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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File No: 0-25988
CNB, Inc.
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(Name of Small Business Issuer)
FLORIDA 59-2958616
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Post Office Box 3239
201 North Marion Street
Lake City, Florida 32056
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 755-3240
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON
STOCK, Par value $ 0.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
The Registrant's revenues for the fiscal year ended December 31, 1996, totaled
$16,866,864.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $9,051,526, as of the most recent date on which stock was sold,
March 7, 1997.
The number of shares of the registrant's common stock outstanding as of March 1,
1997 was 1,937,905 shares, $0.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1997 Annual Meeting Proxy Statement is incorporated by
reference in this report in Part III, pursuant to Instruction E of Form 10-KSB,
except for the information relating to executive officers and key employees. The
Company will file its definitive Proxy Statement with the Commission prior to
April 15, 1997.
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PART I
Item 1. Description of Business
Business Development
CNB, Inc. (the "Company", "CNB" or the "Registrant") was formed as a
Florida corporation on January 15, 1987, for the purpose of becoming a bank
holding company by acquiring the capital stock of CNB National Bank (the
"Bank").
Within Lake City, Florida, the Bank currently operates two full service
facilities. The Company's headquarters is located in the lead bank office
located downtown and is named the Marion Street office and the Baya Avenue
office is located immediately south of downtown. Recognizing an opportunity to
better serve the community, the Bank now plans to open a third office in Lake
City to be located in an expanding retail business area on the west side of
town. Construction began on February 17, 1997 and management anticipates the
branch to be open by early summer.
On September 1, 1996, the Company completed the acquisition of Riherd Bank
Holding Company ("RBHC") and its subsidiary, Farmer and Dealers Bank ("F&D").
This expanded the Company's service area into Union and Alachua Counties. The
acquired institution had total assets of $48.0 million, deposits of $43.4
million, loans of $24.7 million, and shareholders' equity of $4.6 million.
Resulting from the acquisition, the Bank now has three (3) additional locations
- - one (1) in Lake Butler, Union County, Florida and two (2) in Gainesville,
Alachua County, Florida. Total deposits on December 31, 1996 were $30.2 million
in Union County and $12.7 million in Alachua County.
In the fourth quarter of 1996, the Company completed the purchase of an
operations center on the east side of Lake City. After complete renovations, the
operations center will house most of the Bank's non-customer operations.
Business of Issuer
CNB, through the Bank, now operates a total of ten banking offices in
Columbia, Suwannee, Baker, Bradford, Union and Alachua Counties, Florida. As of
December 31, 1996, CNB had total assets of $254.9 million, total deposits of
$226.8 million, and total shareholders' equity of $19.7 million. CNB presently
conducts no business other than owning and operating the Bank as a wholly owned
subsidiary.
The Bank offers a full range of deposit services including checking
accounts, NOW accounts, savings accounts and time deposits ranging from daily
money market accounts to longer-term certificates of deposit. The transaction
accounts and time certificates are tailored to the Bank's principal market area
at rates competitive to those offered in the area. In addition, retirement
accounts such as IRAs are available. All deposit accounts are insured by the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
(generally $100,000 per depositor subject to aggregation rules). The Bank
solicits these accounts from individuals, businesses, associations,
organizations and governmental authorities. The Bank is not currently dependent
upon a single depositor or borrower, the loss of which would have a material
adverse effect on the Bank.
The Bank also offers a full range of short to medium-term commercial,
agricultural, Small Business Administration guaranteed, Farmers Home
Administration guaranteed, and personal loans. Commercial loans include both
secured and unsecured loans for working capital (including inventory and
receivables), business expansion (including acquisition of real estate and
improvements), and purchase of equipment and machinery. Consumer loans include
secured and unsecured loans for financing automobiles, home improvements,
education and other personal investments. The Bank also offers real estate
construction and acquisition loans.
The Bank acts as an issuing agent for U.S. savings bonds, traveler's
checks, money orders and
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cashier's checks, and offers collection teller services, including Treasury, Tax
and Loan payment collection, and wire transfer services. The Bank also offers
safe deposit boxes, direct deposit of payroll and social security checks, and
automatic drafts for various accounts. The Bank is currently a member of the
HONOR, PLUS and CIRRUS networks of automated teller machines that may be used by
Bank customers in major cities throughout the United States. The Bank also
offers credit cards.
Location and Service Area
The Company's principal executive offices are located at the Bank's main
office at 201 North Marion Street, Lake City, Florida 32055, which is in
Columbia County. In addition to Lake City, the Bank has offices in Live Oak,
Fort White, Macclenny, Starke, Lake Butler and Gainesville, Florida. The
following table summarizes the Bank's deposits by location as of December 31,
1996, and 1995.
CNB National Bank Deposits at Year-End
City 1996 1995
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(thousands)
Lake City
Marion St $ 60,092 $ 51,136
Baya Ave 34,401 31,541
Live Oak
White Ave 37,132 34,828
S. Ohio Ave 12,402 12,401
Fort White 6,241 6,275
Macclenny 20,379 11,493
Starke 13,180 11,329
Lake Butler 30,290 --
Gainesville
Northwood 5,657 --
Alachua County 7,050 --
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Total $226,824 $159,003
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The Bank's primary service area ("PSA") includes the Florida counties of
Columbia, Suwannee, Baker, Bradford, Union and Alachua. With the exception of
Fort White, all offices are located in the county seat and largest incorporated
municipality of each county. The PSA adjoins Marion, Levy and Gilchrist Counties
on the south, Duval, Clay and Putnam Counties on the east, Hamilton County on
the north, and Madison and Lafayette County on the west. In 1994, the
populations of Columbia, Suwannee, Baker, Bradford, Union and Alachua Counties
were 48,897, 29,299, 19,700, 24,210, 12,534 and 193,879 respectively. According
to the Chamber of Commerce of each county, the population of Columbia, Suwannee,
Baker, Bradford, Union and Alachua Counties is projected to increase 11.1%,
19.8%, 8.7%, 4.7%, 6.6% and 10.9%, respectively, between 1994 and 2000.
Each of the counties in the Bank's PSA is located in close proximity to
Interstates 10 and 75 and a short distance from the Gainesville Regional
Airport, the Jacksonville International Airport and the Port of Jacksonville, a
major Eastern Seaboard cargo-handling facility. Four major universities, the
University of Florida in Gainesville, Florida State University in Tallahassee,
the University of North Florida and Jacksonville University, as well as three
community colleges, are within commuting distance of the PSA.
Competitive Business Conditions
Within the Bank's PSA, there are competing financial institutions
comprised of other commercial banks, savings and loan offices and credit unions.
As of December 31, 1996, deposits in the PSA had increased 5.3% from 1995, and
totaled $2.4 billion, of which the Bank held $226.8 million, or 9.6%.
Specifically, the Bank held 29.3%, 19.3%, 22.8%, 12.2%, 100.0% and .8% of the
total deposits in Columbia, Suwannee, Baker, Bradford Counties, Union and
Alachua, respectively, at the end of 1996.
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With the Riherd acquisition, our market expanded to Union and Alachua
Counties. The acquisition added two banking offices in Gainesville in Alachua
County. Because of the relative newness of the offices in Alachua County, only
$12.7 million or 29.5% of the acquired institution's deposits were located
there. As management analyzes market share, it separates Alachua County from
other PSA counties considering it a focus for future expansion.
Certain non-Florida financial institutions affiliated with Florida banks
or savings and loans offer limited financial services, including lending and
deposit gathering activities. In addition, the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 has removed substantially all state
barriers to the acquisition of banks by out-of-state bank holding companies.
Other out-of-state bank holding companies have entered the Florida banking
market by acquiring failing thrift institutions and commercial banks. Florida
banks and bank holding companies may also enter the Bank's PSA by acquisition of
a financial institution within the PSA, by establishing de novo branches or by
forming de novo banks.
Competition for deposit and loan business in the Bank's PSA will continue
to be intense because of existing competition, the accelerating pace of product
deregulation and the likelihood of expansion into the PSA by other institutions.
To compete, the Bank relies on specialized services, responsive handling of
customer needs, customer contact by Bank officers, directors and staff, and the
appeal of a locally-owned institution.
Regulatory Matters
General
As a bank holding company, the Company is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Bank Holding Company ("BHC") Act. The Bank is
subject to regulation and supervision by the Office of the Comptroller of the
Currency (the "OCC") and the Federal Deposit Insurance Corporation (the "FDIC").
The Bank is subject to restrictions under federal law which limit the
transfer of funds by the Bank to the Company, whether in the form of loans,
extensions of credit, investments or asset purchases. Such transfers by the Bank
to the Company are limited in amount to 10% of the Bank's capital and surplus.
Furthermore, such loans and extensions of credit are required to be secured in
specified amounts.
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to the Bank and to commit resources to support the
Bank in circumstances where the Company might not do so absent such policy. In
addition, any capital loans by the Company to the Bank would also be subordinate
in right of payment to deposits and to certain other obligations of the Bank,
including any liabilities of the Bank to the FDIC under the "cross guarantee"
provisions described below.
As a result of the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), 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
depository institution in danger of default. "Default" is defined generally as
the appointment of a conservator or a receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), after December 31, 1994, the FDIC may not take any action that
would have the effect of increasing the losses to a deposit insurance fund by
protecting depositors for more than the insured portion of deposits (generally,
$100,000) or creditors other than depositors. The FDIC is also authorized by
FDICIA to settle all uninsured and unsecured claims in the insolvency of an
insured bank by making a final settlement payment after the declaration of
insolvency. Such a payment would constitute full payment and
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disposition of the FDIC's obligations to claimants. The rate of such final
settlement payments is to be a percentage rate determined by the FDIC reflecting
an average of the FDIC's receivership recovery experience.
As a result of the provisions of law described above, in the event of the
insolvency of the Bank, the FDIC could limit or prohibit dividends payable to
the Company by the Bank, and any debt securities could be treated differently
from, and holders of any debt securities could receive substantially less than
holders of, deposit obligations of the Bank.
Federal Depositor Preference Legislation
On August 10, 1993, the Federal Deposit Insurance Act was amended to
provide that in the event of the liquidation or other resolution of an insured
depository institution occurring on or after such date, the claims of depositors
of such institution (including claims by the FDIC as subrogee of insured
depositors) are entitled to priority in payment over the claims of any other
senior or general creditors of the institution, including any obligations to
shareholders of such depository institution in their capacity as such.
Dividends
The principal source of funds for the Company is dividends paid to it by
the Bank. Various federal and state statutory provisions limit the amount of
dividends the Bank can pay to the Company. The approval of the OCC is required
for any dividend by a national bank if the total of all dividends declared by
the bank in any calendar year would exceed the total of its net income, as
defined by the OCC, for that year to date combined with its retained net income
for the preceding two years, less any required transfers to surplus or a fund
for the retirement of any preferred stock. In addition, a national bank may not
pay a dividend in an amount greater than its undivided profits then on hand.
Under these provisions, the Bank could have declared, at the close of 1996,
aggregate dividends of approximately $2.2 million. The payment of dividends by
the Bank is affected by various factors, such as maintenance of adequate capital
for the Bank as described more fully below. The Federal Reserve Board, the OCC
and the FDIC have indicated that as a general matter dividends should be paid by
banks only to the extent of earnings from continuing operations.
Capital
The Federal Reserve Board's risk-based capital guidelines for bank holding
companies were fully phased in at the end of 1992. Under the guidelines, the
minimum ratio of total capital to risk-weighted assets is 8%. At least half of
the total capital is to be comprised of common equity, retained earnings and
qualifying perpetual preferred stock, after subtracting goodwill and other
intangibles (with certain limited exceptions), as described below ("Tier 1
capital"). The remainder ("Tier 2 capital") may consist of perpetual debt,
mandatory convertible debt securities, a limited amount of subordinated debt,
term preferred stock and a limited amount of loan loss reserves. The Bank is
subject to similar capital requirements adopted by the OCC. In addition, the
Federal Reserve Board requires a minimum leverage ratio (Tier 1 capital to total
average assets, excluding goodwill and other ineligible intangibles) of 3% for
bank holding companies that meet certain specified criteria, including having
the highest regulatory rating. The rule indicates that the minimum leverage
ratio should be at least 1-2% higher for bank holding companies that do not have
the highest rating or that are undertaking major expansion programs. The OCC has
adopted substantially identical minimum leverage ratio requirements. Failure to
meet the applicable capital guidelines could subject a bank to a variety of
enforcement remedies available to the federal regulatory authorities, including
limitations on the ability to pay dividends, the issuance of a directive to
increase capital, the termination of deposit insurance by the FDIC, and
appointment of a conservator or receiver. On December 31, 1996, the Company had
a Tier 1 risk-based capital ratio of 12.6% and a total risk-based capital ratio
of 13.6%. At that date, the Company had a Tier 1 leverage ratio of 7.3%.
Under the Federal Reserve Board's guidelines, the only types of intangible
assets that may be included (i.e., not deducted from) in a bank holding
company's capital are readily marketable mortgage servicing rights ("MSRs") and
purchased credit card relationships ("PCCRs"), provided that, in the
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aggregate, the total amount of MSRs and PCCRs included in capital does not
exceed 50% of Tier 1 capital. PCCRs are subject to a separate sublimit of 25% of
Tier 1 capital. The amount of MSRs and PCCRs that a bank holding company may
include in its capital is limited to the lesser of (i) 90% of such assets' fair
market value (as determined under the guidelines) or (ii) 100% of such assets'
book value, each determined quarterly. Identifiable intangible assets (i.e.,
intangible assets other than goodwill) other than MSRs and PCCRs, including core
deposit intangibles, acquired on or before February 19, 1992 (the date the
Federal Reserve Board issued its original proposal for public comment) generally
will not be deducted from capital for supervisory purposes, although they will
continue to be deducted for purposes of evaluating applications filed by bank
holding companies.
