<PAGE>
UNITED STATES
SECURITIES AND ECHANGE 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, 1997
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.
------------------------------
(Name of Small Business Issuer)
<TABLE>
<S> <C>
FLORIDA 59-2958616
- -------------------------------------------------------- --------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
POST OFFICE BOX 3239 201 NORTH MARION STREET LAKE CITY,
FLORIDA 32056
- -------------------------------------------------------- --------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
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, 1997,
totaled $21,573,504.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $13,449,996, as of the most recent date on which stock was sold,
March 12, 1998.
The number of shares of the registrant's common stock outstanding as of
March 1, 1998 was 2,428,385 shares, $0.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1998 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, 1998.
<PAGE>
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 three full service
facilities. The Company's headquarters is located in the lead bank office
located downtown and is named the Marion Street office, the Baya Avenue office
is located immediately south of downtown and the 90 West office is located in
the retail business area on the west side of town.
On July 15, 1997, the Company sold 484,480 additional shares of common stock
at $14.00 per share to existing shareholders, resulting in additional equity of
$6.8 million, net of offering costs.
The Company completed renovations to the accounting department in the
operations center, which houses the Company's item processing and check imaging
systems, in the second quarter of 1997 and finished construction on the West 90
office in the third quarter of 1997. In addition, the Bank installed a new
toll-free telephone banking system, which allows customer access to accounts 24
hours a day, seven days a week.
Business of Issuer
CNB, through the Bank, now operates a total of eleven banking offices in
Columbia, Suwannee, Baker, Bradford, Union and Alachua Counties, Florida. As of
December 31, 1997, CNB had total assets of $273.3 million, total deposits of
$231.4 million, and total shareholders' equity of $29.0 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 IRA's 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 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.
2
<PAGE>
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,
1997, and 1996.
CNB National Bank Deposits at Year-End
<TABLE>
<CAPTION>
CITY 1997 1996
- ------------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
(THOUSANDS)
Lake City...........................................................................
Marion St. $ 55,114 $ 60,092
Baya Ave.......................................................................... 34,037 34,401
90 West........................................................................... 885 --
Live Oak
White Ave......................................................................... 37,856 37,132
S. Ohio Ave....................................................................... 10,902 12,402
Fort White.......................................................................... 6,885 6,241
Macclenny........................................................................... 30,222 20,379
Starke.............................................................................. 16,456 13,180
Lake Butler......................................................................... 28,558 30,290
Gainesville
Northwood......................................................................... 4,770 5,657
Alachua County.................................................................... 5,759 7,050
--------- ---------
Total............................................................................... $ 231,444 226,824
--------- ---------
--------- ---------
</TABLE>
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 1996, the
populations of Columbia, Suwannee, Baker, Bradford, Union and Alachua Counties
were 52,565, 31,424, 20,221, 24,983, 13,023 and 202,140 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 in Jacksonville, 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, 1997, deposits (excluding credit unions) in the PSA had increased
2.3% from 1996, and totaled $2.4 billion, of which the Bank held $231.4 million,
or 9.5%. Specifically, the Bank held 24.5%,17.8%, 32.4%, 14.7%, 100.0% and .7%
of the total deposits in Columbia, Suwannee, Baker, Bradford Counties, Union and
Alachua, respectively, at the end of 1997.
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
3
<PAGE>
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.
Supervision and Regulation of the Company
General
As a registered bank holding company, the Company is subject to the
supervision of, and regular inspection by, the Federal Reserve Board under the
Bank Holding Company Act. The Bank is organized as a national banking
association, which is subject to regulation, supervision and examination by the
Officer of the Comptroller of the Currency (the "Comptroller"). The Bank is also
subject to regulation by the Federal Deposit Insurance Corporation (the "FDIC")
and other federal regulatory agencies. In addition, the Company and the Bank are
subject to various other laws and regulations and supervision and examination by
other regulatory agencies, all of which directly or indirectly affect the
operations and management of the Company and the Bank and their ability to make
distributions. The following discussion summarizes certain aspects of those laws
and regulations that affect the Company.
The activities of the Company and the Bank are limited to banking, managing
or controlling banks or any other activity which the Federal Reserve Board
determines to be so closely related to banking, managing or controlling banks as
to be a proper incident thereto. In making such determinations, the Federal
Reserve Board is required to consider whether the performance of such activities
by the Company or the Bank can reasonably be expected to produce benefits to the
public such as greater convenience, increased competition or gains in efficiency
that outweigh possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. Generally, the Company would be required to obtain prior
approval of the Federal Reserve Board to engage in any new activity or to
acquire more than 5% of any class of voting stock of any company or any bank
which is not already majority-owned by the Company.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking and Branching Act"), bank holding companies are
able to acquire banks in states other than their respective home states without
regard to the permissibility of such acquisitions under state laws. The
transaction would still be subject to any state requirement that the Bank has
been organized and operating for a minimum period time, not to exceed five
years, and the requirement that the respective bank holding company, prior to or
following the proposed acquisition, controls no more than ten percent (10%) of
the total amount of deposits of insured depository institutions in the United
States and less than thirty percent (30%) of such deposits in that state (or
such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches. This provision, which
was effective June 1, 1997, allowed each state, prior to the effective date, the
opportunity to "opt out" of this provision, thereby prohibiting interstate
branching within that state. Florida did not "opt out" of the interstate
branching provisions of the Interstate Banking and Branching Act. Furthermore,
pursuant to the Interstate Banking and Branching Act, a bank is now able to open
new branches in a state in which it does not already have banking operations if
such state enacts a law permitting de novo branching.
4
<PAGE>
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such
proposals or bills being enacted and the impact they might have on the Company
and the Bank cannot be determined at this time.
Capital and Operational Requirements
The Federal Reserve Board, the Comptroller and the FDIC have issued
substantially similar risk-based and leverage capital guidelines applicable to
United States banking organizations. In addition, those regulatory agencies may
from time to time require that a banking organization maintain capital above the
minimum levels, whether because of its financial condition or actual or
anticipated growth. The Federal Reserve Board risk-based guidelines define a
two-tier capital framework. Tier 1 capital consists of common and qualifying
preferred shareholders' equity, less certain intangibles and other adjustments.
Tier 2 capital consists of subordinated and other qualifying debt, and the
allowance for credit losses up to 1.25% of risk-weighted assets. The sum of Tier
1 and Tier 2 capital less investments in unconsolidated subsidiaries represents
qualifying total capital, at least 50% of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by
risk-weighted assets. Assets and off-balance sheet exposures are assigned to one
of four categories of risk weights, based primarily on relative credit risk. The
minimum Tier 1 capital ratio is 4% and the minimum total capital ratio is 8%.
The Company's Tier 1 and total risk-based capital ratios under these guidelines
at December 31, 1997, were 17.7% and 18.7%, respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. The Company's leverage ratio at December 31, 1997 was 10.2%.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized), and requires the respective federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became "undercapitalized"
or the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness related generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of at least 5% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
capital ratio of at least 4%, a total capital ratio of at least 8% and a
leverage ratio of at least 4%, or 3% in some cases. Under these guidelines, the
Bank is considered well capitalized.
5
<PAGE>
Banking agencies have also adopted regulations which mandate that regulators
take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. That
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have adopted final regulations
requiring regulators to consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance sheet position) in the determination of a bank's
capital adequacy. Concurrently, banking agencies have proposed a methodology for
evaluating interest rate risk. After gaining experience with the proposed
measurement process, those banking agencies intend to propose further
regulations to establish an explicit risk-based capital charge for interest rate
risk.
Distributions
The Company derives funds for cash distributions to its shareholders from a
variety of sources, including cash and temporary investments. The primary source
of such funds, however, is dividends received from the Bank. The Bank is subject
to various general regulatory policies and requirements relating to the payment
of dividends, including requirements to maintain capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of the
bank or bank holding company that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment thereof.
In addition to the foregoing, the ability of the Company and the Bank to pay
dividends may be affected by the various minimum capital requirements and the
capital and non-capital standards established under FDICIA, as described above.
The right of the Company, its shareholders and its creditors to participate in
any distribution of the assets or earnings of the Bank is further subject to the
prior claims of creditors of the Bank.
"Source of Strength" Policy
According to 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. This support may be required at times when the Company may not be able
to provide such support.
CNB Year 2000 Disclosure
The Company has been working with its primary external service provider to
ensure they are taking the necessary steps to remedy any Year 2000 issues.
Substantially all of the computer system and application changes are expected to
be completed by 1998 year end. No significant costs are expected to be incurred
related to Year 2000 issues; however, any such costs would be expensed in the
period incurred.
Employees
As of December 31, 1997, the Bank had 144 full-time equivalent employees, up
10.8% from 130 employees at the end of 1996. 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 eleven 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
6
<PAGE>
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's first renovation was completed
in 1996 and includes a colonial design, improved service areas and the
installation of an Automated Teller Machine. The second renovation, which will
add 2,400 square feet began in December, 1997 and is expected to be completed in
the second quarter of 1998. 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
South Oaks office renovation was completed in the later part of 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. 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 4,500 square feet. Construction on the
90 West office, the third office in Lake City, was completed in August, 1997.
The 90 West office is located in the major retail business area of Lake City and
contains approximately 2,870 square feet and includes an Automated Teller
Machine. In the second quarter of 1997, renovations were completed on the
Accounting Department in the Bank's Operations Center. This building has
approximately 7,000 square feet, and currently houses the Bank's Bookkeeping,
Proof and Accounting 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,
1997, of approximately $10.1 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.
7
<PAGE>
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, 1998, there were 2,428,385
shares of Common Stock issued and outstanding to 540 holders of record, and
57,687 shares subject to currently exercisable options. There is currently no
established public trading market for the Company's stock. Transactions in the
Company's common stock are infrequent and negotiated privately between the
persons involved in those transactions.
On July 15, 1997 the Company issued additional stock to existing
shareholders and raised $6.8 million in new capital, strengthening the Company's
already solid capital position. Shareholders' equity at December 31, 1997 was
$29.0 million, as compared to $19.7 million at December 31, 1996.
Company dividends for 1997 consisted of the payment of quarterly cash
dividends in the amount of $0.06 per common share outstanding on February 5 and
May 5, and $0.08 per common share outstanding on August 5 and November 5.
Payment was made to 1,937,905 holders of record on January and April 25, and
2,422,385 on July and October 25, 1997. The $0.28 total dividend paid in 1997
reflects an increase of 27.3% compared to $.22 total paid in 1996 ($0.05 per
common share outstanding on February 5 and May 5, and $0.06 on August 5 and
November 5, to 1,639,733 holders of record on January 25, April 25 and July 25,
1996 and 1,937,905 on October 25, 1996).
