except that the availability of the
equitable remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceedings may be brought). The real
property owned and used as facilities by CNB or the CNB Subsidiaries has never
been used for the handling, treatment, storage or disposal of any hazardous or
toxic substance as defined under any applicable state or federal law. The
policies of fire, theft, liability and other insurance maintained with respect
to the assets or businesses of CNB or its Subsidiaries provide adequate
coverage against loss, and the fidelity bonds in effect as to which such
entities are named insureds are believed by management of CNB to be sufficient.
Substantially all of CNB's and its Subsidiaries' equipment in regular use has
been well maintained and is in good and serviceable condition, reasonable wear
and tear excepted.
(l) Material Contracts. Neither CNB nor any CNB Subsidiary nor any of
their respective assets, businesses or operations as of the date of this
Agreement is a party to, or is bound or affected by, or receives benefits
under, any of the following (whether written or oral and excluding agreements
for the extension of credit by CNB or any CNB Subsidiary made in the Ordinary
Course of Business): (i) any employment agreement or understanding (including
any understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer, director,
or employee, including in any such person's capacity as a consultant (other
than those which are terminable at will without any further amount being
payable thereunder), (ii) any other agreement with any officer, director,
employee, or affiliate, (iii) any agreement with any labor union, (iv) any
agreement which limits the ability of CNB or any CNB Subsidiary to compete in
any line of business or which involves any restriction of the geographical area
in which CNB or any CNB Subsidiary may carry on its business (other than as may
be required by law or applicable regulatory authorities), or (v) any agreement,
contract, arrangement or commitment with annual payments aggregating $20,000 or
more.
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(m) Material Contract Defaults. Neither CNB nor any CNB Subsidiary is,
or has received any written notice or has any Knowledge that any other party
is, in default in any material respect under any contract, lease, sublease,
license, franchise, permit, indenture, agreement, or mortgage for borrowed
money, or instrument of indebtedness (except, as to the foregoing, extensions
of credit by Clewiston National Bank in the Ordinary Course of Business), and
there has not occurred any event that with the lapse of time or the giving of
notice or both would constitute such a default.
(n) Compliance with Laws.
(i) Each of CNB and its Subsidiaries is in compliance in all
respects with all laws, regulations, reporting and licensing requirements and
orders applicable to its business or to its employees conducting its business,
with any Regulatory Agreements (as hereinafter defined) applicable to CNB or
its Subsidiaries, and with its internal policies and procedures, the breach or
violation of which would have a material adverse effect on the Condition of CNB
and its Subsidiaries on a consolidated basis.
(ii) Neither CNB nor any of its Subsidiaries has received any
written notification or communication from any Regulatory Authorities (A)
asserting that any of CNB or its Subsidiaries is not in substantial compliance
with any of the statutes, regulations, or ordinances which such Regulatory
Authority enforces which as a result of such noncompliance would have a
material adverse effect on the Condition of CNB and its Subsidiaries on a
consolidated basis, (B) threatening to revoke any license, franchise, permit or
governmental authorization which is material to the Condition of CNB and its
Subsidiaries on a consolidated basis, (C) requiring or threatening to require
CNB or any of its Subsidiaries, or indicating that CNB or any of its
Subsidiaries may be required, to enter into or be subject to a cease and desist
order, agreement, memorandum of understanding or any other agreement or
undertaking (or to cause its Board of Directors to adopt any resolutions)
restricting or limiting or purporting to restrict or limit in any manner the
operations of CNB or any of its Subsidiaries, including, without limitation,
any restriction on the payment of dividends, or (D) directing, restricting or
limiting, or purporting to direct, restrict or limit in any manner the
operations of CNB or any of its Subsidiaries, including, without limitation,
any restriction on the payment of dividends (any such notice, communication,
order, agreement, memorandum, resolutions or undertaking described in this
sentence herein referred to as a "Regulatory Agreement"). Neither CNB nor any
of its Subsidiaries has consented to, entered into, agreed to enter into, or
been made subject to, any Regulatory Agreement.
(o) Employee Benefit Plans.
(i) The CNB Disclosure Schedule lists every pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, any other written or
unwritten employee program, arrangement, agreement or understanding, whether
arrived at through collective bargaining or otherwise, any medical, vision,
dental or other health plan, any life insurance
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plan, any golden parachute or other executive compensation plan, or any other
employee benefit plan or fringe benefit plan, including, without limitation,
any "employee benefit plan" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (a
"Benefit Plan" or, collectively, "Benefit Plans"), currently or expected to be
adopted, maintained by, sponsored in whole or in part by, or contributed to by
CNB or any ERISA Affiliate (as herein defined) for the benefit of its
employees, retirees, dependents, spouses, directors, independent contractors or
other beneficiaries and under which any of its employees, retirees, dependents,
spouses, directors, independent contractors or other beneficiaries are eligible
to participate (collectively, the "CNB Benefit Plans"). No CNB Benefit Plan is
or has been a multi-employer plan within the meaning of Section 3(37) and
Section 4001(a)(3) of ERISA. For purposes of this Section 4(o), the term "ERISA
Affiliate" means each trade or business (whether or not incorporated) which
together with CNB is treated as a single employer under Section 414(b), (c),
(m) or (o) of the Internal Revenue Code.
(ii) True, correct and complete copies of all written CNB Benefit
Plans and descriptions of all unwritten CNB Benefit Plans listed in the CNB
Disclosure Schedule and all trust agreements or other funding arrangements,
including insurance contracts, all amendments thereto and, where applicable,
with respect to any such plans or plan amendments, all determination letters,
rulings, opinion letters, information letters, or advisory opinions issued by
the IRS or the United States Department of Labor after December 31, 1974,
annual reports or returns, audited or unaudited financial statements, actuarial
valuations, and summary annual reports for the most recent three plan years,
the most recent summary plan descriptions and any material modifications
thereto, have previously been delivered to BLF or will be attached to the CNB
Disclosure Schedule.
(iii) All the CNB Benefit Plans and the related trusts are in
material compliance with, and have been administered in material compliance
with, the provisions of ERISA, the provisions of the Internal Revenue Code and
all other applicable laws, rules and regulations and collective bargaining
agreements. Any required governmental approvals for the CNB Benefit Plans have
been obtained, including, but not limited to, favorable determination letters
on the qualification of the ERISA Plans and tax exemption of related trusts, as
applicable, under the Internal Revenue Code, and all such governmental
approvals continue in full force and effect. Neither CNB nor any administrator
or fiduciary of any CNB Benefit Plan or agent or delegate of any of the
foregoing has engaged in any transaction or acted or failed to act in any
manner which could subject CNB, BLF or any affiliate thereof to any direct or
indirect liability for a breach of any fiduciary, co-fiduciary or other duty
under ERISA. To the knowledge of CNB's management after due inquiry, no oral or
written representation or communication with respect to any aspect of the CNB
Benefit Plans has been made to employees of CNB prior to the Effective Time of
the Merger which is not in accordance with the written or otherwise
pre-existing terms and provisions of such CNB Benefit Plans in effect at the
time of such communication. There are no unresolved claims or disputes under
the terms of, or in connection with, the CNB Benefit Plans and no action, legal
or otherwise, has been commenced with respect to any claim under the terms of,
or in connection with, the CNB Benefit Plans.
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(iv) No "party in interest" (as defined in Section 3(14) of ERISA)
or "disqualified person" (as defined in Section 4975(e)(2) of the Internal
Revenue Code) of any CNB Benefit Plan has engaged in any "prohibited
transaction (within the meaning of Section 4975(c) of the Internal Revenue Code
or Section 406 of ERISA). There has been no (A) "reportable event" (as defined
in Section 4043 of ERISA), or event described in Section 4062(e) or Section
4063(a) of ERISA, or (B) termination or partial termination, withdrawal or
partial withdrawal with respect to any of the ERISA Plans which: (1) CNB
maintains or contributes to or has maintained or contributed to or was required
to maintain or contribute to for the benefit of employees of CNB; or (2) which
has been maintained or contributed to or was required to be maintained or
contributed to by any member of a controlled group of trades or business as
defined in ERISA Section 4001(a)(14) which has, since January 1, 1975, included
CNB.
(v) For any given ERISA Plan relating to CNB and its Subsidiaries,
all assets of such plan are carried at their fair market value, to the extent
required by the plan document and applicable law, and the fair market value of
such plan's assets equals or exceeds the present value of all benefits (whether
vested or not) accrued to date by all present or former participants in such
plan. No CNB Benefit Plan is subject to the rules of the PBGC.
(vi) As of the Effective Time, CNB will not have any material
current or future liability under any CNB Benefit Plan that was not reflected
in the CNB Financial Statements.
(vii) No CNB Benefit Plan provides for welfare benefits (as
defined in ERISA Section 3(1)) to employees after retirement other than as may
be required by Section 601 et seq. of ERISA.
(viii) Each CNB Benefit Plan may be terminated by the Combined
Corporation in its sole discretion on or after the Closing Date without
liability of any kind or description arising from either such termination or
any action attributable to the Combined Corporation.
(ix) The execution of, or performance of the transactions
contemplated by, this Agreement will not create, accelerate or increase any
obligations under the CNB Benefit Plans, and will not require or cause to be
payable any payment which is or would be an "excess parachute payment" under
Section 28OG of the Internal Revenue Code.
(p) Legal Proceedings. There are no actions, suits or proceedings
instituted or pending or, to the Knowledge of CNB, threatened (or unasserted
but considered probable of assertion and which if asserted would have at least
a reasonable probability of an unfavorable outcome) against CNB or any CNB
Subsidiary, or against any property, asset, interest or right of any of them,
that have a reasonable probability either individually or in the aggregate of
having a material adverse effect on the Condition of CNB and the CNB
Subsidiaries on a consolidated basis.
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(q) Absence of Certain Changes or Events. Since December 31,
1996, the businesses of CNB and each CNB Subsidiary have been operated only in
the ordinary course consistent with past practices and since such date there has
not been, occurred or arisen: (i) any damage, destruction, loss or casualty
whether or not covered by insurance which has had or is reasonably likely to
have a material adverse affect on the Condition of CNB and the CNB Subsidiaries
on a consolidated basis; (ii) any declaration, setting aside or payment of any
dividend or distribution (whether in cash, stock or property) in respect of the
CNB Shares or any redemption or other acquisition of the CNB Shares by CNB or
any split, combination or reclassification of CNB Shares declared or made; (iii)
any extraordinary losses required by GAAP to be disclosed as such that have been
suffered and not adequately reserved against, whether or not in the Ordinary
Course of Business; (iv) any material assets mortgaged, pledged or subjected to
any lien, charge or other encumbrance; (v) any agreement to do any of the
foregoing; or (vi) any other event, development or condition of any character
including any change in results of operations, financial condition, method of
accounting or accounting practices, nature of business, or manner of conducting
the businesses of CNB and its Subsidiaries that has had, or is reasonably likely
to have, a material adverse effect on the Condition of CNB and the CNB
Subsidiaries on a consolidated basis.
(r) Reports. Since December 31, 1996, CNB and each CNB
Subsidiary has filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with any
Regulatory Authority. Each such report and statement, including the financial
statements, exhibits and schedules thereto, at the time of filing thereof
complied in all material respects with the laws and rules and regulations
applicable to it and did not contain any untrue statement of material fact or
omit to state any material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not false or
misleading.
(s) Statements True and Correct. No representation or warranty
made by CNB in this Agreement nor any written statement or certificate included
in an Exhibit or Schedule by CNB in connection with this Agreement nor any
written statement or certificate to be furnished by CNB to BLF pursuant to this
Agreement, contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements made, in the light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by CNB for inclusion in the definitive
proxy materials to be mailed to CNB shareholders in connection with the Special
CNB Meeting (as defined in Section 6(b)(iii)), and any other documents to be
filed with any Regulatory Authority in connection with the transactions
contemplated hereby, will at the respective time such documents are filed fail
to comply in all material respects with the laws and rules and regulations
applicable to CNB and its Subsidiaries, contain any untrue statement of a
material fact, or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. All documents that CNB is responsible for filing with any
Regulatory Authority in connection with the Merger and the Bank Merger will
comply as to form in all material respects with the provisions of applicable
law.
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(t) Environmental Matters.
(i) To the Knowledge of CNB, each of CNB, its Subsidiaries, the
Participation Facilities, and the Loan Properties (each as hereinafter defined)
are, and have been, in compliance with all applicable laws, rules, regulations,
standards and requirements of the United States Environmental Protection Agency
("EPA") and of state and local agencies with jurisdiction over pollution or
protection of the environment, except for violations which, either individually
or in the aggregate, do not or would not result in a material adverse effect on
the Condition of CNB and its Subsidiaries on a consolidated basis.
(ii) To the Knowledge of CNB, there is no suit, claim, action or
proceeding pending or threatened, before any court, governmental agency or board
or other forum in which CNB or any of its Subsidiaries or any Participation
Facility has been or, with respect to threatened proceedings, may be, named as a
defendant (A) for alleged noncompliance (including by any predecessor), with any
environmental law, rule or regulation or (B) relating to the release into the
environment of any Hazardous Material (as hereinafter defined) or oil whether or
not occurring at or on a site owned, leased or operated by CNB or any of its
Subsidiaries or any Participation Facility except as would not, either
individually or in the aggregate, result in a material adverse effect on the
Condition of CNB and its Subsidiaries on a consolidated basis.
(iii) To the Knowledge of CNB, there is no suit, claim, action or
proceeding pending or threatened, before any court, governmental agency or board
or other forum in which any Loan Property has been or, with respect to
threatened proceedings, may be, named as a defendant (A) for alleged
noncompliance (including by any predecessor) with any environmental law, rule or
regulation or (B) relating to the release into the environment of any Hazardous
Material or oil whether or not occurring at or on a site owned, leased or
operated by a Loan Property, except where such noncompliance or release does not
or would not result, either individually or in the aggregate, in a material
adverse effect on the Condition of CNB and its Subsidiaries on a consolidated
basis.
(iv) To the Knowledge of CNB, there is no reasonable basis for any
suit, claim, action or proceeding as described in subsection (ii) or (iii) of
this Section 4(t) except as would not, individually or in the aggregate, have a
material adverse effect on the Condition of CNB and its Subsidiaries on a
consolidated basis.