Effective January 1, 1998, the Federal Reserve Board, the FDIC, and the
OCC amended their respective risk-based capital standards to take account of
market risk in foreign exchange and commodity activities and in the trading of
debt and equity instruments. Institutions with significant exposure to market
risk would calculate their capital charges for market risk using their internal
value-at-risk models, subject to parameters contained in the rule, and hold a
commensurate amount of capital. It is anticipated that only about fifteen of the
largest U.S. institutions plus a few small institutions will be affected by this
rule. Because the Company and the Bank do not engage in foreign exchange and
commodity activities, the Company does not believe it will be affected by the
rule.
On August 2, 1995, the Federal Reserve Board, the FDIC, and the OCC
published a joint notice of rulemaking revising their risk-based capital
standards to take account of interest rate risk. The new rule provides that the
agencies will consider a bank's exposure to declines in the economic value of
its capital due to changes in interest rates as a factor that the agencies will
consider in evaluating a depository institution's capital adequacy. On June 26,
1996, the Federal Reserve Board, the FDIC and the OCC issued a Joint Agency
Policy Statement on Interest Rate Risk that establishes a framework to measure
and monitor the level of interest rate risk at a depository institution. The
agencies have indicated that they may adopt explicit minimum requirements for
interest rate risk into their risk-based capital requirements at a future,
unspecified date. The Company cannot assess at this point the impact, if any,
that the Joint Agency Policy Statement and the proposed minimum requirements
will have on its capital ratios.
FDICIA
FDICIA specifies, among other things, the following capital standard
categories for depository institutions: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions depending on the category in
which an institution is classified. Each of the federal banking agencies has
issued final uniform regulations that became effective December 19, 1992, which
among other things, define the capital levels described above. Under the final
regulations, a bank is considered "well-capitalized" if it (i) has a total
risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital
ratio of 6% or greater, (iii) has a leverage ratio of 5% or greater and (iv) is
not subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" bank is
defined as one that has (i) a total risk-based capital ratio of 8% or greater,
(ii) Tier 1 risk-based capital ratio of 4% or greater and (iii) a leverage ratio
of 4% or greater (or 3% or greater in the case of a bank with a composite CAMEL
rating of 1). A bank is considered (A) "undercapitalized" if it has (i) a total
risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio
of less than 4% or (iii) a leverage ratio of less than 4% (or 3% in the case of
a bank with a composite CAMEL rating of 1); (B) "significantly undercapitalized"
if the bank has (i) a total risk-based capital ratio of less than 6%, (ii) a
Tier 1 risk-based capital ratio of less than 3% or (iii) a leverage ratio of
less than 3%; and (C) "critically undercapitalized" if the bank has a ratio of
tangible equity to total assets equal to or less than 2%. The applicable federal
regulatory agency for a bank that is "well capitalized" may reclassify it as
"adequately capitalized," or subject an "adequately capitalized" or
"undercapitalized" institution to the
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supervisory actions applicable to the next lower capital category, if it
determines that the bank is in an unsafe or unsound condition or deems the bank
to be engaged in an unsafe or unsound practice and not to have corrected the
deficiency. As of December 31, 1996, the Bank met the definition of a "well
capitalized" institution.
"Undercapitalized" depository institutions, among other things, are
subject to growth limitations, are prohibited, with certain exceptions, from
making capital distributions, are limited in their ability to obtain funding
from a Federal Reserve Bank and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan and provide appropriate assurances of
performance. If a depository institution fails to submit an acceptable plan,
including if the bank holding company refuses or is unable to make the guarantee
described in the previous sentence, it is treated as if it is "significantly
undercapitalized." Failure to submit or implement an acceptable capital plan
also is grounds for the appointment of a conservator or a receiver.
"Significantly undercapitalized" depository institutions may be subject to a
number of additional requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions, among other things, are prohibited
from making any payments of principal and interest on subordinated debt, and are
subject to the appointment of a receiver or conservator.
Under FDICIA, the FDIC is permitted to provide financial assistance to an
insured bank before appointment of a conservator or receiver only if (i) such
assistance would be the least costly method of meeting the FDIC's insurance
obligations, (ii) grounds for appointment of a conservator or a receiver exist
or are likely to exist, (iii) it is unlikely that the bank can meet all capital
standards without assistance and (iv) the bank's management has been competent,
has complied with applicable laws, regulations, rules and supervisory directives
and has not engaged in any insider dealing, speculative practice or other
abusive activity.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company including reporting requirements, regulatory standards
for real estate lending, "truth in savings" provisions, and the requirement that
a depository institution give 90 days prior notice to customers and regulatory
authorities before closing any branch. FDICIA also contains a prohibition on the
acceptance or renewal of brokered deposits by depository institutions that are
not "well capitalized" or are "adequately capitalized" and have not received a
waiver from the FDIC.
FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution.
Interstate Banking Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
was enacted into law on September 29, 1994 and provides that, among other
things, substantially all state law barriers to the acquisition of banks by
out-of-state bank holding companies are eliminated effective as of September 29,
1995. The law will also permit interstate branching by banks effective as of
June 1, 1997, subject to the ability of states to opt-out completely or to set
an earlier effective date. The Company anticipates that the effect of the new
law will be to increase competition within the markets in which it now operates,
although the Company cannot predict the extent to which competition will
increase in such markets or the timing of such increase.
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Employees
As of December 31, 1996, the Bank had 130 full-time equivalent employees,
up 36.8% from 95 employees at the end of 1995. The Company's operations are
conducted through the Bank and consequently, the Company does not have any
separate employees.
Item 2. Properties
The Bank currently operates out of ten offices and a non-customer
operations center. The Company's first banking office and administrative office
are located at 201 North Marion Street, Lake City, Florida, in a three-story
historic building. The building was extensively renovated in 1986 and contains
approximately 22,000 square feet of which approximately one-third is leased to
business tenants at annual rates ranging from $10.49 to $13.64 per square foot.
The real estate encompasses one full city block in downtown Lake City. The White
Avenue, Live Oak office contains approximately 6,000 square feet and was
constructed subsequent to that office opening in 1988. The Fort White and
Macclenny offices contain approximately 2,200 and 2,400 square feet,
respectively. The Macclenny office renovation was completed in 1996 and includes
a colonial design, improved service areas and the installation of an Automated
Teller Machine. The Baya Avenue, Lake City facility was built in 1971 and is a
two-story building containing approximately 10,100 square feet. Subsequent to a
full renovation in 1994, this facility also houses the Bank's loan operations
center on the second floor. The South Ohio Avenue, Live Oak office was
constructed in 1984 and contains approximately 2,000 square feet. The Company
plans to renovate this office during 1997. The Starke office is a two story,
8,000 square foot building located on a 28,000 square foot parcel of real
estate. The Bank currently uses the entire first floor of the building for
business, while the second floor is available for future expansion or leasing.
Resulting from the acquisition on September 1, 1996, of the Riherd Bank Holding
Company, three additional offices are being operated. The Lake Butler office was
constructed in 1993 with approximately 6,750 square feet. The Northwood,
Gainesville office was purchased by Farmer & Dealers Bank in August, 1994 and
contains approximately 2,000 square feet. The Alachua County, Gainesville office
was constructed in 1990 on the north side of Gainesville. The office is a
two-story building much like the Lake Butler office and contains approximately
4500 square feet. In July of 1995 the Bank purchased property located on U.S.
Highway 90 West, in Lake City. Construction began on February 17, 1997 on what
will house the Bank's third Lake City office to more fully allow the Bank to
serve its intense commercial area. In the fourth quarter of 1996 the Company
purchased and began renovations on a facility, approximately 7000 square feet,
which will house most of the Bank's non-customer operations.
All properties, including land, improvements, furniture, fixtures, and
equipment are owned by the Bank and had a total net book value at December 31,
1996, of approximately $9.5 million. In the opinion of the Company's management,
the properties are adequately covered by insurance.
Item 3. Legal Proceedings
Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's articles of incorporation authorize it to issue up to
10,000,000 shares of Common Stock. As of March 1, 1997, there were 1,937,905
shares of Common Stock issued and outstanding to 529 holders of record, and
47,790 shares subject to currently exercisable options. There is currently no
established public trading market for the Company's stock and it is not expected
that any such market will develop in the foreseeable future. Transactions in the
Company's common stock are infrequent and negotiated privately between the
persons involved in those transactions.
Company dividends for 1996 consisted of the payment of quarterly cash
dividends in the amount of $0.05 per common share outstanding on February 5 and
May 5, and $0.06 per common share outstanding on August 5 and November 5.
Payment was made to 1,639,733 holders of record on January, April and July 25,
and 1,937,905 on October 25, 1996. The $0.22 total dividend paid in 1996
reflects an increase of 22.2% compared to $.18 total paid in 1995 ($0.04 per
common share outstanding on February 5 and May 5, and $0.05 on August 5 and
November 5, to 1,639,733 holders of record on January 25, April 25, July 25 and
October 25, 1995, respectively).
The Company had issued $274,250 of ten-year $10 Series A Mandatory
Convertible Subordinated Debentures callable on or after November 1, 1992. On
November 15, 1996, the Company exercised its call option on these debentures,
resulting in an early redemption penalty of $8,228.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following tables set forth certain selected statistical information
and should be read in conjunction with the consolidated financial statements of
the Company and the Bank included elsewhere herein. The Company has no foreign
operations; accordingly, there are no assets or liabilities attributable to
foreign operations. In comparing 1996 to 1995, it should be noted at the close
of business on August 31, 1996, CNB completed the acquisition of Riherd Banking
Company and its subsidiary, Farmers and Dealers Bank. Assets of $48.0 million
were acquired in exchange for 298,172 of CNB common stock and $2.7 million cash.
The financial results since September 1, 1996, applicable to that transaction
are included in this report.
In 1996, the FDIC assessed financial institutions to recapitalize the
Savings Association Insurance Fund (SAIF). During the third quarter of 1996, the
Company recognized a $205,000 expense, net of applicable taxes, or $0.12 per
common share, representing its portion of the SAIF assessment. This one time
assessment should be considered when analyzing the Company's 1996 financial
performance.
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CNB INC. AND SUBSIDIARY
Selected Year-End Financial Data
1996 1995 Change%
----------- ----------- -------
Dollars in thousands except per share information.
================================================================================
SUMMARY OF OPERATIONS:
Total Interest Income $ 15,090 $ 12,745 18%
Total Interest Expense (6,612) (5,966) 11%
----------- -----------
Net Interest Income 8,478 6,779 25%
Loan Loss Provision (335) (230) 46%
----------- -----------
Net Interest Income After
Provision for Loan Losses 8,143 6,549 24%
Non-Interest Income 1,777 1,478 20%
Non-Interest Expense (6,360) (5,172) 23%
----------- -----------
Income Before Taxes 3,560 2,855 25%
Income Taxes (1,247) (1,014) 23%
----------- -----------
Net Income $ 2,313 $ 1,841 26%
=========== ===========
================================================================================
PER COMMON SHARE:
Net Income Per Common Share $ 1.33 $ 1.12 19%
Book Value 10.15 9.00 13%
Dividends 0.22 0.18 22%
Shares Outstanding 1,937,905 1,639,733 18%
Weighted Average Shares Outstanding 1,739,124 1,639,733 6%
================================================================================
KEY RATIOS:
Return on Average Assets 1.14% 1.06% 8%
Return on Average Shareholders' Equity 13.88% 13.24% 5%
Dividend Payout-computed on a per
share basis 16.54% 16.07% 3%
Overhead Ratio 64.10% 64.43% (1)%
Total Risk-Based Capital Ratio 13.58% 14.90% (9)%
Average Shareholders' Equity to Assets 8.24% 7.99% 3%
Tier 1 Capital to Total Assets - Leverage 7.25% 7.87% (8)%
================================================================================
FINANCIAL CONDITION AT YEAR END:
Assets $ 254,945 $ 176,733 44%
Net Loans 147,428 101,403 45%
Total Deposits 226,824 159,003 43%
Common Shareholders' Equity 19,669 14,754 33%
10
<PAGE>
Overview
Record earnings of $2.3 million, or $1.33 per share, were achieved during
1996 and exceeded 1995's earnings by $472,000, or 25.6%. This past year's
earnings also produced a return on average assets of 1.14% and a return on
average stockholders' equity of 13.88%, compared to 1.06% and 13.24%,
respectively, for 1995. Without the SAIF impact, per share results would have
been $1.45 in 1996, as compared to $1.12 in 1995, or an increase of 29.5%. The
significant factors contributing to the improvement in earnings were the growth
in operating revenue net of interest expense and improved overhead expense as a
percentage of that revenue. Total assets were $254.9 million at December 31,
1996 compared to $176.7 on December 31, 1995, a $78.2 million or 44.3% growth.
Stockholders' equity was $19.7 million at the close of 1996, compared to $14.8
million in 1995, due to net earnings retention of $2.3 million less $379,000
cash dividends to shareholders, coupled with $2.9 million resulting from shares
issued in conjunction with the Riherd transaction.
Total loans as a percentage of total deposits improved to 65.6% at
December 31, 1996, from 64.4% at year-end 1995. The improved loan to deposit
ratio is a result of increased total loans by $46.5 million, or 45.4%, while
deposits have increased by $67.8 million, or 42.7%. Therefore, loan growth
during this past year was the main contributor to the $1.7 million, or 25.1%,
increase in net interest income, as compared to 1995.