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 1997 to 1996, it should be noted that 1997
includes the operations of the Riherd Banking Company and its subsidiary, Farmer
and Dealers Bank, for the entire year, whereas 1996 included the operations for
only four months, due to the acquisition occurring late in the third quarter of
1996. The financial results since September 1, 1996, applicable to that
transaction are included in this report.
8
<PAGE>
CNB INC. AND SUBSIDIARY
Selected Year-End Financial Data
<TABLE>
<CAPTION>
1997 1996 CHANGE %
--------- --------- -------------
<S> <C> <C> <C>
Dollars in thousands except per share information.
SUMMARY OF OPERATIONS:
Total Interest Income.............................................................. $ 19,420 $ 15,090 29%
Total Interest Expense............................................................. (8,663) (6,612) 31%
--------- ---------
Net Interest Income.............................................................. 10,757 8,478 27%
Loan Loss Provision................................................................ (440) (335) 31%
--------- ---------
Net Interest Income After
Provision for Loan Losses...................................................... 10,317 8,143 27%
Non-Interest Income................................................................ 2,153 1,777 21%
Non-Interest Expense............................................................... (7,914) (6,360) 24%
--------- ---------
Income Before Taxes................................................................ 4,556 3,560 28%
Income Taxes....................................................................... (1,581) (1,247) 27%
--------- ---------
Net Income......................................................................... $ 2,975 $ 2,313 29%
--------- ---------
--------- ---------
PER COMMON SHARE:
Basic Earnings Per Share........................................................... $ 1.38 $ 1.33 4%
Dilutive Earnings Per Share........................................................ 1.35 1.30 4%
Book Value......................................................................... 11.95 10.15 18%
Dividends.......................................................................... 0.28 0.22 27%
Shares Outstanding................................................................. 2,428,385 1,937,905 25%
Weighted Average Shares Outstanding................................................ 2,163,767 1,739,124 24%
Dilutive Weighted Average Shares Outstanding....................................... 2,203,308 1,773,695 24%
KEY RATIOS:
Return on Average Assets........................................................... 1.14% 1.14% 0%
Return on Average Shareholders' Equity............................................. 12.38% 13.88% (11)%
Dividend Payout-computed on a per share basis...................................... 20.29% 16.54% 23%
Overhead Ratio..................................................................... 63.46% 64.10% (1)%
Total Risk-Based Capital Ratio..................................................... 18.67% 13.58% 37%
Average Shareholders' Equity to Assets............................................. 9.22% 8.24% 12%
Tier 1 Capital to Total Assets--Leverage........................................... 10.20% 7.25% 41%
FINANCIAL CONDITION AT YEAR END:
Assets............................................................................. $ 273,331 $ 254,945 7%
Net Loans.......................................................................... 158,154 147,428 7%
Total Deposits..................................................................... 231,444 226,824 2%
Common Shareholders' Equity........................................................ 29,025 19,669 48%
</TABLE>
9
<PAGE>
Overview
Record earnings of $3.0 million, or $1.38 per share, were achieved during
1997 and exceeded 1996's earnings by $662,000, or 28.6%. This past year's
earnings also produced a return on average assets of 1.14% and a return on
average stockholders' equity of 12.38%, compared to 1.14% and 13.88%,
respectively, for 1996. Average return on shareholders' equity was impacted by
the issuance of additional stock to existing shareholders during fiscal year
1997. Improved earnings are mainly attributable to a 26.9% increase in net
interest income, to $10.8 million from $8.5 million in 1996. Total assets were
$273.3 million at December 31, 1997 compared to $254.9 on December 31, 1996, a
$18.4 million or 7.2% growth. On July 15, 1997, the Company issued additional
stock to existing shareholders and raised $6.8 million in new capital.
Stockholders' equity was $29.0 million at the close of 1997, compared to $19.7
million in 1996.
Total loans as a percentage of total deposits improved to 69.0% at December
31, 1997, from 65.6% at year-end 1996. The improved loan to deposit ratio is a
result of increased total loans by $10.8 million, or 7.3%, while deposits have
increased by $4.6 million, or 2%. Therefore, loan growth during this past year
was the main contributor to the $2.3 million, or 26.9%, increase in net interest
income, as compared to 1996.
Liquidity and capital ratios remain well within regulatory limits. Total
non-performing assets increased by $1.1 million to $1.5 million in 1997 from
$404,000 in 1996, an increase of 277%. Non-performing assets as a percentage of
total assets increased to 0.56% in 1997 from 0.16% in 1996. The significant
increase in non-accrual loans since year-end 1996 was attributable to seven
different loan relationships acquired in the Farmers & Dealers merger.
Non-performing assets are further discussed in section titled Loan Quality.
Dividends paid in 1997 were $0.28 per share, representing an earnings per
share payout of 20.3%.
Results of Operations
Improved earnings are mainly attributable to a 26.9% increase in
net-interest income to $10.8 million, from $8.5 million in 1996. 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 65.1%
from 63.5% in 1996. The improved loan ratio is a result of increasing average
loans by $37.7 million, or 32.1%, while average assets have increased by $58.4
million, or 28.8%. The Company's total average investments increased by $12.3
million, or 22.2% to $67.6 million in 1997, compared to $55.3 million in 1996.
Provision for loan losses increased $105,000 to $440,000 or 31.3% from $335,000
in 1996, in direct correlation to the higher average loans outstanding.
Non-interest expenses increased $1.6 million, or 24.4%, to $7.9 million in 1997
compared to $6.4 million in 1996. Non-interest expenses as a percentage of
average total assets declined slightly to 3.0% at December 31, 1997, compared to
3.1% for the year ended 1996.
Net Interest Income/Margins
Net interest income, the primary source of revenue for the Bank, increased
by 26.9% to $10.8 million in 1997, from $8.5 million in 1996. Total average
assets increased by 28.8%, as the Company maintained the same ratio of average
earning assets to total average assets. Net interest margins decreased slightly
to 4.52% in 1997, from 4.59% in 1996. Yields on securities available-for-sale
increased to 6.09% from 6.06% in 1996. Table 1: "Average Balances - Yields and
Rates", below, indicates the
10
<PAGE>
Company's average volume of interest earning assets and interest bearing
liabilities for 1997 and 1996. Total earning asset yields decreased to 8.15% in
1997 from 8.16%, while rates on interest-bearing liabilities increased to 4.25%
from 4.13% in 1996. Average time deposits for 1997 represented 52.6% of total
average deposits, compared to 51.5% a year earlier. 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 Time
Deposits.
Table 1: Average Balances--Yields and Rates
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INTEREST
AVERAGE INCOME OR AVERAGE AVERAGE INCOME OR AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
--------- ----------- ----------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
ASSETS:
Federal Funds Sold $ 13,480 $ 720 5.34% $ 11,781 $ 613 5.20%
Investment Securities
Available for Sale...................... 58,442 3,560 6.09 43,180 2,615 6.06
Investment Securities
Held to Maturity........................ 9,160 490 5.35 12,135 654 5.39
Loans, net unearned (1)................... 155,168 14,542 9.37 117,450 11,188 9.53
Interest Bearing Deposits................. 1,946 108 5.55 352 20 5.68
--------- ----------- --- --------- ----------- ----
TOTAL EARNING ASSETS........................ 238,196 19,420 8.15 184,898 15,090 8.16
All Other Assets.......................... 22,508 17,434
--------- ---------
TOTAL ASSETS................................ $ 260,704 $ 202,332
--------- ---------
--------- ---------
LIABILITIES AND
SHAREHOLDERS' EQUITY:
NOW & Money Markets....................... $ 62,465 1,555 2.49 $ 50,945 1,330 2.61
Savings................................... 15,146 296 1.95 13,466 277 2.06
Time Deposits............................. 119,545 6,404 5.36 93,481 4,847 5.19
Short Term Borrowings..................... 4,738 239 5.04 520 25 4.81
Notes Payable & Debentures................ 2,100 169 8.05 1,511 133 8.80
--------- ----------- --- --------- ----------- ----
TOTAL INTEREST BEARING
LIABILITIES............................... 203,994 8,663 4.25 159,923 6,612 4.13
Demand Deposits........................... 30,246 23,701
Other Liabilities......................... 2,434 2,041
Shareholders' Equity...................... 24,030 16,667
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................... $ 260,704 $ 202,332
--------- ---------
--------- ---------
--- ----
INTEREST SPREAD (2)......................... 3.90% 4.03%
--- ----
--- ----
----------- -----------
NET INTEREST INCOME......................... $ 10,757 $ 8,478
----------- -----------
----------- -----------
NET INTEREST MARGIN (3)..................... 4.52% 4.59%
--- ---
--- ---
</TABLE>
- ------------------------------
(1) Interest income on average loans includes loan fee recognition of $531,000
and $410,000 in 1997 and 1996 respectively.
(2) Represents the average rate earned minus average rate paid.
(3) Represents net interest income divided by total earning assets.
11
<PAGE>
Table 1a: Analysis of Changes in Interest Income and Expense
<TABLE>
<CAPTION>
NET CHANGE DECEMBER 31, NET CHANGE DECEMBER 31,
1996-1997 ATTRIBUTABLE TO: 1995-1996 ATTRIBUTABLE
TO:
--------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET NET
VOLUME (1) RATE (2) CHANGE VOLUME (1) RATE (2) CHANGE
------------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS)
INTEREST INCOME:
Federal Funds Sold............................. $ 88 19 107 $ 249 (72) 177
Investment Securities Available for Sale....... 926 19 945 1,387 391 1,778
Investment Securities Held to Maturity......... (160) (4) (164) (1,599) (38) (1,637)
Loans.......................................... 3,600 (246) 3,354 2,349 (322) 2,027
Interest Bearing Deposits...................... 90 (2) 88 -- -- --
------ --- ----- ----------- --- -----------
Total........................................ $ 4,544 (214) 4,330 $2,386 (41) 2,345
INTEREST EXPENSE:
NOW & Money Markets............................ $ 300 (75) 225 $ 243 46 289
Savings........................................ 35 (16) 19 32 (75) (43)
Time Deposits.................................. 1,357 200 1,557 557 (154) 403
Short Term Borrowings.......................... 213 1 214 25 -- 25
Notes Payable & Debentures..................... 52 (16) 36 (10) (18) (28)
------ --- ----- ----------- --- -----------
Total........................................ 1,957 94 2,051 847 (201) 646
------ --- ----- ----------- --- -----------
Net Interest Income........................ $ 2,587 (308) 2,279 $ 1,539 160 1,699
------ --- ----- ----------- --- -----------
------ --- ----- ----------- --- -----------
</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.