(v) During the period of (A) CNB's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (B) CNB's
or any of its Subsidiaries' participation in the management of any Participation
Facilities, or (C) CNB's or any of its Subsidiaries' holding of a Security
Interest in a Loan Property, to the Knowledge of CNB, there has been no release
of Hazardous Material or oil in, on, under or affecting such properties, except
where such release does not or would not result, either individually or in the
aggregate, in a material adverse effect on the Condition of CNB and its
Subsidiaries on a consolidated basis. Prior to the period of (A) CNB's or any of
its Subsidiaries' ownership or
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operation of any of their respective current properties, (B) CNB's or any of its
Subsidiaries' participation in the management of any Participation Facility, or
(C) CNB or any of its Subsidiaries' holding of a Security Interest in a Loan
Property, to the Knowledge of CNB, there was no release of Hazardous Material or
oil in, on, under or affecting any such property, Participation Facility or Loan
Property, except where such release does not or would not result, either
individually or in the aggregate, in a material adverse effect on the condition
of CNB and its Subsidiaries on a consolidated basis.
(vi) The following definitions apply for purposes of this Section
4(t): (A) "Loan Property" means any real property in which CNB holds a Security
Interest and, where required by the context, said term means the owner or
operator of such property; (B) "Participation Facility" means any facility in
which CNB participates in the management and where required by the context, said
term means the owner or operator of such property; and (C) "Hazardous Material"
means any pollutant, contaminant, or hazardous substance under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss.9601 et
seq. or any similar state law.
(u) Labor Matters. Except as set forth in the CNB Disclosure Schedule,
neither CNB nor any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is it or any of its Subsidiaries
the subject of any material proceeding asserting that it or any Subsidiary has
committed an unfair labor practice or seeking to compel it to bargain with any
labor organization as to wages or conditions of employment nor is there any
strike or other labor dispute involving it or any of its Subsidiaries pending
or, to its knowledge, threatened, any of which would have a material adverse
effect on the Condition of CNB and its Subsidiaries on a consolidated basis.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BLF
AND BIG LAKE NATIONAL BANK
Section 5. Representations and Warranties of BLF and Big Lake National
Bank. BLF and Big Lake National Bank represent and warrant to CNB that the
statements contained in this Article V are correct and complete as of the date
of this Agreement and shall be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement through this Article V), except (i) representations and
warranties which are confined to a specified date shall speak only as of such
date, (ii) as expressly contemplated by this Agreement, and (iii) as set forth
in the disclosure schedule prepared by BLF and delivered prior to or as of the
date of this Agreement (the "BLF Disclosure Schedule") or the Schedules attached
hereto. The BLF Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
V.
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(a) Organization, Qualification, and Corporate Power. BLF is a
corporation duly organized, validly existing, and in good standing under the
laws of Florida and is duly registered as a bank holding company under the BHC
Act. As of the date of this Agreement and as set forth in Section 5(b), BLF
owned all of the issued and outstanding capital stock of Big Lake National Bank.
Big Lake National Bank is a Florida banking corporation chartered as a
commercial bank under the authority of Chapter 658, Florida Statutes, duly
organized, validly existing, and in good standing under the laws of Florida. Big
Lake National Bank is duly authorized to engage in the business of banking in
Florida as an insured bank under the FDIA. Each Subsidiary of BLF, other than
Big Lake National Bank, is a corporation duly organized, validly existing, and
in good standing under the laws of Florida. Each of BLF and its Subsidiaries is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties requires such qualification except where the lack of
such qualification would not have a material adverse effect on its Condition.
Each of BLF and its Subsidiaries has full corporate power and authority
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. True and complete copies of the Articles of
Incorporation and the Bylaws of BLF and Big Lake National Bank are attached
hereto as Schedule 5(a). BLF and each of its Subsidiaries has in effect all
federal, state, local and foreign governmental, regulatory and other
authorizations, permits and licenses necessary for it to own or lease its
properties and assets and to carry on its business as now conducted, the
absence of which would have a material adverse effect on the Condition of BLF
and its Subsidiaries on a consolidated basis.
(b) Capitalization. The authorized capital stock of BLF consists of (i)
1,000,000 BLF Shares, of which 313,435 BLF Shares are issued and outstanding on
the date of this Agreement, and (ii) 500,000 shares of preferred stock, par
value $1.00 per share, none of which are issued or outstanding as of the date of
this Agreement. There are no other classes of capital stock of BLF authorized.
BLF holds 4,724 BLF Shares as treasury stock. All of the issued and outstanding
BLF Shares have been duly authorized and are validly issued, fully paid and
nonassessable. None of the outstanding BLF Shares has been issued in violation
of any preemptive rights of the current or past stockholders of BLF. The
authorized capital stock of Big Lake National Bank consists of 100,000 Big Lake
National Bank Shares, all of which are issued and outstanding on the date of
this Agreement. There are no other classes of capital stock of Big Lake National
Bank authorized. Big Lake National Bank holds no Big Lake National Bank Shares
as treasury stock. Except with respect to the 18,213 BLF Shares issuable
pursuant to the exercise of stock options ("BLF Options") granted by BLF under
stock option plans of BLF (the "BLF Stock Option Plans"), which BLF Options are
listed and described in Schedule 5(b), there are no outstanding or authorized
options, warrants, rights, contracts, calls, puts, rights to subscribe,
conversion rights, or other agreements or commitments to which BLF or any BLF
Subsidiary is a party or which are binding upon BLF or any BLF Subsidiary or, to
the Knowledge of BLF and Big Lake National Bank, any other party providing for
the issuance, voting, transfer, disposition, or acquisition of any of the
capital stock of BLF or any BLF Subsidiary. There are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
BLF or any Subsidiary of BLF.
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(c) BLF Subsidiaries. Each BLF Subsidiary is disclosed on the BLF
Disclosure Schedule. Except as set forth in Section 5(b), all shares of the
issued and outstanding capital stock of each BLF Subsidiary are owned by BLF or
a BLF Subsidiary. The outstanding shares of capital stock or other equity
interests of each BLF Subsidiary have been duly authorized and are validly
issued, fully paid and nonassessable. All shares of capital stock or other
equity interests of each BLF Subsidiary owned by BLF or any of its Subsidiaries
are set forth in the BLF Disclosure Schedule and are owned by such person,
either directly or indirectly, free and clear of all liens, encumbrances or
claims. None of the outstanding shares of the capital stock of any BLF
Subsidiary has been issued in violation of any preemptive rights of the current
or past stockholders of such BLF Subsidiary. All shares of capital stock of each
BLF Subsidiary is owned by BLF or an BLF Subsidiary, and there are no other
shares of capital stock of any BLF Subsidiary outstanding.
(d) Authorization of Transaction. Each of BLF and Big Lake National
Bank has full power and authority (including full corporate power and authority)
to execute and deliver this Agreement and to perform its obligation hereunder;
provided, however, that BLF cannot consummate the Merger unless and until all
requisite approvals are received from the Regulatory Authorities. Subject to the
foregoing sentence, (i) this Agreement has been duly executed and delivered by
BLF and Big Lake National Bank and this Agreement constitutes a valid and
binding agreement of BLF and Big Lake National Bank, enforceable against them in
accordance with its terms, subject to applicable bankruptcy, insolvency and
other similar laws affecting creditors' rights generally, general equitable
principles and the discretion of courts in granting equitable remedies, (ii) the
performance by BLF and Big Lake National Bank of their obligations under this
Agreement and the consummation of the Merger and the other transactions provided
for under this Agreement have been or will be duly and validly authorized by all
necessary corporate action on the part of BLF and Big Lake National Bank, and
(iii) the Boards of Directors of BLF and Big Lake National Bank have approved
the execution, delivery and performance of this Agreement and the consummation
of the Merger and the other transactions provided for under this Agreement.
Other than to or from the Regulatory Authorities or to or from the IRS or the
PBGC with respect to any employee benefit plans, none of BLF or any of its
Subsidiaries needs to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the Condition of BLF and its Subsidiaries on a consolidated basis.
(e) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) subject to the receipt of the approvals contemplated in Section 5(d) above,
violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which any of BLF and its Subsidiaries is subject or any provision of
the Articles of Incorporation or Bylaws of any of BLF and its Subsidiaries or
(ii) with the passing of time or the giving of notice or both, conflict with,
result
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in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease, license, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other obligation to which any of BLF and its
Subsidiaries is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets) except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a material adverse effect on the Condition of BLF and
its Subsidiaries on a consolidated basis.
(f) Financial Statements. BLF has delivered to CNB prior to the
execution of this Agreement copies of the following financial statements of BLF
(collectively referred to herein as the "BLF Financial Statements"): audited
consolidated balance sheets of BLF and its Subsidiaries at December 31, 1995 and
1996, and the related consolidated statements of (A) income, (B) shareholders'
equity and (C) cash flows for the years then ended and the notes thereto as
reported upon by Stevens, Thomas, Schemer & Sparks, P.A., independent certified
public accountants.
The BLF Financial Statements (as of the dates thereof and for the
periods covered thereby): (i) have been prepared from the books and records of
BLF, which in all material respects account for those transactions which in
accordance with good business practices and applicable banking and other legal
requirements are required to be accounted for, and (ii) present fairly in all
material respects the consolidated financial position and the results of
operations and cash flows of BLF and its Subsidiaries as of the dates and for
the periods indicated, in accordance with GAAP, applied on a basis consistent
with prior periods except as disclosed in the notes thereto or, in the case of
unaudited quarterly statements, subject to normal recurring year-end adjustments
that are not material and the absence of certain footnote and cash flow
information.
(g) Undisclosed Liabilities. None of BLF and its Subsidiaries has any
liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated, and whether due or to become due), including any
liability for taxes, except for (i) liabilities for future disbursements on
letters of credit, lines of credit and similar instruments or unfunded loan
commitments, (ii) liabilities accrued or reserved against in the balance sheet
dated as of December 31, 1996 included in the BLF Financial Statements or
reflected in the notes thereto, and (iii) liabilities which have arisen after
December 31, 1996 in the Ordinary Course of Business or in connection with the
transactions provided for in this Agreement (none of which relates to any breach
of contract, breach of warranty, tort, infringement, or violation of law or
arose out of any charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand and none of which, individually or in the
aggregate, materially and adversely affect the Condition of BLF and its
Subsidiaries on a consolidated basis). Since December 31, 1996, neither BLF nor
any of its Subsidiaries has incurred or paid any obligation or liability which
would be material to the Condition of BLF and its Subsidiaries on a consolidated
basis, except in the Ordinary Course of Business.
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(h) Brokers' Fees. None of BLF and its Subsidiaries, or any of their
officers, directors or employees, has any liability or obligation to pay any
fees or commissions to, or has employed, any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(i) Taxes.
(i) All federal, state, local and foreign tax returns required to
be filed by or on behalf of BLF or any of its Subsidiaries have been timely
filed or requests for extensions have been timely filed, granted and have not
expired, for periods ending on or before December 31, 1996, and all such returns
filed are true, complete and accurate in all material respects. BLF has timely
paid or caused to be paid all taxes shown to be due on such tax returns. There
is no audit examination, deficiency or refund litigation or matter in
controversy with respect to any taxes currently pending involving BLF or any of
its Subsidiaries. All material tax, interest, additions, and penalties due with
respect to completed and settled examinations or concluded litigation have been
paid, accrued or provided for.
(ii) Neither BLF nor any of its Subsidiaries have executed an
extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect.
(iii) Adequate provision for any federal, state, local or foreign
taxes due or to become due for BLF or any of its Subsidiaries for any period or
periods through and including December 31, 1996, has been made and is reflected
on the December 31, 1996 financial statements included in the BLF Financial
Statements.
(iv) Deferred taxes of BLF and its Subsidiaries have been provided
for in the BLF Financial Statements in accordance with GAAP, subject in the case
of interim financial statements to normal recurring year-end adjustments.
(v) All taxes which BLF and each of its Subsidiaries is required
by law to withhold or to collect for payment have been duly withheld and
collected, and have been paid to the proper governmental entity or are being
withheld by BLF, the failure of which would have a material adverse effect on
the Condition of BLF and its Subsidiaries on a consolidated basis.
(j) Allowance for Loan or Credit Losses. The Allowance shown on the
consolidated balance sheets of BLF and its Subsidiaries as of December 31, 1996
included in the BLF Financial Statements was, and the Allowance shown on the
consolidated balance sheets of BLF and its Subsidiaries as of dates subsequent
to the execution of this Agreement will to the Knowledge of BLF and Big Lake
National Bank be, in each case as of the dates thereof, adequate to provide for
losses relating to or inherent in the loan and lease portfolios (including
accrued interest receivable) of BLF and its Subsidiaries and other extensions of
credit (including letters of credit and commitments to make loans or extend
credit) by BLF and
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its Subsidiaries, except where the failure of the Allowance to be so adequate
would not have a material adverse effect on the Condition of BLF and its
Subsidiaries on a consolidated basis.
(k) Properties; Insurance. BLF or a BLF Subsidiary has good and
marketable title free and clear of all material liens, encumbrances, charges,
defaults or equities of whatever character to all of the respective properties
and assets, tangible or intangible, reflected in the BLF Financial Statements,
except for liens disclosed in such Financial Statements, those arising in the
Ordinary Course of Business after December 31, 1996 or liens which are not
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the Condition of BLF and its Subsidiaries on a consolidated basis. All
buildings, and all fixtures, equipment and other property and assets which are
material to its business on a consolidated basis and which are held under leases
or subleases by BLF or a BLF Subsidiary are held under valid instruments
enforceable in accordance with their respective terms (except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and except that the availability of the
equitable remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceedings may be brought). The real
property owned and used as facilities by BLF or the BLF Subsidiaries has never
been used for the handling, treatment, storage or disposal of any hazardous or
toxic substance as defined under any applicable state or federal law. The
policies of fire, theft, liability and other insurance maintained with respect
to the assets or businesses of BLF or its Subsidiaries provide adequate coverage
against loss, and the fidelity bonds in effect as to which such entities are
named insureds are believed by management of BLF to be sufficient. Substantially
all of BLF's and its Subsidiaries' equipment in regular use has been well
maintained and is in good and serviceable condition, reasonable wear and tear
excepted.
(l) Material Contracts. Neither BLF nor any BLF Subsidiary nor any of
their respective assets, businesses or operations as of the date of this
Agreement is a party to, or is bound or affected by, or receives benefits under,
any of the following (whether written or oral and excluding agreements for the
extension of credit by BLF or any BLF Subsidiary made in the Ordinary Course of
Business): (i) any employment agreement or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer, director, or
employee, including in any such person's capacity as a consultant (other than
those which are terminable at will without any further amount being payable
thereunder), (ii) any other agreement with any officer, director, employee, or
affiliate, (iii) any agreement with any labor union, (iv) any agreement which
limits the ability of BLF or any BLF Subsidiary to compete in any line of
business or which involves any restriction of the geographical area in which BLF
or any BLF Subsidiary may carry on its business (other than as may be required
by law or applicable regulatory authorities), or (v) any agreement, contract,
arrangement or commitment with annual payments aggregating $20,000 or more.