Liquidity and capital ratios remain well within regulatory limits. Total
non-performing assets decreased by $253,000 to $404,000 in 1996 from $657,000 in
1995, a reduction of 38.5%. Non-performing assets as a percentage of total
assets decreased to 0.16% in 1996 from 0.37% in 1995.
Dividends paid in 1996 were $0.22 per share, representing an earnings per
share payout of 16.5%.
Results of Operations
Improved earnings are mainly attributable to a 25.1% increase in
net-interest income to $8.5 million, from $6.8 million in 1995. The total
average loan portfolio, which is the largest and highest yielding component of
earning assets, increased as a percentage of average earning assets to 63.5%
from 59.3% in 1995. The higher yield in 1996 is a result of both higher interest
rates on securities and loan volume, which increased steadily throughout the
year. The improved loan ratio is a result of increasing average loans by $24.0
million, or 25.7%, while average assets have increased by $28.3 million, or
16.3%. The Company's total average investments increased by $3.2 million, or
4.9% to $67.4 million in 1996, compared to $64.3 million in 1995. Provision for
loan losses increased $105,000 to $335,000 or 45.7% from $230,000 in 1995, in
direct correlation to the higher average loans outstanding. Non-interest
expenses, net of non-interest income, increased $888,000, or 24.0%, to $4.6
million in 1996 compared to $3.7 million in 1995. Non-interest expenses as a
percentage of average total assets were up slightly to 3.1% at December 31,
1996, compared to 3.0% for the year ended 1995.
Net Interest Income/Margins
Net interest income, the primary source of revenue for the Bank, increased
by 25.1% to $8.5 million in 1996, from $6.8 million in 1995. Total average
assets increased by 16.3%, as the Company enjoyed a higher level of earning
assets in 1996. The higher yield in 1996 is a result of both higher interest
rates on securities and loan volume. Net interest margins grew to 4.59% in 1996,
from 4.30% in 1995, reflective of a more favorable mix of earning assets. Yields
on securities available-for-sale increased to 6.06% from 5.15% in 1995, or an
increase of 17.7%, which was primarily due to maturing low-yielding securities,
purchased in late 1993 and 1994 following the Company's acquisition of the
Anchor Savings Bank offices, being replaced with higher-yielding investments.
Table 1: "Average Balances - Yields and Rates", below, indicates the Company's
average volume of interest earning assets and interest bearing liabilities for
1996 and 1995. Other components of earning assets as well as rates on
interest-bearing liabilities were impacted by the modest decline in market rates
in 1996, as compared to 1995. Total earning asset yields increased to 8.16% in
1996 from 8.08%, while rates on interest-bearing liabilities
11
<PAGE>
decreased to 4.13% from 4.32% in 1995. Average time deposits for 1996
represented 51.5% of total average deposits, compared to 53.6% a year earlier.
Average demand deposits, as a percentage of total average deposits, increased to
13.1% from 11.9% a year ago. Table 1a: "Analysis of Changes in Interest Income
and Expense", below, indicates that the change in interest income was due mainly
to volume increases in the loan portfolio, while the change in interest expense
was primarily due to increased volume in NOW, Money Market and Time Deposits.
Table 1: Average Balances - Yields and Rates
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------------- -------------------------------
Interest Interest
Average Income or Average Average Income or Average
Balance Expense Rate Balance Expense Rate
-------- -------- ---- -------- -------- ----
(dollars in thousands)
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Sold $ 11,781 $ 613 5.20% $ 7,490 $ 436 5.82%
Securities Available for Sale 43,180 2,615 6.06 16,246 837 5.15
Investment Securities 12,135 654 5.39 40,180 2,291 5.70
Loans, net unearned (1) 117,450 11,188 9.53 93,454 9,161 9.80
Interest Bearing Deposits 352 20 5.69 355 20 5.64
-------- -------- ---- -------- -------- ----
TOTAL EARNING ASSETS 184,898 15,090 8.16 157,725 12,745 8.08
All Other Assets 17,434 16,253
-------- --------
TOTAL ASSETS $202,332 $173,978
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Deposits:
NOW & Money Markets $ 50,945 1,330 2.61 $ 41,219 1,041 2.52
Savings 13,466 277 2.06 12,283 320 2.61
Time Deposits 93,481 4,847 5.18 82,999 4,444 5.35
Short Term Borrowings 520 25 4.81 -- -- --
Notes Payable & Debentures 1,511 133 8.80 1,623 161 9.92
-------- -------- ---- -------- -------- ----
TOTAL INTEREST BEARING
LIABILITIES 159,923 6,612 4.13 138,124 5,966 4.32
Demand Deposits 23,701 18,406
Other Liabilities 2,041 3,541
Shareholders' Equity 16,667 13,907
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $202,332 $173,978
======== ========
---- ----
INTEREST SPREAD (2) 4.03% 3.76%
==== ====
-------- --------
NET INTEREST INCOME $ 8,478 $ 6,779
======== ========
NET INTEREST MARGIN (3) 4.59% 4.30%
==== ====
</TABLE>
- ----------
(1) Interest income on average loans includes loan fee recognition of $410,000
and $401,000 in 1996 and 1995 respectively.
(2) Represents the average rate earned minus average rate paid.
(3) Represents net interest income divided by total earning assets.
12
<PAGE>
Table 1a: Analysis of Changes in Interest Income and Expense
<TABLE>
<CAPTION>
NET CHANGE DECEMBER 31, NET CHANGE DECEMBER 31,
1995-1996 ATTRIBUTABLE TO: 1994-1995 ATTRIBUTABLE TO:
----------------------------- ----------------------------
Net Net
Volume (1) Rate (2) Change Volume (1) Rate (2) Change
---------- -------- ------ ---------- -------- ------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Federal Funds Sold $ 249 (72) 177 $ 22 120 142
Securities Available for Sale 1,387 391 1,778 (438) 130 (308)
Investment Securities (1,599) (38) (1,637) 157 203 360
Loans 2,349 (322) 2,027 1,285 957 2,242
Interest Bearing Deposits -- -- -- 6 -- 6
------- --- ----- ------- --- -----
Total $ 2,386 (41) 2,345 $ 1,032 1,410 2,442
INTEREST EXPENSE:
Deposits:
NOW & Money Markets $ 243 46 289 $ (67) 50 (17)
Savings 32 (75) (43) -- 39 39
Time Deposits 557 (154) 403 314 1,015 1,329
Short Term Borrowings 25 -- 25 -- -- --
Notes Payable & Debentures (10) (18) (28) (45) 28 (17)
------- --- ----- ------- --- -----
Total 847 (201) 646 202 1,132 1,334
------- --- ----- ------- --- -----
Net Interest Income $ 1,539 160 1,699 $ 830 278 1,108
======= === ===== ======= === =====
</TABLE>
- ----------
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the actual average rate during the prior period.
(2) The rate variance reflects the change in the actual average rate
multiplied by the average balance outstanding during the prior period.
13
<PAGE>
Non-Interest Income
Non-interest income increased by 20.2% to $1.8 million in 1996 from $1.5
million in 1995. As a percentage of average assets, there was a modest increase
to 0.88% from 0.85 in 1995. This increase is due mainly to fees and revenues
generated from demand deposit accounts with other non-interest components
contributing proportionately.
Non-Interest Expense
Non-interest expense increased by $1.2 million, or 23.0% for the year
ended 1996, as compared to 1995. When analyzing this ratio, we would call
attention to the one-time SAIF assessment of $327,000 before-tax effect; without
the SAIF impact the increase would have only been 16.6%. Salaries and employee
benefits have increased $413,000 from 1995; however, as a percentage of average
total assets they are essentially unchanged. With the celebration of our 10 year
anniversary, added emphasis was placed on marketing the bank, resulting in a
$71,000, or 42.4% increase. Occupancy and equipment expenses have increased
20.7%, due mainly to added expenses resulting from facilities and equipment
acquired in the merger with Farmer and Dealers Bank of Lake Butler, as well as
the Operations Center which houses the Company's items processing and check
imaging systems. At the end of 1996, non-interest expenses as a percentage of
average total assets were slightly up to 3.1%, compared to 3.0% for 1995.
The overhead efficiency ratio, which is the percentage of overhead expense
to total revenue less interest expense and provision for loan losses, has
improved to 64.1% from 64.4% for the year ended December 31, 1996, compared to
1995. When the impact of the special SAIF assessment is discounted, the overhead
ratio improved to 60.8%. The improvement in the efficiency ratio is materially
influenced by the improvements in net interest income and continued improvements
with the management of expenses. The following table details the areas of
significant non-interest expense.
Table 2: Other Operating Expenses
(Dollar amounts in thousands)
Year Ended December 31,
1996 1995
------ ------
Special one time SAIF assessment $ 327 $ --
Data processing 298 213
Marketing 237 166
Postage and delivery 219 193
Regulatory fees 176 302
Amortization of intangible assets 158 151
Legal and professional 134 84
Supplies 133 94
Loan expenses 120 91
Telephone 105 94
Administrative 92 81
Other 267 190
------ ------
Total other operating expenses $2,266 $1,659
====== ======
14
<PAGE>
Liquidity and Interest Rate Sensitivity
Interest rate sensitivity refers to the responsiveness of interest-earning
assets and interest-bearing liabilities to changes in market interest rates. The
rate sensitive position, or gap, is the difference in the volume of
rate-sensitive assets and liabilities, at a given time interval, including both
floating rate and instruments which are approaching maturity. The measurement of
the Company's interest rate sensitivity, or gap, is one of the principal
techniques used in asset and liability management. Management generally attempts
to maintain a balance between rate-sensitive assets and liabilities as the
exposure period is lengthened to minimize the overall interest rate risks to the
Company. In the future, the Company will attempt to maintain, with respect to
management's expectations of interest rate changes in the immediate twelve
months, a cumulative gap position within plus, or minus, 20% of total assets.
The asset mix of the balance sheet is continually evaluated in terms of
several variables: yield, credit quality, appropriate funding sources and
liquidity. Management of the liability mix of the balance sheet focuses on
expanding the various funding sources.
The interest rate sensitivity position at year-end 1996 is presented in
Table 3 - "Rate Sensitivity Analysis." The difference between rate-sensitive
assets and rate-sensitive liabilities, or the interest rate sensitivity gap, is
shown at the bottom of the table. The Company would benefit from increasing
market rates when it is asset sensitive and would benefit from decreasing market
rates when it is liability sensitive. At December 31, 1996, the Company had a
liability sensitive gap (more liabilities than assets subject to repricing
within the stated time frame) of $25.0 million within a one-year period. This
suggests that if interest rates should decline over this period, the net
interest margin should improve, and if interest rates should increase, the net
interest margin should decline. Since all interest rates and yields do not
adjust at the same velocity, the gap is only a general indicator of rate
sensitivity.
15
<PAGE>
Table 3: Rate Sensitivity Analysis
December 31, 1996
<TABLE>
<CAPTION>
(Dollars in thousands) 0-3 4-6 7-12 1-5 Over 5
Months Months Months Years Years Total
-------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal Funds Sold $ 9,950 $ -- $ -- $ -- $ -- $ 9,950
Securities Held to Maturity -- -- 92 9,917 -- 10,009
Securities Available for Sale(1,2) 9,485 2,798 8,546 32,007 8,066 60,902
Loans(3) 54,112 12,837 16,355 49,489 16,192 148,985
-------- -------- -------- ------- -------- --------
Total Earning Assets 73,547 15,635 24,993 91,413 24,258 229,846
-------- -------- -------- ------- -------- --------
INTEREST BEARING LIABILITIES:
NOW & Money Market(4) 33,528 -- -- -- 30,858 64,386
Savings(4) 4,418 -- -- -- 10,308 14,726
Time Deposits 33,833 28,746 32,272 19,539 120 114,510
Securities Sold Under Repurchase
Agreements 3,766 -- -- -- -- 3,766
Notes Payable & Debentures 2,650 -- -- -- -- 2,650
-------- -------- -------- ------- -------- --------
Total Interest Bearing 78,195 28,746 32,272 19,539 41,286 200,038
-------- -------- -------- ------- -------- --------
Int. Rate Sens. Gap $ (4,648) $(13,111) $ (7,279) $71,874 $(17,028) $ 29,808
======== ======== ======== ======= ======== ========
Cum. Int. Rate Sens. Gap $ (4,648) $(17,759) $(25,038) $46,836 $ 29,808 $ 29,808
======== ======== ======== ======= ======== ========
Int. Rate Sens. Gap Ratio 0.94 0.54 0.77 4.68 0.59 1.15
======== ======== ======== ======= ======== ========
Cum. Int. Rate Sens. Gap Ratio 0.94 0.83 0.82 1.30 1.15 1.15
======== ======== ======== ======= ======== ========
Ratio of Cumulative Gap to
Total Earning Assets:
December 31, 1996 (2.02)% (7.73)% (10.89)% 20.38% 12.97%
======== ======== ======== ======= ========
December 31, 1995 (0.40)% (9.08)% (8.78)% 25.11% 12.23%
======== ======== ======== ======= ========
</TABLE>
- ----------
(1) Includes Interest Bearing Deposits of $141,000.
(2) Includes equity in Federal Home Loan Bank of $586,000 and Federal Reserve
Bank of $518,000. Securities are shown at their amortized cost, excluding
market value adjustment for unrealized gains of $105,000.
(3) Total Loans including Unearned Discount of $161,000
(4) Certain deposit accounts are included in the After Five Years category. If
these deposit accounts had been included in the Within Three Months
category, the ratio of cumulative gap to total earning assets would have
been (28.80) for the one year category at December 31, 1996.
