<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
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 FLORIDA BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
FLORIDA 59-2958616
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
POST OFFICE BOX 3239 32056
201 NORTH MARION STREET (Zip Code)
LAKE CITY, FLORIDA
(Address of principal executive offices)
Registrant's telephone number, including area code: (904) 755-3240
------------------------
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 / /
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF JULY
31, 1999 WAS 6,108,570 SHARES, $0.01 PAR VALUE PER SHARE.
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<PAGE>
CNB, FLORIDA BANCSHARES, INC.
FINANCIAL REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements (unaudited)
Consolidated Statement of Financial Condition................................. 3
Consolidated Statement of Income.............................................. 4
Consolidated Statement of Cash Flows.......................................... 6
Notes to Consolidated Financial Statements.................................... 7
Selected Financial Data....................................................... 9
Item 2. Management's Discussion and Analysis of Financial Conditionand Results
of Operations
Overview...................................................................... 10
Results of Operations......................................................... 10
Earning Assets................................................................ 13
Funding Sources............................................................... 18
Liquidity..................................................................... 18
Year 2000 Compliance.......................................................... 19
Capital Resources............................................................. 20
Item 3. Quantitative and Qualitative Disclosure About Market Risk............. 21
PART II--OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 23
Item 2. Changes in Securities................................................. 23
Item 3. Defaults Upon Senior Securities....................................... 23
Item 4. Submission of Matters to a Vote of Security Holders................... 23
Item 5. Other Information..................................................... 23
Item 6. Exhibits and Reports on Form 8-K...................................... 23
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1999 1998
---------- ----------
<S> <C> <C>
(THOUSANDS)
ASSETS
Cash and cash equivalents:
Cash and due from banks.............................................................. $ 11,621 $ 12,630
Federal funds sold................................................................... 5,750 25,250
Interest bearing deposits in other banks............................................. 11,190 11,007
---------- ----------
Total cash and cash equivalents.................................................. 28,561 48,887
Investment securities available for sale............................................... 43,417 59,337
Investment securities held to maturity................................................. 11,007 2,940
Loans:
Commercial, financial and agricultural............................................... 104,171 85,208
Real estate--mortgage................................................................ 79,183 72,357
Real estate--construction............................................................ 12,140 8,527
Installment and consumer............................................................. 21,362 20,923
---------- ----------
Total loans, net of unearned income.............................................. 216,856 187,015
Less: Allowance for loan losses........................................................ (2,170) (1,875)
---------- ----------
Net loans........................................................................ 214,686 185,140
Premises and equipment, net............................................................ 12,436 10,754
Other assets........................................................................... 4,709 4,507
---------- ----------
TOTAL ASSETS..................................................................... $ 314,816 $ 311,565
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand.......................................................... $ 39,132 $ 35,701
Savings, NOW and money market........................................................ 93,349 92,495
Time (under $100,000)................................................................ 90,117 95,369
Time ($100,000 and over)............................................................. 40,810 41,544
---------- ----------
Total deposits................................................................... 263,408 265,109
Securities sold under repurchase agreements............................................ 6,212 12,570
Other liabilities...................................................................... 2,481 2,990
---------- ----------
Total liabilities................................................................ 272,101 280,669
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock; $.01 par value; 500,000 shares authorized; no shares issued or
outstanding.......................................................................... -- --
Common stock; $.01 par value, 10,000,000 shares authorized; 6,108,570 and 4,856,770
shares issued and outstanding at June 30, 1999 and December 31, 1998, respectively... 61 49
Additional paid-in capital............................................................. 30,830 19,465
Retained earnings...................................................................... 11,949 10,964
Accumulated other comprehensive income, net of tax..................................... (125) 418
---------- ----------
Total shareholders' equity....................................................... 42,715 30,896
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................... $ 314,816 $ 311,565
---------- ----------
---------- ----------
</TABLE>
3
<PAGE>
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
<S> <C> <C>
1999 1998
------------ ------------
<CAPTION>
(THOUSANDS)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans......................................................... $ 9,027 $ 7,638
Interest on investment securities held to maturity................................. 202 194
Interest on investment securities available for sale............................... 1,479 1,576
Interest on federal funds sold..................................................... 376 720
Interest on interest bearing deposits.............................................. 267 160
------------ ------------
Total interest income............................................................ 11,351 10,288
INTEREST EXPENSE
Interest on deposits............................................................... 4,290 4,393
Interest on notes payable.......................................................... -- 7
Interest on short-term borrowings.................................................. 127 157
------------ ------------
Total interest expense........................................................... 4,417 4,557
------------ ------------
Net interest income............................................................ 6,934 5,731
PROVISION FOR LOAN LOSSES............................................................ 510 230
------------ ------------
Net interest income after provision for loan losses................................ 6,424 5,501
NON-INTEREST INCOME
Service charges.................................................................... 999 853
Other fees and charges............................................................. 431 282
Gain on sale of securities......................................................... -- 2
------------ ------------
Total non-interest income........................................................ 1,430 1,137
------------ ------------
NON-INTEREST EXPENSE
Salaries and employee benefits..................................................... 2,979 2,256
Occupancy and equipment expenses................................................... 884 794
Other operating expenses........................................................... 1,640 1,404
------------ ------------
Total non-interest expense....................................................... 5,503 4,454
------------ ------------
Income before income taxes........................................................... 2,351 2,184
Income taxes..................................................................... 818 755
------------ ------------
NET INCOME........................................................................... $ 1,533 $ 1,429
------------ ------------
------------ ------------
Other comprehensive (loss) income, net of tax........................................ (543) 48
------------ ------------
Comprehensive income................................................................. $ 990 $ 1,477
------------ ------------
------------ ------------
EARNINGS PER SHARE (NOTE 3):
Basic earnings per share........................................................... $ 0.26 $ 0.29
------------ ------------
------------ ------------
Average common shares outstanding.................................................. 5,879,745 4,856,770
------------ ------------
------------ ------------
Diluted earnings per share......................................................... $ 0.26 $ 0.29
------------ ------------
------------ ------------
Diluted average common shares and share equivalents................................ 5,953,273 4,942,648
------------ ------------
------------ ------------
</TABLE>
4
<PAGE>
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------
<S> <C> <C>
1999 1998
--------------- --------------
<CAPTION>
(THOUSANDS)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans.................................................... $ 4,629 $ 3,925
Interest on investment securities held to maturity............................ 155 90
Interest on investment securities available for sale.......................... 723 744
Interest on federal funds sold................................................ 121 422
Interest on interest bearing deposits......................................... 138 81
--------------- --------------
Total interest income....................................................... 5,766 5,262
INTEREST EXPENSE
Interest on deposits.......................................................... 2,119 2,238
Interest on notes payable..................................................... -- --
Interest on short-term borrowings............................................. 58 83
--------------- --------------
Total interest expense...................................................... 2,177 2,321
--------------- --------------
Net interest income....................................................... 3,589 2,941
PROVISION FOR LOAN LOSSES....................................................... 310 150
--------------- --------------
Net interest income after provision for loan losses........................... 3,279 2,791
NON-INTEREST INCOME
Service charges............................................................... 538 441
Other fees and charges........................................................ 205 124
Gain on sale of securities.................................................... -- --
--------------- --------------
Total non-interest income................................................... 743 565
--------------- --------------
NON-INTEREST EXPENSE
Salaries and employee benefits................................................ 1,480 1,163
Occupancy and equipment expenses.............................................. 474 400
Other operating expenses...................................................... 865 729
--------------- --------------
Total non-interest expense.................................................. 2,819 2,292
--------------- --------------
Income before income taxes...................................................... 1,203 1,064