12
<PAGE>
Non-Interest Income
Non-interest income increased by 21.2% to $2.2 million in 1997 from $1.8
million in 1996. As a percentage of average assets, there was a slight decrease
to 0.83% from 0.88% in 1996. Service charges on deposit accounts increased to
$1.7 million from $1.4 million, an increase of 23.4% from 1996. Other fee
income, which includes credit card fees, credit life income, safe deposit box
fees, net gains and losses from sale of securities and other miscellaneous fees
had a modest increase of $47,000 or 12.8%. The increase in deposit service
charges and other fees were not in proportion with the growth in average assets.
Non-Interest Expense
Non-interest expense increased by $1.6 million, or 24.4% for the year ended
1997, as compared to 1996. Salaries and employee benefits have increased
$844,000 from 1996; however, as a percentage of average total assets they are
essentially unchanged. Occupancy and equipment expenses have increased $411,000
or 42.1%. Fixed assets relating to the Farmers & Dealers merger, which occurred
late in the third quarter of 1996, added approximately $215,000 to occupancy
expense in 1997. The opening of an Operations Center late in the fourth quarter
of 1996, which houses the Company's item processing and check imaging systems,
and the opening of the West 90 Office in the third quarter of 1997 were also
contributing factors.
Other operating expense increased $300,000, or 13.2%, in 1997 as compared to
1996. The increase is mainly attributable to a 74.2% increase in additional data
processing costs of $221,000, which resulted when the Company renewed, at
prevailing market rates, a data processing service contract that expired in late
1996. Also contributing to the increase were operating expenses relating to the
additional offices as well as imaging supplies. In addition, the Bank installed
a new toll-free telephone banking system, which allows our customers access to
their accounts 24 hours a day, seven days a week.
The following table details the areas of significant non-interest expense.
Table 2: Other Operating Expenses
(Dollar amounts in thousands)
Year Ended December 31,
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Special one time SAIF assessment................................................................. $ -- $ 327
Data processing.................................................................................. 519 298
Advertising and Promotion........................................................................ 257 237
Dues and Subscriptions/Contributions............................................................. 57 42
Postage and delivery............................................................................. 336 219
Regulatory fees.................................................................................. 119 176
Amortization of intangible assets................................................................ 202 158
Legal and professional........................................................................... 158 134
Supplies......................................................................................... 231 133
Loan expenses.................................................................................... 135 120
Telephone........................................................................................ 185 105
Administrative................................................................................... 103 92
Other............................................................................................ 264 225
--------- ---------
Total other operating expenses................................................................. $ 2,566 $ 2,266
--------- ---------
--------- ---------
</TABLE>
13
<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.
On January 28, 1997, the Securities and Exchange Commission adopted
amendments to Regulation S-K, Regulation S-X and various forms (Securities Act
Release No. 7386) to clarify and expand existing requirements for disclosures
about derivatives and market risks inherent in derivatives and other financial
instruments. No derivative financial instruments are held by the Company, but
other financial instruments, which include investments, loans and deposit
liabilities are included in the Company's balance sheet. The release requires
quantitative and qualitative disclosures about market risk.
The Company has prepared a table which will enhance the presentation of
market risk associated with financial instruments held by the Company. In Table
3, "Rate Sensitivity Analysis", rate sensitive assets and liabilities are shown
by maturity, separating fixed and variable interest rates. The estimated fair
value of each instrument category is also shown in the table. 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 instruments at December 31, 1997, 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, 1997 should not necessarily be considered to apply at subsequent dates.
14
<PAGE>
Table 3: Rate Sensitivity Analysis
December 31, 1997
<TABLE>
<CAPTION>
FAIR
(DOLLARS IN THOUSANDS) 1998 1999 2000 2001 2002 BEYOND TOTAL VALUE
- -------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans
Fixed Rate Loans.................... $ 10,608 $ 6,091 $ 10,378 $ 11,820 $ 9,902 $ 22,132 $ 70,931 $ 71,120
Average Interest Rate............. 8.96% 10.88% 9.97% 9.18% 9.09% 8.57% 9.21%
Variable Rate Loans................. 9,115 4,757 8,376 4,762 4,048 57,660 88,718 88,718
Average Interest Rate............. 9.91% 10.16% 9.34% 9.08% 9.42% 8.38% 8.81%
Investment Securities(1)
Fixed Rate Investments.............. 16,702 2,148 7,462 1,056 3,000 4,933 35,301 35,252
Average Interest Rate............. 5.64% 5.76% 5.81% 6.75% 6.89% 5.79% 5.84%
Variable Rate Investments........... 1,500 8,005 1,000 7,064 -- 6,274 23,843 24,138
Average Interest Rate............. 5.60% 6.06% 6.54% 6.47% 7.04% 6.43%
Federal Funds Sold.................... 24,125 -- -- -- -- -- 24,125 24,125
Average Interest Rate............. 5.50% 5.50%
Other Earning Assets(2)............... 7,124 -- -- -- -- -- 7,124 7,124
Average Interest Rate............. 5.77% 5.77%
--------- --------- --------- --------- --------- --------- --------- ---------
Total Interest-Earning
Assets.............................. $ 69,174 $ 21,001 $ 27,216 $ 24,702 $ 16,950 $ 90,999 $ 250,042 $ 250,477
Average Interest Rate............. 6.68% 8.36% 8.51% 8.28% 8.78% 8.19% 7.87%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
INTEREST-BEARING LIABILITIES:
NOW................................... $ 11,769 $ -- $ -- $ -- $ -- $ 26,782 $ 38,551 $ 38,551
Average Interest Rate............. 1.80% 1.80% 1.80%
Money Market.......................... 21,672 -- -- -- -- 2,862 24,534 24,534
Average Interest Rate............. 4.08% 2.14% 3.85%
Savings............................... 4,363 -- -- -- -- 10,860 15,223 15,223
Average Interest Rate............. 1.98% 1.98% 1.98%
CD's $100M and Over................... 20,743 4,133 7,431 624 225 -- 33,156 33,023
Average Interest Rate............. 5.63% 6.19% 6.34% 6.10% 5.66% 5.87%
CD's Under $100M...................... 73,676 10,555 3,264 2,540 217 25 90,277 90,088
Average Interest Rate............. 5.14% 5.72% 5.78% 5.85% 5.98% 6.34% 5.25%
Securities Sold Under
Repurchase Agreements............... 9,157 -- -- -- -- -- 9,157 9,157
Average Interest Rate............. 5.11% 5.11%
Notes Payable......................... 1,450 -- -- -- -- -- 1,450 1,450
Average Interest Rate............. 8.00% 8.00%
--------- --------- --------- --------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities.... $ 142,830 $ 14,688 $ 10,695 $ 3,164 $ 442 $ 40,529 $ 212,348 $212,026
Average Interest Rate............. 4.71% 5.85% 6.17% 5.90% 5.82% 1.88% 4.34%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
(1) Securities available for sale are shown at their amortized cost, excluding
market value adjustment for unrealized gains of $407,000.
(2) Represents interest bearing deposits with Banks, FRB Stock, Federal Home
Loan Bank Stock and other marketable equity securities.
15
<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 internal Company's analysis, current
average rates within the repricing periods of affected balance sheet categories
are adjusted to a 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 $83.3 million and represented 36.6% of average total
deposits during 1997, compared to $63.2 million and 34.8% for 1996. Average
loans were 68.2% and 64.7% of average deposits for 1997 and 1996, respectively.
As noted in Table 5--"Loan Portfolio Composition", approximately $141.1 million,
or 88.4%, of the loan portfolio consisted of commercial loans, real estate
mortgage loans and real estate construction loans. Approximately 12.4% of the
portfolio matures within one year.
Core deposits, which represent all deposits other than time deposits in
excess of $100,000, averaged 87.3% of total deposits in 1997 and 91.4% in 1996.
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, 1997
<TABLE>
<CAPTION>
AMOUNT
(THOUSANDS)
-----------
<S> <C>
Three Months or Less................................................................................. $ 5,246
Three Through Six Months............................................................................. 6,703
Six Through Twelve Months............................................................................ 8,795
Over Twelve Months................................................................................... 12,412
-----------
Total................................................................................................ $ 33,156
-----------
-----------
</TABLE>
16
<PAGE>
Lending Activities
In 1997, local markets served by the Company were generally improved. Real
estate loans, including residential mortgages, reflected the largest increase of
20.7%. 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 1997, average loans
were $155.2 million and were 65.1% of average earning assets, compared to $117.5
million and 63.5% for 1996. Average loans increased by $37.7 million, or 32.1%,
during 1997. On December 31, 1997, the Company's loan-to-deposit ratio stood at
69.0%, compared to 65.6% at the end of 1996. The following table compares the
composition of the Company's loan portfolio as of December 31, 1997, to 1996.
This loan portfolio composition is expected to stay roughly the same in 1998.
Table 5: Loan Portfolio Composition
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
TYPES OF LOANS 1997 1996
- --------------------------------------------------------------------------- -------------------- --------------------
(THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural..................................... $ 69,238 43.4% $ 68,595 46.1%
Real Estate--Construction.................................................. 3,336 2.1% 4,029 2.7%
Real Estate--Mortgage...................................................... 68,561 42.9% 56,787 38.2%
Installment and Consumer Lines............................................. 18,514 11.6% 19,413 13.0%
--------- --------- --------- ---------
Total Loans, Net of Unearned Discount...................................... 159,649 100.0% 148,824 100.0%
Less: Allowance for Loan Losses............................................ (1,495) (1,396)
--------- ---------
Net Loans.................................................................. $ 158,154 $ 147,428
--------- ---------
--------- ---------
</TABLE>
The following table sets forth the maturity distribution for selected
components of the Company's loan portfolio December 31, 1997. 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, 1997
<TABLE>
<CAPTION>
0-12 1-5 OVER 5
MONTHS YEARS YEARS TOTAL
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
(THOUSANDS)
All Loans Other Than Construction.......................................... $ 16,387 $ 60,134 $ 79,792 $ 156,313
Real Estate--Construction.................................................. 3,336 -- -- 3,336
----------- --------- --------- ---------
Total...................................................................... $ 19,723 $ 60,134 $ 79,792 $ 159,649
Fixed Interest Rate........................................................ $ 10,608 $ 38,191 $ 22,132 $ 70,931
Variable Interest Rate..................................................... $ 9,115 $ 21,943 $ 57,660 $ 88,718
</TABLE>
Loan Quality
Total non-performing assets increased by $1.1 million, or 277.0%, to $1.5
million in 1997 from $404,000 in 1996. Despite the increase, the Company's ratio
of non-performing assets to total loans plus other real estate owned is in line
with other similar banking institutions. Non-performing assets as a percentage
of total assets increased to 0.56% in 1997 from 0.16% in 1996. Non-accrual loans
have increased $958,000 since December 31, 1996. The increase in non-accrual
loans since December 31, 1996 was attributable to seven different loans acquired
in the Farmers & Dealers merger. The majority
17
<PAGE>
of these loans are in litigation and the Bank is actively pursuing collection
strategies. Other real estate owned increased $232,000, which is entirely due to
two commercial real estate loans obtained in the merger.