16
<PAGE>
The Bank's gap and liquidity positions are formally reviewed quarterly by
management to determine whether or not changes in policies and procedures are
necessary to achieve financial goals. Included in the review is an internal
analysis of the possible impact on net interest income due to market rate
changes of plus and minus 1%. In the rate sensitivity analysis, current average
rates within the repricing periods of affected balance sheet categories are
adjusted to an historical percentage of market change according to each rate
shock scenario. The adjusted rates are then substituted in interest computations
and compared to actual results. These efforts will continue to provide the tools
necessary in the Company's attempt to maximize its primary earnings factor: net
interest income.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to provide sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. These funds can be obtained by converting assets to cash or by
attracting new deposits. Average liquid assets (cash and amounts due from banks,
interest-bearing deposits in other banks, federal funds sold and securities
available-for-sale) totaled $63.2 million and represented 34.8% of average total
deposits during 1996, compared to $30.4 million and 19.6% for 1995. At the end
of 1995 banks were granted an opportunity to restructure their securities
portfolios according to availability for sale. The Bank, thereby, reclassed
$30.1 million of its securities held to maturity as those available for sale, in
effect increasing its liquidity position in anticipation of the need for future
loan demand. Average loans were 64.7% and 60.3% of average deposits for 1996 and
1995, respectively. As noted in Table 5 - "Loan Portfolio Composition",
approximately $129.4 million, or 87.0%, of the loan portfolio consisted of
commercial loans, real estate mortgage loans and real estate construction loans.
Approximately 14.1% of the portfolio matures within one year.
Core deposits, which represent all deposits other than time deposits in
excess of $100,000, averaged 91.4% of total deposits in 1996 and 92.0% in 1995.
The Bank closely monitors its reliance on time deposits in excess of $100,000,
which are generally considered less stable and less reliable than core deposits.
The Bank does not nor has it ever solicited brokered deposits. Table 4, below,
sets forth the amounts of time deposits with balances of $100,000 or more that
mature within indicated periods.
Table 4: Maturity of Time Deposits of $100,000 or More
December 31, 1996
Amount
--------
(thousands)
Three Months or Less $ 6,118
Three Through Six Months 5,173
Six Through Twelve Months 8,890
Over Twelve Months 3,797
--------
Total $ 23,978
========
17
<PAGE>
Lending Activities
The local markets served by the Company continued to experience solid loan
demand, fueled by an increase in commercial, commercial real estate and
residential mortgages. Because loans are expected to produce higher yields than
securities and other interest-earning assets (assuming that loan losses are not
excessive), the absolute volume of loans and the volume as a percentage of total
earning assets is an important determinant of net interest margin. During 1996,
average loans were $117.4 million and were 63.5% of average earning assets,
compared to $93.4 million and 59.3% for 1995. Average loans increased by $24.0
million, or 25.7%, during 1996. On December 31, 1996, the Company's
loan-to-deposit ratio stood at 65.6%, compared to 64.4% at the end of 1995. The
following table compares the composition of the Company's loan portfolio as of
December 31, 1996, to 1995. This loan portfolio composition is expected to stay
roughly the same in 1997.
Table 5: Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31,
Types of Loans 1996 1995
------------------- -------------- -------------
(thousands)
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural $ 68,595 46.1% $ 48,948 47.8%
Real Estate - Construction 4,029 2.7% 2,159 2.1%
Real Estate - Mortgage 56,787 38.2% 34,912 34.1%
Installment and Consumer Lines 19,413 13.0% 16,330 16.0%
---------- ---- ---------- ----
Total Loans, Net of Unearned Discount 148,824 100.0% 102,349 100.0%
Less: Allowance for Loan Losses (1,396) (946)
---------- ----------
Net Loans $ 147,428 $ 101,403
========== ==========
</TABLE>
The following table sets forth the maturity distribution for selected
components of the Company's loan portfolio including unearned discounts of
$161,000 on December 31, 1996. Demand loans and overdrafts are reported as due
in one year or less, and loan maturity is based upon scheduled principal
payments.
Table 6: Maturity Schedule of Selected Loans
December 31, 1996
0-12 1-5 Over 5
Months Years Years Total
------- ------- ------- --------
(thousands)
All Loans Other Than Construction $16,968 $59,656 $68,332 $144,956
Real Estate - Construction 4,029 -- -- 4,029
------- ------- ------- --------
Total $20,997 $59,656 $68,332 $148,985
Fixed Interest Rate $ 7,165 $37,994 $17,826 $ 62,985
Variable Interest Rate $13,832 $21,662 $50,506 $ 86,000
Loan Quality
Total non-performing assets decreased by $253,000 to $404,000 in 1996 from
$657,000 in 1995, a reduction of 38.5%. Non-performing assets as a percentage of
total assets decreased to 0.16% in 1996 from 0.37% in 1995. Non-accrual loans
have decreased $285,000 since December 31, 1995. The decrease in non-accrual
loans since December 31, 1995 was attributable to loans which have been
liquidated without significant losses, with the exception of one $55,000
charge-off during 1996.
18
<PAGE>
Table 7: Non-Performing Assets
December 31,
1996 1995
---- ----
(dollars in thousands)
Non-Accrual Loans $ 87 $ 372
Past Due Loans 90 Days or
More and Still Accruing 229 159
Other Real Estate Owned 88 126
---- ----
Total Non-Performing Assets $ 404 $ 657
==== ====
Percent of Total Assets 0.16% 0.37%
==== ====
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. On an ongoing basis, management attempts to maintain the
allowance for loan losses at levels sufficient to provide for potential losses
inherent to the loan portfolio. The allowance for loan losses is established
through a provision charged to expense. Loans are charged against the allowance
when it is recognized that collection of the principal is unlikely. The
allowance for loan losses on December 31, 1996, was 0.94% of total loans. Table
8 Allocation of Allowance for Loan Losses, set forth below, indicates the
specific reserves allocated by loan type.
Table 8: Allocation of Allowance for Loan Losses
December 31,
1996 1995
-------------------- --------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(dollars in thousands)
Commercial, Financial
and Agricultural $ 821 46% $476 48%
Real Estate - Construction 5 3% 5 2%
Real Estate- Mortgage 154 38% 72 34%
Consumer 416 13% 389 16%
Unallocated -- -- 4 --
------ --- ---- ---
Total $1,396 100% $946 100%
====== === ==== ===
The determination of the reserve level rests upon management's judgment
about factors affecting loan quality and assumptions about the economy.
Management considers the period-end allowance appropriate and adequate to cover
possible losses in the loan portfolio; however, management's judgment is based
upon a number of assumptions about future events, which are believed to be
reasonable, but which may or may not prove to be valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the allowance for loan losses will
not be required. Table 9: Activity in Allowance for Loan Losses, below,
indicates activity in the allowance for loan losses for the year 1996 as
compared to 1995.
19
<PAGE>
Table 9: Activity in Allowance for Loan Losses
1996 1995
--------- ---------
(dollars in thousands)
Balance at Beginning of Year $ 946 $ 827
Allowance Acquired in Merger 371 --
Loans Charged-Off:
Commercial, Financial and Agricultural 79 11
Real Estate, Mortgage 1 --
Consumer 203 159
--------- ---------
Total Loans Charged-Off (283) (170)
Recoveries on Loans Previously Charged-Off:
Commercial, Financial and Agricultural 7 17
Real Estate Mortgage 1 --
Consumer 19 42
--------- ---------
Total Loan Recoveries 27 59
--------- ---------
Net Loans Charged-Off (256) (111)
--------- ---------
Provision for Loan Losses Charged to Expense 335 230
--------- ---------
Ending Balance $ 1,396 $ 946
========= =========
Total Loans Outstanding $ 148,824 $ 102,349
Average Loans Outstanding $ 117,450 $ 93,454
Allowance for Loan Losses to Loans Outstanding 0.94% 0.92%
Net Charge-Offs to Average Loans Outstanding 0.22% 0.12%
20
<PAGE>
Investment Portfolio
The following tables set forth the maturity distribution and the weighted
average yields of securities held to maturity and securities available for sale.
Table 10: Maturity Distribution of Investment Securities
December 31, 1996
<TABLE>
<CAPTION>
Thousands Held to Maturity(4) Available for Sale
- ---------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury:
One Year or Less $ -- $ -- $10,073 $10,022
Over One Through Five Years -- -- 21,941 22,089
------- ------ ------- -------
Total U.S. Treasury -- -- 32,014 32,111
U.S. Government Agencies
and Corporations:
One Year or Less 92 94 3,193 3,196
Over One Through Five Years 9,917 9,628 10,388 10,327
Over Five Through Ten Years(4) -- -- 3,257 3,229
Over Ten Years(4) -- -- 9,037 9,036
------- ------ ------- -------
Total U.S. Government Agencies 10,009 9,722 25,875 25,788
and Corporations
Obligations of State and Political
Subdivisions:
Over One Through Five Years -- -- 100 103
Over Five Through Ten Years -- -- 705 750
Over Ten Years -- -- 857 910
------- ------ ------- -------
Total Obligations of State and -- -- 1,662 1,763
Political Subdivisions
Other Securities:
One Year or Less(2) -- -- 64 64
Over One Through Five Years(2) -- -- 77 77
Over Ten Years(3) -- -- 1,210 1,204
------- ------ ------- -------
Total Other Securities -- -- 1,351 1,345
------- ------ ------- -------
Total Securities $10,009 $9,722 $60,902 $61,007
======= ====== ======= =======
</TABLE>
- ----------
(1) All securities, excluding Obligations of State and Political Subdivisions,
are taxable.
(2) Represents Interest-bearing deposits in other banks.
(3) Represents investment in Federal Reserve Bank and Federal Home Loan Bank
stock and other marketable equity securities.
(4) Includes investments in mortgage-backed securities which are subject to
early repayment.
21
<PAGE>
Table 10a: Weighted Average Yield by Range of Maturities
December 31,
1996 1995
---- ----
One Year or Less 5.24% 5.83%
Over One through Five Years 6.09 5.63
Over Five through Ten Years 6.43 7.80
Over Ten Years (1) 6.14 6.23
- ----------
(1) Represents adjustable rate, mortgage-backed securities which are
repriceable within one year.
Capital Resources
The OCC regulates risk based capital guidelines for national banks. These
guidelines are intended to provide an additional measure of a bank's capital
adequacy by assigning weighted levels of risk to asset categories. Banks are
also required to systematically hold capital against such "off balance sheet"
activities as loans sold with recourse, loan commitments, guarantees and standby
letters of credit. These guidelines are intended to strengthen the quality of
capital by increasing the emphasis on common equity and restricting the amount
of loss reserves and other forms of equity such as preferred stock that may be
included in capital.
Under the terms of the guidelines, banks must meet minimum capital
adequacy based upon both total assets and risk adjusted assets. All banks are
required to maintain a minimum ratio of total capital to risk-weighted assets of
8% and a minimum ratio of Tier 1 capital to risk-weighted assets of 4%.
Adherence to these guidelines has not had an adverse impact on the Company or
the Bank. Selected capital ratios at year-end 1996 as compared to 1995 are as
follows:
Table 11: Capital Ratios
December 31, Well Capitalized Regulatory
1996 1995 Requirements Minimums
---- ---- ------------ --------
Risk Based Capital Ratios:
Tier 1 Capital Ratio 12.6% 13.7% 6.0% 4.0%
Total Capital to
Risk-Weighted Assets 13.6% 14.9% 10.0% 8.0%
Tier 1 Leverage Ratio 7.3% 7.9% 5.0% 4.0%
Item 7. Financial Statements
The consolidated financial statements which follow have been audited by
the Company's independent certified public accountants, Osburn, Henning and
Company. Their opinion on the Company's consolidated financial statements is
also included therein.
22
<PAGE>
FINANCIAL STATEMENTS
CNB, INC. AND SUBSIDIARY
LAKE CITY, FLORIDA
DECEMBER 31, 1996
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants ..................... Page 1
Consolidated Balance Sheets ............................................ 2
Consolidated Statements of Operations .................................. 3
Consolidated Statements of Shareholders' Equity ........................ 4
Consolidated Statements of Cash Flows .................................. 5
Notes to Consolidated Financial Statements ............................. 6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders
CNB, Inc. and Subsidiary
Lake City, Florida
We have audited the accompanying consolidated balance sheets of CNB, Inc.
and Subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CNB, Inc.
and Subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
OSBURN, HENNING & COMPANY
January 31, 1997
- 1 -
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
------------ -------------
ASSETS
Cash and due from banks $ 12,789,396 $ 7,898,690
Federal funds sold 9,950,000 4,660,000
Interest bearing deposits in other banks 140,986 413,072
------------ -------------
Total Cash and Cash Equivalents 22,880,382 12,971,762
Securities available for sale 60,866,357 39,838,485
Securities held to maturity 10,008,604 13,246,806
Loans, net 147,428,138 101,402,908
Premises and equipment, net 9,459,393 6,432,547
Other assets 4,302,470 2,840,797
------------ -------------
TOTAL ASSETS $254,945,344 $ 176,733,305
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $ 33,201,517 $ 19,110,965
Savings, NOW and money market 79,111,428 55,480,072
Time, under $100,000 90,533,210 71,441,973
Time, $100,000 and over 23,977,814 12,969,601
------------ -------------
Total Deposits 226,823,969 159,002,611
Securities sold under repurchase agreements 3,766,347 --
Notes payable 2,650,000 950,000
Other liabilities 2,036,195 1,752,548
------------ -------------
Total Liabilities 235,276,511 161,705,159
------------ -------------
MANDATORY CONVERTIBLE SUBORDINATED DEBENTURES -- 274,250
------------ -------------
COMMITMENTS AND CONTINGENCIES (Note 17)
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares
authorized; no shares issued or outstanding -- --
Common stock, $.01 par value, 10,000,000 shares
authorized; 1,937,905 and 1,639,733 shares
issued and outstanding 19,379 16,397
Additional paid-in capital 12,682,601 9,784,369
Retained earnings 6,901,006 4,966,357
Net unrealized gain (loss) on securities
available for sale 65,847 (13,227)
------------ -------------
Total Shareholders' Equity 19,668,833 14,753,896
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $254,945,344 $ 176,733,305
============ =============
See Notes to Consolidated Financial Statements.