Income taxes................................................................ 418 367
--------------- --------------
NET INCOME...................................................................... $ 785 $ 697
--------------- --------------
--------------- --------------
Other comprehensive (loss) income, net of tax................................... (452) 4
--------------- --------------
Comprehensive income............................................................ $ 333 $ 701
--------------- --------------
--------------- --------------
EARNINGS PER SHARE (NOTE 3):
Basic earnings per share...................................................... $ 0.13 $ 0.14
--------------- --------------
--------------- --------------
Average common shares outstanding............................................. 6,108,497 4,856,770
--------------- --------------
--------------- --------------
Diluted earnings per share.................................................... $ 0.13 $ 0.14
--------------- --------------
--------------- --------------
Diluted average common shares and share equivalents........................... 6,186,011 4,942,648
--------------- --------------
--------------- --------------
</TABLE>
5
<PAGE>
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
<S> <C> <C>
1999 1998
------------- --------------
<CAPTION>
(THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................................... $ 1,533 $ 1,429
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 469 440
Provision for loan loss........................................................ 510 230
Investment securities (accretion) amortization, net............................ (299) 34
Changes in assets and liabilities:
Other assets................................................................. 31 (532)
Other liabilities............................................................ (508) 216
------------- --------------
Net cash provided by operating activities.................................... 1,736 1,817
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale.............................. (20,391) (4,160)
Purchases of investment securities held to maturity................................ (8,754) --
Proceeds from maturities of securities available for sale.......................... 32,773 9,276
Proceeds from maturities of securities held to maturity............................ 667 1,440
Proceeds from called securities available for sale................................. 3,000 2,100
Net increase in loans.............................................................. (30,056) (14,347)
Purchases of premises and equipment, net........................................... (2,062) (446)
------------- --------------
Net cash used in investing activities........................................ (24,823) (6,137)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits.................................................... (1,701) 16,559
Decrease in securities sold under repurchase agreements............................ (6,358) (1,895)
Repayment of note payable.......................................................... -- (1,450)
Cash dividends paid................................................................ (548) (486)
Issuance of common stock........................................................... 11,362 --
Exercise of options................................................................ 6 --
------------- --------------
Net cash provided by financing activities.................................... 2,761 12,728
------------- --------------
Increase (decrease) in cash and cash equivalents................................... (20,326) 8,408
Cash and cash equivalents at beginning of period................................... 48,887 39,857
------------- --------------
Cash and cash equivalents at end of period......................................... $ 28,561 $ 48,265
------------- --------------
------------- --------------
SUPPLEMENTAL DISCLOSURES:
Interest paid................................................................ $ 4,675 $ 4,467
------------- --------------
------------- --------------
Taxes paid................................................................... $ 755 $ 685
------------- --------------
------------- --------------
</TABLE>
6
<PAGE>
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q which do not require all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. In the opinion of management, such financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the interim
periods presented. Operating results for the six months ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. Management's discussion and analysis should be read in
conjunction with the consolidated financial statements.
NOTE 2. CONSOLIDATION
The consolidated financial statements include the accounts of CNB Florida
Bancshares, Inc. and its wholly owned subsidiary, CNB National Bank. All
significant intercompany accounts and transactions have been eliminated.
NOTE 3. EARNINGS PER SHARE
Basic earnings per share is calculated based on weighted average number of
shares of common stock during the period. 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. 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 during
the periods ended June 30, 1999 and 1998.
NOTE 4. COMPREHENSIVE INCOME
Comprehensive income is defined as the total of net income and all other
changes in equity. The following table details the Company's comprehensive
income for the three and six months period ending June 30, 1999 and 1998.
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
--------- --------- --------- ---------
Net Income.................................................................... $ 1,533 $ 1,429 $ 785 $ 697
Other Comprehensive Income (Loss), Net of Tax
Unrealized (Losses) Gains on Securities:
Unrealized (Losses) Gains on Securities
Arising During the Period................................................. (731) 71 (465) 17
Less: Reclassification Adjustment........................................... (188) 23 (13) 13
--------- --------- --------- ---------
Total Unrealized (Losses) Gains, Net of Tax
Recognized in Other Comprehensive Income...................................... (543) 48 (452) 4
--------- --------- --------- ---------
--------- --------- --------- ---------
Comprehensive Income, Net of Tax.............................................. $ 990 $ 1,477 $ 333 $ 701
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
7
<PAGE>
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 5. NEW ACCOUNTING PRONOUNCEMENT
In June, 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards for derivative instruments (including certain derivative
instruments imbedded in other contracts). This statement, as amended, is
effective for fiscal year 2001. The financial impact of the adoption of this
statement has not been determined. However, the effect of the adoption of the
statement is not expected to be material.
NOTE 6. 2-FOR-1 STOCK SPLIT
On July 15, 1998, the Company declared a 2-for-1 common stock split for
shareholders of record on August 10, 1998 to be effective on August 17, 1998.
The accompanying financial statements have been restated to reflect this stock
split.
NOTE 7. INITIAL PUBLIC OFFERING
During February 1999, the Company sold 1,250,000 shares of common stock and
received proceeds from the issuance of approximately $11.4 million, net of
underwriting discount and expenses.
NOTE 8. COMPANY NAME CHANGE
On May 19, 1999, the Company's shareholders approved a proposal to change
the name of CNB, Inc. to CNB Florida Bancshares, Inc. The change was effective
June 30, 1999.
8
<PAGE>
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
<S> <C> <C> <C>
1999 1998 CHANGE %
------------ ------------ -----------
Dollars in thousands except per share information.
- -------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
Total interest income..................................................... $ 11,351 $ 10,288 10%
Total interest expense.................................................... (4,417) (4,557) (3)
------------ ------------
Net interest income....................................................... 6,934 5,731 21
Provision for loan losses................................................. (510) (230) 122
------------ ------------
Net interest income after
Provision for loan losses............................................... 6,424 5,501 17
Non-interest income....................................................... 1,430 1,137 26
Non-interest expense...................................................... (5,503) (4,454) 24
------------ ------------
Income before taxes....................................................... 2,351 2,184 8
Income taxes.............................................................. (818) (755) 8
------------ ------------
Net income................................................................ $ 1,533 $ 1,429 7
------------ ------------
------------ ------------
- -------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Basic earnings............................................................ $ 0.26 $ 0.29 (10)%
Diluted earnings.......................................................... 0.26 0.29 (10)
Book value................................................................ 6.99 6.18 13
Dividends................................................................. 0.10 0.10 --
Actual shares outstanding................................................. 6,108,570 4,856,770 26
Weighted average shares outstanding....................................... 5,879,745 4,856,770 21
Diluted weighted average shares outstanding............................... 5,953,273 4,942,648 20
- -------------------------------------------------------------------------------------------------------------------
KEY RATIOS:
Return on average assets.................................................. 0.98% 1.03% (5)%
Return on average shareholders' equity.................................... 7.60 9.74 (22)
Dividend payout........................................................... 38.46 34.48 12
Efficiency ratio.......................................................... 65.79 64.85 1
Total risk-based capital ratio............................................ 20.56 17.60 17
Average shareholders' equity to average assets............................ 12.87 10.56 22
Tier 1 leverage........................................................... 13.19 9.96 32
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AT PERIOD-END:
Assets.................................................................... $ 314,816 $ 287,752 9%
Total loans, net.......................................................... 214,686 172,271 25
Total deposits............................................................ 263,408 248,003 6
Shareholders' equity...................................................... 42,715 30,016 42
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following analysis reviews important factors affecting the financial
condition and results of operations of CNB Florida Bancshares, Inc. for the six
months ended June 30, 1999 and 1998. This financial information should be read
in conjunction with the unaudited consolidated financial statements of CNB
Florida Bancshares, Inc. ("the Company") and its wholly owned subsidiary, CNB
National Bank ("the Bank"), included in "Item 1. Financial Statements" above and
the audited consolidated financial statements included in Form 10-K for the year
ended December 31, 1998. The analysis contains forward-looking statements with
respect to financial and business matters, which are subject to risks and
uncertainties, that may change over a period of time. These risks and
uncertainties include change in interest rates, variances in actual versus
projected growth in assets, loan losses, the ability to control expenses, costs
of opening new branches and entering the Jacksonville and Gainesville markets,
competitive factors and general economic conditions. Actual results could be
significantly different from the forward-looking statements contained herein.