Table 7: Non-Performing Assets
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Non-Accrual Loans.................................................................................. $ 1,045 $ 87
Past Due Loans 90 Days or More and Still Accruing.................................................. 158 229
Other Real Estate Owned............................................................................ 320 88
--------- ---------
Total Non-Performing Assets........................................................................ $ 1,523 $ 404
--------- ---------
--------- ---------
Percent of Total Assets............................................................................ 0.56% 0.16%
--------- ---------
--------- ---------
</TABLE>
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, 1997, 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
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
------------------------------ ------------------------------
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......................... $ 932 43% $ 821 46%
Real Estate--Construction...................................... 9 2% 5 3%
Real Estate--Mortgage.......................................... 163 43% 154 38%
Consumer....................................................... 391 12% 416 13%
Unallocated.................................................... -- -- -- --
----------- --- ----------- ---
Total.......................................................... $ 1,495 100% $ 1,396 100%
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
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 1997 as
compared to 1996.
18
<PAGE>
Table 9: Activity in Allowance for Loan Losses
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Balance at Beginning of Year................................................................. $ 1,396 $ 946
Allowance Acquired in Merger................................................................. -- 371
Loans Charged-Off:
Commercial, Financial and Agricultural..................................................... 160 79
Real Estate, Mortgage...................................................................... 0 1
Consumer................................................................................... 248 203
--------- ---------
Total Loans Charged-Off................................................................ (408) (283)
Recoveries on Loans Previously Charged-Off:
Commercial, Financial and Agricultural..................................................... 24 7
Real Estate Mortgage....................................................................... 0 1
Consumer................................................................................... 43 19
--------- ---------
Total Loan Recoveries.................................................................... 67 27
--------- ---------
Net Loans Charged-Off.................................................................. (341) (256)
--------- ---------
Provision for Loan Losses Charged to Expense................................................. 440 335
--------- ---------
Ending Balance............................................................................... $ 1,495 $ 1,396
--------- ---------
--------- ---------
Total Loans Outstanding...................................................................... $ 159,649 $ 148,824
Average Loans Outstanding.................................................................... $ 155,168 $ 117,450
Allowance for Loan Losses to Loans Outstanding............................................... 0.94% 0.94%
Net Charge-Offs to Average Loans Outstanding................................................. 0.22% 0.22%
</TABLE>
19
<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, 1997
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------------------- --------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
----------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
THOUSANDS
U.S. Treasury:
One Year or Less........................................... $ -- $ -- $ 8,993 $ 9,009
Over One Through Five Years................................ -- -- 17,954 18,210
----------- ------ ----------- -------------
Total U.S. Treasury.......................................... -- -- 26,947 27,219
U.S. Government Agencies and Corporations:
One Year or Less........................................... -- -- 5,507 5,505
Over One Through Five Years................................ -- -- 7,153 7,173
Over Five Through Ten Years................................ -- -- 2,007 2,006
----------- ------ ----------- -------------
Total U.S. Government Agencies and Corporations.............. -- -- 14,667 14,684
Obligations of State and Political
Subdivisions:
Over One Through Five Years................................ -- -- 100 103
Over Five Through Ten Years................................ -- -- 707 738
Over Ten Years............................................. -- -- 608 647
----------- ------ ----------- -------------
Total Obligations of State and Political Subdivisions........ -- -- 1,415 1,488
Mortgage-Backed Securities (2):
One Year or Less........................................... 3,701 3,631 -- --
Over One Through Five Years................................ 4,395 4,305 133 133
Over Five Through Ten Years................................ -- -- 1,741 1,727
Over Ten Years............................................. -- -- 6,145 6,204
----------- ------ ----------- -------------
Total Mortgage-Backed Securities............................. 8,096 7,936 8,019 8,064
Other Securities:
Over Ten Years (3)......................................... -- -- 1,388 1,388
----------- ------ ----------- -------------
Total Other Securities....................................... -- -- 1,388 1,388
----------- ------ ----------- -------------
Total Securities............................................. $ 8,096 $ 7,936 $ 52,436 $ 52,843
----------- ------ ----------- -------------
----------- ------ ----------- -------------
</TABLE>
- ------------------------------
(1) All securities, excluding Obligations of State and Political Subdivisions,
are taxable.
(2) Represents investments in mortgage-backed securities which are subject to
early repayment.
(3) Represents investment in Federal Reserve Bank and Federal Home Loan Bank
stock and other marketable equity securities.
20
<PAGE>
Table 10a: Weighted Average Yield by Range of Maturities
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
<S> <C> <C>
1997 1996
----- -----
One Year or Less.................................................................................... 5.63% 5.24%
Over One through Five Years......................................................................... 5.93 6.09
Over Five through Ten Years......................................................................... 6.78 6.43
Over Ten Years(1)................................................................................... 6.53 6.14
</TABLE>
- ------------------------------
(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 1997 as compared to 1996 are as follows:
Table 11: Capital Ratios
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- WELL CAPITALIZED REGULATORY
1997 1996 REQUIREMENTS MINIMUMS
--------- --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Risk Based Capital Ratios:
Tier 1 Capital Ratio............................................ 17.7% 12.6% 6.0% 4.0%
Total Capital to Risk-Weighted Assets........................... 18.7% 13.6% 10.0% 8.0%
Tier 1 Leverage Ratio............................................. 10.2% 7.3% 5.0% 4.0%
</TABLE>
Item 7. Financial Statements
The consolidated financial statements which follow have been audited by the
Company's independent certified public accountants, Arthur Andersen LLP. Their
opinion on the Company's consolidated financial statements is also included
therein.
21
<PAGE>
CNB, Inc. and Subsidiary
Consolidated Financial Statements
as of December 31, 1997 and 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
CNB, Inc. and Subsidiary:
We have audited the accompanying consolidated statement of financial
condition of CNB, INC. (a Florida corporation) AND SUBSIDIARY as of December 31,
1997 and the related consolidated statements of income, shareholders' equity,
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit. The consolidated financial statements of CNB, Inc. and subsidiary as of
December 31, 1996 were audited by other auditors whose report dated January 31,
1997 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNB, Inc. and subsidiary as
of December 31, 1997 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
February 13, 1998
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash and due from banks....................................................... $ 9,995,724 $ 12,789,396
Federal funds sold............................................................ 24,125,000 9,950,000
Interest-bearing deposits in other banks...................................... 5,735,902 140,986
-------------- --------------
Total cash and cash equivalents............................................. 39,856,626 22,880,382
INVESTMENT SECURITIES AVAILABLE FOR SALE......................................... 52,842,809 60,866,357
INVESTMENT SECURITIES HELD TO MATURITY........................................... 8,096,443 10,008,604
LOANS, net....................................................................... 158,153,524 147,428,138
PREMISES AND EQUIPMENT, net...................................................... 10,116,830 9,459,393
OTHER ASSETS..................................................................... 4,264,770 4,302,470
-------------- --------------
Total assets................................................................ $ 273,331,002 $ 254,945,344
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand................................................... $ 29,702,903 $ 33,201,517
Savings, NOW, and money market............................................... 78,308,184 79,111,428
Time, under $100,000......................................................... 90,276,133 90,533,210
Time, $100,000 and over...................................................... 33,156,438 23,977,814
-------------- --------------
Total deposits........................................................... 231,443,658 226,823,969
Securities sold under repurchase agreements.................................... 9,156,788 3,766,347
Notes payable.................................................................. 1,450,000 2,650,000
Other Liabilities.............................................................. 2,255,337 2,036,195
-------------- --------------
Total liabilities........................................................ 244,305,783 235,276,511
-------------- --------------
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 18)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares authorized, no shares issued
or outstanding............................................................... 0 0
Common stock, $.01 par value; 10,000,000 shares authorized, 2,428,385 and
1,937,905 shares issued and outstanding...................................... 24,284 19,379
Additional paid-in capital..................................................... 19,489,416 12,682,601
Retained earnings.............................................................. 9,256,327 6,901,006
Unrealized gain on securities available for sale, net of taxes................. 255,192 65,847
-------------- --------------
Total shareholders' equity............................................... 29,025,219 19,668,833
-------------- --------------
Total liabilities and shareholders' equity............................... $ 273,331,002 $ 254,945,344
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
1
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans....................................................... $ 14,542,106 $ 11,187,824
Interest on investment securities available for sale............................. 3,560,172 2,615,265
Interest on investment securities held to maturity............................... 489,445 653,748
Interest on federal funds sold................................................... 720,380 612,765
Interest on interest-bearing deposits............................................ 107,904 20,078
------------- -------------
Total interest income...................................................... 19,420,007 15,089,680
------------- -------------
INTEREST EXPENSE:
Interest on deposits............................................................. 8,255,219 6,454,024
Interest on short-term borrowings................................................ 238,387 25,023
Interest on notes payable........................................................ 169,235 132,506
------------- -------------
Total interest expense..................................................... 8,662,841 6,611,553
------------- -------------
NET INTEREST INCOME................................................................ 10,757,166 8,478,127
PROVISION FOR LOAN LOSS............................................................ 440,000 335,000
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS.................................. 10,317,166 8,143,127
------------- -------------
NONINTEREST INCOME:
Service charges.................................................................. 1,733,762 1,404,930
Other fees and charges........................................................... 418,564 397,199
Gain (loss) on sale of securities................................................ 1,171 (24,945)
------------- -------------
Total noninterest income................................................... 2,153,497 1,777,184
------------- -------------
NONINTEREST EXPENSE:
Salaries and employee benefits................................................... 3,960,235 3,116,705
Occupancy and equipment expenses................................................. 1,387,578 976,708
SAIF assessment.................................................................. 0 326,823
Other operating expenses......................................................... 2,566,620 1,939,533
------------- -------------
Total noninterest expense.................................................. 7,914,433 6,359,769
------------- -------------
INCOME BEFORE INCOME TAXES......................................................... 4,556,230 3,560,542
INCOME TAXES....................................................................... 1,580,779 1,247,261
------------- -------------
NET INCOME......................................................................... $ 2,975,451 $ 2,313,281
------------- -------------
------------- -------------
EARNINGS PER SHARE (Note 2):
Basic earnings per share......................................................... $ 1.38 $ 1.33
------------- -------------
------------- -------------
Average common shares............................................................ 2,163,767 1,739,124
------------- -------------
------------- -------------
Diluted earnings per share....................................................... $ 1.35 $ 1.30
------------- -------------
------------- -------------
Dilutive average common shares and share equivalents............................. 2,203,308 1,773,695
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK ADDITIONAL GAIN (LOSS) TOTAL
--------------------------- PAID-IN RETAINED ON INVESTMENT SHAREHOLDERS'
SHARES VALUE CAPITAL EARNINGS SECURITIES EQUITY
------------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995................. 1,639,733 $ 16,397 $ 9,784,369 $ 4,966,357 $ (13,227) $ 14,753,896
Net income............................... 0 0 0 2,313,281 0 2,313,281
Cash dividends........................... 0 0 0 (378,632) 0 (378,632)
Shares issued in connection with an
acquisition (Note 3)................... 298,172 2,982 2,898,232 0 0 2,901,214
Change in unrealized gain on investment
securities available for sale, net of
taxes.................................. 0 0 0 0 79,074 79,074
------------- ------------ ------------ ------------ ------------- -------------
BALANCE, December 31, 1996................. 1,937,905 19,379 12,682,601 6,901,006 65,847 19,668,833
Net income............................... 0 0 0 2,975,451 0 2,975,451
Cash dividends........................... 0 0 0 (620,130) 0 (620,130)
Issuance of common stock at $14 per
share, net of offering cost............ 484,480 4,845 6,749,250 0 0 6,754,095
Issuance of common stock for option
agreements, net of repurchases......... 6,000 60 57,565 0 0 57,625
Change in unrealized gain on
investment securities available for....