(m) Material Contract Defaults. Neither BLF nor any BLF Subsidiary is,
or has received any written notice or has any Knowledge that any other party is,
in default in any
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material respect under any contract, lease, sublease, license, franchise,
permit, indenture, agreement, or mortgage for borrowed money, or instrument of
indebtedness (except, as to the foregoing, extensions of credit by Big Lake
National Bank in the Ordinary Course of Business), and there has not occurred
any event that with the lapse of time or the giving of notice or both would
constitute such a default.
(n) Compliance with Laws.
(i) Each of BLF and its Subsidiaries is in compliance in all
respects with all laws, regulations, reporting and licensing requirements and
orders applicable to its business or to its employees conducting its business,
with any Regulatory Agreements applicable to BLF or its Subsidiaries, and with
its internal policies and procedures, the breach or violation of which would
have a material adverse effect on the Condition of BLF and its Subsidiaries on a
consolidated basis.
(ii) Neither BLF nor any of its Subsidiaries has received any
written notification or communication from any Regulatory Authorities (A)
asserting that any of BLF or its Subsidiaries is not in substantial compliance
with any of the statutes, regulations, or ordinances which such Regulatory
Authority enforces which as a result of such noncompliance would have a material
adverse effect on the Condition of BLF and its Subsidiaries on a consolidated
basis, (B) threatening to revoke any license, franchise, permit or governmental
authorization which is material to the Condition of BLF and its Subsidiaries on
a consolidated basis, (C) requiring or threatening to require BLF or any of its
Subsidiaries, or indicating that BLF or any of its Subsidiaries may be required,
to enter into or be subject to a cease and desist order, agreement, memorandum
of understanding or any other agreement or undertaking (or to cause its Board of
Directors to adopt any resolutions) restricting or limiting or purporting to
restrict or limit in any manner the operations of BLF or any of its
Subsidiaries, including, without limitation, any restriction on the payment of
dividends, or (D) directing, restricting or limiting, or purporting to direct,
restrict or limit in any manner the operations of BLF or any of its
Subsidiaries, including, without limitation, any restriction on the payment of
dividends. Neither BLF nor any of its Subsidiaries has consented to, entered
into, agreed to enter into, or been made subject to, any Regulatory Agreement.
(o) Employee Benefit Plans.
(i) The BLF Disclosure Schedule lists every Benefit Plan currently
or expected to be adopted, maintained by, sponsored in whole or in part by, or
contributed to by BLF or any ERISA Affiliate (as herein defined) for the benefit
of its employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries and under which any of its employees,
retirees, dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate (collectively, the "BLF Benefit
Plans"). No BLF Benefit Plan is or has been a multi-employer plan within the
meaning of Section 3(37) and Section 4001(a)(3) of ERISA. For purposes of this
Section 5(o), the term "ERISA Affiliate"
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means each trade or business (whether or not incorporated) which together with
BLF is treated as a single employer under Section 414(b), (c), (m) or (o) of the
Internal Revenue Code.
(ii) True, correct and complete copies of all written BLF Benefit
Plans and descriptions of all unwritten BLF Benefit Plans listed in the BLF
Disclosure Schedule and all trust agreements or other funding arrangements,
including insurance contracts, all amendments thereto and, where applicable,
with respect to any such plans or plan amendments, all determination letters,
rulings, opinion letters, information letters, or advisory opinions issued by
the IRS or the United States Department of Labor after December 31, 1974, annual
reports or returns, audited or unaudited financial statements, actuarial
valuations, and summary annual reports for the most recent three plan years, the
most recent summary plan descriptions and any material modifications thereto,
have previously been delivered to CNB or will be attached to the BLF Disclosure
Schedule.
(iii) All the BLF Benefit Plans and the related trusts are in
material compliance with, and have been administered in material compliance
with, the provisions of ERISA, the provisions of the Internal Revenue Code and
all other applicable laws, rules and regulations and collective bargaining
agreements. Any required governmental approvals for the BLF Benefit Plans have
been obtained, including, but not limited to, favorable determination letters on
the qualification of the ERISA Plans and tax exemption of related trusts, as
applicable, under the Internal Revenue Code, and all such governmental approvals
continue in full force and effect. Neither BLF nor any administrator or
fiduciary of any BLF Benefit Plan or agent or delegate of any of the foregoing
has engaged in any transaction or acted or failed to act in any manner which
could subject BLF, CNB or any affiliate thereof to any direct or indirect
liability for a breach of any fiduciary, co-fiduciary or other duty under ERISA.
To the knowledge of BLF's management after due inquiry, no oral or written
representation or communication with respect to any aspect of the BLF Benefit
Plans has been made to employees of BLF prior to the Effective Time of the
Merger which is not in accordance with the written or otherwise pre-existing
terms and provisions of such BLF Benefit Plans in effect at the time of such
communication. There are no unresolved claims or disputes under the terms of, or
in connection with, the BLF Benefit Plans and no action, legal or otherwise, has
been commenced with respect to any claim under the terms of, or in connection
with, the BLF Benefit Plans.
(iv) No "party in interest" (as defined in Section 3(14) of ERISA)
or "disqualified person" (as defined in Section 4975(e)(2) of the Internal
Revenue Code) of any BLF Benefit Plan has engaged in any "prohibited transaction
(within the meaning of Section 4975(c) of the Internal Revenue Code or Section
406 of ERISA). There has been no (A) "reportable event" (as defined in Section
4043 of ERISA), or event described in Section 4062(e) or Section 4063(a) of
ERISA, or (B) termination or partial termination, withdrawal or partial
withdrawal with respect to any of the ERISA Plans which: (1) BLF maintains or
contributes to or has maintained or contributed to or was required to maintain
or contribute to for the benefit of employees of BLF; or (2) which has been
maintained or contributed to or was required to
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be maintained or contributed to by any member of a controlled group of trades or
business as defined in ERISA Section 4001(a)(14) which has, since January 1,
1975, included BLF.
(v) For any given ERISA Plan relating to BLF and its
Subsidiaries, all assets of such plan are carried at their fair market value, to
the extent required by the plan document and applicable law, and the fair market
value of such plan's assets equals or exceeds the present value of all benefits
(whether vested or not) accrued to date by all present or former participants in
such plan. No BLF Benefit Plan is subject to the rules of the PBGC.
(vi) As of the Effective Time, BLF will not have any material
current or future liability under any BLF Benefit Plan that was not reflected in
the BLF Financial Statements.
(vii) No BLF Benefit Plan provides for welfare benefits (as
defined in ERISA Section 3(1)) to employees after retirement other than as may
be required by Section 601 et seq. of ERISA.
(viii) Each BLF Benefit Plan may be terminated by the Combined
Corporation in its sole discretion on or after the Closing Date without
liability of any kind or description arising from either such termination or any
action attributable to the Combined Corporation.
(ix) The execution of, or performance of the transactions
contemplated by, this Agreement will not create, accelerate or increase any
obligations under the BLF Benefit Plans, and will not require or cause to be
payable any payment which is or would be an "excess parachute payment" under
Section 28OG of the Internal Revenue Code.
(p) Legal Proceedings. There are no actions, suits or proceedings
instituted or pending or, to the Knowledge of BLF, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against BLF or any BLF
Subsidiary, or against any property, asset, interest or right of any of them,
that have a reasonable probability either individually or in the aggregate of
having a material adverse effect on the Condition of BLF and the BLF
Subsidiaries on a consolidated basis.
(q) Absence of Certain Changes or Events. Since December 31, 1996, the
businesses of BLF and each BLF Subsidiary have been operated only in the
ordinary course consistent with past practices and since such date there has not
been, occurred or arisen: (i) any damage, destruction, loss or casualty whether
or not covered by insurance which has had or is reasonably likely to have a
material adverse affect on the Condition of BLF and the BLF Subsidiaries on a
consolidated basis; (ii) any declaration, setting aside or payment of any
dividend or distribution (whether in cash, stock or property) in respect of the
BLF Shares or any redemption or other acquisition of the BLF Shares by BLF or
any split, combination or reclassification of BLF Shares declared or made; (iii)
any extraordinary losses required by
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GAAP to be disclosed as such that have been suffered and not adequately reserved
against, whether or not in the Ordinary Course of Business; (iv) any material
assets mortgaged, pledged or subjected to any lien, charge or other encumbrance;
(v) any agreement to do any of the foregoing; or (vi) any other event,
development or condition of any character including any change in results of
operations, financial condition, method of accounting or accounting practices,
nature of business, or manner of conducting the businesses of BLF and its
Subsidiaries that has had, or is reasonably likely to have, a material adverse
effect on the Condition of BLF and the BLF Subsidiaries on a consolidated basis.
(r) Reports. Since December 31, 1996, BLF and each BLF Subsidiary has
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with any Regulatory
Authority. Each such report and statement, including the financial statements,
exhibits and schedules thereto, at the time of filing thereof complied in all
material respects with the laws and rules and regulations applicable to it and
did not contain any untrue statement of material fact or omit to state any
material fact necessary in order to make the statements made, in the light of
the circumstances under which they were made, not false or misleading.
(s) Statements True and Correct. No representation or warranty made by
BLF in this Agreement nor any written statement or certificate included in an
Exhibit or Schedule by BLF in connection with this Agreement nor any written
statement or certificate to be furnished by BLF to CNB pursuant to this
Agreement, contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements made, in the light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by BLF for inclusion in the definitive
proxy materials to be mailed to CNB shareholders in connection with the Special
BLF Meeting (as defined in Section 6(b)(iii)), and any other documents to be
filed with any Regulatory Authority in connection with the transactions
contemplated hereby, will at the respective time such documents are filed fail
to comply in all material respects with the laws and rules and regulations
applicable to BLF and its Subsidiaries, contain any untrue statement of a
material fact, or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. All documents that BLF is responsible for filing with any
Regulatory Authority in connection with the Merger and the Bank Merger will
comply as to form in all material respects with the provisions of applicable
law.
(t) Environmental Matters.
(i) To the Knowledge of BLF, each of BLF, its Subsidiaries, the
Participation Facilities, and the Loan Properties are, and have been, in
compliance with all applicable laws, rules, regulations, standards and
requirements of the EPA and of state and local agencies with jurisdiction over
pollution or protection of the environment, except for violations which, either
individually or in the aggregate, do not or would not result in a material
adverse effect on the Condition of BLF and its Subsidiaries on a consolidated
basis.
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(ii) To the Knowledge of BLF, there is no suit, claim, action or
proceeding pending or threatened, before any court, governmental agency or board
or other forum in which BLF or any of its Subsidiaries or any Participation
Facility has been or, with respect to threatened proceedings, may be, named as a
defendant (A) for alleged noncompliance (including by any predecessor), with any
environmental law, rule or regulation or (B) relating to the release into the
environment of any Hazardous Material or oil whether or not occurring at or on a
site owned, leased or operated by BLF or any of its Subsidiaries or any
Participation Facility except as would not, either individually or in the
aggregate, result in a material adverse effect on the Condition of BLF and its
Subsidiaries on a consolidated basis.
(iii) To the Knowledge of BLF, there is no suit, claim, action or
proceeding pending or threatened, before any court, governmental agency or board
or other forum in which any Loan Property has been or, with respect to
threatened proceedings, may be, named as a defendant (A) for alleged
noncompliance (including by any predecessor) with any environmental law, rule or
regulation or (B) relating to the release into the environment of any Hazardous
Material or oil whether or not occurring at or on a site owned, leased or
operated by a Loan Property, except where such noncompliance or release does not
or would not result, either individually or in the aggregate, in a material
adverse effect on the Condition of BLF and its Subsidiaries on a consolidated
basis.
(iv) To the Knowledge of BLF, there is no reasonable basis for any
suit, claim, action or proceeding as described in subsection (ii) or (iii) of
this Section 5(t) except as would not, individually or in the aggregate, have a
material adverse effect on the Condition of BLF and its Subsidiaries on a
consolidated basis.
(v) During the period of (A) BLF's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (B) BLF's
or any of its Subsidiaries' participation in the management of any Participation
Facilities, or (C) BLF's or any of its Subsidiaries' holding of a Security
Interest in a Loan Property, to the Knowledge of BLF, there has been no release
of Hazardous Material or oil in, on, under or affecting such properties, except
where such release does not or would not result, either individually or in the
aggregate, in a material adverse effect on the Condition of BLF and its
Subsidiaries on a consolidated basis. Prior to the period of (A) BLF's or any of
its Subsidiaries' ownership or operation of any of their respective current
properties, (B) BLF's or any of its Subsidiaries' participation in the
management of any Participation Facility, or (C) BLF or any of its Subsidiaries'
holding of a Security Interest in a Loan Property, to the Knowledge of BLF,
there was no release of Hazardous Material or oil in, on, under or affecting any
such property, Participation Facility or Loan Property, except where such
release does not or would not result, either individually or in the aggregate,
in a material adverse effect on the condition of BLF and its Subsidiaries on a
consolidated basis.
(vi) The following definitions apply for purposes of this Section
5(t): (A) "Loan Property" means any real property in which BLF holds a Security
Interest and, where
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required by the context, said term means the owner or operator of such property;
(B) "Participation Facility" means any facility in which BLF participates in the
management and where required by the context, said term means the owner or
operator of such property; and (C) "Hazardous Material" means any pollutant,
contaminant, or hazardous substance under the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss.9601 et seq. or any
similar state law.
(u) Labor Matters. Except as set forth in the BLF Disclosure Schedule,
neither BLF nor any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is it or any of its Subsidiaries
the subject of any material proceeding asserting that it or any Subsidiary has
committed an unfair labor practice or seeking to compel it to bargain with any
labor organization as to wages or conditions of employment nor is there any
strike or other labor dispute involving it or any of its Subsidiaries pending
or, to its knowledge, threatened, any of which would have a material adverse
effect on the Condition of BLF and its Subsidiaries on a consolidated basis.
ARTICLE VI
COVENANTS AND AGREEMENTS
Section 6. Covenants. Except as otherwise set forth in the Disclosure
Schedules, the Parties agree as follows with respect to the period from and
after the execution of this Agreement until the earlier of the consummation of
the transactions contemplated by this Agreement or termination of this
Agreement:
(a) Current Information. During the period from the date of this
Agreement to the Effective Time, each Party shall, and shall cause its
representatives to, confer on a regular and frequent basis with representatives
of the other. Within twenty (20) days after the end of each calendar month
beginning after the date of this Agreement, each of CNB and BLF shall deliver to
the other copies of their respective unaudited consolidated balance sheets and
consolidated statements of income, and any other financial or statistical
information submitted by management to the Board of Directors of CNB, BLF,
Clewiston National Bank or Big Lake National Bank (other than information
provided to a Board of Directors specifically in connection with its
consideration of the Merger, this Agreement, and the transactions contemplated
hereby) for or in the preceding fiscal month. All such financial statements
shall be prepared in accordance with the books and records of such Party, shall
be complete and accurate in all material respects, shall present fairly the
consolidated financial position and the consolidated results of operations of
that Party as of and for the periods indicated, and shall be prepared in
accordance with GAAP, subject to normal recurring year-end adjustments and the
absence of certain footnote information in the unaudited statements.