The Company has no foreign operations; accordingly, there are no assets or
liabilities attributable to foreign operations.
On January 29, 1999, the Company's common stock began trading on the NASDAQ
National Market under the symbol "CNBB". The Company issued and sold 1,250,000
shares of common stock during its initial public offering at $10.25. Proceeds
from the offering net of underwriting discount and expenses totaled $11.4
million. This increased capital will support the Company's expansion in the
Jacksonville and Gainesville markets.
At the Annual Meeting on May 19, 1999, the Company's shareholders approved a
proposal to change the name of CNB, Inc. to CNB Florida Bancshares, Inc. to
become effective June 30, 1999. The new name better reflects the nature of the
Company's business and its geographic focus.
RESULTS OF OPERATIONS
Net income for the six month period ended June 30, 1999 was $1.5 million, or
$0.26 per diluted share, compared to $1.4 million, or $0.29 per diluted share,
in the first half of 1998. Net income for the three month period ended June 30,
1999 was $785,000, or $0.13 per diluted share, compared to $697,000, or $0.14
per diluted share, for the comparable period in 1998. These results reflected
growth in net interest income and in non-interest income, as well as planned
expense growth related to expansion in the Jacksonville and Gainesville markets.
Per share earnings for 1999 compared to 1998 were adversely impacted by the
Company's initial public offering completed January 29, 1999.
NET INTEREST INCOME
Net interest income is the single largest source of revenue for the Bank and
consists of interest and fee income generated by earning assets, less interest
expense paid on interest bearing liabilities. Net interest income for the first
half of 1999 was $6.9 million, compared to $5.7 million in the first half of
1998, an increase of 21.0%. Interest income for the three and six month periods
ended June 30, 1999, increased $504,000 or 9.6%, and $1.1 million or 10.3%,
respectively, over the comparable prior year periods. The increase in interest
income is mainly attributable to the growth in the loan portfolio. Loans, which
represent the Company's highest yielding assets, increased on average $37.2
million or 22.7% and represented 69.9% of total average earning assets for the
six months ended June 30, 1999 versus 64.0% for the comparable period in 1998.
Interest expense for the three and six month periods ended June 30, 1999,
decreased $144,000, or 6.2% and $140,000, or 3.1%, respectively over the
comparable prior year period. The improvement, which reflects lower rates, in
interest paid on interest bearing liabilities for the first half of 1999
compared to the same period in 1998 was the significant reason for the decline
in interest expense. This decrease in interest rates led to a 43 basis point
reduction in the average rate paid on interest bearing liabilities, which
decreased from 4.27% in the first half of 1998 to 3.84% in 1999.
10
<PAGE>
Net interest margin improved to 4.86% from 4.52% reflecting the increase in
earning assets and interest income attributable to the growth in loan volume and
interest and fees on loans. Total earning asset yields declined to 7.96% in 1999
from 8.11%, while being offset by a decrease in rates on interest-bearing
liabilities to 3.84% from 4.27% in 1998. Table 1: "Average Balances--Yields and
Rates" provides the Company's average volume of interest earning assets and
interest bearing liabilities for the first half of 1999 and 1998. Table 1a:
"Analysis of Changes in Interest Income and Expense" indicates that the change
in interest income was due mainly to volume increases in the loan portfolio.
TABLE 1: AVERAGE BALANCES--YIELDS AND RATES
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INTEREST
AVERAGE INCOME OR AVERAGE AVERAGE INCOME OR AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- -------------- ----------- ---------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold.................. $ 16,300 $ 376 4.65% $ 26,899 $ 720 5.40%
Investment securities available for
sale.............................. 51,748 1,479 5.76 51,723 1,576 6.14
Investment securities held to
maturity.......................... 7,471 202 5.45 7,550 194 5.18
Loans(1)............................ 200,977 9,027 9.06 163,745 7,638 9.41
Interest bearing deposits........... 11,075 267 4.86 5,789 160 5.57
---------- -------------- --- ---------- ----------- ---
TOTAL EARNING ASSETS.................. 287,571 11,351 7.96 255,706 10,288 8.11
All other assets.................... 28,366 24,278
---------- ----------
TOTAL ASSETS.......................... $ 315,937 $ 279,984
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
NOW and money markets............... $ 76,654 $ 774 2.04% $ 67,473 $ 842 2.52%
Savings............................. 17,297 124 1.45 16,154 156 1.95
Time deposits....................... 131,827 3,392 5.19 125,371 3,395 5.46
Short term borrowings............... 5,919 127 4.33 6,226 157 5.08
Notes payable and debentures........ -- -- -- 169 7 8.05
---------- -------------- --- ---------- ----------- ---
TOTAL INTEREST BEARING LIABILITIES.... 231,697 4,417 3.84 215,393 4,557 4.27
Demand deposits..................... 38,673 32,275
Other liabilities................... 4,913 2,749
Shareholders' equity................ 40,654 29,567
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. $ 315,937 $ 279,984
---------- --- ---------- ---
---------- ----------
INTEREST SPREAD(2).................... 4.12% 3.84%
-------------- --- ----------- ---
--- ---
NET INTEREST INCOME................... $ 6,934 $ 5,731
-------------- -----------
-------------- -----------
NET INTEREST MARGIN(3)................ 4.86% 4.52%
--- ---
--- ---
</TABLE>
- ------------------------
(1) Interest income on average loans includes loan fee recognition of $326,000
and $268,000 in 1999 and 1998, 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
(UNAUDITED)
<TABLE>
<CAPTION>
NET CHANGE JUNE 30, NET CHANGE JUNE 30,
1998-1999 ATTRIBUTABLE TO: 1997-1998 ATTRIBUTABLE TO:
----------------------------------- -------------------------------------
NET NET
VOLUME(1) RATE(2) CHANGE VOLUME(1) RATE(2) CHANGE
----------- ----------- --------- ----------- ----------- -----------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Federal funds sold....................... $ (283) $ (61) $ (344) $ 449 $ 29 $ 478
Investment securities available for
sale................................... -- (97) (97) (287) 22 (265)
Investment securities held to maturity... (2) 10 8 (57) (13) (70)
Loans.................................... 1,740 (351) 1,389 545 5 550
Interest bearing deposits................ 146 (39) 107 184 (28) 156
----------- ----- --------- ----- ----- -----
Total.................................. 1,601 (538) 1,063 834 15 849
----------- ----- --------- ----- ----- -----
INTEREST EXPENSE:
NOW and money markets.................... 116 (184) (68) 30 9 39
Savings.................................. 11 (43) (32) 10 (1) 9
Time deposits............................ 175 (178) (3) 238 112 350
Short term borrowings.................... (7) (23) (30) 33 3 36
Notes payable and debentures............. (7) -- (7) (89) -- (89)
----------- ----- --------- ----- ----- -----
Total.................................. 288 (428) (140) 222 123 345
----------- ----- --------- ----- ----- -----
Net interest income.................. $ 1,313 $ (110) $ 1,203 $ 612 $ (108) $ 504
----------- ----- --------- ----- ----- -----
----------- ----- --------- ----- ----- -----
</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. Changes which
are not solely due to volume changes or solely due to rate changes have been
attributed to rate changes.