- 2 -
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995
------------ -----------
Interest Income
Interest and fees on loans $ 11,187,824 $ 9,161,123
Interest on securities held to maturity 653,748 2,291,192
Interest on securities available for sale 2,615,265 837,321
Interest on federal funds sold 612,765 435,955
Interest on interest bearing deposits 20,078 20,091
------------ -----------
Total Interest Income 15,089,680 12,745,682
------------ -----------
Interest Expense
Interest on deposits 6,454,024 5,804,836
Interest on notes payable 132,506 161,467
Interest on short-term borrowings 25,023 --
------------ -----------
Total Interest Expense 6,611,553 5,966,303
------------ -----------
Net Interest Income 8,478,127 6,779,379
Provision for Loan Loss 335,000 230,000
------------ -----------
Net Interest Income After
Loan Loss Provision 8,143,127 6,549,379
Non-interest Income
Service charges 1,404,930 1,187,036
Other fees and charges 397,199 288,233
Gain (loss) on sale of securities (24,945) 2,838
------------ -----------
Total Non-interest Income 1,777,184 1,478,107
------------ -----------
Non-interest Expense
Salaries and employee benefits 3,116,705 2,704,200
Occupancy and equipment expenses 976,708 809,223
Special one-time SAIF assessment 326,823 --
Other operating expenses 1,939,533 1,658,877
------------ -----------
Total Non-interest Expense 6,359,769 5,172,300
------------ -----------
Income Before Income Taxes 3,560,542 2,855,186
Income Taxes 1,247,261 1,013,930
------------ -----------
NET INCOME $ 2,313,281 $ 1,841,256
============ ===========
Earnings Per Share:
NET INCOME PER COMMON SHARE $ 1.33 $ 1.12
============ ===========
Weighted average common shares outstanding 1,739,124 1,639,733
============ ===========
See Notes to Consolidated Financial Statements.
- 3 -
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-in Retained Shareholders'
Shares Par Value Capital Earnings Equity
--------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 1,639,733 $ 16,397 $ 9,784,369 $ 3,420,252 $ 12,927,106
Net income for year ended
December 31, 1995 -- -- -- 1,841,256 1,841,256
Cash dividends -- -- -- (295,151) (295,151)
Change in unrealized loss on
securities available for
sale, net of tax effect of
$166,979 -- -- -- -- 280,685
--------- ---------- ----------- ------------ ------------
BALANCE DECEMBER 31, 1995 1,639,733 16,397 9,784,369 4,966,357 14,753,896
Net income for year ended
December 31, 1996 -- -- -- 2,313,281 2,313,281
Cash dividends -- -- -- (378,632) (378,632)
Shares issued in acquisition
of Riherd 298,172 2,982 2,898,232 -- 2,901,214
Change in unrealized loss on
securities available for
sale, net of tax effect of
$47,040 -- -- -- -- 79,074
--------- ---------- ----------- ------------ ------------
BALANCE DECEMBER 31, 1996 1,937,905 $ 19,379 $12,682,601 $ 6,901,006 $ 19,668,833
========= ========== =========== ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995
------------ ------------
OPERATING ACTIVITIES
Net income $ 2,313,281 $ 1,841,256
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 579,686 504,784
Provision for loan losses 335,000 230,000
Security amortization - net 225,856 259,214
Proceeds from sale of other real estate 249,554 104,021
Deferred income taxes (benefit) (165,768) 124,129
Changes in period-end balances of:
Other assets (78,202) (552,613)
Other liabilities 336,470 495,960
------------ ------------
Net Cash Provided By Operating Activities 3,795,877 3,006,751
------------ ------------
INVESTING ACTIVITIES
Purchases of securities available for sale (17,629,662) (3,635,985)
Securities available for sale called by issuer 3,000,000 --
Maturities of securities available for sale 3,650,000 11,750,000
Sales of securities available for sale 4,039,164 3,086,221
Principal payments on mortgage backed securities
available for sale 3,591,500 1,297,405
Purchases of securities held to maturity -- (14,547,968)
Maturities of securities held to maturity -- 500,000
Securities held to maturity called by issuer -- 9,098,568
Principal payments on mortgage backed securities
held to maturity 3,185,437 2,018,282
Net increase in loans (21,773,508) (16,580,374)
Net increase in premises and equipment (1,427,233) (632,030)
Cash received related to acquisition,
net of cash paid 214,372 --
------------ ------------
Net Cash Used In Investing Activities (23,149,930) (7,645,881)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 24,449,208 6,390,363
Securities sold under repurchase agreements 3,766,347 --
New borrowings under note payable 2,650,000 --
Repayment of note payable (950,000) (750,000)
Redemption of subordinated debentures (274,250) --
Cash dividends (378,632) (295,151)
------------ ------------
Net Cash Provided By Financing Activities 29,262,673 5,345,212
------------ ------------
Net Increase in Cash
and Cash Equivalents 9,908,620 706,082
Cash and Cash Equivalents:
Beginning of Year 12,971,762 12,265,680
------------ ------------
End of Year $ 22,880,382 $ 12,971,762
============ ============
See Notes to Consolidated Financial Statements.
- 5 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND FINANCIAL STATEMENT PRESENTATION
Organization
CNB, Inc. (the "Company") is a registered bank holding company
incorporated in Florida. The Company operates a wholly-owned banking
subsidiary, CNB National Bank (the "Bank"), which is chartered as a
national bank in Lake City, Florida. The Bank is a member of the
Federal Reserve System and conducts business from a total of ten
offices in north Florida. During 1996, the Company acquired another
banking institution as more fully discussed in Note 3.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassification
Certain amounts and captions presented in the 1995 financial
statements have been reclassified to conform to the 1996
presentation. These reclassifications had no effect on total assets,
liabilities, equity or operations as previously reported.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Securities
Securities Available for Sale
Securities which are used for asset/liability, liquidity, and
other funds management purposes are deemed to have indefinite
holding periods (securities available for sale). These
securities are accounted for on a fair value basis with market
adjustments charged or credited directly to shareholders'
equity, net of any associated income tax effect.
Securities Held to Maturity
Securities where the Company's intent and ability is to hold
to maturity (securities held to maturity) are stated at cost,
adjusted for amortization of premiums and accretion of
discounts.
Amortization and accretion of premiums and discounts are recognized as
adjustments to interest income. Realized gains and losses are recognized
using the specific identification method.
- 6 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses and any unearned loan income. Interest on
substantially all loans other than installment loans is calculated
by using the simple interest method on daily balances of the
principal amounts outstanding except for those classified as
nonaccrual loans. The accrual of interest is discontinued when
future collection of principal or interest in accordance with the
contractual terms may be doubtful. Interest on some installment
loans is recognized under the rule-of-78s method, the results of
which are not materially different than the interest method.
Loan fees, net of loan origination costs, are capitalized and
amortized as yield adjustments over the respective loan terms using
a method which does not differ significantly from the interest
method. For 1996 and 1995, loan fees included in interest and fees
on loans amounted to $410,033 and $400,602, respectively.
The allowance for loan losses is established through a provision for
loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible based on
evaluations of the collectibility of loans. The evaluations take
into consideration such factors as changes in the nature and volume
of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the
borrowers' ability to pay. Accrual of interest is discontinued on
loans that are past due 90 days or more as to principal or interest
unless substantially collateralized and in process of collection, or
sooner, if in the opinion of management the borrowers' financial
condition is such that collection of principal or interest is
doubtful.
Premises and Equipment
Premises and equipment are stated at cost less allowances for
depreciation. Depreciation is computed on the straight-line method
over the estimated useful lives of the assets. Maintenance and
repairs are charged to expenses as incurred. Gains and losses on
dispositions are reflected in operations.
- 7 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangibles
The Company has intangible assets with a carrying amount of
$1,726,000 and $928,000 at December 31, 1996 and 1995, respectively.
Substantially all of the intangibles at December 31, 1995 relate to
core deposits acquired in prior years' acquisitions. Core deposit
intangibles are being amortized over a ten year period using the
straight-line method. During 1996, goodwill was added in connection
with the acquisition discussed in Note 3. Goodwill is being
amortized over fifteen years using the straight-line method.
Goodwill had a carrying amount of $957,000 at December 31, 1996.
Amortization charged against operations for all intangibles was
$158,465 and $150,862 for 1996 and 1995, respectively.
Income Taxes
The Company uses the liability method of accounting for income
taxes. This method requires the recognition of deferred tax assets
and liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
The Company and the Bank file consolidated federal and state income
tax returns. Under a tax-sharing arrangement, income tax charges or
credits are generally allocated to the Company and the Bank on the
basis of their respective taxable income or loss included in the
consolidated income tax return as determined by the separate return
method.
Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks, interest-bearing deposits in other
banks, and federal funds sold. Cash paid for interest and income
taxes was $6,632,799 and $1,247,912, respectively, during 1996, and
$5,479,743 and $930,047, respectively, during 1995.
In connection with the acquisition discussed in Note 3, the Company
received cash of approximately $2.9 million, loans and securities of
$42.3 million and premises, equipment and other assets of $2.8
million, and assumed deposits and other liabilities of $43.4
million. The acquisition was effected by the payment of
approximately $2.7 million cash and issuance of common stock of the
Company.
- 8 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - 1996 ACQUISITION
On August 31, 1996, the Company acquired Riherd, Inc. (Riherd), and its
wholly-owned subsidiary bank, Farmers and Dealers Bank (F & D) in Lake
Butler, Florida. F & D operated from its Lake Butler headquarters and two
branch offices in Alachua County. The acquisition was effected through the
Company's issuance of 298,172 of its common shares valued at approximately
$2.9 million and the payment of approximately $2.7 million in cash to
Riherd's shareholders. As a part of this transaction, Riherd and F & D
were merged into the Company and the Bank, respectively.
The acquisition was accounted for by the Company as a purchase transaction
and resulted in goodwill of approximately $990,000. Goodwill is being
amortized over a fifteen year period on a straight-line basis.
Amortization during 1996 was $21,448. Operating results of Riherd and F &
D from January 1 through August 31, 1996 were treated as a part of the net
assets purchased. Their operations after August 31, 1996 are included in
the accompanying 1996 consolidated statement of operations.
NOTE 4 - SECURITIES
Amortized cost and estimated fair value of securities available for sale
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
U. S. U. S. State,
Treasury Government County &
Securities Agencies Municipal Other Total
------------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Amortized cost $ 32,014,271 $ 25,874,958 $1,662,660 $ 1,209,450 $ 60,761,339
Gross unrealized:
Gains 154,666 92,459 100,814 -- 347,939
Losses (58,280) (179,501) -- (5,140) (242,921)
------------ ------------ ---------- ----------- ------------
Estimated fair value $ 32,110,657 $ 25,787,916 $1,763,474 $ 1,204,310 $ 60,866,357
============ ============ ========== =========== ============
</TABLE>
Amortized cost and estimated fair value of securities available for sale
at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
U. S. U. S.
Treasury Government
Securities Agencies Other Total
------------ ------------ --------- ------------
<S> <C> <C> <C> <C>
Amortized cost $ 13,701,198 $ 25,210,782 $ 947,600 $ 39,859,580
Gross unrealized:
Gains 26,846 179,038 104 205,988
Losses (95,204) (124,272) (7,607) (227,083)
------------ ------------ --------- ------------
Estimated fair value $ 13,632,840 $ 25,265,548 $ 940,097 $ 39,838,485
============ ============ ========= ============
</TABLE>
- 9 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - SECURITIES (CONTINUED)
Amortized cost and estimated fair value of securities held to maturity are
summarized as follows:
December 31,
---------------------------------
1996 1995
------------ ------------
U. S. U. S.
Government Government
Agencies Agencies
------------ ------------
Amortized cost $ 10,008,604 $ 13,246,806
Gross unrealized:
Gains 9,224 34,666
Losses (295,945) (228,927)
------------ ------------
Estimated fair value $ 9,721,883 $ 13,052,545
============ ============
During 1996, securities available for sale with a carrying amount of
$4,039,164 were sold for $4,014,219, resulting in gross realized losses of
$24,945.
During 1995, securities available for sale with a carrying amount of
$3,083,383 were sold for $3,086,221, resulting in gross realized gains of
$6,146 and losses of $3,308.
Interest income earned on tax exempt securities in 1996 was $32,130. There
was no tax exempt investment securities income in 1995. Dividends of
$64,564 and $61,421 on stock of the Federal Reserve Bank and Federal Home
Loan Bank are included in interest on securities available for sale in
1996 and 1995, respectively.
The amortized cost and estimated fair value of securities at December 31,
1996, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Securities Securities
Available for Sale Held to Maturity
------------------------ -----------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Due in:
One year or less $13,073,822 $13,029,149 $ -- $ --
After one through five years 32,183,276 32,272,037 -- --
After five through ten 2,724,084 2,751,398 -- --
Over ten years 856,718 910,307 -- --
Mortgage-backed securities
and other 11,923,439 11,903,466 10,008,604 9,721,883
----------- ----------- ----------- ----------
$60,761,339 $60,866,357 $10,008,604 $9,721,883
=========== =========== =========== ==========
</TABLE>
At December 31, 1996, U. S. Treasury and Government agency securities with
an amortized cost of $15,803,602 and estimated fair value of $15,917,821
were pledged to secure public funds, treasury tax and loan deposits and
repurchase agreements.