sale, net of taxes..................... 0 0 0 0 189,345 189,345
------------- ------------ ------------ ------------ ------------- -------------
BALANCE, December 31, 1997................. 2,428,385 $ 24,284 $ 19,489,416 $ 9,256,327 $ 255,192 $ 29,025,219
------------- ------------ ------------ ------------ ------------- -------------
------------- ------------ ------------ ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
CNB, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ 2,975,451 $ 2,313,281
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................... 828,065 579,686
Provision for loan losses....................................................... 440,000 335,000
Investment securities amortization, net......................................... 135,401 225,856
Deferred income tax benefit..................................................... (30,582) (165,768)
Changes in assets and liabilities:
Other assets.................................................................. (246,147) 171,352
Other liabilities............................................................. 219,142 336,470
------------- -------------
Net cash provided by operating activities................................... 4,321,330 3,795,877
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale............................. (17,191,974) (17,629,662)
Proceeds from sales of investment securities available for sale................... 0 4,014,219
Proceeds from maturities of investment securities available for sale.............. 25,417,052 10,266,445
Proceeds from maturities of investment securities held to maturity................ 1,877,318 3,185,437
Net increase in loans............................................................. (11,165,386) (21,773,508)
Purchases of premises and equipment............................................... (1,283,806) (1,427,233)
Cash received related to acquisition, net of cash paid............................ 0 214,372
------------- -------------
Net cash used in investing activities....................................... (2,346,796) (23,149,930)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits.......................................................... 4,619,689 24,449,208
Net increase in securities sold under repurchase agreements....................... 5,390,431 3,766,347
Borrowings under note payable..................................................... 0 2,650,000
Repayment of note payable......................................................... (1,200,000) (950,000)
Redemption of subordinated debentures............................................. 0 (274,250)
Cash dividends.................................................................... (620,130) (378,632)
Issuance of common stock in connection with rights offering....................... 6,754,095 0
Issuance of common stock for option agreements.................................... 57,625 0
------------- -------------
Net cash provided by financing activities................................... 15,001,710 29,262,673
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 16,976,244 9,908,620
CASH AND CASH EQUIVALENTS, beginning of year........................................ 22,880,382 12,971,762
------------- -------------
CASH AND CASH EQUIVALENTS, end of year.............................................. $ 39,856,626 $ 22,880,382
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CNB, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION AND NATURE OF OPERATIONS
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 11 offices in north
Florida. The Company offers a full range of lending and deposit products.
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. The Company follows generally accepted
accounting principles and reporting practices applicable to the banking
industry.
RECLASSIFICATIONS
Certain amounts and captions presented in the 1996 financial statements
have been reclassified to conform to the 1997 presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
5
<PAGE>
INVESTMENT SECURITIES
AVAILABLE FOR SALE
Securities available for sale represent investment securities which are
used for asset/liability, liquidity, and other funds that management
purposes are deemed to have indefinite holding periods. These securities
are recorded at fair value, with unrealized gain and losses, net of
deferred income taxes, recorded as a separate component of shareholders'
equity.
HELD TO MATURITY
Securities held to maturity represent investment securities where the
Company's intent and ability is to hold to maturity are stated at cost,
adjusted for amortiza-tion 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.
LOANS AND LOAN FEES
Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan loss. 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. Interest on some installment loans is recognized
using 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 1997 and 1996, loan fees
included in interest and fees on loans amounted to $531,454 and $410,033,
respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to income. 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 inherent 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 90 days or more past due,
unless substantially collateralized and in the process of collection, or sooner
if, in the opinion of management, the
6
<PAGE>
borrower's financial condition is such that collection of principal or
interest is doubtful.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using 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 income.
Long-lived assets are evaluated regularly for other-than-temporary
impairment. If circumstances suggest that their value may be impaired and the
write-down would be material, an assessment of recoverability is performed prior
to any write-down of the asset.
OTHER REAL ESTATE OWNED
Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at fair value at the date of foreclosure, establishing a new
cost basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of carrying amount or at
fair value, less cost to sell.
INTANGIBLES
The Company has intangible assets with carrying amounts of $1,556,689 and
$1,725,854 at December 31, 1997 and 1996, respectively. Intangible assets
consist of core deposits and goodwill. Core deposit intangibles are being
amortized over a 10-year period using the straight-line method. Goodwill is
being amortized over a 15-year period on a straight-line basis. Amortization of
all intangible assets was $201,696 and $158,465 for 1997 and 1996, respectively.
Periodically, the Company reviews its intangible assets for events or
changes in circumstances that may indicate that the carrying amounts of the
assets are not recoverable.
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 that is included in the consolidated income
tax return, as determined by the separate return method.
7
<PAGE>
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Accounting Standard ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 replaces the presentation of primary and fully
diluted earnings per share with a presentation of basic and diluted
earnings per share. Basic earnings per share is calculated based on
weighted average number of shares of common stock. Diluted earnings per
share is calculated based on the weighted average number of shares of
common stock outstanding and common stock equivalents, consisting of
outstanding stock options (Note 15). Common stock equivalents are
determined using the treasury method for diluted shares outstanding. The
difference between diluted and basic shares outstanding is common stock
equivalents from stock options outstanding in the years ended December
31, 1997 and 1996.
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. Generally, federal funds are purchased and sold for
one-day periods and all items have an original maturity of 90 days or
less. Cash paid for interest was $8,308,219 and $6,632,799 during 1997
and 1996, respectively, and cash paid for income taxes was $1,785,000 and
$1,247,912 during 1997 and 1996, respectively.
3. ACQUISITION
On August 31, 1996, the Company acquired Riherd, Inc. ("Riherd") and its
wholly owned subsidiary bank, Farmers and Dealers Bank ("F&D") of Lake
Butler, Florida, which had assets of $48.0 million. F&D operated from its
Lake Butler headquarters and its 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 15-year period on a straight-line basis.
Operating results of Riherd and F&D after August 31, 1996 are included in
the accompanying consolidated statements of income.
8
<PAGE>
4. INVESTMENT SECURITIES
Amortized cost and estimated fair value of investment securities available
for sale at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
U.S. U.S. STATE, MORTGAGE-
TREASURY GOVERNMENT COUNTY, AND BACKED
SECURITIES AGENCIES MUNICIPAL SECURITIES OTHER TOTAL
------------- ------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Amortized cost................. $26,947,111 $14,667,695 $1,415,030 $8,018,219 $1,387,750 $52,435,805
Gross unrealized:
Gains........................ 272,803 34,362 72,416 88,778 0 468,359
Losses....................... (613) (17,965) 0 (42,777) 0 (61,355)
------------- ------------- ------------ ------------ ------------ -------------
Estimated fair value........... $27,219,301 $14,684,092 $1,487,446 $8,064,220 $1,387,750 $52,842,809
------------- ------------- ------------ ------------ ------------ -------------
------------- ------------- ------------ ------------ ------------ -------------
</TABLE>
Amortized cost and estimated fair value of investment securities available
for sale at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
U.S. U.S. STATE, MORTGAGE-
TREASURY GOVERNMENT COUNTY, AND BACKED
SECURITIES AGENCIES MUNICIPAL SECURITIES OTHER TOTAL
------------- ------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Amortized cost................. $32,014,271 $15,159,067 $1,662,660 $10,715,891 $1,209,450 $60,761,339
Gross unrealized:
Gains........................ 154,666 13,862 100,814 78,597 0 347,939
Losses....................... (58,280) (86,072) 0 (93,429) (5,140) (242,921)
------------- ------------- ------------ ------------ ------------ -------------
Estimated fair value........... $32,110,657 $15,086,857 $1,763,474 $10,701,059 $1,204,310 $60,866,357
------------- ------------- ------------ ------------ ------------ -------------
------------- ------------- ------------ ------------ ------------ -------------
</TABLE>
Amortized cost and estimated fair value of investment securities held to
maturity, consisting of mortgage backed securities, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Amortized cost........................................................... $ 8,096,443 $ 10,008,604
Gross unrealized:
Gains.................................................................. 6,073 9,224
Losses................................................................. (166,776) (295,945)
------------ -------------
Estimated fair value..................................................... $ 7,935,740 $ 9,721,883
------------ -------------
------------ -------------
</TABLE>
During 1997, no investment securities available for sale were sold. During
1996, investment securities available for sale with a carrying amount of
$4,039,164 were sold for $4,014,219, resulting in a loss of $24,945.
Interest income earned on tax-exempt securities in 1997 and 1996 was $90,955
and $32,130. Dividends of $84,031 and $64,564 on stock of the Federal Reserve
Bank and the Federal Home Loan Bank are included in interest on investment
securities available for sale in 1997 and 1996, respectively.