NON-INTEREST INCOME
Non-interest income for the three and six months ended June 30, 1999
increased $178,000, or 31.5% and $293,000 and 25.8%, respectively, for the
comparable periods in 1998. Service charges on deposit accounts increased
$97,000, or 22.0% in the second quarter of 1999, versus the comparable period in
1998, and $146,000, or 17.1% for the six months ended June 30, 1999 compared to
the same period in 1998. This increase was attributed to a new fee rate schedule
that went into effect March 1, 1999. Other fee income, which includes credit
card fees, credit life insurance income, safe deposit box fees, fees from loans
sold to secondary markets, net gains and losses from sale of securities and
other miscellaneous fees, had an increase of 65.3% for the second quarter of
1999 compared to the second quarter of 1998 and an increase of 51.8% for the
first half of 1999 versus the comparable period in 1998.
NON-INTEREST EXPENSE
Non-interest expense increased in the second quarter of 1999 compared to the
same period in 1998 by $527,000 or 23.0%, and $1.0 million, or 23.6% for the
first half of 1999 versus the comparable period in 1998. Non-interest expense as
a percentage of average assets for the six month period ending June 30, 1999 and
1998 was 3.51% and 3.21%, respectively. Salaries and employee benefits increased
$723,000 or 32.0% to $3.0 million for the 1999 six months period, compared to
$2.3 million for the same period in 1998. This increase reflects implementation
of the Company's business plan to build an organization structure supporting
expansion in the Jacksonville and Gainesville markets. During the second quarter
in 1999, the Bank opened and staffed its first banking office in Jacksonville, a
temporary location on Beach Boulevard,
12
<PAGE>
which the Bank will occupy until the completion of its Jacksonville headquarters
in early 2000. The first half of 1999 non-interest expense also included a
$135,000 charge related to certain management changes announced in March, which
included the naming of Bennett Brown as President and Chief Operating Officer of
CNB National Bank and the resignation of the former President.
Occupancy expense, including premise, furniture, fixtures and equipment,
increased $74,000, or 18.5% and $90,000, or 11.3%, respectively, over the
comparable three and six month periods in 1998. The increase is primarily
attributable to occupancy expenses associated with the expansion into
Jacksonville.
Other operating expenses increased $236,000, or 16.8%, in the first half of
1999 compared to the same period in 1998. The following table details the areas
of significance in other operating expenses.
TABLE 2: OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(THOUSANDS)
<S> <C> <C>
Data processing............................................................ $ 289 $ 263
Postage and delivery....................................................... 207 183
Advertising and promotion.................................................. 172 164
Telephone.................................................................. 171 127
Supplies................................................................... 151 117
Legal and professional..................................................... 136 103
Loan expenses.............................................................. 102 64
Amortization of intangible assets.......................................... 90 95
Regulatory fees............................................................ 71 66
Administrative............................................................. 70 56
Other...................................................................... 181 166
--------- ---------
Total other operating expenses............................................. $ 1,640 $ 1,404
--------- ---------
--------- ---------
</TABLE>
INCOME TAXES
The Company's income tax expense in interim reporting periods is determined
by estimating the combined federal and state effective tax rate for the year and
applying such rate to interim pre-tax income. The Company's estimated effective
tax rate for 1999 is approximately 35%.
EARNING ASSETS
LOANS
During the first half of 1999, average loans were $201.0 million and were
76.0% of average deposits, compared to $163.7 million and 67.9% for 1998. Total
loans have increased by $29.8 million, or 16.0%, since December 31, 1998.
Maturities in the investment portfolio and the shifting of Federal Funds Sold
into higher yielding loans have added greatly to the improvement of the Company
interest margins and spreads. This growth is reflective of the Company's
business plan to increase its loan to deposit ratio. The following table
reflects the composition of the Company's loan portfolio as of June 30, 1999
compared to December 31, 1998.
13
<PAGE>
TABLE 3: LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
(THOUSANDS)
Commercial, financial and agricultural............................. $ 104,171 $ 85,208
Real estate--mortgage.............................................. 79,183 72,357
Real estate--construction.......................................... 12,140 8,527
Installment and consumer........................................... 21,362 20,923
---------- ------------
Total loans, net of unearned income................................ 216,856 187,015
Less: allowance for loan losses.................................... (2,170) (1,875)
---------- ------------
Net loans.......................................................... $ 214,686 $ 185,140
---------- ------------
---------- ------------
</TABLE>
The following table sets forth the maturity distribution for selected
components of the Company's loan portfolio on June 30, 1999. Demand loans and
overdrafts are reported as due in one year or less, and loan maturity is based
upon scheduled principal payments.
TABLE 4: MATURITY SCHEDULE OF SELECTED LOANS
JUNE 30, 1999
<TABLE>
<CAPTION>
0-12 1-5 OVER 5
MONTHS YEARS YEARS TOTAL
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(THOUSANDS)
Commercial, financial and agricultural............................. $ 10,825 $ 53,347 $ 39,999 $ 104,171
Real estate--construction.......................................... 12,140 -- -- 12,140
All other loans.................................................... 8,045 29,485 63,015 100,545
--------- --------- ---------- ----------
Total.............................................................. $ 31,010 $ 82,832 $ 103,014 $ 216,856
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Fixed interest rate................................................ $ 12,578 $ 59,403 $ 40,022 $ 112,003
Variable interest rate............................................. $ 18,432 $ 23,429 $ 62,992 $ 104,853
</TABLE>
LOAN QUALITY
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 losses inherent in
the loan portfolio. The allowance for loan losses is established through a
provision charged to expense. In determining the adequacy of the reserve for
loan losses, management considers those levels maintained by other peer banks,
conditions of the individual borrowers, the Company's historical loan loss
experience and the general economic environment, as well as the overall
portfolio composition. Loans are charged against the allowance when it is
recognized that collection of the principal is unlikely. The allowance for loan
losses on June 30, 1999, was 1.00% of total loans, compared to 0.91% one year
earlier. Table 5: "Allocation of Allowance for Loan Losses", set forth below,
indicates the specific reserves allocated by loan type.
14
<PAGE>
TABLE 5: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------
<S> <C> <C> <C> <C>
1999 1998
---------------------------- ----------------------------
<CAPTION>
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ----------------- --------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural......................... $ 1,142 48% $ 980 46%
Real estate--mortgage.......................................... 195 37% 118 41%
Real estate- construction...................................... 21 5% 5 2%
Consumer....................................................... 800 10% 480 11%
Unallocated.................................................... 12 -- -- --
--------- --- --------- ---
Total.......................................................... $ 2,170 100% $ 1,583 100%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
Total non-performing assets decreased by $1.1 million or 53.4% to $945,000
on June 30, 1999, compared to $2.0 million on December 31, 1998. Non-performing
assets as a percentage of total assets decreased to 0.30% on June 30, 1999 from
0.65% on December 31, 1998. Non-accrual loans have decreased $743,000 since
December 31, 1998. This decrease was due to changes in four loans, including
$413,000 principal reductions on two loans. Other real estate owned and
repossessions decreased by $365,000, which is largely due to the sale of three
commercial properties.
TABLE 6: NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- -------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Non-accrual loans.................................................... $ 650 $ 1,393
Past due loans 90 days or more and still accruing.................... 47 22
Other real estate owned and repossessions............................ 248 613
----- ------
Total non-performing assets.......................................... $ 945 $ 2,028
----- ------
----- ------
Percent of total assets.............................................. 0.30% 0.65%
</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
inherent 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 7: "Activity in Allowance for Loan Losses", below,
indicates activity in the allowance for loan losses for the first six month
period of 1999 as compared to 1998.