- 10 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - LOANS, ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
Loans at December 31 were comprised of the following:
1996 1995
------------- -------------
Commercial, financial and agricultural $ 68,595,222 $ 48,948,386
Real estate - construction 4,028,756 2,158,705
Real estate - mortgage 56,787,218 34,911,476
Installment and consumer lines 19,412,841 16,330,111
------------- -------------
Total loans net of unearned discount 148,824,037 102,348,678
Less: Allowance for loan losses (1,395,899) (945,770)
------------- -------------
Net Loans $ 147,428,138 $ 101,402,908
============= =============
Activity in the allowance for loan losses account was as follows:
1996 1995
----------- ---------
Balance beginning of year $ 945,770 $ 827,052
Acquired in acquisition 370,195 --
Provision 335,000 230,000
Recoveries 27,838 59,196
Charge-offs (282,904) (170,478)
----------- ---------
Balance At End Of Year $ 1,395,899 $ 945,770
=========== =========
Loans on a nonaccrual basis totaled approximately $87,000 and $372,000 at
December 31, 1996 and 1995, respectively. Foregone interest which would
have otherwise been recorded on nonaccrual loans, including those loans
that were nonaccrual at sometime during the year and later paid,
reinstated or charged off, was approximately $25,000 and $48,000 in 1996
and 1995, respectively. In addition to nonaccrual loans, non-performing
assets include Other Real Estate, property acquired by foreclosure in
settlement of debt. Other Real Estate was $87,960 and $125,994 at December
31, 1996 and 1995, and is included in the caption "Other Assets" on the
accompanying balance sheets.
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following components at
December 31:
1996 1995
------------ -----------
Buildings and improvements $ 7,680,351 $ 5,159,376
Equipment and furnishings 3,378,601 1,598,842
Land 1,960,439 1,480,177
------------ -----------
13,019,391 8,238,395
Less accumulated depreciation (3,559,998) (1,805,848)
------------ -----------
$ 9,459,393 $ 6,432,547
============ ===========
Depreciation charged against operations was $421,221 and $365,041 for 1996
and 1995, respectively.
- 11 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - DEPOSITS
At December 31, 1996, the scheduled maturities of time certificates of
deposit are as follows:
(In Thousands)
------------
1997 $ 94,851
1998 13,074
1999 4,316
2000 1,595
2001 and thereafter 675
--------
$114,511
========
NOTE 8 - REPURCHASE AGREEMENTS
The Bank has entered into repurchase agreements with several customers
under which the Bank pledges investment securities owned and under its
control as collateral against the one-day agreements. The daily average
balance of these agreements during 1996 was approximately $520,000.
Interest expense was $25,023, resulting in an average rate paid of 4.81%.
The highest amount outstanding during 1996 was $5,035,000. There were no
agreements of this nature at any time during 1995.
NOTE 9 - NOTES PAYABLE
The Company is indebted under the following notes payable:
December 31,
1996 1995
---------- ----------
Notes payable, collateralized by all
issued and outstanding common stock of
the Bank, at prime less .50%, interest
only payable monthly until September
1997, then principal and interest
payable monthly over a seven year period. $2,650,000 $ 950,000
========== ==========
The note agreement contains certain restrictions on the Company and the
Bank including: maintaining a correspondent relationship; ability to
borrow additional funds; the minimum level of capitalization; return on
assets; and the maximum level of nonperforming assets.
Principal payments required under the note at December 31, 1996 are as
follows:
1997 $ 96,367
1998 304,447
1999 328,898
2000 355,313
2001 383,849
Thereafter 1,181,126
The Company has voluntarily accelerated principal payments in both 1996 and
1995. It is management's intention to continue accelerated liquidation of this
note.
- 12 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - MANDATORY CONVERTIBLE SUBORDINATED DEBENTURES
The Company had issued $274,250 of ten-year $10 Series A Mandatory
Convertible Subordinated Debentures (the "Debentures") callable on or
after November 1, 1992. Interest on the Debentures was computed at the
greater of nine percent or the applicable federal rate under Internal
Revenue Code Section 1274. On November 15, 1996, the Company exercised its
call option on these debentures, resulting in an early redemption penalty
of $8,228.
NOTE 11 - OTHER OPERATING EXPENSES
Components of other operating expenses that equal or exceed $100,000 in
either year are as follows:
1996 1995
-------- --------
Data processing $298,402 $212,789
Advertising and promotion 236,695 166,190
Postage and delivery 218,681 193,269
Regulatory fees 175,909 302,187
Amortization of intangible assets 158,465 150,862
Supplies 133,363 94,103
Telephone 105,111 93,981
The Company follows the policy of expensing advertising costs as incurred.
The Company was notified during the third quarter of 1996 of the amount of
the FDIC's one-time special assessment based on the Company's Savings
Association Insurance Fund (SAIF)-assessable deposits. The assessment,
authorized by the Deposit Insurance Funds Act of 1996, applied to all
banking institutions with deposits insured by SAIF, and amounted to
approximately $327,000 for the Company.
NOTE 12 - INCOME TAXES
The income tax provision for the years ended December 31, 1996 and 1995
consisted of the following components:
<TABLE>
<CAPTION>
1996 1995
---------------------------------- ------------------------------
Federal State Total Federal State Total
---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current $1,229,237 $183,792 $1,413,029 $789,801 $100,000 $ 889,801
Deferred (149,193) (16,575) (165,768) 111,719 12,410 124,129
---------- -------- ---------- -------- -------- ----------
Total $1,080,344 $167,217 $1,247,261 $901,520 $112,410 $1,013,930
========== ======== ========== ======== ======== ==========
</TABLE>
- 13 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities and their respective tax bases. Significant components of and
the resultant deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows:
December 31,
-----------------------
1996 1995
--------- ---------
Deferred tax liabilities:
Basis difference of property and equipment $ 505,255 $ 510,458
Unearned loan fees 27,288 84,548
Unrealized gain on securities available
for sale 39,172 --
--------- ---------
571,715 595,006
--------- ---------
Deferred tax assets:
Loan loss provisions 387,881 220,426
Unrealized loss on securities available
for sale -- 7,868
Net operating loss carryover of acquiree 27,138 87,338
Intangible assets 58,945 21,017
Reserve for possible OREO losses 19,122 --
Other items 23,354 10,980
--------- ---------
516,440 347,629
--------- ---------
NET DEFERRED TAX ASSET (LIABILITY) $ (55,275) $(247,377)
========= =========
The reasons for the differences between the statutory federal income tax
rates and the effective tax rates are summarized as follows:
1996 1995
---- ----
Statutory rates 34.0% 34.0%
Increase (decrease) resulting from:
Effect of tax-exempt income (2.4) (2.4)
State income taxes - net 3.1 2.6
Nondeductible expenses .3 1.3
---- ----
35.0% 35.5%
==== ====
The Company and the Bank have entered into a tax-sharing agreement under
which intercompany settlements of taxes currently due are made on an "as
though separate" basis.
- 14 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - LOANS TO RELATED PARTIES
Certain officers and directors, and companies in which they held a 10
percent or more beneficial ownership, were indebted (or, in some cases,
guaranteed loans) to the Bank as follows:
1996 1995
----------- -----------
Balance January 1 $ 1,811,794 $ 1,955,014
New loans and advances 2,904,192 2,025,274
Repayments (excluding renewals) (2,683,258) (2,168,494)
----------- -----------
Balance December 31 $ 2,032,728 $ 1,811,794
=========== ===========
The loans summarized above were made in the normal course of business at
prevailing interest rates and terms.
NOTE 14 - DIVIDEND RESTRICTIONS
The Company's primary source of funds is dividends it receives from the
Bank. The payment of dividends by the Bank, in turn, is subject to the
regulations of the Comptroller of the Currency which require, among other
things, that dividends be paid only from net profits of the current and
immediately preceding two years. At December 31, 1996, the Bank had
approximately $2,166,000 of retained earnings available for dividend to
the Company without being required to seek special regulatory approvals.
NOTE 15 - STOCK OPTIONS
The Company's President and several key officers have been granted
incentive stock options to purchase the Company's common stock. Generally,
the options become exercisable 20% in each year following the year of
grant, and expire ten years after the date they first become exercisable.
For all options granted thus far, the grant price is equal to the deemed
fair value of a share of stock as of the date of grant (generally the book
value).
Options to purchase 64,908 shares have been granted to the Company's
officers as of December 31, 1996. Of this total, 47,790 options are
currently exercisable, all of which are at prices less than the December
31, 1996 book value of the Company's stock. None of the options granted
has been exercised.
Under Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", the Company is not required to recognize or
disclose any compensation costs that might be associated with these
options, since no options were granted in 1996 or 1995. Exercise prices
for the 64,908 options outstanding at both December 31, 1996 and 1995
range from $6.11 to $10.40. The weighted average price is $7.72, and the
remaining contractual life is 7.7 years.
- 15 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - REGULATORY MATTERS
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 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). If such minimum amounts and ratios are met, the Bank is
considered "adequately capitalized". If a bank exceeds the requirements of
"adequately capitalized" and meets even more stringent minimum standards,
it is considered to be "well capitalized". Management believes that as of
December 31, 1996 and 1995, the Bank meets and exceeds all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Bank's
regulatory agency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain Total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table which
follows. There are no conditions or events since that notification that
management believes have changed the institution's category.
<TABLE>
<CAPTION>
Minimum to Remain
Actual Well Capitalized
---------------------- ----------------------
Amount Ratio Amount Ratio
----------- ------- ----------- -------
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets):
Consolidated $19,267 13.6% $14,189 10.0%
Subsidiary Bank $21,538 15.2% $14,183 10.0%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $17,871 12.6% $ 8,514 6.0%
Subsidiary Bank $20,142 14.2% $ 8,510 6.0%
Tier I Capital
(to Average Assets):
Consolidated $17,871 7.3% $12,320 5.0%
Subsidiary Bank $20,142 8.2% $12,319 5.0%
</TABLE>
- 16 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
Minimum to Remain
Actual Well Capitalized
---------------------- ----------------------
Amount Ratio Amount Ratio
----------- ------- ----------- -------
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets):
Consolidated $15,059 14.9% $10,114 10.0%
Subsidiary Bank $15,714 15.5% $10,112 10.0%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $13,839 13.7% $ 6,068 6.0%
Subsidiary Bank $14,768 14.6% $ 6,067 6.0%
Tier I Capital
(to Average Assets):
Consolidated $13,839 7.9% $ 8,790 5.0%
Subsidiary Bank $14,768 8.9% $ 8,306 5.0%
</TABLE>
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance-Sheet Risk
The financial statements do not reflect various commitments and
contingent liabilities that arise in the normal course of business
to meet the financing needs of customers. These include commitments
to extend credit and honor stand-by letters of credit. These
instruments involve, to varying degrees, elements of credit,
interest rate and liquidity risks in excess of amounts reflected in
the balance sheets. The extent of the Bank's involvement in these
commitments or contingent liabilities is expressed by the
contractual, or notional, amounts of the instruments.
Commitments to extend credit, which amount to $12,355,074 and
$10,029,608 at December 31, 1996 and 1995, respectively, represent
legally binding agreements to lend to customers with fixed
expiration dates or other termination clauses. Since many
commitments are expected to expire without being funded, committed
amounts do not necessarily represent future liquidity requirements.
The amount of collateral obtained, if any, is based on management's
credit evaluation in the same manner as though an immediate credit
extension were to be granted.
- 17 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Financial Instruments With Off-Balance-Sheet Risk (Continued)
Stand-by letters of credit are conditional commitments issued by the
Bank guaranteeing the performance of a customer to a third party.
The decision whether to guarantee such performance and the extent of
collateral requirements are made considering the same factors as are
considered in credit extension. The Company had $232,000 and
$598,000 outstanding on stand-by letters of credit at December 31,
1996 and 1995, respectively.
The Company expects no significant losses to be realized in the
performance of its obligations under any of the above instruments.
Concentrations of Credit Risk
The Bank originates residential and commercial real estate loans,
and other consumer and commercial loans primarily in the
north-central Florida area. In addition, the Bank occasionally
purchases loans, primarily in Florida. Although the Bank has a
diversified loan portfolio, a substantial portion of its borrowers'
ability to repay their loans is dependent upon economic conditions
in the Bank's market area.
Use of Estimates in Preparation of Consolidated Financial Statements
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. For the Company, such estimates
significantly affect the amount at which the allowance for loan
losses is carried, the amount of the deferred tax assets that are
dependent upon future taxable income and the likelihood and timing
of realization of such assets, the factors and amounts entering into
the estimate of fair value of financial instruments disclosed in
Note 18, and other accounts. All such estimates relate to unsettled
transactions and events as of the date of the financial statements
and, accordingly, upon settlement it is likely that actual amounts
will differ from currently estimated amounts.
Federal Reserve Requirement
The Federal Reserve Board requires that certain banks maintain
reserves, based on their average deposits, in the form of vault cash
and average deposit balances at a Federal Reserve Bank. The
requirement as of December 31, 1996 was approximately $2.4 million.
- 18 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The table which follows shows the estimated fair value and the related
carrying amounts of the Company's financial instruments at December 31,
1996.
For purposes of this disclosure, the estimated fair value for cash and
cash equivalents is considered to approximate their carrying amounts. The
estimated fair value for securities is based on quoted market values for
the individual or equivalent securities. The estimated fair value for
loans is based on interest rates the Company would have charged borrowers
at December 31, 1996 for similar loans, maturities and terms.