9
<PAGE>
The amortized cost and estimated fair value of securities at December 31,
1997, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT 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....................... $14,500,187 $14,514,531 $ 0 $ 0
After one through five years........... 25,207,144 25,485,950 0 0
After five through ten................. 2,714,505 2,743,925 0 0
Over ten years......................... 608,000 646,433 0 0
Mortgage-backed securities and others.. 9,405,969 9,451,970 8,096,443 7,935,740
------------- ------------- ------------ ------------
$52,435,805 $52,842,809 $8,096,443 $7,935,740
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
At December 31, 1997, U. S. Treasury and Government agency securities
with an amortized cost of $18,775,758 and an estimated fair value of
$19,015,305 were pledged to secure public funds, treasury tax and loan
deposits, and repurchase agreements.
5. LOANS, ALLOWANCE FOR LOAN LOSSES, AND NONPERFORMING ASSETS
Loans at December 31 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Commercial, financial, and agricultural......................................... $ 69,238 $ 68,595
Real estate--construction....................................................... 3,336 4,029
Real estate--mortgage........................................................... 68,561 56,787
Installment and consumer lines.................................................. 18,514 19,413
---------- ----------
Total loans, net of unearned discount....................................... 159,649 148,824
Less allowance for loan losses.................................................. (1,495) (1,396)
---------- ----------
Net loans................................................................... $ 158,154 $ 147,428
---------- ----------
---------- ----------
</TABLE>
Activity in the allowance for loan losses account was as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Balance beginning of year...................................................... $ 1,395,899 $ 945,770
Acquired in acquisition...... ............................................... 0 370,195
Provision.................................................................... 440,000 335,000
Charge-offs.................................................................. (407,811) (282,904)
Recoveries................................................................... 67,253 27,838
------------ ------------
Balance at end of year......................................................... $ 1,495,341 $ 1,395,899
------------ ------------
------------ ------------
</TABLE>
10
<PAGE>
Loans on a nonaccrual basis totaled approximately $1,045,000 and $87,000
at December 31, 1997 and 1996, 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 $51,000 and $25,000 in 1997
and 1996, respectively. In addition to nonaccrual loans, nonperforming
assets include other real estate owned, property acquired by foreclosure
in settlement of debt. Other real estate owned was $320,427 and $87,960
at December 31, 1997 and 1996, respectively, and is included in other
assets in the accompanying statements of financial condition.
The Company recognizes income on impaired loans primarily on the cash
basis. Any change in the present value of expected cash flows is
recognized through the allowance for loan losses. Impaired loan
information for the year ended December 31, 1997, is as follows:
<TABLE>
<S> <C>
Impaired loans with an allowance......................................... $ 811,725
Impaired loans without an allowance (1).................................. 583,300
---------
Total impaired loans.................................................... $1,395,025
---------
---------
Allowance for impaired loans............................................. $ 266,513
---------
---------
Interest income recognized on impaired loans during the year............. $ 72,954
---------
---------
</TABLE>
(1) Impaired loans determined to be carried at or below fair value of the
underlying collateral and, as such, do not require an allowance.
The average balance of impaired loans during the year approximated $1
million.
6. PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following components at
December 31:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Building and improvements..................................... $ 8,251,202 $ 7,680,351
Equipment and furnishings..................................... 3,936,613 3,378,601
Land.......................................................... 1,927,139 1,960,439
------------- ------------
14,114,954 13,019,391
Less accumulated depreciation................................. (3,998,124) (3,559,998)
------------- ------------
$ 10,116,830 $ 9,459,393
------------- ------------
------------- ------------
</TABLE>
Depreciation was $626,369 and $421,221 for 1997 and 1996, respectively.
11
<PAGE>
7. DEPOSITS
At December 31, 1997, the scheduled maturities of time certificates of
deposit are as follows (in thousands):
<TABLE>
<S> <C>
1998....................................................... $ 94,419
1999....................................................... 14,688
2000....................................................... 10,695
2001....................................................... 3,164
2002 and thereafter........................................ 467
---------
$ 123,433
---------
---------
</TABLE>
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 1997 and 1996 was approximately
$4,738,074 and $520,000, respectively. Interest expense in 1997 and 1996
was $238,388 and $25,023, respectively, resulting in an average rate paid
of 5.03% in 1997 and 4.81% in 1996. The highest amount outstanding during
1997 and 1996 was $9,156,788 and $5,035,000, respectively.
9. NOTES PAYABLE
The Company is indebted under the following notes payable at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
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....................................................................... $ 1,450,000 $ 2,650,000
------------ ------------
------------ ------------
</TABLE>
On January 22, 1998, the Company paid off the notes payable. The Company
also has available lines of credit with certain other financial
institutions totaling $4,000,000. The amount outstanding as of December
31, 1997 is $0.
12
<PAGE>
10. OTHER OPERATING EXPENSES
Components of other operating expenses are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Data processing...................................................... $ 519 $ 298
Postage and delivery................................................. 336 219
Advertising and promotion............................................ 257 237
Supplies............................................................. 231 133
Amortization of intangible assets.................................... 202 158
Telephone............................................................ 185 105
Legal and professional............................................... 158 134
Loan expense......................................................... 135 120
Regulatory fees...................................................... 119 176
Administrative....................................................... 103 92
Other................................................................ 322 268
-------- --------
$2,567 $1,940
--------- ---------
--------- ---------
</TABLE>
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
$326,823 for the Company.
11. INCOME TAXES
The income tax provision (benefit) for the years ended December 31, 1997 and
1996 consisted of the following components:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Current:
Federal.................................................... $ 1,438,319 $ 1,229,237
State....................................................... 173,042 183,792
------------ ------------
Total................................................... $ 1,611,361 $ 1,413,029
------------ ------------
------------ ------------
Deferred:
Federal..................................................... $ (69,441) $ (149,193)
State....................................................... 38,859 (16,575)
------------ ------------
Total................................................... $ (30,582) $ (165,768)
------------ ------------
------------ ------------
Total:
Federal..................................................... $ 1,368,878 $ 1,080,044
State....................................................... 211,901 167,217
------------ ------------
Total................................................... $ 1,580,779 $ 1,247,261
------------ ------------
------------ ------------
</TABLE>
13
<PAGE>
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,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment.................................................................. $ 513,099 $ 505,255
Unearned loan fees...................................................................... 28,495 27,288
Unrealized gain on investment securities available for sale............................. 151,813 39,172
---------- ----------
693,407 571,715
---------- ----------
Deferred tax assets:
Loan loss provisions.................................................................... 432,237 387,881
Intangible assets....................................................................... 79,829 58,945
Net operating loss carryover of acquiree................................................ 0 27,138
Other items............................................................................. 44,007 42,476
---------- ----------
556,073 516,440
---------- ----------
Net deferred tax liability................................................................ $ 137,334 $ 55,275
---------- ----------
---------- ----------
</TABLE>
The reasons for the differences between the statutory federal income tax
rate and the effective tax rate are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Statutory rates........................................................................... 34.0% 34.0%
Increase (decrease) resulting from:
Effect of tax-exempt income............................................................. (2.3) (2.4)
State income taxes, net................................................................. 2.5 3.1
Nondeductible expenses.................................................................. 0.5 0.3
--- ---
34.7% 35.0%
--- ---
--- ---
</TABLE>
12. LOANS TO RELATED PARTIES
Certain officers and directors, and companies in which they held a 10% or
more beneficial ownership, were indebted (or in some cases, guaranteed
loans) to the Bank. An analysis of such activities follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Balance, January 1.................................................................... $ 2,032,728 $ 1,811,794
New loans and advances.............................................................. 4,425,130 2,904,192
Repayments (excluding renewals)..................................................... (2,008,093) (2,683,258)
------------ ------------
Balance, December 31.................................................................. $ 4,449,765 $ 2,032,728
------------ ------------
------------ ------------
</TABLE>
14
<PAGE>
The loans analyzed above were made in the normal course of business at
prevailing interest rates and terms.
13. 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, 1997, the Bank had
approximately $2,189,000 of retained earnings available for dividends to the
Company without being required to seek special regulatory approvals.
14. EQUITY
DIVIDENDS DECLARED
During 1997, the Company declared cash dividends of $.06 per share for the
first and second quarters and $.08 per share for the third and fourth
quarters.
COMMON STOCK
On July 15, 1997, the Company issued 484,480 shares of common stock at $14
per share.
15. STOCK OPTIONS
Key officers of the Company 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. The grant price of
all options has been equal to the estimated fair market value of a share
of stock as of the date of grant.
The Company has chosen to continue to account for its options under
the provisions of Accounting Principles Board Statement No. 25,
"Accounting for Stock Issued to Employees," and thus has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
As of January 1, 1997, 71,508 options were outstanding. During the year,
7,275 options were exercised (6,000 options at $10 and 1,275 options at
$8) and 17,000 new options were granted (at $14). Eight hundred fifty
options were forfeited and no options expired during 1997. Of the 80,383
options outstanding at December 31, 1997, 57,687 are fully vested and
exercisable as of December 31, 1997. No options were exercised, granted,
forfeited or expired during 1996.
15
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------- ----------------------
AVERAGE AVERAGE
EXERCISE AVERAGE EXERCISE EXERCISE
PRICE RANGE SHARES LIFE PRICE SHARES PRICE
- --------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$ 6.11--$ 7.28 24,613 3.59 $ 6.44 24,613 $ 6.44
$ 8.00--$ 9.36 33,554 8.54 8.27 29,074 7.55
$10.40--$14.00 22,216 11.51 13.14 4,000 13.40
------- ------ ------ ------ ------
Total 80,383 7.85 $ 9.06 57,687 $ 7.87
------- ------ ------ ------ ------
------- ------ ------ ------ ------
</TABLE>
Under SFAS No. 123, the Company would be required to disclose the effect
of all awards granted in fiscal years that begin after December 15,
1994. The Company did not grant any options during 1995 or 1996. On
November 1, 1997, 17,000 options were granted at the fair market value
of the stock on November 1, 1997 (estimated at $14).
16. EMPLOYEE BENEFITS
PROFIT-SHARING PLAN
The Company sponsors a 401(k) profit-sharing plan in which
substantially all full-time employees are eligible to participate. This
plan allows eligible employees to save portions of their salaries on a
pretax basis. Contributions to the plan are discretionary. Contributions
and administrative expenses related to the plan totaled $84,343 and
$54,650 for the years ended December 31, 1997 and 1996, respectively.
HEALTH AND WELFARE PLAN
The Company also provides health care and life insurance benefits to
all employees through Florida Bankers Insurance Trust. Total cost
related to these benefits for 1997 and 1996 were $319,417 and $268,626,
respectively.
17. CAPITAL
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.
16
<PAGE>
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, 1997 and 1996, the Bank meets and
exceeds all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Bank's
regulatory agency categorized the Bank as "well capitalized"
under the regulatory framework for prompt corrective action. There have
been no conditions or events since that notification that management
believes have changed the institution's category.