15
<PAGE>
TABLE 7: ACTIVITY IN ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
JUNE 30,
----------------------
<S> <C> <C>
1999 1998
---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance for loan loss balance applicable to:
Balance at beginning of year.......................................... $ 1,875 $ 1,495
Loans charged-off:
Commercial, financial and agricultural.............................. 182 41
Real estate, mortgage............................................... 8 --
Real estate, construction........................................... 3
Consumer............................................................ 108 140
---------- ----------
Total loans charged-off........................................... (298) (184)
Recoveries on loans previously charged-off:
Commercial, financial and agricultural.............................. 68 26
Real estate, mortgage............................................... -- --
Real estate, construction........................................... -- --
Consumer............................................................ 15 16
---------- ----------
Total loan recoveries............................................. 83 42
---------- ----------
Net loans charged-off........................................... (215) (142)
---------- ----------
Provision for loan losses charged to expense.......................... 510 230
---------- ----------
Ending balance........................................................ $ 2,170 $ 1,583
---------- ----------
---------- ----------
Total loans outstanding............................................... $ 216,856 $ 173,854
Average loans outstanding............................................. $ 200,977 $ 163,745
Allowance for loan losses to loans outstanding........................ 1.00% 0.91%
Net charge-offs to average loans outstanding, annualized.............. 0.21% 0.17%
</TABLE>
INVESTMENT PORTFOLIO
When the Company's liquidity position exceeds expected loan demand, other
investments are considered by management as a secondary earnings alternative.
Typically, management remains short-term (under 5 years) in its decision to
invest in certain securities and always strives to ensure a portion of its
investment portfolio to be maturing in the next quarter. As these investments
mature, they will be used to meet cash needs or will be reinvested to maintain a
desired liquidity position. Most of the investment portfolio is designated as
available for sale to provide the Company flexibility, and in case an immediate
need for liquidity arises. The composition of the portfolio offers management
full flexibility in managing its liquidity position and interest rate
sensitivity, without adversely impacting its regulatory capital levels. The
Federal Reserve Bank and the Federal Home Loan Bank also require equity
investments to be maintained by the Bank as a member of their services. The
investment securities available for sale are carried at fair market value and
had an unrealized loss, net of taxes, of approximately $125,000 on June 30, 1999
as compared to an unrealized gain, net of taxes, of approximately $418,000 on
December 31, 1998. Unrealized gains or losses are recorded as adjustments to
shareholders' equity but are not included in the Company's net income; however,
they are included in comprehensive income.
The following tables set forth the maturity distribution and the weighted
average yields of the Company's investment portfolio by those securities held to
maturity and available for sale.
16
<PAGE>
TABLE 8: MATURITY DISTRIBUTION OF INVESTMENT SECURITIES(1)
JUNE 30, 1999
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- -------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
U.S. Treasury:
One year or less........................................... $ -- $ -- $ 5,998 $ 6,017
Over one through five years................................ -- -- 8,974 9,107
----------- ------------ ----------- ------------
Total U.S. Treasury.......................................... -- -- 14,972 15,124
U.S. Government Agencies and Corporations:
One year or less........................................... -- -- 2,001 2,002
Over one through five years................................ -- -- 20,000 19,522
Over five through ten years................................ 8,743 8,450 -- --
----------- ------------ ----------- ------------
Total U.S. Government Agencies and Corporations.............. 8,743 8,450 22,001 21,524
Obligations of State and Political Subdivisions:
Over one through five years................................ -- -- 874 880
Over five through ten years................................ -- -- 100 102
Over ten years........................................... -- -- 608 632
----------- ------------ ----------- ------------
Total Obligations of State and............................... -- -- 1,582 1,614
Political Subdivisions
Mortgage-Backed Securities(2):
Over one through five years................................ 2,264 2,207 -- --
Over five through ten years................................ -- -- 1,146 1,151
Over ten years............................................. -- -- 2,060 2,073
----------- ------------ ----------- ------------
Total Mortgage-Backed Securities............................. 2,264 2,207 3,206 3,224
Other Securities:
Over ten years(3).......................................... -- -- 1,855 1,931
----------- ------------ ----------- ------------
Total Other Securities....................................... -- -- 1,855 1,931
----------- ------------ ----------- ------------
Total Securities............................................. $ 11,007 $ 10,657 $ 43,616 $ 43,417
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</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.
TABLE 9: WEIGHTED AVERAGE YIELD BY RANGE OF MATURITIES
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1999 1998 JUNE 30, 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
One Year or Less............................................ 5.87% 5.23% 5.68%
Over One through Five Years................................. 6.08% 6.26% 6.09%
Over Five through Ten Years................................. 5.69% 5.82% 5.96%
Over Ten Years(1)........................................... 5.61% 5.91% 6.29%
</TABLE>
- ------------------------
(1) Represents adjustable rate mortgage-backed securities which are repriceable
within one year.
17
<PAGE>
OTHER EARNING ASSETS
Temporary investment needs are created in the day-to-day liquidity movement
of the Bank and are satisfied by selling excess funds overnight (Fed Funds Sold)
to larger, well capitalized banking institutions. If these funds become
excessive, management determines what portion, if any, of the liquidity may be
rolled into longer term investments as securities.
FUNDING SOURCES
DEPOSITS
The Bank does not rely on purchased or brokered deposits as a source of
funds. Instead, competing for deposits within its market area serves as the
Bank's fundamental tool in providing a source of funds to be invested primarily
in loans. The following table sets forth certain deposit categories for the
periods ended June 30, 1999 and December 31, 1998.
TABLE 10: TOTAL DEPOSITS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
(THOUSANDS)
Non-interest bearing:
Demand checking.................................................. $ 39,132 $ 35,701
Interest bearing:
NOW checking..................................................... 47,833 49,158
Money market checking............................................ 28,314 26,966
Savings.......................................................... 17,202 16,371
Certificates of deposit.......................................... 130,927 136,913
---------- ------------
Total deposits..................................................... $ 263,408 $ 265,109
---------- ------------
---------- ------------
</TABLE>
LIQUIDITY
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 investment securities
available for sale) totaled $90.5 million and represented 34.2% of average total
deposits during the first half of 1999, compared to $94.7 million and 39.3% for
1998. Average loans were 76.0% and 67.9% of average deposits for the six month
period ended June 30, 1999 and 1998, respectively.
Core deposits, which represent all deposits other than time deposits in
excess of $100,000, were 84.5% of total deposits at June 30, 1999 and 84.3% at
December 31, 1998. 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. Table 11, below, sets forth the amounts of time deposits
with balances of $100,000 or more that mature within indicated periods. The Bank
does not nor has it ever solicited brokered deposits.
The Company also has available lines of credit with other financial
institutions totaling $8.0 million. There were no amounts outstanding as of June
30, 1999.
18
<PAGE>
TABLE 11: MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
Three months or less............................................................... $ 11,196
Three through six months........................................................... 7,243
Six through twelve months.......................................................... 12,849
Over twelve months................................................................. 9,522
---------
Total.............................................................................. $ 40,810
---------
---------
</TABLE>
YEAR 2000 COMPLIANCE
The Company has a four-phase plan to resolve the Year 2000 issue with
respect to internal and external systems:
- Identifying significant systems and assessing potential Year 2000 issues
relating to those systems;
- Renovating, repairing and replacing noncompliant systems;
- Testing and validating solutions; and
- Implementing those solutions.
The first phase of the plan has been completed and the Company has
substantially completed the second, third and fourth phases. The first phase
involved assessing all computer controlled systems, including computer systems
of the Company's vendors, items processing, ATMs, telecommunications, security
and alarm, elevator, telephone, HVAC, and environmental systems with embedded
microchips. The Company's local area network has been evaluated and is Year 2000
compliant.
The second phase involves upgrading, as applicable, hardware, software,
networks, ATMs and other processing platforms. The noncompliant individual
personal computers throughout the organization have been replaced. Total
hardware upgrades are approximately eighty-five percent completed. The Company
is in the process of upgrading the current software versions of the spreadsheet
and word processing programs it uses for internal purposes to the Year 2000
compliant versions.