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(b) Regulatory Matters and Approvals.
(i) Bank Regulatory Matters. BLF and CNB shall cause to be
promptly prepared and filed with the FRB, FDIC, and the OCC applications for
their approval of the Merger and with any other Regulatory Authority having
jurisdiction any other applications for approvals or Consents which may be
necessary for the consummation of the Merger. The Parties shall provide copies
of all such applications and notices to the others for review prior to
submission or filing with the appropriate Regulatory Authorities. Each Party
agrees to promptly review and provide any comments on such applications and
notices to the others. Each Party shall use its best efforts to take or cause to
be taken all actions necessary for such applications and notices to be approved
and shall provide the others with copies of all correspondence and notices to or
from such agencies concerning such applications and notices. No Consent obtained
which is necessary to consummate the transactions contemplated by this Agreement
shall be conditioned or restricted in a manner which in the reasonable judgment
of a Party would (A) unduly impair or restrict the operations, or would have a
material adverse effect on the Condition, of the Combined Corporation, or (B)
render consummation of the Merger unduly burdensome; provided, that such Party
has used its reasonable efforts (it being understood that such reasonable
efforts shall not include the threatening or commencement of any litigation) to
cause such conditions or restrictions to be removed or modified as appropriate.
(ii) Definitive Proxy Materials. CNB and BLF shall prepare a proxy
statement which shall consist of the CNB definitive proxy materials relating to
the Special CNB Meeting (the "Proxy Statement"). The Parties shall file the
Proxy Statement with such Regulatory Agencies as may be required by law in order
for such materials to be furnished to the shareholders of CNB. The Proxy
Statement shall contain the affirmative recommendation of the Board of
Directors of CNB in favor of the adoption of this Agreement and the
approval of the Merger. CNB and BLF shall provide to the other whatever
information and assistance in connection with the preparation of the Proxy
Statement that such Party may reasonably request. CNB shall not be liable for
any untrue statement of a material fact or omission to state a material fact in
the Proxy Statement and Registration Statement made in reliance upon, or in
conformity with, information furnished to CNB by BLF, or Big Lake National Bank
for use therein. BLF shall not be liable for any untrue statement of a material
fact or omission to state a material fact in the Proxy Statement and
Registration Statement made in reliance upon, or in conformity with, information
furnished to BLF by CNB or Clewiston National Bank for use therein.
(iii) Shareholder Approvals. CNB shall call a special meeting of
its shareholders (the "Special CNB Meeting") and mail to them the Proxy
Statement (as soon as reasonably practicable following a determination by CNB
and BLF that such special meeting should be called) in order that CNB
shareholders may consider and vote upon the adoption of this Agreement and the
approval of the Merger in accordance with the Florida Business Corporation Act.
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(iv) Registration Statement. BLF will prepare and file with the SEC
a Registration Statement under the Securities Act in connection with the BLF
Shares to be issued to CNB shareholders in the Merger. CNB and BLF shall each
promptly furnish all information concerning it and the holders of its
outstanding shares as the other may reasonably request from time to time in
connection with the preparation of the Registration Statement. The Parties shall
use their reasonable efforts to cause the Registration Statement to become
effective under the Securities Act as soon as reasonably practicable after the
filing thereof and to take any action required to be taken under applicable
state, Blue Sky or securities laws in connection with the issuance of the BLF
Shares upon consummation of the Merger.
(v) Other Governmental Matters. Each of the Parties shall take any
additional action (and cause each of its Subsidiaries to take any additional
action) that may be necessary, proper, or advisable in connection with any other
notice to, filings with, and authorizations, consents, and approvals of
governments and governmental agencies that it may be required to give, make or
obtain.
(c) Tax Opinion. On or before the date the Proxy Statement is mailed to
CNB shareholders, CNB and BLF shall each use all reasonable efforts to obtain a
written opinion from Stevens, Thomas, Schemer & Sparks, P.A., to the effect that
the exchange of CNB Shares, to the extent exchanged for BLF Shares as
contemplated herein, shall not give rise to gain or loss to the holders of such
CNB Shares, or gain or loss to BLF with respect to such exchange, and
accordingly, the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code (the "Tax Opinion"). The
Tax Opinion shall be reasonably satisfactory to each of CNB and BLF in form and
substance.
(d) Conduct of Business Prior to the Effective Time of the Merger.
During the period from the date of this Agreement to the Effective Time of the
Merger or the termination of this Agreement, except as set forth in the CNB or
BLF Disclosure Schedules and except as expressly contemplated or permitted by
this Agreement, each of CNB, Clewiston National Bank, BLF, and Big Lake National
Bank shall, and shall cause each of their respective Subsidiaries to (i) conduct
its business in, and only in, the usual, regular and ordinary course consistent
with past practices, (ii) use its reasonable best efforts to maintain and
preserve intact its business organization, employees and advantageous business
relationships and retain the services of its officers and key employees, and
(iii) take no action which would materially adversely affect or delay the
ability of any Party to obtain any necessary approvals of any Regulatory
Authority or other governmental authority required for the transactions
contemplated hereby or to perform its covenants and agreements under this
Agreement.
(e) Forbearance. During the period from the date of this Agreement to
the Effective Time of the Merger or the termination of this Agreement, except as
set forth in the CNB or BLF Disclosure Schedules or in Section 6(s), or except
as expressly contemplated or permitted by this Agreement, no Party shall or
shall permit its Subsidiary to, without the prior written consent of the other
Parties:
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(i) Other than in the Ordinary Course of Business, incur any
indebtedness for borrowed money (other than short-term indebtedness incurred to
refinance short-term indebtedness; it being understood and agreed that
incurrence of indebtedness in the Ordinary Course of Business shall include,
without limitation, the creation of deposit liabilities, purchases of federal
funds, sales of certificates of deposit and entering into repurchase
agreements), assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or other
entity, or make any loan or advance other than in the Ordinary Course of
Business;
(ii) Adjust, split, combine or reclassify any capital stock;
make, declare or pay and dividend or make any other distribution on, or directly
or indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, or, grant any stock appreciation rights or grant
any individual, corporation or other entity any right to acquire any shares of
its capital stock (except for dividends paid by any of the Subsidiaries of a
Party to such Party);
(iii) Sell, transfer, mortgage, encumber or otherwise dispose of
any of its material properties or assets (including capital stock of
Subsidiaries) to any individual, corporation or other entity other than a
Subsidiary, or cancel, release or assign any material indebtedness to any such
person or any claims held by any such person, except (A) in the Ordinary Course
of Business, or (B) as set forth in a Disclosure Schedule pursuant to contracts
or agreements in force at the date of this Agreement;
(iv) Except for transactions in the ordinary Course of Business,
make any material investment in, either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of property or assets,
any other individual, corporation or other entity other than a Subsidiary of
such Party;
(v) Except for transactions in the Ordinary Course of Business,
enter into or terminate any material contract or agreement, or make any change
in any of its material leases or contracts, other than renewals of contracts and
leases without material adverse changes of terms;
(vi) Increase in any material manner the compensation or fringe
benefits of any of its employees or pay any bonus or pension or retirement
allowance not required by any existing plan or agreement to any such employees,
or become a party to, amend or commit itself to any pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment agreement with
or for the benefit of any employee, other than in the Ordinary Course of
Business; with the understanding that entering into any new employment
contracts, or renewing or amending any existing employment contracts, shall be
deemed outside the Ordinary Course of Business;
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(vii) Amend its Articles of Incorporation, Articles of
Association, or its bylaws;
(viii) Enter into any new material line of business;
(ix) Change its or its Subsidiaries' lending, investment,
liability management and other material banking policies in any respect which
is material, including without limitation, policies and procedures relating to
calculating and funding the Allowance;
(x) Incur or commit to any capital expenditure or any
obligations or liabilities in connection therewith other than capital
expenditures and obligations or liabilities incurred or committed to in the
Ordinary Course of Business (except, as to BLF, the construction of an
operations center, two drive-in lanes for the BLF main office, the renovation of
the interior of the BLF main office, and the installation of safe-deposit boxes
in the Lake Placid banking office);
(xi) Change its methods of accounting in effect at December 31,
1996, except as required by Statement of Financial Accounting Standards No. 121,
123 and 125 or its fiscal year; or
(xii) Agree to, or make any commitment to, take any of the actions
prohibited by this Section 6(e).
(f) Issuance of Securities. Except as set forth in a Disclosure
Schedule or as contemplated by this Agreement, no Party shall or shall permit
any of its Subsidiaries to issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class, any
voting debt or any securities convertible into or exercisable for or any rights,
warrants or options to acquire, any such shares or voting debt, or enter into
any agreement with respect to any of the foregoing, other than (i) the issuance
of CNB Shares or BLF Shares, as the case may be, pursuant to outstanding CNB
Options or BLF Options, in each case as in effect on the date of this Agreement
and in each case in accordance with their present terms; and (ii) issuances by a
wholly-owned Subsidiary of its capital stock to its parent.
(g) No Acquisitions. Other than acquisitions which may be mutually
agreed to by the Parties, no Party shall, or shall permit any of its
Subsidiaries to, acquire or agree to acquire, by merging or consolidation with
or by purchasing a substantial equity interest in, or by purchasing a
substantial portion of the assets, or assuming a substantial portion of the
liabilities of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets in each case which are
material, individually or in the aggregate, to such Party and its Subsidiaries
taken as a whole; provided, however, that the foregoing shall not prohibit (i)
internal reorganizations, consolidations or dissolutions involving only existing
Subsidiaries, (ii) foreclosure and other acquisitions related to previously
contracted debt, in each case in the Ordinary Course of Business, (iii)
acquisitions of control by Clewiston National Bank, or Big
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Lake National Bank in its fiduciary capacity, (iv) investments made by small
business investment corporations, acquisitions of financial assets and merchant
banking activities, in each case in the Ordinary Course of Business, or (v) the
creation of new Subsidiaries organized to conduct or continue activities
otherwise permitted by this Agreement.
(h) Other Actions. No Party shall or shall permit any of its
Subsidiaries to take any action that, or fail to take any action the failure of
which, results in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or in any of the
conditions set forth in this Agreement not being satisfied or in a violation of
any provision of this Agreement which would adversely affect the ability of any
of them to obtain any of the Regulatory Approvals, except in every case as may
be required by applicable law.
(i) Government Filings. Each Party shall file all reports, applications
and other documents required to be filed with the appropriate bank regulators
between the date hereof and the Effective Time of the Merger and shall make
available to the other Party copies of all such reports promptly after the same
are filed.
(j) Tax-Free Reorganization Treatment. No Party shall take or cause to
be taken any action, whether before or after the Effective Time of the Merger,
which would disqualify the Merger as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
(k) Full Access. Each Party shall (and shall cause each of its
Subsidiaries to) permit representatives of the others to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of such Party and its Subsidiaries to all premises,
properties, books, records, contracts, tax records, and documents of or
pertaining to each of such Party and its Subsidiaries. Each Party agrees to
furnish any other Party and its advisers with such financial operating data and
other information with respect to its business, properties and employees as such
Party shall, from time to time, reasonably request. No investigation by a Party
shall affect the representations and warranties of any other Party to this
Agreement, and each such representation and warranty shall survive any such
investigation. Each of the others shall treat and hold as such any Confidential
Information (as defined below) it receives from any of such Party and its
Subsidiaries in the course of the reviews contemplated by this Section 6(k),
shall not use any of the Confidential Information except in connection with this
Agreement, and, if this Agreement is terminated for any reason whatsoever,
agrees to return to such Party all tangible embodiments (and all copies) thereof
which are in its possession; provided, however, that this sentence shall not
apply to any information obtained by a Party (i) which, at the time of
disclosure, is available publicly, (ii) which, after disclosure, becomes
available publicly through no fault of such Party, or (iii) which such Party
knew or to which such Party had access prior to disclosure. For purposes of this
Agreement, the term "Confidential Information" means any information concerning
the businesses, operations, financial conditions and affairs of CNB, BLF, and
their respective Subsidiaries. In addition, no Party shall be required to
provide access to or disclose
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information which would violate or prejudice the rights of any customer or
othery's attorney-client privilege, or would contravene any law, rule,
regulation, order or decree.
(l) Notice of Material Adverse Developments. Each Party shall give
prompt written notice to the other Parties of any material adverse effect on its
Condition, or any material adverse development affecting the assets,
liabilities, business, financial condition, operations, results of operations,
or future prospects of such Party and its Subsidiaries taken as a whole,
including without limitation (i) any material change in its business or
operations, (ii) any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any Regulatory
Authority, (iii) the institution or the threat of material litigation involving
such Party, or (iv) any event or condition that might be reasonably expected to
cause any of such Party's representations and warranties set forth herein not to
be true and correct in all material respects as of the Closing Date. Each Party
shall also give prompt written notice to the other Parties of any other material
adverse development affecting the ability of such Party to consummate the
transactions contemplated by this Agreement. Any such notices shall be
accompanied by copies of any and all pertinent documents, correspondence and
similar papers relevant to a complete understanding of such material adverse
development, which shall be promptly updated as necessary. BLF and Big Lake
National Bank shall have 20 business days after CNB gives any written notice
pursuant to this Section 6(l) within which to exercise any right BLF may have to
terminate this Agreement pursuant to Section 8(a)(iv) below by reason of the
material adverse development, and CNB and Clewiston National Bank likewise shall
have 20 business days after BLF gives any written notice pursuant to this
Section 6(l) within which to exercise any right CNB and Clewiston National Bank
may have to terminate this Agreement pursuant to Section 8(a)(iii) below by
reason of the material adverse development. Unless one of the Parties terminates
this Agreement within the aforementioned period, the written notice of a
material development shall be deemed to have amended the Disclosure Schedule,
to have qualified the representations and warranties contained herein, and to
have cured any misrepresentation or breach of warranty that otherwise might
have existed hereunder by reason of the material adverse development.