<TABLE>
<CAPTION>
ADEQUATELY WELL
ACTUAL CAPITALIZED CAPITALIZED
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ---------- ------------ --------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk-weighted assets):
Consolidated................................ $ 28,708 18.7% $ 12,306 8.0% $ 15,383 10.0%
Bank........................................ 22,868 14.8 12,387 8.0 15,484 10.0
Tier I capital (to risk-weighted assets):
Consolidated................................ 27,213 17.7 6,153 4.0 9,230 6.0
Bank........................................ 21,373 13.8 6,194 4.0 9,291 6.0
Tier I capital (to average assets):
Consolidated................................ 27,213 10.2 10,671 4.0 13,339 5.0
Bank........................................ 21,373 8.0 10,670 4.0 13,338 5.0
As of December 31, 1996:
Total capital (to risk-weighted assets):
Consolidated................................ 19,267 13.6 11,352 8.0 14,189 10.0
Bank........................................ 21,538 15.2 11,347 8.0 14,183 10.0
Tier I capital (to risk-weighted assets):
Consolidated................................ 17,871 12.6 5,676 4.0 8,514 6.0
Bank........................................ 20,142 14.2 5,673 4.0 8,510 6.0
Tier I capital (to average assets):
Consolidated................................ 17,871 7.3 9,856 4.0 12,320 5.0
Bank........................................ 20,142 8.2 9,855 4.0 12,319 5.0
</TABLE>
18. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The financial statements do not reflect various commitments and
contingent liabilities, or off-balance sheet risks, that arise in the
normal course of business to meet the financing needs of customers.
These include commitments to extend credit and to honor standby 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.
17
<PAGE>
The Company's maximum exposure to credit loss under standby letters
of credit and commitments to extend credit is represented by the
contractual amount of those instruments. The Company uses the same
credit policies in establishing commitments and issuing letters of
credit as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer so
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
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. Commitments to extend credit amount
to $12,211,426 and $12,355,074 at December 31, 1997 and 1996,
respectively.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities. The Company had
$1,550,622 and $232,000 of standby letters of credit outstanding at
December 31, 1997 and 1996, respectively. The Company does not
anticipate any material losses as a result of participating in standby
letters of credit or commitments to extend credit.
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.
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, 1997 and 1996 was approximately $2.9 million and $2.4
million, respectively.
LEGAL CONTINGENCIES
In the ordinary course of business, the Company has various
outstanding commitments and contingent liabilities that are not
reflected in the accompanying consolidated financial statements. In
addition, the Company is a defendant in certain claims and legal actions
arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected
18
<PAGE>
to have a material adverse effect on the consolidated financial condition,
operations, or liquidity of the Company.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Many of the Company's assets and liabilities are short-term
financial instruments whose carrying values approximate fair value.
These items include cash and due from banks, interest-bearing deposits
with other banks, federal funds sold, and securities sold under
repurchase agreements. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. The resulting fair values may be
significantly affected by the assumptions used, including the discount
rates and estimates of future cash flows.
The methods and assumptions used to estimate the fair value of the
Company's other financial instruments are as follows:
INVESTMENT SECURITIES
Fair values for investment securities are based on quoted market prices.
If a quoted market price is not available, fair value is estimated using
market prices for similar securities.
LOANS
The loan portfolio is segregated into categories and the fair value of
each loan category is calculated using present value techniques based on
projected cash flows and estimated discount rates. The calculated
present values are then reduced by an allocation of the allowance for
loan losses against each respective loan category.
DEPOSITS
The fair values of noninterest-bearing deposits, NOW accounts, money
market accounts, and savings accounts are the amounts payable on demand
at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for deposits of
similar remaining maturities.
NOTES PAYABLE
The carrying value of the Company's notes payable approximates fair
value, as the current rate approximates the market rate.
Commitments to Extend Credit and Standby Letters of Credit
The estimated fair values for other financial instruments and off-balance
sheet loan
19
<PAGE>
commitments are considered to approximate carrying amounts at December
31, 1997 and 1996.
The Company's financial instruments which have estimated fair values
differing from their respective carrying values are presented as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Investment securities held to maturity............................ $ 8,096 $ 7,936 $ 10,009 $ 9,722
Net loans......................................................... 158,154 158,343 147,428 147,605
Financial liabilities:
Time deposits..................................................... 123,433 123,111 114,511 114,494
</TABLE>
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, 1997, 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, 1997 should not necessarily be
considered to apply at subsequent dates.
20. CONDENSED FINANCIAL DATA (PARENT COMPANY ONLY)
Statements of Financial Condition
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
Cash and cash equivalents.......................................................... $ 7,253,476 $ 344,689
Investment in Bank................................................................. 23,056,750 21,795,997
Other assets....................................................................... 175,493 202,647
------------- -------------
Total assets................................................................... $ 30,485,719 $ 22,343,333
------------- -------------
------------- -------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Notes payable.................................................................... $1,450,000 $ 2,650,000
Other liabilities................................................................ 10,500 24,500
------------- -------------
Total liabilities.............................................................. 1,460,500 2,674,500
------------- -------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Shareholders' equity:
Common stock..................................................................... $ 24,284 $ 19,379
Additional paid-in capital....................................................... 19,489,416 12,682,601
Retained earnings................................................................ 9,256,327 6,901,006
Unrealized gain on investment securities available for sale, net of taxes........ 255,192 65,847
------------- -------------
Total shareholders' equity..................................................... 29,025,219 19,668,833
------------- -------------
Total liabilities and shareholders' equity..................................... $ 30,485,719 $ 22,343,333
------------- -------------
------------- -------------
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Dividend income....................................................................... $ 1,913,114 $ 1,913,114
Interest income....................................................................... 195,081 27,452
Interest expense...................................................................... (169,235) (132,506)
------------ ------------
Net interest and dividend income...................................................... 1,938,960 1,808,060
Noninterest expense, net.............................................................. (40,313) (41,650)
------------ ------------
Income before income taxes and equity in undistributed net income of subsidiary....... 1,898,647 1,766,410
Income tax benefit.................................................................... 5,396 54,721
------------ ------------
Income before equity in undistributed net income of subsidiary........................ 1,904,043 1,821,131
Equity in undistributed net income of subsidiary...................................... 1,071,408 492,150
------------ ------------
Net income............................................................................ $ 2,975,451 $ 2,313,281
------------ ------------
------------ ------------
</TABLE>
21
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income.......................................................................... $ 2,975,451 $ 2,313,281
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed earnings of subsidiary.............................................. (1,071,408) (492,150)
Changes in assets and liabilities:
Other assets.................................................................... 27,154 (171,542)
Other liabilities............................................................... (14,000) 539
------------ ------------
Net cash provided by operating activities..................................... 1,917,197 1,650,128
------------ ------------
Cash flows from investing activities:
Cash paid related to acquisition, net of cash received.............................. 0 (2,670,177)
------------ ------------
Cash flows from financing activities:
New borrowings under notes payable.................................................. 0 2,650,000
Payments on notes payable........................................................... (1,200,000) (950,000)
Redemption of convertible subordinated debentures................................... 0 (274,250)
Cash dividends...................................................................... (620,130) (378,632)
Proceeds from issuance of common stock.............................................. 6,811,720 0
------------ ------------
Net cash provided by financing activities......................................... 4,991,590 1,047,118
------------ ------------
Net increase in cash and cash equivalents............................................. 6,908,787 27,069
Cash and cash equivalents, beginning of year.......................................... 344,689 317,620
------------ ------------
Cash and cash equivalents, end of year................................................ $ 7,253,476 $ 344,689
------------ ------------
------------ ------------
</TABLE>
22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 24, 1997, the Company terminated its relationship with its
independent certified public accountants, Osburn, Henning and Company, and on
October 24, 1997, engaged Arthur Andersen LLP as its independent certified
public accountants. Osburn, Henning and Company's reports on the consolidated
financial statements of the Company for fiscal year 1995 and 1996 contains no
adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope, or accounting principles. The decision to
change accountants was approved by the Company's Board of Directors. With
respect to the Company's consolidated financial statements for fiscal years
1995 and 1996 and the subsequent interim periods preceding the change in
accountants, there were no disagreements between the Company and Osburn,
Henning and Company on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of Osburn, Henning and Company, would have
caused it to make reference to the subject matter or the disagreement in
connection with its report.
22
<PAGE>
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, 1998.
<TABLE>
<S> <C> <C>
K. C. Trowell 59 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
is a former 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 45 Ms. Bruner has served, since the opening
of the Bank in 1986, as Vice President,
Cashier, Senior Operations Officer,
Senior Vice President and Senior
Administrative Officer, and most
recently, Executive Vice President. 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 47 Ms. Williams has served as Senior Vice
President and Cashier of the Bank since
July, 1997. From 1991 through 1997, Ms.
Williams was Vice President and Cashier
of the Bank. 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 Live Oak,
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
Florida and has over 30 years of banking
experience. She is a member of the
Altrusa Club and the Chamber of Commerce.
In addition, Ms. Williams volunteers for
Hospice of North Florida.
Suzanne M. Norris 34 Ms. Norris has served as Senior Vice
President and Senior Credit Officer since
July, 1997. Ms. Norris came to the Bank
in September, 1996 with 11 years of
banking experience, working in various
management and lending positions with
NationsBank in St. Petersburg, Tampa and
Lake City. Ms. Norris, a graduate of the
University of Florida, earned a bachelor
of science degree, with a double major in
Finance and Management. Ms. Norris has
been active in the community, currently
serving as the President of the Lake
City/Columbia County Chamber of Commerce.
She serves on the Board of Directors for
the United Way of Suwannee Valley and
Epiphany Catholic School and is a member
of Altrusa.
Donald J. Winkleman 47 Mr. Winkleman has served as Senior Vice
President, Director of Retail Banking
since November, 1997. Mr. Winkleman came
to the Bank in November, 1997 with 27
years of finance and banking experience,
working in various management and
administrative positions with Great
Western Bank and Barnett Bank. Mr.
Winkleman is a veteran of the United
States Army, attended the Robert A.
Johnston college of Business
Administration, Marquette University, and
holds a professional certificate as a
Certified Consumer Credit Executive. Mr.
Winkleman has been active in the
community and has served on the Board of
the Downtown Lake City Action Committee,
been a volunteer for the March of Dimes,
the Suwannee River Economic Council and
the American Legion, and served for the
past four years on the Allocations
Committee for the United Way.