The estimated fair value for demand and savings deposits is based on their
carrying amount. The estimated fair value for time deposits is based on
rates the Company offered at December 31, 1996 for deposits of similar
remaining maturities. The estimated fair value for other financial
instruments and off-balance-sheet loan commitments are considered to
approximate carrying amount at December 31, 1996. Assets and liabilities
of the Company that are not defined as financial instruments, such as
premises and equipment, are excluded from these disclosures.
Carrying Estimated
Amount Fair Value
-------- --------
(In Thousands)
Financial Assets
Cash and cash equivalents $ 22,880 $ 22,880
Securities available for sale 60,761 60,866
Securities held to maturity 10,009 9,722
Net loans 147,428 147,605
Financial Liabilities
Demand and Savings Deposits 112,313 112,313
Time Deposits 114,511 114,494
Repurchase agreements 3,766 3,766
Notes payable 2,650 2,650
Non-financial instruments typically not recognized in the financial
statements nevertheless may have value but are not included in the above
disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing
rights, customer goodwill, and similar items.
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that, were the Company
to have disposed of such items at December 31, 1996, the estimated fair
values would necessarily have been achieved at that date, since market
values may differ depending on various circumstances. The estimated fair
values at December 31, 1996 should not necessarily be considered to apply
at subsequent dates.
- 19 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 - CONDENSED FINANCIAL DATA (PARENT COMPANY ONLY)
December 31,
1996 1995
------------ ------------
Balance Sheets
ASSETS
Cash and cash equivalents $ 344,689 $ 317,620
Investment in CNB National Bank 21,795,997 15,653,382
Other assets 202,647 31,105
------------ ------------
TOTAL ASSETS $ 22,343,333 $ 16,002,107
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable $ 2,650,000 $ 950,000
Other liabilities 24,500 23,961
------------ ------------
Total Liabilities 2,674,500 973,961
------------ ------------
MANDATORY CONVERTIBLE SUBORDINATED DEBENTURES -- 274,250
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 19,379 16,397
Additional paid-in capital 12,682,601 9,784,369
Retained earnings 6,901,006 4,966,357
Unrealized gain (loss) on securities 65,847 (13,227)
------------ ------------
Total Shareholders' Equity 19,668,833 14,753,896
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 22,343,333 $ 16,002,107
============ ============
Statements of Operations
Equity in undistributed Bank earnings $ 492,150 $ 625,904
Dividend income 1,913,114 1,315,266
Interest income 27,452 12,088
Non-interest income 408 16,594
Interest expense (132,506) (161,467)
Non-interest expense (42,058) (26,568)
Income tax benefits 54,721 59,439
------------ ------------
Net income $ 2,313,281 $ 1,841,256
============ ============
- 20 -
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 - CONDENSED FINANCIAL DATA (PARENT COMPANY ONLY) (CONTINUED)
Year Ended December 31,
1996 1995
----------- -----------
Statements of Cash Flows
OPERATING ACTIVITIES
Net income $ 2,313,281 $ 1,841,256
Adjustments to reconcile net income to cash
provided by operating activities:
Undistributed earnings of subsidiary (492,150) (625,904)
Changes in year-end balances of:
Other assets (171,542) 29,052
Other liabilities 539 15,765
----------- -----------
Net Cash Provided By Operating Activities 1,650,128 1,260,169
----------- -----------
INVESTING ACTIVITIES
Cash received in acquisition 4,190 --
Cash used in acquisition (2,674,367) --
----------- -----------
Net Cash Used In Investing Activities (2,670,177) --
----------- -----------
FINANCING ACTIVITIES
New borrowings under notes payable 2,650,000 --
Payments on notes payable (950,000) (750,000)
Redemption of convertible subordinated
debentures (274,250) --
Cash dividends (378,632) (295,151)
----------- -----------
Net Cash Provided By (Used In)
Investing Activities 1,047,118 (1,045,151)
----------- -----------
Net Increase in Cash and Cash Equivalents 27,069 215,018
Cash and Cash Equivalents:
Beginning of Year 317,620 102,602
----------- -----------
End of Year $ 344,689 $ 317,620
=========== ===========
- 21 -
1
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Neither the Registrant nor the Bank has changed its accountants during the
two (2) most recent fiscal years nor had any disagreement with their accountants
with respect to accounting or financial disclosures.
PART III
Except for the information relating to the Company's sole executive officer and
its key employees, the material required by items 9 through 12 is hereby
incorporated by reference from the Company's definitive proxy statement pursuant
to Instruction E of Form 10-KSB. The Company will file its definitive Proxy
Statement with the Commission prior to April 15, 1997.
K. C. Trowell 58 Mr. Trowell, Chairman, President and Chief
Executive Officer of the Company and the Bank was
elected to the Board of Directors in 1987 and
serves as Chairman of the Executive Committee. Mr.
Trowell also serves on the Investment, Marketing
and Compensation Committees. Although Mr. Trowell
serves on the Compensation Committee, he abstains
from voting on decisions which involve his own
compensation. He has served as the Chairman and
Chief Executive Officer of the Company since its
inception in 1987. Mr. Trowell is a Lake City,
Florida, native and has been actively involved in
commercial banking management in North Florida for
over twenty-five years. He has also held
management positions with NationsBank of Lake City
(and its predecessors), American Bank of
Jacksonville, and Barnett Banks, Inc. He presently
serves as Chairman of the Board of Trustees of
Florida Bankers Insurance Trust. He is a past
director of Community Bankers of Florida, past
director of the Columbia County Committee of 100,
past director of North Central Florida Areawide
Development Company, and a former board member and
chairman of Lake City Medical Center and Columbia
County Industrial Development Authority.
Joyce A. Bruner 44 Ms. Bruner has served, since the opening of the
Bank in 1986, as Vice President, Cashier, Senior
Operations Officer and, most recently, Senior Vice
President and Senior Administrative Officer. She
also serves as Secretary of the Company. Prior to
joining the Bank during its organizational phase,
Ms. Bruner served as Operations Officer for
NationsBank of Lake City (and its predecessors)
for a period of three years where she had
responsibility for branch operations.
Martha S. Williams 46 Ms. Williams has served as Vice President and
Cashier of the Bank since 1991. From 1988 through
1991, Ms. Williams was Cashier for Citizens Bank
of Live Oak, which merged into the Bank in
November 1992. From 1986 to 1988, Ms. Williams
served as Assistant Cashier for the Bank and prior
to 1986 held management positions with NationsBank
of Live Oak (and its predecessors). Ms. Williams
is a life-long resident of the Live Oak, Florida,
area where she is a member of the Altrusa Club and
the Chamber of Commerce. In addition, Ms. Williams
volunteers for Hospice of North Florida.
Robert W. Woodard 47 Mr. Woodard has served as Senior Vice President
and Commercial Banking Manager of the Bank since
July, 1993. Prior to his employment by the Bank in
August, 1992, he held positions with Barnett Bank
of North Central Florida and Sun Bank. Mr. Woodard
is currently Treasurer of the Lake City Rotary
Club, Director of the United Way of Suwannee
Valley, and is a member of the Chamber of
Commerce, City of Lake City Planning and Zoning
Board and the Columbia County Industrial
Development Authority.
23
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
Exhibits.
3(i) Articles of Incorporation (Incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement No.
33-71082, as amended, on Form S-4 filed February 8,1994).
3(ii) By-laws (Incorporated by reference to Exhibit 3.4 to the
Company's Registration Statement No. 33-71082, as amended, on
Form S-4 filed February 8, 1994).
9 Voting Trust Agreement dated December 31, 1996.
10 Employment Agreement Amendment of November 15, 1995, among K.
C. Trowell, the Company and the Bank. (Original agreement
dated August 3, 1987, as amended, is incorporated by reference
to Exhibit 10 to the Company's Form 10-KSB/A as filed December
31, 1995).
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
Reports on Form 8-K. No report on Form 8-K was filed by the Registrant during
the quarter ended December 31, 1996.
24
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CNB, INC.
----------------------------
(Registrant)
By: /s/ K. C. Trowell
----------------------------
K. C. Trowell
President, Principal Executive
Officer, and Chief Financial Officer
Date: March 19 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Audrey S. Bullard Director March 19, 1997
----------------------------
Audrey S. Bullard
/s/ Seymour Chotiner Director March 19, 1997
----------------------------
Seymour Chotiner
/s/ Marvin H. Pritchett Director March 19, 1997
----------------------------
Marvin H. Pritchett
/s/ Helen B. Real Director March 19, 1997
----------------------------
Helen B. Real
/s/ T. Allison Scott Director March 19, 1997
----------------------------
T. Allison Scott
/s/ William J. Streicher Director March 19, 1997
----------------------------
William J. Streicher
/s/ K. C. Trowell Director March 19, 1997
----------------------------
K. C. Trowell
/s/ Martha S. Williams Vice President, March 19, 1997
---------------------------- Cashier
Martha S. Williams
25
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-KSB
ANNUAL REPORT
----------------
SUBSIDIARIES OF THE REGISTRANT
----------------
CNB, Inc.
----------------
<PAGE>
AMENDED AND RESTATED VOTING TRUST AGREEMENT
THIS AMENDED AND RESTATED VOTING TRUST AGREEMENT is made as of this 31st
day of December, 1996, between the several shareholders listed below as
subscribing to this Agreement as of the date hereof, and all others who shall
join in this Agreement in accordance with the terms set forth herein
(collectively, the "Shareholders") of CNB, Inc., a corporation organized and
existing under the laws of the State of Florida, having its principal place of
business at 201 North Marion Street, Lake City, Florida 32055 (the "Company")
and K.C. TROWELL and AUDREY S. BULLARD (and any of their respective successors
in trust, collectively, the "Trustees").
RECITALS
The Shareholders are all parties to that certain Voting Trust Agreement
dated as of February 10, 1987, as the same has been amended.
The Shareholders subscribing to this Agreement and the Trustees' desire to
secure stability and continuity of policy and management of CNB National Bank
(the "Bank").
The Shareholders have unanimously decided to extend the term of the Voting
Trust Agreement and to amend and restate the Voting Trust Agreement in its
entirety as set forth hereinafter.
For good and valuable consideration, the parties hereto agree as follows:
ARTICLE I
THE VOTING TRUST
1.01 DEPOSIT OF SHARES.
(a) The Shareholders have transferred to the Trustees certificates
(the "Share Certificates") representing shares of voting common stock of the
Company as listed on Exhibit "A", properly endorsed or accompanied by such
instruments of transfer as will enable the Trustees to cause the shares to be
transferred on the books of the Company into the name of the Trustees.
(b) The Trustees agree to hold all shares deposited in the Voting
Trust (the "Trust Shares") in accordance with the provisions of this Agreement,
for the common benefit of the Shareholders, and shall abide by all provisions of
this Agreement in carrying out their obligations as the Trustees.
(c) The Trustees shall maintain a record of all shares transferred
under this Agreement. Such record shall include the names and addresses of the
holders of Voting Trust
<PAGE>
Certificates (as defined herein), and the number of shares of voting common
stock of the Company represented by each Voting Trust Certificate.
(d) Additional holders of voting common stock of the Company may, at
the discretion of the Trustees, become parties to this Agreement by: (i)
transferring their respective Share Certificates to the Trustee in exchange for
Voting Trust Certificates and upon an affirmative vote of the Trustees, and (ii)
signing a counterpart of this Agreement.
1.02 ISSUANCE OF NEW CERTIFICATES TO THE TRUSTEES. All Share Certificates
delivered to the Trustees pursuant to this Agreement shall be surrendered by the
Trustees to the Company and cancelled. New certificates for the shares (the
"New Certificates") shall be issued by the Company in the name of the Trustees.
The New Certificates shall state that such certificates are being issued to the
Trustee pursuant to a Voting Trust Agreement, and the Company shall make a
similar notation on the transfer books of the Company.
1.03 VOTING TRUST CERTIFICATES.
(a) ISSUANCE OF VOTING TRUST CERTIFICATES. Upon receipt of the Share
Certificates from the Shareholders, the Trustees shall deliver to the
Shareholders voting trust certificates (the "Voting Trust Certificates"),
representing the number of shares deposited.
(b) FORM OF CERTIFICATES; LEGEND. The Voting Trust Certificates
shall be in the form approved by the Trustees. The certificates may be modified
by the Trustees as the Trustees deem appropriate to ensure compliance with the
terms of this Agreement. The Trustees shall cause the following legend to be
placed on each Voting Trust Certificate:
It is expressly stipulated that no voting rights accrue to any
owner or holder of this certificate, or their assigns, by virtue
of this certificate or under any agreement, express or implied.
This certificate is issued, received and held under, and the
rights of the owner or holder hereof are subject to, the terms of
a Voting Trust Agreement.
This certificate may be a "security" as defined by State or
Federal law. This certificate has not been registered under the
Securities Act of 1933 or any applicable state securities laws,
and may not be sold or otherwise transferred except pursuant to
an effective registration, or exemption from such registration
supported by an opinion of counsel acceptable to the Company.
Copies of this Voting Trust Agreement are on file in the
principal office of the Company, and may be examined during
normal business hours.
-2-
<PAGE>
The owner or holder of this certificate, by acceptance hereof,
assents to, and is bound by, the terms of the Voting Trust
Agreement.
(c) TRANSFER OF VOTING TRUST CERTIFICATES.
(i) The Voting Trust Certificates are transferrable only on
the books of the Trustees, upon surrender of the Voting Trust Certificate,
properly endorsed or accompanied by a properly executed instrument of
assignment together with all (if any) requisite transfer tax stamps
necessary to pay all applicable taxes on the transfer.