(m) Exclusivity. Except as specifically permitted or contemplated by
this Agreement, the Parties shall not (and shall not cause or permit any of
their Subsidiaries to) solicit, initiate, encourage, entertain, consider, or
participate in the negotiation, discussion or submission of any proposal or
offer from any person (other than a Party) relating to any (i) liquidation,
dissolution, or recapitalization, (ii) merger or consolidation, (iii)
acquisition or purchase of 25% or more of securities or assets, or (iv) similar
transaction or business combination involving any of the Parties and/or its
Subsidiaries, or their respective assets (the foregoing transactions referred to
in subclauses (i) through (iv), inclusive, are referred to in this Agreement as
an "Acquisition Proposal"); provided, however, that each Party and its
Subsidiaries shall be entitled to entertain, consider, and participate in
negotiations and discussions regarding, and furnish any information with respect
to, any effort or attempt by any person to do or seek to do any of the foregoing
to the extent that the Board of Directors of
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such Party determines in good faith that the failure to so consider or
participate in such negotiations or discussions would be inconsistent with the
fiduciary obligations of the directors of such Party to the shareholders of such
Party. The Party shall give all of the other Parties prompt notice of any such
negotiations and discussions. Each Party shall notify others immediately if any
person (other than a Party) makes any proposal, offer, inquiry, or contact with
respect to any Acquisition Proposal.
(n) Filings with the State Offices. Upon the terms and subject to the
conditions of this Agreement, the Parties shall execute and file any and all
documents in connection with the Merger and the Bank Merger for filing with any
Federal and state offices.
(o) Press Releases. Each Party shall consult with each other as to the
form and substance of any press release or other public disclosure materially
related to this Agreement, the Merger, or any other transaction contemplated
hereby; provided, however, that any Party may make any public disclosure it
believes in good faith is required by law or regulation.
(p) Agreements of Affiliates. CNB shall deliver to BLF a letter
identifying all persons whom CNB believes to be, at the time the Merger is
submitted to a vote of the CNB shareholders, "affiliates" of CNB for purposes of
Rule 145 under the Securities Act. CNB shall use its best efforts to cause each
person who is identified as an "affiliate" in the letter referred to above to
deliver to BLF prior to the Effective Time of the Merger a written agreement
providing that each such person shall agree not to sell, transfer or otherwise
dispose of the BLF Shares to be received by such person in the Merger, except in
compliance with the applicable provisions of the Securities Act. Prior to the
Effective Time of the Merger, CNB shall amend and supplement such letter and use
its reasonable best efforts to cause each additional person who is identified as
an "affiliate" to execute a written agreement as set forth in this Section 6(p).
(q) Miscellaneous Agreements and Consents. Subject to the terms and
conditions of this Agreement, each of the Parties hereto agrees to use its
respective best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as expeditiously as reasonably practicable,
including, without limitation, using their respective reasonable best efforts to
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the Parties to consummate the transactions contemplated
hereby. Each Party shall, and shall cause each of their respective Subsidiaries
to, use their reasonable best efforts to obtain all approvals and Consents of
all third parties and Regulatory Authorities necessary or, in the reasonable
opinion of any Party, desirable for the consummation of the transactions
contemplated by this Agreement. No Consent obtained which is necessary to
consummate the transactions contemplated by this Agreement shall be conditioned
or restricted in a manner which in the reasonable judgment of a Party would (A)
unduly impair or restrict the operations, or would have a material adverse
effect on the Condition, of the Combined Corporation, Clewiston
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National Bank or Big Lake National Bank, or (B) render consummation of the
Merger unduly burdensome; provided, that such Party has used its reasonable
efforts (it being understood that such reasonable efforts shall not include the
threatening or commencement of any litigation) to cause such conditions or
restrictions to be removed or modified as appropriate.
(r) Indemnification.
(i) After the Effective Time of the Merger, BLF shall, and shall
cause the Combined Corporation to, indemnify, defend and hold harmless the
present and former officers, directors, employees and agents of CNB and
Clewiston National Bank (each, an "Indemnified Party") after the Effective Time
of the Merger against all losses, expenses, claims, damages or liabilities
arising out of actions or omissions occurring on or prior to the Effective Time
of the Merger (including, without limitation, the transactions contemplated by
this Agreement), subject to the Florida Business Corporation Act.
(ii) If the Combined Corporation or any of its successors or
assigns (A) shall consolidate with or merge into any other corporation or entity
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (B) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other entity, then and
in each such case, the Combined Corporation shall cause proper provision to be
made so that the successors and assigns of the Combined Corporation shall assume
the obligations set forth in this Section 6(r).
(s) Fairness Opinions. On or before 10 days prior to the date of the
Proxy Statement (i) CNB shall use all reasonable efforts to obtain an opinion
from a firm selected by it that the terms of the Merger are fair to CNB
shareholders from a financial point of view (the "CNB Fairness Opinions"), and
(ii) BLF shall use all reasonable efforts to obtain an opinion from a firm
selected by it that the terms of the Merger are fair to BLF shareholders from a
financial point of view (the "BLF Fairness Opinions").
(t) Employee Benefit Plans. CNB and BLF shall use their best efforts to
coordinate the conversion of each CNB Benefit Plan into similar plans of the
Combined Corporation, to the extent similar plans are maintained by the Combined
Corporation, and to make available for eligibility for CNB and Clewiston
National Bank employees all benefit plans and policies maintained by the
Combined Corporation following the Effective Time of the Merger with such
employees receiving credit for past service with a Party prior to the Effective
Time of the Merger for purposes of eligibility for participation, vesting, and
years of service, under such benefit plans and policies.
(u) CNB Directors Deferred Plan. Prior to the Effective Time of the
Merger, CNB shall cause the deferred compensation agreements between Clewiston
National Bank and its directors to be terminated in exchange for payment by
Clewiston National Bank to such directors of the amount reserved for such
payment in the audited consolidated balance sheet of CNB as of December 31,
1996.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF CNB AND BLF
Section 7. Conditions to Obligation to Close.
(a) Conditions to Obligation of BLF and Big Lake National Bank. The
obligations of BLF and Big Lake National Bank to consummate the transactions to
be performed by each in connection with the Closing are subject to satisfaction
of the following conditions:
(i) This Agreement and the Merger shall have received the
requisite approval of the shareholders of CNB, and the number of Dissenting
Shares shall not exceed 5% of the number of CNB Shares issued and outstanding
immediately prior to the Effective Time of the Merger;
(ii) The Parties shall have procured all approvals,
authorizations and Consents specified in Section 6(b) above and the Disclosure
Schedules, including but not limited to all necessary consents, authorizations
and approvals of Regulatory Authorities which, with respect to those from the
Regulatory Authorities, shall not contain provisions which (A) unduly impair or
restrict the operations, or would have a material adverse effect on the
Condition, of the Combined Corporation, Clewiston National Bank or Big Lake
National Bank or (B) render consummation of the Merger unduly burdensome, as
determined in the reasonable discretion of BLF;
(iii) The representations and warranties set forth in Article IV
above shall be true and correct in all material respects at and as of the
Closing Date;
(iv) Each of CNB and Clewiston National Bank shall have performed
and complied with all its covenants required to be complied with hereunder in
all material respects through the Closing;
(v) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable judgment,
order, decree, stipulation, injunction, or charge could (A) prevent consummation
of any of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Combined Corporation
after the Effective Time of the Merger to own, operate, or control substantially
all of the assets and operations of CNB and BLF and their respective
Subsidiaries (and no such judgment, order, decree, stipulation, injunction, or
charge shall be in effect);
(vi) The shareholders' equity of CNB on the last day of the
calendar month immediately preceding the Closing Date, as determined in
accordance with GAAP and
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before any adjustments required pursuant to Statement of Financial Accounting
Standards No. 115 ("FAS 115") and expenses incurred in connection with the
Merger, shall not be less than the shareholders' equity of CNB set forth in the
CNB Financial Statements at April 30, 1997;
(vii) The Allowance of CNB on the last day of the calendar month
immediately preceding the Closing Date shall not be less than 1.13% of CNB's
gross loans net of unearned income (and before such Allowance) on such date;
(viii) CNB shall have delivered to BLF a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect that
each of the conditions specified above in Section 7(a)(i) through (vii) is
satisfied in all respects;
(ix) All actions to be taken by CNB and Clewiston National Bank
in connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to BLF;
(x) BLF shall have received the Tax Opinion in a form reasonably
satisfactory to BLF;
(xi) Counsel to CNB shall have furnished to BLF their written
opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to BLF, to the effect that:
(a) CNB has been incorporated as a corporation under the
laws of Florida and its status is active. Clewiston National Bank has been
incorporated as a national banking association under the laws of the United
States and its status is active.
(b) Each of CNB and Clewiston National Bank has the
corporate power to conduct its business and to execute and deliver the
Agreement and to perform its obligations under the Agreement.
(c) Each of CNB and Clewiston National Bank has authorized
the execution, delivery, and performance of the Agreement by all necessary
corporate action.
(d) The execution and delivery of the Agreement by CNB and
Clewiston National Bank, the performance by CNB and Clewiston National Bank of
their respective obligations under the Agreement, and the exercise by CNB and
Clewiston National Bank of their respective rights created by the Agreement do
not: (A) violate the Articles of Incorporation, the Articles of Association, or
Bylaws of CNB or Clewiston National Bank; (B) to the knowledge of such counsel,
constitute a breach of or default under any agreement or instrument to which
CNB or Clewiston National Bank is a party or by which it or its assets are
bound, or result in the creation of a mortgage, Security Interest, or other
encumbrance upon
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any of the assets of CNB or Clewiston National Bank; (C) to the knowledge of
such counsel, violate a judgment, decree, or order of any court or
administrative tribunal, which judgment, decree, or order is binding upon CNB or
Clewiston National Bank, or any assets of CNB or Clewiston National Bank; or (D)
to the knowledge of such counsel, violate any Federal or Florida law, rule, or
regulation.
(e) The Agreement is a valid and binding obligation
of each of CNB and Clewiston National Bank enforceable against each of them
under the law of Florida and the Federal law of the United States. (In
rendering such opinion concerning the validity, binding effect, and
enforceability of the Agreement, such counsel may indicate that such opinion
means that (A) the Agreement constitutes an effective contract under
applicable law, (B) the Agreement is not invalid in its entirety because of a
specific statutory prohibition or public policy or is subject in its entirety
to a contractual defense, and (C) subject to the last sentence of this
paragraph, some remedy is available if CNB or Clewiston National Bank, as the
case may be, is in material default under the Agreement. Such counsel may also
indicate that such opinion does not mean that (A) any particular remedy is
available upon a material default, or (B) every provision of the Agreement
will be upheld or enforced in any or each circumstance by a court. Such
counsel may also indicate that the validity, binding effect, and
enforceability of the Agreement may be limited or otherwise affected by (A)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
other similar statutes, rules, regulations, or other laws affecting the
enforcement of creditors' rights and remedies generally and (B) the
unavailability of, or limitation on the availability of, a particular right or
remedy (whether in a proceeding in equity or at law) because of an equitable
principle or a requirement as to commercial reasonableness, conscionability,
or good faith.)
(f) CNB's authorized capitalization consists of
10,000,000 CNB Shares, of which 416,279 CNB Shares are issued and outstanding.
Clewiston National Bank's authorized capitalization consists of 62,500
Clewiston National Bank Shares, of which 62,500 Clewiston National Bank Shares
are issued and outstanding, all of which are owned by CNB. All of the
outstanding shares of CNB and Clewiston National Bank are fully paid and
nonassessable. There are no agreements or other documents pursuant to which CNB
or Clewiston National Bank may be required to authorize or issue additional
securities. None of the holders of CNB Shares or Clewiston National Bank Shares
have any preemptive rights to subscribe for any additional CNB Shares or
Clewiston National Bank Shares or other shares of capital stock of CNB or
Clewiston National Bank; and
(xii) BLF shall have received the BLF Fairness Opinions.
BLF and Big Lake National Bank may waive any condition specified in this
Section 7(a) if each executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of CNB and Clewiston National Bank. The
obligations of CNB and Clewiston National Bank to consummate the transactions to
be
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performed by it in connection with the Closing is subject to satisfaction of the
following conditions:
(i) This Agreement and the Merger shall have received the
requisite approval of the shareholders of CNB, and the number of Dissenting
Shares shall not exceed 5% of the number of CNB Shares issued and outstanding
immediately prior to the Effective Time of the Merger;
(ii) The Parties shall have procured all of the third party
approvals, authorizations and consents specified in Section 6(b) above, and
the Disclosure Schedules, including but not limited to all necessary consents,
authorizations and approvals of Regulatory Authorities which, with respect to
those from the Regulatory Authorities, shall not contain provisions which (A)
unduly impair or restrict the operations, or would have a material adverse
effect on the Condition, of the Combined Corporation, Clewiston National Bank
or Big Lake National Bank or (B) render consummation of the Merger unduly
burdensome, in each case as determined in the reasonable discretion of CNB.
(iii) The representations and warranties set forth in Article V
above shall be true and correct in all material respects at and as of the
Closing Date;
(iv) Each of BLF and Big Lake National Bank shall have performed
and complied with all its covenants required to be complied with hereunder in
all material respects through the Closing;
(v) No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction wherein an unfavorable judgment,
order, decree, stipulation, injunction, or charge could (A) prevent consummation
of any of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Combined Corporation
after the Effective Time of the Merger, to own, operate, or control
substantially all of the assets and operations of CNB and BLF and their
respective Subsidiaries (and no such judgment, order, decree, stipulation,
injunction or charge shall be in effect);
(vi) The shareholders' equity of BLF on the last day of the
calendar month preceding the Closing Date, as determined in accordance with GAAP
and before any adjustments required pursuant to FAS 115 and expenses incurred in
connection with the Merger, shall not be less than the shareholders' equity of
BLF set forth in the BLF Financial Statements at April 30, 1997;
(vii) The Allowance of Big Lake National Bank on the last day of
the calendar month preceding the Closing Date shall not be less than 1.20% of
Big Lake National Bank's gross loans net of unearned income (and before such
Allowance) on such date;
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<PAGE> 237
(viii) BLF shall have delivered to CNB a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect that
each of the conditions specified in Section 7(b)(i) through (vii) is satisfied
in all respects;
(ix) All actions to be taken by BLF and Big Lake National Bank in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to CNB;
(x) CNB shall have received the Tax Opinion in a form reasonably
satisfactory to CNB;
(xi) Counsel to BLF shall have furnished to CNB their written
opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to CNB, to the effect that:
(a) BLF has been incorporated as a corporation under the
laws of Florida and its status is active. Big Lake National Bank has been
incorporated as a state banking corporation under the laws of Florida and its
status is active.
(b) Each of BLF and Big Lake National Bank has the corporate
power to conduct its business and to execute and deliver the Agreement and to
perform its obligations under the Agreement.
(c) Each of BLF and Big Lake National Bank has authorized
the execution, delivery, and performance of the Agreement by all necessary
corporate action.