The testing, validation and implementation phases are substantially
completed. During the remainder of 1999, additional testing and re-testing will
be performed, and every effort will be made to ensure the conversion from 1999
to the Year 2000 is uneventful. The Company has a Board approved contingency
plan in place for the mission critical system in the event of unforeseen
difficulties to minimize any disruptions. The contingency plan also includes
specific recovery plans for each core business process that considers the
minimum level of acceptable output.
The vast majority of the Company's processing needs are outsourced to two
outside vendors, and the Company is monitoring their Year 2000 compliance
progress closely. The Company has participated during the fourth quarter of 1998
with on-site testings of the vendors' systems. This testing is substantially
completed with no complications reported. In connection with their review of the
Company's Year 2000 efforts, the Comptroller of the Currency, the Bank's primary
regulator, has also reviewed the Company's efforts with respect to the outside
vendors. The Comptroller has expressed satisfaction with the Company's overall
progress with the Year 2000 issue.
Year 2000 issues also may adversely impact the businesses of the Company's
customers and their ability to honor their financial commitments. The Company
has in effect a loan policy pursuant to which it reviews all present and
potential borrowers with loan portfolio amounts exceeding $500,000 for Year 2000
preparation. The Bank's loan documentation for new, complex commercial loans,
including loans over $250,000, contain loan agreements with Year 2000
representations and warranties.
19
<PAGE>
The costs associated with the Company's Year 2000 issues are not expected to
have a material impact on the results of the operations or financial condition
of the Company. The total two year budget for Year 2000 costs over 1998 and 1999
is $150,000, with $121,000 spent through June 1999. The budget for Year 2000
costs is based on managements best estimates, which are derived utilizing a
number of assumptions of future events including the availability of internal
and external resources, third party modifications and other factors. These
assumptions may be proved incorrect and actual costs for Year 2000 issues may
vary.
There can be no assurance that all necessary modifications will be
identified and corrected or that unforeseen difficulties or costs will not
arise. The Company believes that the failure of third parties to address their
Year 2000 problems in a timely fashion presents the greatest likelihood of the
Company not being fully Year 2000 compliant. In addition, failure of telephone,
security service and utility providers to provide necessary service could
adversely impact the Company's operations and financial condition. In many
cases, the Company is unable to test the Year 2000 readiness of such providers.
Such failures could materially adversely impact the Company's data processing
and other operations, the estimated costs of the Year 2000 plan and the target
dates for completion. The effect of non-compliance by third parties is not
determinable at this time. Despite management's efforts to address this issue,
the number of external entities that have direct and indirect business
relationships with the Company, such as customers, vendors, utilities, payment
system providers, data processors and other financial institutions make it
impossible to assume that failure to achieve compliance by one of these entities
would not have an adverse material impact on the Company's operations. The
Company could be subject to litigation for computer systems product failure,
including equipment shutdown or failure to properly date business records or
process transactions. The amount of potential liability, if any, and lost
revenue cannot be reasonably estimated at this time.
CAPITAL RESOURCES
The Comptroller 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%. Tier 1 Capital
includes common shareholders' equity and qualifying preferred stock, less
goodwill and other adjustments. Tier 2 Capital consists of preferred stock not
qualifying as Tier 1 Capital, mandatory convertible debt, limited amounts of
subordinated debt, other qualifying term debt and the allowance for credit
losses up to 1.25% of risk-weighted assets. Total Capital consists of Tier 1
Capital and Tier 2 Capital. The regulatory agencies have also established an
additional capital adequacy guideline referred to as the Tier 1 leverage ratio
that measures the ratio of Tier 1 capital to average quarterly assets. Adherence
to these guidelines has not had an adverse impact on the Company or the Bank.
Selected capital ratios at June 30, 1999 compared to 1998 and regulatory
requirements are as follows:
TABLE 12: CAPITAL RATIOS
<TABLE>
<CAPTION>
JUNE 30,
-------------------- WELL CAPITALIZED REGULATORY
1999 1998 REQUIREMENTS MINIMUMS
--------- --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Risk Based Capital Ratios:
Tier 1 Capital Ratio.............................................. 19.5% 16.7% 6.0% 4.0%
Total Capital to Risk-Weighted Assets............................. 20.6% 17.6% 10.0% 8.0%
Tier 1 Leverage Ratio............................................... 13.2% 10.0% 5.0% 4.0%
</TABLE>
20
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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. The Company attempts to maintain a cumulative gap position equaling
plus, or minus 20% of total assets.
The Company'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 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. The Company is always looking for ways to enhance the process
of measuring the possible impact of change in market rates.
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.
In Table 13, "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 June 30, 1999, the estimated fair value would
have been achieved at that date, since market values may differ depending on
various circumstances. The estimated fair values at June 30, 1999 should not
necessarily be considered to apply at subsequent dates.
21
<PAGE>
TABLE 13: RATE SENSITIVITY ANALYSIS
JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FAIR
1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS BEYOND TOTAL VALUE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans
Fixed rate loans.......... $ 12,578 $ 7,802 $ 13,507 $ 15,758 $ 22,336 $ 40,022 $ 112,003 $ 111,984
Average interest rate... 8.97% 9.77% 9.18% 8.99% 8.49% 8.15% 8.67%
Variable rate loans....... 18,432 8,337 7,040 3,999 4,053 62,992 104,853 104,853
Average interest rate... 8.66% 9.16% 8.06% 8.25% 8.61% 8.08% 8.29%
Investment securities(1)
Fixed rate investments.... 7,999 9,801 1,612 268 20,193 10,826 50,699 50,058
Average interest rate... 5.87% 6.15% 6.25% 6.09% 6.04% 5.68% 5.96%
Variable rate
investments............. -- -- -- -- -- 2,069 2,069 2,085
Average interest rate... 5.62% 5.62%
Federal funds sold.......... 5,750 -- -- -- -- -- 5,750 5,750
Average interest rate... 4.68% 4.68%
Other earning assets (2).... 13,045 -- -- -- -- -- 13,045 13,045
Average interest rate... 4.94% 4.94%
--------- --------- --------- --------- --------- --------- --------- ---------
Total interest-earning
assets.................... $ 57,804 $ 25,940 $ 22,159 $ 20,025 $ 46,582 $ 115,909 $ 288,419 $ 287,775
Average interest rate... 7.11% 8.21% 8.61% 8.80% 7.44% 7.84% 7.79%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
INTEREST-BEARING
LIABILITIES:
NOW......................... $ -- $ -- $ -- $ -- $ -- $ 47,833 $ 47,833 $ 47,833
Average interest rate... 1.20% 1.20%
Money market (3)............ 25,947 -- -- -- -- 2,367 28,314 28,314
Average interest rate... 3.61% 1.50% 3.43%
Savings..................... -- -- -- -- -- 17,202 17,202 17,202
Average interest rate... 1.35% 1.35%
CD's $100,000 and over...... 31,288 6,947 2,051 524 -- -- 40,810 40,510
Average interest rate... 5.20% 6.25% 6.00% 5.60% 5.42%
CD's under $100,000......... 73,385 10,112 4,669 1,836 73 42 90,117 89,899
Average interest rate... 4.64% 5.22% 5.62% 5.29% 5.45% 5.96% 4.77%
Securities sold under
repurchase agreements..... 6,212 -- -- -- -- -- 6,212 6,212
Average interest rate... 4.32% 4.32%
Notes payable............... -- -- -- -- -- -- -- --
Average interest rate...
--------- --------- --------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities............... $ 136,832 $ 17,059 $ 6,720 $ 2,360 $ 73 $ 67,444 $ 230,488 $ 229,970
Average interest rate... 4.56% 5.64% 5.74% 5.36% 5.45% 1.25% 3.71%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
- --------------------------
(1) Securities available for sale are shown at their amortized cost, excluding
market value adjustment for unrealized losses of $199,000.
(2) Represents interest bearing deposits with other banks, Federal Reserve Bank
Stock, Federal Home Loan Bank Stock and other marketable equity securities.