In addition, Mr. Winkleman has been an
adjunct faculty instructor teaching
banking classes at Lake City Community
College, an instructor for The American
Institute of Banking, and an instructor
at Columbia High School teaching classes
on "How to do your Banking."
</TABLE>
24
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
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, is
incorporated by reference to
Exhibit 9 to the Company's
Form 10-KSB for 1996.
10 Employment Agreement
Amendment of March 18, 1998,
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 for
December 31, 1995).
21 Subsidiaries of the
Registrant.
27 Financial Data Schedule.
Reports on Form 8-K. A report on Form 8-K was filed by the Registrant on
October 29, 1997 terminating Osburn, Henning and Co. as
accountants and engaging Arthur Andersen LLP as their
independent certified accountants.
</TABLE>
25
<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
President, Principal Executive
Officer, and Chief Financial Officer
Date: March 18, 1998
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:
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------- ----------------- --------------------
<S> <C> <C>
/s/
- ----------------------------------
Audrey S. Bullard Director March 18, 1998
/s/
- ----------------------------------
Seymour Chotiner Director March 18, 1998
/s/
- ----------------------------------
Marvin H. Pritchett Director March 18, 1998
/s/
- ----------------------------------
Helen B. Real Director March 18, 1998
/s/
- ----------------------------------
T. Allison Scott Director March 18, 1998
/s/
- ----------------------------------
William J. Streicher Director March 18, 1998
/s/
- ----------------------------------
K. C. Trowell Director March 18, 1998
/s/
- ----------------------------------
Martha S. Williams Sr. Vice President, March 18, 1998
Cashier
</TABLE>
26
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
-------
K. C. TROWELL EMPLOYMENT AGREEMENT
Amendment dated March 18, 1998
-------
CNB, Inc.
-------
EXHIBIT 10
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
between
CNB National Bank/CNB, Inc. and K. C. Trowell
In the Board of Directors' Meeting held on March 18, 1998 the compensation
portion of the subject employment agreement was changed effective January 1,
1998 to that as outlined on Attachment A. All other terms and conditions of the
employment agreement dated August 3, 1987 as amended July 19, 1990, July 20,
1994 and November 15, 1995 remain as previously stated.
The undersigned certifies this to be an excerpt of the Board of Directors'
actions in the meeting held March 18, 1998.
/s/
--------------------------------------
Joyce Bruner
Executive Vice President and Secretary
<PAGE>
CNB, INC.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
CEO
---------
<S> <C>
Base.............................. 250,000
Bonus @ 15%....................... 100,000
-------
Total............................. 350,000
</TABLE>
Bonus A. 5% of base salary for each 1%, or fraction thereof, change in ROAE
with 7% ROAE as qualifying threshold.
Equity target range shall be 7.50% of average assets and this target
shall be used in periods when excess equity is available.
B. Minimum asset growth target shall be 15%. In years when company
experiences asset growth less than 15% total bonus shall be reduced
by 2.50% per each one (1) percent of growth less than target rates
with the maximum reduction not to exceed 37.5% of total bonus.
C. Extraordinary charges to expenses such as expanding the number of
branches by more than 20% in any given year will result in crediting
back net operating losses for the applicable "excess" new branches
for a period of two (2) years following the opening of the "excess"
branches.
Aquisitions/mergers where earnings dilution is expected when the
transaction is renegotiated will also be taken into consideration
by adjusting total earnings in a proportionate manner.
D. Base salary shall change annually at rate of CPI Index for the
prior year beginning in 1999.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------
FORM 10-KSB
ANNUAL REPORT
-------
SUBSIDIARIES OF THE REGISTRANT
-------
CNB, Inc.
-------
EXHIBIT 21
<PAGE>
MARCH 1, 1998
Subsidiaries of CNB, Inc.:
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY ORGANIZATION BUSINESS NAME
- ------------------------- ------------------- ------------------------
<S> <C> <C>
1. CNB National Bank * CNB National Bank
* CNB National Bank is organized as a National Association.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,996
<INT-BEARING-DEPOSITS> 5,736
<FED-FUNDS-SOLD> 24,125
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,843
<INVESTMENTS-CARRYING> 8,096
<INVESTMENTS-MARKET> 7,936
<LOANS> 159,649
<ALLOWANCE> 1,495
<TOTAL-ASSETS> 273,331
<DEPOSITS> 231,444
<SHORT-TERM> 9,157
<LIABILITIES-OTHER> 2,255
<LONG-TERM> 1,450
0
0
<COMMON> 24
<OTHER-SE> 29,001
<TOTAL-LIABILITIES-AND-EQUITY> 273,331
<INTEREST-LOAN> 14,542
<INTEREST-INVEST> 4,050
<INTEREST-OTHER> 828
<INTEREST-TOTAL> 19,420
<INTEREST-DEPOSIT> 8,255
<INTEREST-EXPENSE> 8,663
<INTEREST-INCOME-NET> 10,757
<LOAN-LOSSES> 440
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 7,914
<INCOME-PRETAX> 4,556
<INCOME-PRE-EXTRAORDINARY> 2,975
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,975
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 4.52
<LOANS-NON> 1,045
<LOANS-PAST> 158
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,396
<CHARGE-OFFS> 408
<RECOVERIES> 67
<ALLOWANCE-CLOSE> 1,495
<ALLOWANCE-DOMESTIC> 1,495
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 7,899 12,789 8,578 7,870 13,607
<INT-BEARING-DEPOSITS> 413 141 387 389 410
<FED-FUNDS-SOLD> 4,660 9,950 11,100 9,200 12,015
<TRADING-ASSETS> 0 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 39,838 60,866 35,681 33,644 56,279
<INVESTMENTS-CARRYING> 13,247 10,009 12,840 12,206 11,324
<INVESTMENTS-MARKET> 13,053 9,722 12,551 11,728 10,865
<LOANS> 102,349 148,824 104,957 108,583 137,093
<ALLOWANCE> 946 1,396 928 994 1,419
<TOTAL-ASSETS> 176,733 254,945 181,744 180,350 242,226
<DEPOSITS> 159,003 226,824 163,823 162,744 218,235
<SHORT-TERM> 0 3,766 0 0 0
<LIABILITIES-OTHER> 1,753 2,036 1,825 1,474 2,003
<LONG-TERM> 950 2,650 650 350 2,950
0 0 0 0 0
0 0 0 0 0
<COMMON> 16 19 16 16 19
<OTHER-SE> 14,738 19,650 15,156 15,492 18,745
<TOTAL-LIABILITIES-AND-EQUITY> 176,733 254,945 181,744 180,350 242,226
<INTEREST-LOAN> 9,161 11,188 2,464 5,013 7,810
<INTEREST-INVEST> 3,129 3,269 748 1,436 2,279
<INTEREST-OTHER> 456 633 98 228 385
<INTEREST-TOTAL> 12,746 15,090 3,310 6,677 10,474
<INTEREST-DEPOSIT> 5,805 6,454 1,465 2,895 4,505
<INTEREST-EXPENSE> 5,966 6,612 1,491 2,940 4,576
<INTEREST-INCOME-NET> 6,779 8,478 1,819 3,737 5,898
<LOAN-LOSSES> 230 335 115 205 285
<SECURITIES-GAINS> 3 (25) 0 (25) (25)
<EXPENSE-OTHER> 5,172 6,360 1,313 2,645 4,484
<INCOME-PRETAX> 2,855 3,561 817 1,683 2,340
<INCOME-PRE-EXTRAORDINARY> 1,841 2,313 531 1,092 1,523
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 1,841 2,313 531 1,092 1,523
<EPS-PRIMARY> 1.12 1.33 .32 .66 .91
<EPS-DILUTED> 1.10 1.30 .32 .65 .89
<YIELD-ACTUAL> 4.30 4.59 4.49 4.58 4.60
<LOANS-NON> 372 87 505 253 112
<LOANS-PAST> 159 229 102 47 192
<LOANS-TROUBLED> 0 0 0 0 0
<LOANS-PROBLEM> 0 0 0 0 0
<ALLOWANCE-OPEN> 827 946 946 946 946
<CHARGE-OFFS> 170 283 141 168 204
<RECOVERIES> 59 27 8 11 21
<ALLOWANCE-CLOSE> 946 1,396 928 994 1,419
<ALLOWANCE-DOMESTIC> 942 1,396 924 971 1,360
<ALLOWANCE-FOREIGN> 0 0 0 0 0
<ALLOWANCE-UNALLOCATED> 4 0 4 23 59
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-31-1997 JAN-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 12,962 9,773 9,892
<INT-BEARING-DEPOSITS> 99 110 5,649
<FED-FUNDS-SOLD> 3,800 6,750 16,000
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 64,808 60,037 54,425
<INVESTMENTS-CARRYING> 9,593 9,145 8,673
<INVESTMENTS-MARKET> 9,220 8,854 8,482
<LOANS> 151,198 156,342 158,651
<ALLOWANCE> 1,489 1,557 1,483
<TOTAL-ASSETS> 255,435 254,936 266,158
<DEPOSITS> 226,362 224,394 229,593
<SHORT-TERM> 4,676 5,608 4,172
<LIABILITIES-OTHER> 2,029 2,045 2,273
<LONG-TERM> 2,350 2,050 1,750
0 0 0
0 0 0
<COMMON> 19 19 24
<OTHER-SE> 19,999 20,820 28,346
<TOTAL-LIABILITIES-AND-EQUITY> 255,435 254,936 266,158
<INTEREST-LOAN> 3,496 7,088 10,799
<INTEREST-INVEST> 1,015 2,105 3,133
<INTEREST-OTHER> 178 246 468
<INTEREST-TOTAL> 4,689 9,439 14,400
<INTEREST-DEPOSIT> 1,948 3,995 6,101
<INTEREST-EXPENSE> 2,048 4,212 6,416
<INTEREST-INCOME-NET> 2,641 5,227 7,984
<LOAN-LOSSES> 130 260 330
<SECURITIES-GAINS> 0 0 0
<EXPENSE-OTHER> 1,927 3,845 5,848
<INCOME-PRETAX> 1,139 2,175 3,425
<INCOME-PRE-EXTRAORDINARY> 741 1,421 2,235
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 741 1,421 2,235
<EPS-PRIMARY> .38 .73 1.08
<EPS-DILUTED> .38 .72 1.06
<YIELD-ACTUAL> 4.59 4.53 4.53
<LOANS-NON> 939 956 1,256
<LOANS-PAST> 130 246 78
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 1,396 1,396 1,396
<CHARGE-OFFS> 45 130 286
<RECOVERIES> 8 31 43
<ALLOWANCE-CLOSE> 1,489 1,557 1,483
<ALLOWANCE-DOMESTIC> 1,489 1,557 1,483
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