(ii) Voting Trust Certificates that are surrendered for
transfer shall be cancelled, and new Voting Trust Certificates shall be
issued in the name of the transferee in the same form and representing the
same number of shares as the Voting Trust Certificate that is surrendered
for cancellation.
(iii) The Trustees shall treat the registered holders of the
Voting Trust Certificates as the absolute owners thereof for all purposes.
The Trustees shall not be required to recognize any legal, equitable or
other claim or interest in the Voting Trust Certificates on the part of any
other person, whether or not the Trustees have notice of such claim or
interest.
(iv) The Trustees shall not be required to deliver Share
Certificates to any registered holder of a Voting Trust Certificate until
the holder has first surrendered the Voting Share Certificate representing
such shares.
(d) LOST, DAMAGED, STOLEN OR MUTILATED VOTING TRUST CERTIFICATES.
The Trustees, at their discretion, may issue a duplicate Voting Trust
Certificate upon receipt of evidence, satisfactory to the Trustees, that the
certificates have been lost, stolen, mutilated, or otherwise destroyed. The
holder of the Voting Trust Certificate shall indemnify the Trustee for all costs
associated with the issuance of a replacement Voting Trust Certificate.
1.04 RELEASE OF SHARES.
(a) Except upon the termination of this Agreement as set forth in
Article IV hereof, no Trust Shares held by the Trustees under this Agreement may
be released from the Voting Trust without the unanimous consent of the
registered holders of Voting Trust Certificates. The Shareholders agree that
such consent shall not be unreasonably withheld.
(b) Notwithstanding the above, no release of any Trust Shares held
under this Agreement shall be permitted which would cause this Agreement to be
unenforceable in accordance with any applicable laws.
-3-
<PAGE>
ARTICLE II
THE TRUSTEES
2.01 VOTING OF SHARES.
(a) Until the exchange of new Share Certificates to the holders of
the Voting Trust Certificates pursuant to Article IV hereof, the Trustees shall
exercise, in their sole discretion, all voting rights of the Trust Shares
deposited under this Agreement. No holder of any Voting Trust Certificates
shall, in the capacity of holder, have any voting rights or the right to give
consents with respect to any corporate action, except and unless that, if at any
time prior to the call to order of a Shareholder's meeting, or before the taking
of any action requiring the affirmative vote of the Shareholders, the holders of
Voting Trust Certificates representing at least seventy-five percent of the
Trust Shares direct the Trustees to vote the Trust Shares in a specified manner,
the Trustees shall comply with such direction.
(b) Notwithstanding subparagraph (a) above, the Trustees agree that
they shall not vote to either (i) liquidate or dissolve the Company; (ii) sell,
mortgage, pledge or otherwise dispose of all or substantially all of the assets
of the Company; or (iii) merge or consolidate the Company with any other
company, unless the Trustees obtain the prior written consent of the holders of
a majority of the Shares represented by the Voting Trust Certificates.
(c) If, for any reason, the Trustees cannot agree upon how to vote
the Trust Shares on a particular matter (a "Disputed Matter"), and no direction
on how to vote is given by the holders of Voting Trust Certificates representing
a majority of the Trust Shares, the voting rights of the Trust Shares will
revert back to the beneficial owners of the Trust Shares only for the purpose of
voting on such Disputed Matter.
2.02 TRUSTEE COMPENSATION, REIMBURSEMENT AND INDEMNIFICATION.
(a) COMPENSATION. The Trustees shall serve without compensation.
(b) REIMBURSEMENT.
(i) The Trustees shall not have any obligation to spend any
of their own funds or to take any action that could, at the Trustees'
discretion, result in any cost or expense being incurred by the Trustees.
(ii) The Trustees, at their sole discretion, shall have the
right to incur and pay reasonable expenses and charges, and to employ
agents, attorneys or other counsel, as the Trustees deem necessary for the
proper administration of this Agreement.
-4-
<PAGE>
(iii) All expenses incurred by the Trustees under this
Agreement may be deducted from dividends or other funds received by the
Trustees on account for the Trust Shares.
(iv) In the event such dividends and other funds received by
the Trustee are insufficient to reimburse the Trustees for expenses
incurred under this Agreement, the Shareholders will reimburse the Trustees
in proportion to each shareholder's percentage of the Trust Shares held
under this Agreement.
(c) INDEMNIFICATION. The Shareholders, jointly and severally, shall
indemnify the Trustees and their successors, assigns, agents and employees
against all liabilities and expenses, including legal fees, resulting from the
administration of this Agreement, except for any liabilities and expenses
resulting from gross negligence or willful misconduct on the part of the
Trustees. This indemnification provision shall survive the termination of this
Agreement.
2.03 RESIGNATION BY TRUSTEES. Any Trustee may resign at any time by giving
thirty (30) days written notice to the Company and to the registered holders of
Voting Trust Certificates. The resignation shall take effect upon the
expiration of the thirty (30) day period or upon earlier acceptance of the
resignation by the holders of Voting Trust Certificates representing a majority
of the Trust Shares. Upon the resignation becoming effective, all powers,
rights and obligations of the resigning Trustee under this Agreement shall
terminate.
2.04 REMOVAL OF TRUSTEES. The Trustees, or any one or more of them, may be
removed for any reason, by an affirmative vote of the holders of Voting Trust
Certificates representing at least seventy-five percent of the Trust Shares.
2.05 SUCCESSOR TRUSTEE. Promptly upon the resignation, death,
incapacitation or removal of any Trustee, a successor Trustee shall be
appointed by an affirmative vote of holders of Voting Trust Certificates
representing a majority of the Trust Shares. Any successor Trustees shall assume
all powers, rights and obligations of the Trustee, with the same effect as if
such successors had originally been parties to this Agreement.
2.06 TRUSTEE VACANCIES. In the event any vacancy exists in the position of
Trustee, the remaining Trustee(s) shall have the power to vote the Trust Shares.
2.07 RELIANCE BY TRUSTEES ON THE ADVICE OF OTHERS. The Trustees shall not
incur any liability to any person or persons if the Trustees act on a signature
or document that the Trustees reasonably and in good faith believe to be
genuine. The Trustees may seek the advice of counsel, accountants and such
other persons as the Trustees reasonably believe necessary for the proper
administration of this Agreement, and reliance by the Trustees with respect to
such advice shall constitute an irrebuttable presumption that the Trustees acted
in good faith,
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<PAGE>
and the Trustees shall not be held liable for any loss, damage or expense
resulting from such reliance.
ARTICLE III
DIVIDENDS AND OTHER DISTRIBUTIONS
3.01 CASH DIVIDENDS. Subject to the terms of this Agreement, the Trustees
shall receive and hold all dividends and distributions declared and paid on the
Trust Shares and shall distribute the dividends and distributions directly to
the holders of the Voting Trust Certificates in proportion to the number of
Trust Shares held under the Voting Trust Certificate as recorded on the books of
the Trustees.
3.02 STOCK DIVIDENDS. Subject to the terms of this Agreement, the Trustees
shall receive and hold all securities of the Company issued in respect of the
Trust Shares by reason of: (i) a dividend paid with such securities; (ii) a
capital reorganization; (iii) a declared stock split; or (iv) recapitalization
of the Company. The Trustees shall deliver to the registered holders of the
Voting Trust Certificates, a new Voting Trust Certificate representing the
additional Trust Shares in proportion to the number of Trust Shares held by the
Shareholders on the books of the Trustee.
3.03 DECLARATION DATE. The Trustees, at their discretion, shall be
entitled to temporarily close the transfer books for a period not to exceed
twenty (20) days preceding the date fixed by the Company for payment of
dividends or other distributions.
ARTICLE IV
TERMINATION
4.01 TERMINATION DATE.
(a) This Agreement shall terminate without notice on December 31,
2001.
(b) Notwithstanding the above, this Agreement may be terminated at any
time with the unanimous signed consent of all of the registered holders of
Voting Trust Certificates.
(c) Notwithstanding any of the above provisions, this Agreement may
be extended for an additional period of up to ten years, subject to all
applicable laws, upon the unanimous written consent of all of the registered
holders of Voting Trust Certificates.
-6-
<PAGE>
4.02 TERMINATION PROCEDURES.
(a) Upon the termination of this Agreement, the Trustees shall,
within twenty (20) days of such termination, provide written notice of the
termination to all of the registered holders of Voting Trust Certificates at the
addresses appearing on the books of the Trustees, setting forth the reasons for
the termination, and the date upon which the termination of this Agreement shall
become effective (the "Termination Date").
(b) Within thirty (30) days of the Termination Date, the holders of
the Voting Trust Certificates shall surrender to the Trustees the Voting Trust
Certificates with all necessary endorsements.
(c) Upon receipt of the properly endorsed Voting Trust Certificates,
the Trustees shall issue to the holders of the Voting Trust Certificates, Share
Certificates representing the same number of shares of the Company as were
represented by the Voting Trust Certificates. Such Share Certificates shall be
properly endorsed by the Trustee to enable the Shareholders to have the such
shares transferred on the books of the Company.
(d) Notwithstanding the provisions of subparagraphs (a), (b) and (c)
above, the Trustees may, within ten days of the Termination Date, deliver Share
Certificates to the Company representing the number of Trust Shares held under
the Voting Trust Certificates. The Company shall then have the authority to
deliver the Share Certificates to the holders of Voting Trust Certificates under
the same procedures set forth above. Upon delivery of the Share Certificates to
the Company, all further liability of the Trustee for the delivery of the Share
Certificates shall cease.
4.03 DISSOLUTION OF THE COMPANY. In the event of the dissolution, or
liquidation (either total or partial) of the Company, the Trustees shall
receive, on behalf of the Shareholders, all monies, securities, rights or
property to which the Shareholders are entitled, and shall distribute such
monies, securities, rights and property to the registered holders of the Voting
Trust Certificates in proportion to the Trust Shares represented by such Voting
Trust Certificates.
ARTICLE V
MISCELLANEOUS
5.01 SUBSCRIPTION RIGHTS.
(a) In the event that any of the securities of the Company are
offered for cash subscriptions to the holders of the Trust Shares, the Trustees
shall provide notice to each registered holder of the Voting Trust Certificates
at the addresses listed on the books of the Trustee.
-7-
<PAGE>
(b) Upon receipt of a request from any holder of Voting Trust
Certificates to subscribe to any of the offered shares, and upon receipt of any
monies required to purchase such shares, the Trustees shall make the appropriate
subscription and payment.
(c) In the event that any of the stock to be subscribed is voting
stock of the Company, the Trustees shall hold the subscribed shares under this
Agreement, and a new Voting Trust Certificate shall be issued reflecting the
appropriate number of new Trust Shares.
5.02 NOTICE.
(a) All communications, notices or other required correspondence
provided for hereunder or under any other documents shall be sent by first class
mail, by courier, by hand, or by certified mail as follows:
To the Trustees: K.C. Trowell
Chairman & CEO
CNB, Inc.
201 North Marion Street
Lake City, Florida 32055
To the Shareholders: At the address listed for the
Shareholder on the books of the
Trustee.
(b) Each such communication, notice or other correspondence shall be
deemed given: (i) three (3) business days following deposit in the mail with
proper postage affixed if sent by mail; and (ii) when actually delivered to the
appropriate address if sent by courier or by hand.
5.03 SUCCESSOR AND ASSIGNS. All covenants and agreements in this Agreement
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto whether so expressed or not.
5.04 CHANGES, AMENDMENTS AND MODIFICATIONS. This Agreement may be changed,
amended or modified only upon the unanimous consent of the holders of the Voting
Trust Certificates.
5.05 APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Florida.
5.06 JURISDICTION. All suits, actions and proceedings relating to this
Agreement may be brought only in the courts of the State of Florida or in the
U.S. District Court for the Middle District of Florida. The parties hereto
consent to the jurisdiction of such courts.
-8-
<PAGE>
5.07 HEADINGS. The descriptive section headings herein have been inserted
for convenience only and shall not be deemed to limit or otherwise affect
the construction of any provisions hereof.
5.08 COUNTERPARTS. This Agreement may be executed simultaneously in
several counterparts. Each counterpart shall be deemed an original.
5.09 SEVERABILITY. If any portion of this Agreement is declared void by
any court as illegal or against public policy, the remainder of the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, The parties have executed this Agreement effective as
of the day and year first above written.
TRUSTEES:
-------------------------------------------------
K.C. TROWELL
-------------------------------------------------
AUDREY S. BULLARD
SHAREHOLDERS:
-------------------------------------------------
AUDREY S. BULLARD
-------------------------------------------------
R.C. DICKS
-9-
<PAGE>
SHAREHOLDERS:
-------------------------------------------------
DALE FERGUSON
-------------------------------------------------
BOB FRANCE
-------------------------------------------------
ELIZABETH POTTLE
-------------------------------------------------
MARVIN PRITCHETT
-------------------------------------------------
HELEN REAL
-------------------------------------------------
FRANK SCHULTE
-------------------------------------------------
WILLIAM J. STREICHER
-------------------------------------------------
WILLIAM J. STREICHER
or JOSEPHINE R. STREICHER
-10-
<PAGE>
-------------------------------------------------
TRUSTEE OF WILLIAM J. STREICHER LIVING
TRUST or
TRUSTEE OF JOSEPHINE R. STREICHER
LIVING TRUSTEE
-------------------------------------------------
K.C. TROWELL
-11-
EXHIBIT 21
<PAGE>
MARCH 1, 1997
Subsidiaries of CNB, Inc.:
State of
Subsidiary Organization Business Name
---------- ------------ -------------
1. CNB National Bank * CNB National Bank
* CNB National Bank is organized as a National Association.
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<PAGE>
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