(d) The execution and delivery of the Agreement by BLF and
Big Lake National Bank, the performance by BLF and Big Lake National Bank of
their respective obligations under the Agreement, and the exercise by BLF and
Big Lake National Bank of their respective rights created by the Agreement do
not: (A) violate the Articles of Incorporation or Bylaws of BLF or Big Lake
National Bank; (B) to the knowledge of such counsel, constitute a breach of or
default under any agreement or instrument to which BLF or Big Lake National Bank
is a party or by which it or its assets are bound, or result in the creation of
a mortgage, Security Interest, or other encumbrance upon any of the assets of
BLF or Big Lake National Bank; (C) to the knowledge of such counsel, violate a
judgment, decree, or order of any court or administrative tribunal, which
judgment, decree, or order is binding upon BLF or Big Lake National Bank, or any
assets of BLF or Big Lake National Bank; or (D) to the knowledge of such
counsel, violate any Federal or Florida law, rule, or regulation.
(e) The Agreement is a valid and binding obligation of
each of BLF and Big Lake National Bank enforceable against each of them under
the law of Florida and the Federal law of the United States. (In rendering such
opinion concerning the validity, binding effect, and enforceability of the
Agreement, such counsel may indicate that such
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opinion means that (A) the Agreement constitutes an effective contract under
applicable law, (B) the Agreement is not invalid in its entirety because of a
specific statutory prohibition or public policy or is subject in its entirety to
a contractual defense, and (C) subject to the last sentence of this paragraph,
some remedy is available if BLF or Big Lake National Bank, as the case may be,
is in material default under the Agreement. Such counsel may also indicate that
such opinion does not mean that (A) any particular remedy is available upon a
material default, or (B) every provision of the Agreement will be upheld or
enforced in any or each circumstance by a court. Such counsel may also indicate
that the validity, binding effect, and enforceability of the Agreement may be
limited or otherwise affected by (A) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, or other similar statutes, rules,
regulations, or other laws affecting the enforcement of creditors' rights and
remedies generally and (B) the unavailability of, or limitation on the
availability of, a particular right or remedy (whether in a proceeding in equity
or at law) because of an equitable principle or a requirement as to commercial
reasonableness, conscionability, or good faith.)
(f) The authorized capital stock of BLF consists of (i)
1,000,000 BLF Shares, of which 313,435 BLF Shares are issued and outstanding
(and 4,724 BLF Shares are held by BLF in treasury), and (ii) 500,000 shares of
preferred stock, par value $1.00 per share, none of which are issued or
outstanding. Big Lake National Bank's authorized capitalization consists of
100,000 Big Lake National Bank Shares, all of which are issued and outstanding.
BLF owns all Big Lake National Bank Shares. All of the outstanding shares of BLF
and Big Lake National Bank are fully paid and nonassessable. There are no
agreements or other documents pursuant to which BLF or Big Lake National Bank
may be required to authorize or issue additional securities (except as to BLF,
the issuance of 18,213 BLF Shares pursuant to the BLF Options). None of the
holders of BLF Shares or Big Lake National Bank Shares have any preemptive
rights to subscribe for any additional BLF Shares or Big Lake National Bank
Shares or other shares of capital stock of BLF or Big Lake National Bank; and
(xii) CNB shall have received the CNB Fairness Opinions.
CNB and Clewiston National Bank may waive any condition specified in this
Section 7(b) if each executes a writing so stating at or prior to the Closing.
ARTICLE VIII
TERMINATION
Section 8. Termination.
(a) Termination of Agreement. Any of the Parties may terminate this
Agreement with the prior authorization of its Board of Directors (whether before
or after approval of CNB shareholders) as provided below:
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<PAGE> 239
(i) The Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time of the Merger;
(ii) BLF and Big Lake National Bank may terminate this Agreement
by giving written notice to CNB and Clewiston National Bank at any time prior to
the Effective Time of the Merger in the event CNB or Clewiston National Bank is
in breach, and CNB and Clewiston National Bank may terminate this Agreement by
giving written notice to BLF and Big Lake National Bank at any time prior to the
Effective Time of the Merger in the event BLF or Big Lake National Bank is in
breach, of any representation, warranty, or covenant contained in this Agreement
in any material respect. Each Party shall have the right to cure any such
breach, if such breach is capable of being cured, within 15 days after receipt
of written notice of such breach or within any such longer period mutually
agreed to in writing by the Parties hereto ("Cure Period"); provided, however,
that in no event shall the Cure Period extend beyond March 31, 1998;
(iii) If a material adverse development shall have occurred
affecting the Condition of BLF and its Subsidiaries on a consolidated basis, CNB
and Clewiston National Bank may terminate this Agreement by giving written
notice to BLF and Big Lake National Bank;
(iv) If a material adverse development shall have occurred
affecting the Condition of CNB and its Subsidiaries on a consolidated basis, BLF
and Big Lake National Bank may terminate this Agreement by giving written notice
to CNB and Clewiston National Bank;
(v) CNB and BLF each may terminate this Agreement by giving
written notice to the other Party at any time after (i) the CNB Special Meeting
in the event this Agreement or the Merger fails to receive the requisite CNB
shareholder approval or (ii) the denial, and any final appeal or rehearing
thereof (or if any denial by such authority is not appealed within the time
limit for appeal), of any approval from a Regulatory Authority necessary to
permit the Parties to consummate the Merger and the transactions contemplated by
this Agreement or if any Consent shall be conditioned or restricted in the
manner provided in the last sentence of Section 6(b)(i);
(vi) Any Party may terminate this Agreement by giving written
notice to the other Parties at any time after March 31, 1998 if the Effective
Time of the Merger has not yet then occurred and such termination was approved
by a two-thirds vote of such Party's full Board of Directors; and
(vii) This Agreement also is subject to termination pursuant to
Section 8(c).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party then in breach);
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provided, however, that the confidentiality provisions contained in Section 6(k)
above, the termination fee provisions contained in Section 8(c) below, and the
expense provisions in 9(1) below shall survive any such termination.
(c) Acquisition Proposal Termination and Fee. During the term of this
Agreement, if (i) an Acquisition Proposal is submitted to and approved by the
shareholders of any Party at any time prior to the Effective Time of the Merger;
or (ii) as to CNB, an Acquisition Proposal is received by CNB or is made
directly to CNB shareholders of a Party at any time prior to the holding of the
meeting of CNB shareholders to be called pursuant to Section 6(b)(iii), and
CNB's Board of Directors fails to recommend, or withdraws its recommendation,
that CNB's shareholders approve this Agreement or the Merger, or CNB's Board of
Directors fails to solicit proxies of CNB's shareholders to approve this
Agreement or the Merger, and this Agreement or the Merger is subsequently
rejected by CNB's shareholders at such meeting, then, as to subclause (i) if the
Party is BLF or Big Lake National Bank, BLF shall pay to CNB, and, as to
subclause (i) if such Party is CNB or Clewiston National Bank, or if subclause
(ii) is applicable, CNB shall pay to BLF, a termination fee in an amount equal
to 10% of the shareholders' equity of the Party required to make such payment as
of the end of the month preceding such payment, as liquidated damages, and not
as a penalty, and, upon the payment in full thereof, this Agreement shall be
terminated and no Party shall have any further liability under this Agreement or
the Merger (except as set forth in Section 8(b)). The obligations of the Parties
under
ARTICLE IX
MISCELLANEOUS
Section 9. Miscellaneous.
(a) Survival. None of the representations, warranties, and covenants of
the Parties (other than the provisions in Article III above concerning issuance
of BLF Shares and the provisions in Section 6(r) above concerning insurance and
indemnification) shall survive the Effective Time of the Merger.
(b) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions in
Article III above concerning issuance of BLF Shares are intended for the benefit
of CNB Shareholders and (ii) the provisions in Section 6(r) above concerning
insurance and indemnification are intended for the benefit of the individuals
specified and their respective legal representatives.
(c) Entire Agreement. This Agreement (including the documents referred
to herein and therein) constitutes the entire agreement among the Parties and
supersedes any
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prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof.
(d) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, delivered by
facsimile transmission, or mailed (airmail if international) by registered or
certified mail (postage prepaid), return receipt requested, addressed to:
<TABLE>
<S> <C>
If to BLF or Big Lake National Bank: Edwin E. Walpole, III
Chairman, President and Chief Executive Officer
Big Lake Financial Corporation
1409 South Parrott Avenue
Okeechobee, FL 34974
Telecopy Number: (941) 467-6816
with a copy to: John P. Greeley, Esquire
Smith, Mackinnon, Greeley, Bowdoin
& Edwards, P.A.
255 S. Orange Avenue
Suite 800
Orlando, FL 32802
Telecopy Number: (407) 843-2448
If to CNB or Clewiston National Bank: Curtis S. Fry
Chairman of the Board
Clewiston National Bank
950 West Ventura Avenue
Clewiston, Florida 33440
Telecopy Number: (941) 983-2828
</TABLE>
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<TABLE>
<S> <C>
with a copy to: Garey F. Butler
Humphrey & Knott
1625 Hendry Street
Fort Myers, Florida 33901
Telecopy: (941) 334-1446
</TABLE>
or to such other address as any Party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Florida without regard to
principles of conflict of laws.
(i) Amendments and Waivers. To the extent permitted by law, the Parties
may amend any provision of this Agreement at any time prior to the Effective
Time of the Merger by a subsequent writing signed by each of the Parties upon
the approval of their respective Boards of Directors; provided, however, that
after approval of this Agreement by a Party's shareholders, there shall be made
no amendment in the Conversion Ratio in a manner that adversely affects the
economic value of the Merger to such shareholders without their further
approval. No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by all of the Parties. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intention or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provision hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the termination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provisions with a term or
provisions that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision, and this
Agreement shall be enforceable as so modified after the expiration of the time
within which the judgment may be appealed.
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(k) Expenses. Each Party shall bear its own expenses in connection with
the negotiation and execution of this Agreement and the implementation and
effectiveness of the Merger; provided, however, that each of BLF and CNB shall
pay one-half (1/2) of all (i) filing fees related to all applications and
supplements thereto filed by CNB, BLF, Clewiston National Bank, and Big Lake
National Bank with federal and state banking authorities for prior approval of
the Merger, (ii) fees and expenses of Stevens, Thomas, Schemer & Sparks, P.A.
relating to the issuance of the Tax Opinion, (iii) fees and expenses of Smith,
Mackinnon, Greeley, Bowdoin & Edwards, P.A. relating to the preparation of
applications to the Regulatory Authorities for their approval of the Merger and
the preparation of the Proxy Statement and Registration Statement, and (iv) the
costs of printing and mailing the Proxy Statement. Notwithstanding the
foregoing, if any legal action or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any provision of this Agreement, the
successful or prevailing Party or Parties shall be entitled to recover
reasonable attorneys' fees, sales and use taxes, court costs and all expenses
even if not taxable as court costs (including, without limitation, all such
fees, taxes, costs and expenses incident to arbitration, appellate, bankruptcy
and post-judgment proceedings), incurred in that action or proceeding, in
addition to any other relief to which such Party or Parties may be entitled.
Attorneys' fees shall include, without limitation, paralegal fees, investigative
fees, administrative costs, sales and use taxes and all other charges billed by
the attorney to the prevailing Party.
(l) Construction. The language used in this Agreement shall be deemed
to be the language chosen by the Parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context otherwise requires.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) Jurisdiction and Venue. The Parties acknowledge that a substantial
portion of negotiations and anticipated performance and execution of this
Agreement occurred or shall occur in Okeechobee and Hendry Counties, Florida,
and that, therefore, without limiting the jurisdiction or venue of any other
federal or state courts, each of the Parties irrevocably and unconditionally (a)
agrees that any suit, action or legal proceeding arising out of or relating to
this Agreement may be brought in a state or federal court of record in
Okeechobee or Hendry Counties, Florida; (b) consents to the jurisdiction of each
such Court in any suit, action or proceeding; (c) waives any objection which it
may have to the laying of venue of any such suit, action or proceeding in any of
such courts; and (d) agrees that service of any court paper may be effected on
such Party by mail, as provided in this Agreement, or in such other manner as
may be provided under applicable laws or court rules in said state.
(o) Remedies Cumulative. Except as otherwise expressly provided herein,
no remedy herein conferred upon any Party is intended to be exclusive of any
other remedy,
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and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise. No single or partial exercise by any Party of
any right, power or remedy hereunder shall preclude any other or further
exercise thereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first below written.
BIG LAKE FINANCIAL CORPORATION CNB FINANCIAL CORPORATION
By: /s/ Edwin E. Walpole, III By: /s/ Curtis S. Fry
---------------------------------- ---------------------------------
Edwin E. Walpole, III, Chairman, Curtis S. Fry, Chairman of the Board
President and Chief Executive Officer
BIG LAKE NATIONAL BANK CLEWISTON NATIONAL BANK
By: /s/ Joe G. Mullins By: /s/ Curtis S. Fry
---------------------------------- ---------------------------------
Joe G. Mullins, President and Curtis S. Fry, Chairman of the Board
Chief Executive Officer
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APPENDIX B
607.1301 DISSENTER'S RIGHTS; DEFINITIONS. -- The following definitions
apply to ss.ss. 607.1302 and 607.1320;
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair Value" with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to ss. 607.1104, the day prior to the date on which a copy of
the plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT. --
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger; or
2. If the corporation is a subsidiary that is merged with its parent
under ss. 607.1104, and the shareholders would have been entitled to vote
on action taken, except for the applicability of ss. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation, other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange
pursuant to ss. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in ss. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation
is a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder
is entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any
of his shares;
2. Altering or abolishing the voting rights pertaining to any of
his shares, except as such rights may be affected by the voting rights
of new shares then being authorized of any existing or new class or series
of shares;
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<PAGE> 246
3. Effecting an exchange, cancellation, or reclassification of
any of his shares, when such exchange, cancellation, or
reclassification would alter or abolish his voting rights or alter his
percentage of equity in the corporation, or effecting a reduction or
cancellation of accrued dividends or other arrearages in respect to
such shares;
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his shares, or making
any of his shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of any of
his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference to any of his
preferred shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1) (e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares
registered in his name. In that event, his rights shall be determined as if the
shares as to which he has dissented and his other shares were registered in the
names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class or
series which, on the record date fixed to determine the shareholders entitled to
vote at the meeting of shareholders at which such action is to be acted upon or
to consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his
shares under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS. -- (1) (a) If a
proposed corporate action creating dissenters' rights under ss. 607.1302 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of ss.ss. 607.1301, 607.
1. Deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of
intent to demand payment.
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(b) If proposed corporate action creating dissenters' rights under ss.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss.ss. 607.1301, 607,1302, and 607.1320 to each
shareholder simultaneously with any request for his written consent or, if such
a request is not made, within 10 days after the date the corporation received
written consents without a meeting from the requisite number of shareholders
necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to Paragraph
(1) (a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares.
Any shareholder failing to file such election to dissent within the period set
forth shall be bound by the terms of the proposed corporate action. Any
shareholder filing an election to dissent shall deposit his certificates for
certificated shares with the corporation simultaneously with the filing of the
election to dissent. The corporation may restrict the transfer of
uncertificated shares from the date the shareholder's election to dissent is
filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall
not be entitled to vote or to exercise any other rights of a shareholder. A
notice of election may be withdrawn in writing by the shareholder at any time
before an offer is made by the corporation, as provided in subsection (5), to
pay for his shares. After such offer, no such notice of election may be
withdrawn unless the corporation consents thereto. However, the right of such
shareholder to be paid the fair value of his shares shall cease, and he shall
be reinstated to have all his rights as a shareholder as of the filing of his
notice of election, including any intervening preemptive rights and the right
to payment of any intervening dividend or other distribution or, if any such
rights have expired or any such dividend or distribution other than in cash has
been completed, in lieu thereof, at the election of the Corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such
shareholder is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the corporation
shall make a written offer to each dissenting shareholder who has made demand
as provided in this section to pay an amount the corporation estimates to be
the fair value for such shares. If the corporate action has not been
consummated before the expiration of the 90-day period after the shareholders'
authorization date, the offer may be made conditional upon the consummation of
such action. Such notice and offer shall be accompanied by:
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(a) A balance sheet of the Corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation of the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any
dissenting shareholder or shareholders fail to accept the same within the
period of 30 days thereafter, then the corporation, within 30 days after
receipt of written demand from any dissenting shareholder given within 60 days
after the date on which such corporate action was effected, shall, or at its
election at any time within such period of 60 days may, file an action in any
court of competent jurisdiction in the county in this state where the
registered office of the corporation is located requesting that the fair value
of such shares be determined. The court shall also determine whether each
dissenting shareholder, as to whom the corporation requests the court to make
such determination, is entitled to receive payment of his shares. If the
Corporation fails to institute the proceeding as herein provided, any
dissenting shareholder may do so in the name of the Corporation. All dissenting
shareholders (whether or not residents of this state), other than shareholders
who have agreed with the corporation as to the value of their shares, shall be
made parties to the proceeding as an action against their shares. The
corporation shall serve a copy of the initial pleading in such proceeding upon
each dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons and complaint and upon each
nonresident dissenting shareholder either by registered or certified mail and
publication or in such other manner as is permitted by law. The jurisdiction of
the court is plenary and exclusive. All shareholders who are proper parties to
the proceeding are entitled to judgment against the corporation for the amount
of the fair value of their shares. The court may, if it so elects, appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers shall have such power and authority
as is specified in the order of their appointment or an amendment thereof. The
Corporation shall pay each dissenting shareholder the amount found to be due
him within 10 days afer final determination of the proceedings. Upon payment of
the judgment, the dissenting shareholder shall cease to have any interest in
such shares.
(8) The judgment may at the discretion of the court, include a fair rate
of interest, to be determined by the court, include a fair rate of interest, to
be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the Corporation has made an offer to pay for the
shares, if the court finds that the action of such shareholders in failing to
accept such offer was arbitrary, vexatious, or not in good faith. Such expenses
shall include reasonable compensation for, and reasonable expenses of, the
appraisers, but shall exclude the fees and expenses of counsel for, and experts
employed by, any party. If the fair value of the shares, as determined,
materially exceeds the amount which the Corporation offered to pay therefor or
if no offer was made, the court in its discretion may award to any shareholder
who is a party to the proceeding such sum as the court determines to be
reasonable compensation to any attorney or expert employed by the shareholder
in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such
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<PAGE> 249
corporation as authorized but unissued shares of the corporation, except that,
in the case of a merger, they may be held and disposed of as the plan of merger
otherwise provides. The shares of the surviving corporation into which the
shares of such dissenting shareholders would have been converted had they
assented to the merger shall have the status of authorized but unissued shares
of the surviving corporation.
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<PAGE> 250
APPENDIX C
__________, 1997
Board of Directors
Clewiston National Bank
CNBFinancial Corporation
950 West Ventura Avenue
Clewiston, Florida 33440
Dear Board of Directors:
You have requested our opinion as to the fairness from a financial point
of view to the holders of shares of common stock of CNB Financial Corporation
("CNB") of the proposed consideration in a merger between CNB, Clewiston
National Bank (the "Bank"), Big Lake Financial Corporation ("BLFC") and Big
Lake National Bank ("BLNB"). This preliminary opinion is based upon the
information provided including the proposed Amended and Restated Agreement and
Plan of Reorganization considered by the Board of CNB on June 19, 1997.
William R. Hough & Co. ("Hough") is an investment banking firm that, as
part of our specialization in financial institutions, is regularly engaged in
the financial valuations and analyses of business enterprises and securities in
connection with mergers and acquisitions, public offerings, divestiture and
other corporate purposes. Senior members of Hough have extensive experience in
such matters. We believe that we have no conflicts of interest and can render
an independent opinion.
We have reviewed the proposed terms of the offer and discussed the offer
with management and the Board of Directors. We have reviewed the report
prepared by Mercer Capital, and financial reports of CNB, the Bank, BLFC, and
BLNB. Additionally, we have relied upon the information provided by CNB
regarding recent developments and subsequent events. We have considered this as
a merger of equals and compared this transaction to other transactions based
upon this assumption.
We have compared the Bank's financial condition and operating results in
similar financial institutions operating in Florida. We have also compared the
financial condition and operating results of CNB, the Bank, BLFC, and BLNB.
In arriving at our opinion, we have relied upon the accuracy and
completeness of the information provided to us by the various parties mentioned
above, upon public information, and upon representations and warranties in the
Agreement, and have not conducted an independent investigation to verify any
such information or performed any independent appraisal of CNB, the Bank, BLFC,
or BLNB.
Based upon the foregoing and on our general knowledge of, and experience
in the valuation of business and securities, we are of the opinion that, as of
_________, 1997, the proposed merger is fair to the shareholders of CNB from a
financial point of view.
Respectfully submitted,
William R. Hough & Co.
Ronald W. Goff
First Vice President
<PAGE> 251
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850, Florida Statutes, grants a corporation the power to
indemnify its directors, officers, employees, and agents for various expenses
incurred resulting from various actions taken by its directors, officers,
employees, or agents on behalf of the corporation. In general, if an individual
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the action
was unlawful, then the corporation has the power to indemnify said individual
who was or is a party to any proceeding (including, in the absence of an
adjudication of liability (unless the court otherwise determines), any
proceeding by or in the right of the corporation) against liability expenses,
including counsel fees, incurred in connection with such proceeding, including
any appeal thereof (and, as to actions by or in the right of the corporation,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding
to conclusion, actually and reasonably incurred in connection with the defense
or settlement of such proceeding, including any appeal thereof). To the extent
that a director, officer, employee, or agent has been successful on the merits
or otherwise in defense of any proceeding, he shall be indemnified against
expenses actually and reasonably incurred by him in connection therewith. The
term "proceeding" includes any threatened, pending, or completed action, suit,
or other type of proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
Any indemnification in connection with the foregoing, unless pursuant to a
determination by a court, shall be made by the corporation upon a determination
that indemnification is proper in the circumstances because the individual has
met the applicable standard of conduct. The determination shall be made (i) by
the board of directors by a majority vote of a quorum consisting of directors
who are not parties to such proceeding; (ii) by majority vote of a committee
duly designated by the board of directors consisting solely of two or more
directors not at the time parties to the proceeding; (iii) by independent legal
counsel selected by the board of directors or such committee; or (iv) by the
shareholders by a majority vote of a quorum consisting of shareholders who are
not parties to such proceeding. Evaluation of the reasonableness of expenses
and authorization of indemnification shall be made in the same manner as the
determination that indemnification is permissible. However, if the
determination of permissibility is made by independent legal counsel, then the
directors or the committee shall evaluate the reasonableness of expenses and
may authorize indemnification. Expenses incurred by an officer or director in
defending a civil or criminal proceeding may be paid by the corporation in
advance of the final disposition of the proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
he is ultimately found not to be entitled to indemnification by the
corporation. Expenses incurred by other employees and agents may be paid in
advance upon such terms or conditions that the board of directors deems
appropriate.
Section 607.0850 also provides that the indemnification and advancement of
expenses provided pursuant to that Section are not exclusive, and a corporation
may make any other or further indemnification or advancement of expenses of any
of its directors, officers, employees, or agents, under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office. However, indemnification or advancement of expenses may
not be made if a judgment or other final adjudication established that the
individual's actions, or omissions to act, were material to the cause of action
so adjudicated and constitute (i) a violation of the criminal law (unless the
individual had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful); (ii) a transaction from
which the individual derived an improper personal benefit; (iii) in the case of
a director, a circumstance under which the liability provisions of Section
607.0834 are applicable;
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or (iv) willful misconduct or a conscious disregard for the best interests of
the corporation in a proceeding by or in the right of the corporation to
procure a judgment in its favor in a proceeding by or in the right of a
shareholder. Indemnification and advancement of expenses shall continue as,
unless otherwise provided when authorized or ratified, to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person, unless
otherwise provided when authorized or ratified.
Section 607.0850 further provides that unless the corporation's articles
of incorporation provide otherwise, then notwithstanding the failure of a
corporation to provide indemnification, and despite any contrary determination
of the board or of the shareholders in the specific case, a director, officer,
employee, or agent of the corporation who is or was a party to a proceeding may
apply for indemnification or advancement of expenses, or both, to the court
conducting the proceeding, to the circuit court, or to another court of
competent jurisdiction. On receipt of an application, the court, after giving
any notice that it considers necessary, may order indemnification and
advancement of expenses, including expenses incurred in seeking court-ordered
indemnification or advancement of expenses, if it determines that (i) the
individual is entitled to mandatory indemnification under Section 607.0850 (in
which case the court shall also order the corporation to pay the director
reasonable expenses incurred in obtaining court-ordered indemnification or
advancement of expenses); (ii) the individual is entitled to indemnification or
advancement of expenses, or both, by virtue of the exercise by the corporation
of its power under Section 607.0850; or (iii) the individual is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether the person met
the standard of conduct set forth in Section 607.0850. Further, a corporation
is granted the power to purchase and maintain indemnification insurance.
Article VI of the Bylaws of the Company provides for indemnification of
the Company's officers and directors and advancement of expenses. The text of
the indemnification provision contained in the such Bylaws is set forth in
Exhibit 3.2 to this Registration Statement. Among other things, indemnification
is granted to each person who is or was a director, officer or employee of the
Company and each person who is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation to the full
extent authorized by law. Article VI of the Company's Bylaws also sets forth
certain conditions in connection with any advancement of expenses and provision
by the Company of any other indemnification rights and remedies. The Company
also is authorized to purchase insurance on behalf of any person against
liability asserted whether or not the Company would have the power to indemnify
such person under the Bylaws.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
2.1* - Amended and Restated Agreement and Plan of Reorganization between Big Lake
Financial Corporation, CNB Financial Corporation Big Lake National Bank and Clewiston
National Bank (attached as Appendix A to the Prospectus)
3.1* - Restated Articles of Incorporation of Big Lake Financial Corporation.
3.2* - Bylaws of Big Lake Financial Corporation.
4.1* - Specimen Stock Certificate of Big Lake Financial Corporation.
5* - Legal Opinion of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A. with respect to
the validity of the Common Stock being offered hereby
</TABLE>
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<PAGE> 253
<TABLE>
<S> <C>
8 - Tax Opinion of Stevens, Thomas, Schemer & Sparks, P.A.
10.1* - Big Lake Financial Corporation 1987 Stock Option Plan and amendment thereto
10.2* - Lease dated December 11, 1989 between AAA Warehouse, Inc. and Clewiston National
Bank and Amendment thereto dated November 28, 1995.
10.3* - Lease dated April 1, 1981 between Earl R. Gamer and Clewiston National Bank and
Modification and Lease Extension Agreement thereto dated April 1, 1996
21* - Subsidiary of Big Lake Financial Corporation
23.1 - Consent of Stevens, Thomas, Schemer & Sparks, P.A.
23.2 - Consent of Humphrey & Knott, P.A.
23.3 - Consent of William R. Hough & Co.
23.4 - Consent of Mercer Capital
23.5* - Consent of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.
(included in Exhibit 5)
24* - Power of Attorney
27* - Financial Data Schedule (for SEC use only)
99.1* - Proxy of CNB Financial Corporation
</TABLE>
- -------------
* Previously Filed
(B) FINANCIAL STATEMENTS
(1) Financial Statements are included in the Prospectus; see
"Index to Financial Statements" in the Prospectus.
Schedules are omitted for the reason that they are not required or are
not applicable, or the required information is shown in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of the Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to
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<PAGE> 254
the Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant will (1) file, during any period in which
it offers or sells securities, a post-effective amendment to this Registration
Statement to (i) include any prospectus required by Section 10(a)(3) of the
Securities Act; (ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the Registration Statement; and (iii) include any additional or changed
information on the plan of distribution; (2) for determining liability under
the Securities Act, treat each post-effective amendment as a new Registration
Statement of the securities offered, and the offering of securities at that
time to be the initial bona fide offering; and (3) file a post-effective
amendment to remove from registration any of the securities that remain unsold
at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described in Item 20, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Registration Statement, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE> 255
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Okeechobee, State of Florida, on the 26th day of September, 1997.
BIG LAKE FINANCIAL CORPORATION
/s/ Edwin E. Walpole, III
---------------------------------------
Edwin E. Walpole, III
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- -----
<S> <C> <C>
/s/ Edwin E. Walpole, III Chairman of the Board, President September 26, 1997
- -------------------------------------- and Chief Executive Officer and
Edwin E. Walpole, III Director
/s/ Anita DeWitt Treasurer September 26, 1997
- -------------------------------------- (Principal Financial Officer
Anita DeWitt and Principal Accounting
Officer)
/s/ Joe G. Mullins Executive Vice President and Chief September 26, 1997
- -------------------------------------- Administrative Officer and Director
Joe G. Mullins
/s/ John W. Abney, Sr. Director September 26, 1997
- --------------------------------------
John W. Abney, Sr.
/s/ Mary Beth Cooper Director September 26, 1997
- --------------------------------------
Mary Beth Cooper
/s/ H. Gilbert Culbreth, Jr. Director September 26, 1997
- --------------------------------------
H. Gilbert Culbreth, Jr.
/s/ Henry C. Kelly Director September 26, 1997
- --------------------------------------
Henry C. Kelly
/s/ Bobby H. Tucker Director September 26, 1997
- --------------------------------------
Bobby H. Tucker
</TABLE>
II-5
<PAGE> 1
EXHIBIT 8
June 23, 1997
Board of Directors
c/o Mr. Edwin E. Walpole, III
Chairman, President, and Chief Executive Officer
Big Lake Financial Corporation
1409 South Parrott Avenue
Okeechobee, Florida 33474
Board of Directors
c/o Mr. Curtis S. Fry
Chairman of the Board
CNB Financial Corporation
950 West Ventura Avenue
Clewiston, Florida 33440
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger of CNB Financial Corporation ("Target")
with and into Big Lake Financial Corporation ("Acquiring"). Unless otherwise
specifically indicated, all section references are to the Internal Revenue Code
of 1986, as amended (the "Code"), and all regulations and section references
are to Treasury regulations promulgated under the Code.
FACTS
Acquiring, a corporation organized in Florida, is the parent corporation of Big
Lake National Bank ("A-Sub"), also a Florida corporation, through which
Acquiring engages in the business of banking. Acquiring does not directly
engage in the business of banking but instead does so indirectly as the holding
company for A-Sub.
Target is a Florida corporation that owns all of the outstanding stock of
Clewiston National Bank ("T-Sub"), which is also a Florida corporation. Target
engages in no substantial business activities other than the activities related
to its ownership of T-Sub. T-Sub is engaged primarily in the business of
banking in locations other than those in which Acquiring and its subsidiary are
so engaged.
<PAGE> 2
Big Lake Financial Corporation/CNB Financial Corporation
June 23, 1997
Page 2
The terms of the proposed merger (the "Merger") are contained in the Amended
and Restated Agreement and Plan of Reorganization dated as of February 19,
1997, and amended and restated June 19, 1997, between Target and Acquiring (the
"Agreement"). Terms not otherwise defined in this letter shall have the
meanings assigned to them in the Agreement.
You have directed us to assume in preparing this opinion that (1) the Merger
will be consummated in accordance with the terms, conditions and other
provisions of the Agreement, and (2) all of the factual information,
descriptions, representations and assumptions set forth in this letter, in the
Agreement, in the letters to us from Acquiring dated June 20, 1997, and from
Target dated June 20, 1997 (the "Letters"), and in the Proxy
Statement/Prospectus dated _____________________, 1997, and mailed to Target
shareholders in connection with the special meeting of shareholders to approve
the Merger, are accurate and complete and will be accurate and complete at the
time the Merger becomes effective (the "Effective Time"). We have not
independently verified any factual matters relating to the Merger with or apart
from our preparation of this opinion and, accordingly, our opinion does not
take into account any matters not set forth herein that might have been
disclosed by independent verification.
The Agreements provide that Target will be merged with and into Acquiring in
accordance with the applicable provisions of the Florida Business Corporation
Act (the "Florida Act"). The Merger must be approved as required by law by the
Target shareholders at a special meeting to be held on _____________________,
1997. Any stockholder of Target entitled to vote on approval of the Merger has
the right to receive the fair value of his or her shares of Target Common Stock
upon compliance with Sections 607.1301, 607.1302, and 607.1320 of the Florida
Act (the "Florida Dissent Provisions").
At the Effective Time, all assets and liabilities of Target will be transferred
by operation of law to Acquiring, the separate corporate existence of Target
will cease, and, except as provided below, each share of Target Common Stock
then outstanding will be converted into .40 share of the Acquiring Common
Stock. Shares of Target Common Stock owned beneficially at the Effective Time
by Target, a Target subsidiary, Acquiring or an Acquiring subsidiary will be
canceled as a result of the Merger. Note, however, this does not apply to
Target Common Stock owned in a fiduciary capacity or in connection with a debt
previously contracted. Acquiring will be the surviving entity following the
Merger.
No fractional shares of Acquiring Common Stock will be issued in the Merger.
Notwithstanding any other provision of the Agreement, if a holder of Target
Common Stock converted pursuant to the Merger is otherwise entitled to receive
a fraction of a Acquiring Common Stock (after taking into account all
certificates delivered by such holder), then, in lieu thereof, such fraction
shall be rounded up to the next whole share if such fraction is .500 or greater
and such fraction shall be rounded down to the next whole share if such
fraction is .499 or less (hereinafter referred to as "Rounding"). No cash will
be exchanged for shares of Target Common Stock or shares of Acquiring Common
Stock pursuant to the Merger.
<PAGE> 3
Big Lake Financial Corporation/CNB Financial Corporation
June 23, 1997
Page 3
As soon as practicable after the Merger, T-Sub will be merged with and into
A-Sub in accordance with the applicable provisions of the Florida Act (the "Sub
Merger"). On the effective date of the Sub Merger, all assets and liabilities
of T-Sub will be transferred by operation of law to A-Sub, and the separate
corporate existence of T-Sub will cease.
We have also relied with your permission on the following additional
representations and/or assumptions:
1. The Merger will be a statutory merger in accordance with the
applicable provisions of the Florida Act.
2. The fair market value of the Acquiring Common Stock and other
consideration received by each Target shareholder will be approximately equal
to the fair market value of the Target Common Stock surrendered in the
exchange.
3. There is no plan or intention by the shareholders of Target to
sell, exchange or otherwise dispose of a number of shares of Acquiring Common
Stock received in the Merger that would reduce the Target shareholders'
ownership of the Acquiring Common Stock to a number of shares having an
aggregate value, as of the Effective Time, of less than 50 percent of the value
of all of the formerly outstanding Target Common Stock as of the same date. For
purposes of this paragraph, shares of Target Common Stock, surrendered by
dissenters, will be treated as outstanding Target Common Stock at the Effective
Time. Moreover, shares of Target Common Stock and shares of Acquiring Common
Stock held by Target shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the Merger are taken into account for purposes of the
calculations described in this paragraph.
4. Acquiring has no plan or intention to reacquire any of the
Acquiring Common Stock to be issued in the Merger.
5. Acquiring has no plan or intention to sell or otherwise dispose of
any of the assets of Target acquired in the Merger (or to cause or permit the
sale or other disposition of any assets of T-Sub), except for the transactions
contemplated by the Sub Merger, dispositions made in the ordinary course of
business or transfers described in section 368(a)(2)(C).
6. The liabilities of Target assumed by Acquiring and the liabilities
to which the transferred assets of Target are subject were incurred by Target
in the ordinary course of its business.
7. Following the Merger, Acquiring will continue the historic business
of Target and will use a significant portion of Target's historic business
assets in a business.
<PAGE> 4
Big Lake Financial Corporation/CNB Financial Corporation
June 23, 1997
Page 4
8. Except as provided in the next sentence, Acquiring, Target and the
shareholders of Target will pay their respective expenses, if any, incurred in
connection with the Merger. Acquiring will pay or assume only those expenses of
Target that are solely and directly related to the Merger in accordance with
the guidelines established in Rev. Rul. 73-54, 1973-1 C.B. 187.
9. There is no intercorporate indebtedness existing between Acquiring
and Target that was issued, acquired or will be settled at a discount.
10. No two parties to the Merger are investment companies as defined
in section 368(a)(2)(F)(iii) and (iv).
11. Target is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of section 368(a)(3)(A).
12. The fair market value of the assets of Target transferred to
Acquiring will equal or exceed the sum of the liabilities assumed by Acquiring
plus the amount of liabilities, if any, to which the transferred assets are
subject.
13. No dividends or distributions will be made with respect to any
Target stock prior to the Merger. After the Merger, no dividends or
distributions will be made to the former Target shareholders by Acquiring,
other than regular or normal dividend distributions made with regard to all
shares of Acquiring Common Stock.
14. None of the compensation received by any shareholder-employee of
Target will be separate consideration for, or allocable to, any of their shares
of Target Common Stock. The compensation paid to any shareholder-employees of
Target will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
None of the Acquiring Common Stock received by any shareholder-employee of
Target will be in exchange for, or in consideration of, services rendered to
Acquiring, Target or any other entity by such shareholder-employee.
15. The Rounding of fractional shares of Acquiring Common Stock (as
more fully described in the Agreement) is solely for the purpose of avoiding
the expense and inconvenience to Acquiring of issuing fractional shares and
does not represent separately bargained-for consideration. The fractional share
interests of each Target shareholder will be aggregated, and no Target
shareholder will receive consideration in the form of Rounding an amount equal
to or greater than the value of one full share of Acquiring Common Stock. The
total consideration paid in connection with Rounding will not exceed one
percent of the total consideration that will be issued in the Merger to the
Target shareholders in exchange for their shares of Target common stock.
<PAGE> 5
Big Lake Financial Corporation/CNB Financial Corporation
June 23, 1997
Page 5
16. The Merger is being effected for bona fide business reasons as
described in the Proxy Statement/Prospectus.
17. Prior to the Sub Merger, T-Sub will not sell or otherwise dispose
of any of its assets except for dispositions made in the ordinary course of
business or transfers described in section 368(a)(2)(C).
18. A-Sub has no plan or intention to sell or otherwise dispose of any
of the assets of T-Sub to be acquired in the Sub Merger, except for
dispositions made in the ordinary course of business or transfers described in
section 368(a)(2)(C).
19. Prior to the Sub Merger, T-Sub will continue its historic
businesses and will use a significant portion of its historic assets in those
businesses.
20. Following the Sub Merger, A-Sub will continue the historic
business of T-Sub and will use a significant portion of T-Sub's historic
business assets in a business.
21. The Sub Merger will be effected for bona fide business reasons.
OPINION
Assuming that the Merger and the Sub Merger are consummated in accordance with
the terms and conditions set forth in the Agreements and based on the facts set
forth in the Proxy Statement/Prospectus, the Letters, and this letter
(including all assumptions and representations), it is our opinion that for
federal income tax purposes:
1. Upon consummation, the Merger will qualify as a reorganization
within the meaning of section 368(a)(1)(A) and section 368(a)(2)(D) of the
Code. Target, T-Sub, Acquiring, and A-Sub will each be a party to the
reorganization.
No gain or loss will be recognized by any shareholder of
Target upon the exchange of such shareholder's Target Common Stock for
Acquiring Common Stock issued pursuant to the Merger.
3. No gain or loss will be recognized by any shareholder of Acquiring
as a result of the Merger.
4. The basis of the Acquiring Common Stock received by the
shareholders of Target will be the same as the basis of the Target Common Stock
surrendered therefor.
<PAGE> 6
Big Lake Financial Corporation/CNB Financial Corporation
June 23, 1997
Page 6
5. To the extent that any Target shareholder owns less than 1.25
shares of Target Common Stock immediately prior to the Effective Time, a loss,
if any, may be recognized by such Target shareholder in an amount equal to the
tax basis in said shares as determined in accordance with applicable provisions
of the Code.
6. A shareholder of Target who dissents to the proposed Merger and
receives solely cash for such shareholder's stock will be treated as having
received such cash as a distribution in redemption of such shareholder's stock
subject to the provisions and limitations of section 302 of the Code.
7. Provided that shares of Target Common Stock were capital assets in
the hands of a holder of Target Common Stock immediately prior to the Merger,
the holding period of the Acquiring Common Stock received by a holder of Target
Common Stock in the Merger will include the holding period of the Target Common
Stock surrendered in the exchange therefor.
Our opinion is limited to the foregoing federal income tax consequences of the
Merger, which are the only matters as to which you have requested our opinion,
and you must judge whether the matters addressed herein are sufficient for your
purposes. We do not address any other federal income tax consequences of the
Merger or other matters of federal law and have not considered matters
(including state or local tax consequences) arising under the laws of any
jurisdiction other than matters of federal law arising under the laws of the
United States.
Our opinion is based on the understanding that the relevant facts are, and will
be at the Effective Time, as set forth in this letter. If this understanding is
incorrect or incomplete in any respect, our opinion could be affected. Our
opinion is also based on the Code, Treasury Regulations, case law, and Internal
Revenue Service rulings as they now exist. These authorities are all subject to
change and such change may be made with retroactive effect. We can give no
assurance that after any such change, our opinion would not be different.
We undertake no responsibility to update or supplement our opinion. Only
Acquiring, Target, and their respective shareholders may rely on this opinion.
Very truly yours,
STEVENS, THOMAS, SCHEMER & SPARKS, P.A.
Jacksonville, Florida
June 23, 1997
<PAGE> 7
Big Lake Financial Corporation/CNB Financial Corporation
June 23, 1997
Page 7
CC: John P. Greeley, Esquire
Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.
255 South Orange Avenue
Suite 800
Orlando, Florida 32801
Garey F. Butler
Humphrey & Knott
1625 Hendry Street
Fort Myers, Florida 33901
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this registration statement of (i) our report
dated February 13, 1997, except as to the fourth paragraph in the report and
Notes 1, 2, 3, 12 and 16 to the financial statements which are as of August 15,
1997, relating to the Consolidated Financial Statements of CNB Financial
Corporation as of December 31, 1996 and 1995, and for each of the years in the
two-year period then ended, (ii) to the use of our report dated January 24,
1997, except as to the fourth paragraph in the report and Notes 1 and 16,
which are as of August 15, 1997, relating to the Consolidated Financial
Statements of Big Lake Financial Corporation as of December 31, 1996 and 1995,
and for each of the years in the two-year period then ended, and (iii) and to
the use of our name under the captions of "The Merger - Federal Income Tax
Considerations" and "Experts" in the Form S-4 Registration Statement of Big
Lake Financial Corporation.
STEVENS, THOMAS, SCHEMER & SPARKS, P.A.
Jacksonville, Florida
September 26, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT
We hereby consent to the use of our name under the caption "Legal
Matters" in the Form S-4 Registration Statement of Big Lake Financial
Corporation.
Humphrey & Knott, P.A.
Fort Myers, Florida
September 26, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT
CNB Financial Corporation
940 W. Ventura Avenue
Clewiston, Florida 33440
and
Big Lake Financial Corporation
1409 South Parrott Avenue
Okeechobee, Florida 34974
We hereby consent to the discussion relative to our opinion delivered
to the Board of Directors of CNB Financial Corporation, Clewiston, Florida, in
connection with its proposed merger with Big Lake Financial Corporation,
Okeechobee, Florida, in the Proxy Statement included in Big Lake Financial
Corporation's Registration Statement on Form S-4 under the heading "Opinion of
Financial Advisor," to the references to our firm in such Proxy Statement, and
to the inclusion of such opinion as an appendix to the Proxy Statement.
William R Hough & Co.
St. Petersburg, Florida
By: /s/ Ronald W. Goff
--------------------------------------
September 26, 1997
<PAGE> 1
EXHIBIT 23.4
September 26, 1997
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the references to our firm in the Proxy Statement
included in Big Lake Financial Corporation's Registration Statement on Form
S-4.
Mercer Capital Management, Inc.
By: /s/ Jeff Davis, ASA, CFA
--------------------------------
Vice President