(3) All Money Market accounts $25,000 and over and 30% of Money Market accounts
under $25,000 have been designated as maturing within one year.
22
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings--There are no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 2. Changes in Securities--Not applicable.
Item 3. Defaults Upon Senior Securities--Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders--On May 19,1999,
the Company held its Annual Meeting of Shareholders, whereby the Board
of Directors (Thomas R. Andrews, Audrey S. Bullard, Raymon Land, Sr.,
Marvin H. Pritchett, William Streicher and K. C. Trowell) all were
re-elected. The following summarizes all matters submitted and voted
upon at this annual meeting:
(a) The following directors were elected to serve on the Board of
Directors. These individuals served on the Board of Directors prior
to the Annual Meeting. The number of votes cast were as follows:
<TABLE>
<CAPTION>
AGAINST/ ABSTENTIONS/
FOR WITHHELD BROKER NON-VOTES
---------- ----------- -----------------
<S> <C> <C> <C>
Thomas R. Andrews............................................. 5,131,432 14,558 0
Audrey S. Bullard............................................. 5,131,432 14,558 0
Raymon Land, Sr............................................... 5,131,432 14,558 0
Marvin H. Pritchett........................................... 5,131,432 14,558 0
William Streicher............................................. 5,131,432 14,558 0
K. C. Trowell................................................. 5,131,432 14,558 0
</TABLE>
(b) The shareholders approved the proposal to change the Company name
to CNB Florida Bancshares, Inc. The number of votes cast were as
follows:
<TABLE>
<CAPTION>
AGAINST/ ABSTENTIONS/
FOR WITHHELD BROKER NON-VOTES
---------- ----------- -----------------
<S> <C> <C> <C>
5,076,648 27,658 41,684
</TABLE>
Item 5. Other Information--Not applicable.
Item 6. Exhibits and Reports on Form 8-K--
(a) Exhibits:
10--Employment Agreement between the Company and Bennett Brown
27--Financial Data Schedule
(b) Reports on Form 8-K:
On May 19, 1999, the Company filed a Form 8-K to report the approval
of its shareholders to change the name of the Company to CNB Florida
Bancshares, Inc.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
CNB FLORIDA BANCSHARES, INC.
(Registrant)
By: /s/ G. THOMAS FRANKLAND
---------------------------------------
G. Thomas Frankland
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
Date: August 4, 1999
</TABLE>
24
<PAGE>
Exhibit 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of April 1, 1999,
between BENNETT BROWN (the "Executive") CNB, Inc. a Florida corporation (the
"Company"), recites and provides as follows:
WHEREAS, the Board of Directors of the Company (the "Board") expects
that the Executive will make substantial contributions to the growth and
prospects of the Company; and
WHEREAS, the Board desires that the Company retain the services of the
Executive, and the Executive desires to accept employment with the Company, all
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the Company and the Executive agree as
follows:
1. EMPLOYMENT PERIOD. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to accept employment by the Company,
in accordance with the terms and provisions of this Agreement, for the period
commencing on the date of this Agreement (the "Effective Date") and ending on
the third anniversary of such date (the "Employment Period"). Subject to the
provisions of Section 3 hereof, the Employment Period shall be A CONSTANT
ROLLING PERIOD of three (3) years, commencing on the Effective Date, with the
result that, for each day after the Effective Date the Executive's term of
employment shall be extended for an additional day so that at all times the
remaining period of the Executive's term of employment shall be three (3) years;
provided that the Employment Period shall end at the first day of the month
following the Executive's seventieth (70th) birthday.
2. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the
Executive shall serve as Executive Vice President of the Company and President
and Chief Operating Officer of its wholly owned subsidiary, CNB National Bank
(the "Bank"), and shall have duties with respect to the Company and the Bank and
such other powers and duties as may, from time to time, be prescribed by the
Company and the Bank, provided that such duties are generally consistent with
the duties described above and (B) the Executive's services shall be performed
primarily in Jacksonville, Florida, or any office which is less than 35 miles
from such location. The parties agree that service by the Employee may be
required in Lake City, Florida, until the Company opens its new headquarters in
Jacksonville. The Executive agrees to serve on the Board of Directors of the
Bank.
(ii) During the Employment Period, and
excluding any periods of vacation and leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and,
<PAGE>
to the extent necessary to discharge the duties assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform faithfully
and efficiently such responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (A) serve on corporate,
civic, charitable, banking industry association or professional association
boards of committees (provided the Executive obtains prior approval by the Chief
Executive Officer of the Company), (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid in equal installments on a semi-monthly basis, at
the annual rate of not less than One Hundred Eighty Thousand Dollars ($180,000)
per year. During the Employment Period, the Annual Base salary shall be reviewed
at least annually and shall be increased at any time and from time to time as
shall be substantially consistent with increases in base salary generally
awarded in the ordinary course of business to other executives of the Company
and its affiliated companies. Any increase in Annual Base Salary shall not serve
to limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased.
(ii) ANNUAL BONUS. Executive shall be
entitled to receive a bonus in an amount targeted at fifty percent (50%) of
Annual Base Salary, contingent upon the attainment of performance goals
established jointly by the Company, the Executive and the Company's Chief
Executive Officer.
(iii) STOCK-BASED COMPENSATION. As an inducement
to the Executive to enter into this Agreement, the Company will grant the
following stock-based awards:
(A) (1) An Option to purchase
40,000 shares of Company common stock ("Stock") at an exercise price per share
equal to the closing price of the Stock on the Nasdaq National Market System on
the date hereof (the "Strike Price"), to become exercisable according to the
following schedule:
# OF SHARES OF STOCK DATE EXERCISABLE
20,000 1st Anniversary of this Agreement
10,000 2nd Anniversary
10,000 3rd Anniversary
2
<PAGE>
(2) An Option to purchase
15,000 shares of Stock at the Strike Price to become exercisable ratably upon
achievement of performance-based goals to be agreed upon between the Company and
the Executive covering a three (3) year period.
The Company may, at any time in its
discretion, grant additional Options. All Options awarded hereunder shall be
subject to the terms and conditions of the Performance-Based Incentive Plan of
CNB, Inc. (the "Plan"). Options shall constitute Incentive Stock Options under
the Plan to the extent permissible under relevant regulations and shall
thereafter be Non-Qualified Stock Options.
(B) A grant of 5,000 shares of Restricted Stock. One-half
(50%) of the restricted Stock will vest and become nonforfeitable upon the first
anniversary of this Agreement and the remainder of the Restricted Stock will
vest and become nonforfeitable on the second anniversary of this Agreement.
The Company may, in its discretion, award additional
Restricted Stock. The rights and obligations of the Executive with respect to
such restricted Stock shall be determined under the Plan.
(v) SAVINGS AND RETIREMENT PLANS. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than those provided generally from time
to time after the Effective Date to other executives of the Company and its
affiliated companies.
(vi) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than those provided
generally at from time to time after the Effective Date to other executives of
the Company and its affiliated companies.
(vii) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable employment
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
as in effect generally from time to time after the Effective Date with respect
to other executives of the Company and its affiliated companies. The Executive
also will receive reimbursement for at least one club membership
3
<PAGE>
(viii) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies as in effect generally from time to time after the
Effective Date with respect to other peer executives of the Company and its
affiliated companies including club membership.
(ix) OFFICE AND SUPPORT STAFF. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided
generally from time to time after the Effective Date with respect to other
executives of the Company and its affiliated companies.
(x) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect generally from time to time after the Effective Date with respect to
other executives of the Company and its affiliated companies, which vacation
time shall not be less than four (4) weeks per year.
3. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(b) of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under Section 2(a) (other than as a result of incapacity
due to physical or mental illness) which is demonstrably willful and deliberate
on the Executive's part, which is committed in bad faith or without reasonable
belief that such breach is in the best interests of the Company and which is not
remedied in a thirty (30) day period of time after receipt of written notice
from the Company specifying such breach or (ii) the conviction of the Executive
of a felony involving moral turpitude or the guilty or nolo contendere plea of
the Executive to such a felony. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or upon the
instructions of the
4
<PAGE>
Chief Executive Officer or a senior officer of the Company or based upon the
advice of counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company.
(c) GOOD REASON. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of any duties inconsistent
in any material respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2(a) of this Agreement, or any other
action by the Company which results in a material diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material failure by the Company to comply with any of
the provisions of Section 2(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any
office or location more than 35 miles from that provided in Section 2(a) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
(d) CHANGE IN CONTROL. If the Company terminates Executive's
employment without cause or such employment is terminated for Good Reason,
within two years after a Change in Control, Executive will be entitled to the
payments and continued benefits described in Section 4(a). For purposes of this
paragraph (d), a "Change of Control" means the sale (other than an initial
public offering of Stock) such that any person (as such term is used in Rule
13d-5 of the Exchange Act) or group (as defined in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act) other than (i) a subsidiary of the Company or any employee
benefit plan (or any related trust) of the Company or subsidiary, or (ii) any
current holder of five percent (5%) or more of the Company's Stock, becomes the
owner (beneficially or otherwise) of 15 percent or more of the Stock or other
securities representing 15 percent or more of the combined voting power of
outstanding voting securities. A Change of Control also includes the replacement
of more than fifty percent (50%) of the incumbent members of the Board of
Directors of the Company provided, however, where the election or nomination of
such replacement directors was approved by a majority of the incumbent members
(other than in connection with an "election contest" (as such term is used in
Rule 14a-11 under the Exchange Act), tender offer (as such
5
<PAGE>
term is used in Section 14(d) of the Exchange Act) or proposed merger) such
replacement director will be treated as an incumbent director.
A Change in Control also includes the approval by ten shareholders of
the Company of a merger, reorganization, recapitalization or similar event as a
result of which the persons holding Stock immediately before the merger hold
less than sixty percent (60%) of the combined voting power of voting securities
immediately after such event, or the approval of a plan of liquidation of the
Company or the sale of all or substantially all of the assets of the Company.
For purposes of this Section 3(d), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
Upon a Change in Control, all Options and Restricted Stock previously
granted to Employee shall immediately become vested and non-forfeitable.
(e) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 11(b). For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 15 days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance shall not waive any right of the
Executive or the Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(f) DATE OF TERMINATION. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (ii) if the Executive's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY.
The Company may terminate the Executive's employment during the Employment
Period for other than Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause, Death or Disability or the Executive shall terminate employment for Good
Reason:
6
<PAGE>
(i) The Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the sum of (1) the Executive's
Annual Base Salary through the Date of Termination to the extent not theretofore
paid; (2) to the extent not theretofore paid, the product of (A) the greater of
(x) the Annual Bonus paid or payable, including by reason of any deferral, to
the Executive (and annualized for any fiscal year consisting of less than twelve
full months or for which the Executive has been employed for less than twelve
full months) for the most recently completed fiscal year during the Employment
Period, if any, and (y) the average annualized (for any fiscal year consisting
of less than twelve full months or with respect to which the Executive has been
employed for less than twelve full months) bonus paid or payable, including by
reason of any deferral, to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Date of Termination occurs (such greater amount shall be
hereinafter referred to as the "Highest Annual Bonus" or, if termination occurs
prior to the payment of the first annual bonus, the Highest Annual Bonus shall
be deemed to be $90,000), and (B) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, the
denominator of which is 365; (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) to the extent
not therefore paid; and (4) any accrued vacation pay, to the extent not
therefore paid (the sum of the amounts described in clauses (1), (2), (3) and
(4) shall be hereinafter referred to as the "Accrued Obligations"); and
(ii) The Company shall pay to the Executive in a lump sum
(unless Executive has elected to receive this payment in three (3)
installments to take advantage of the option given under Section 8(e), in
which event the first equal installment shall be made within 30 days after
the Date of Termination and the next two equal installments shall be made
annually thereafter) in cash within 30 days after the Date of Termination the
sum of the Executive's Annual Base Salary and Highest Annual Bonus payable to
the Executive from the Date of Termination to the end of the Employment
Period multiplied by (A) if a Change in Control has occurred - 100%, and (B)
in all other instances - 50%; and
(iii) For the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 2(b)(vi) if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare benefits
under another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility (such continuation of such benefits
for the applicable period herein set forth shall be hereinafter referred to as
"Welfare Benefit Continuation"). For purposes of determining eligibility (but
not the time of commencement of benefits) the Executive shall be considered to
have remained employed until the end of the Employment Period and to have
retired on the last day of such period; and
(iv) To the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or
7
<PAGE>
benefits required to be paid or provided or which the Executive and/or the
Executive's family is eligible to receive pursuant to this Agreement and under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies as in effect generally thereafter with respect to
other executives of the Company and its affiliated companies and their families
(such other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination) and
the timely payment or provision of the Welfare Benefit Continuation and other
Benefits.
(c) CAUSE, OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive his Annual Base Salary through the Date of
Termination plus Other Benefits and the amount of any compensation previously
deferred by the Executive, in each case to the extent theretofore unpaid.
(d) DISABILITY. If the Executive's employment shall be
terminated by reason of the Executive's Disability during the Employment Period,
this Agreement shall terminate without further obligations to the Executive,
other than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 4(d) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits as in effect
at any time thereafter generally with respect to other executives of the Company
and its affiliated companies and their families.
(e) TIME OF PAYMENT. The Company shall make all payments
required by this Section 4 within the time periods provided in Sections 4(a),
4(b) and 4(c).
(f) NONDISCLOSURE TO MEDIA. After the Date of Termination or
the end of Employment Period, the Executive agrees that he will not discuss his
employment and resignation or termination (including the terms of this
Agreement) with any representatives of the media, either directly or indirectly,
without the written consent and approval of the Company.
5. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 4(a)(iii),
4(b) and 4(c), nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any
8
<PAGE>
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
6. FULL SETTLEMENT; RESOLUTION OR DISPUTES.
(a) The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
4(a)(iii) with respect to Welfare Benefit Continuation and Section 8(a) with
respect to non-competition, such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof unless a court of competent jurisdiction determines that the
Executive acted in bad faith in initiating the contest) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Code; provided however, that the reasonableness of the fees and expenses
must be determined by an independent arbitrator, using standard legal
principles, mutually agreed upon by the Company and the Executive in accordance
with rules set forth by the American Arbitration Association.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment by the
Company or by the Executive, then, unless and until there is a final,
nonappealable judgment by a court of competent jurisdiction declaring that such
termination was for Cause, the Company shall pay all amounts, and provide all
benefits, to the Executive and/or the Executive's family or other beneficiaries,
as the case may be, that the Company would be required to pay or provide
pursuant to Section 4(a) as though such termination were by the Company without
Cause or by the Executive; provided, however, that the Company shall not be
required to pay any disputed amounts pursuant to this paragraph except upon
receipt of an undertaking (which may be unsecured) by or on behalf of the
Executive to repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
7. CONFIDENTIAL INFORMATION.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination
9
<PAGE>
of the Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company or except as may otherwise be required
by law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 7 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
(b) In the event of a breach or threatened breach of this
Section 7, the Executive agrees that the Company shall be entitled to injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, and the Executive acknowledges that damages would be
inadequate and insufficient.
(c) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 7.
8. NON-COMPETE; NON-SOLICITATION.
(a) Except as is set forth below, for a period commencing on
the date hereof and ending on the date either 18 or 36 months (as determined
below) after the Executive ceases to be employed by the Company (the
"Non-Competition Period"), the Executive shall not in the United States of
America, directly or indirectly, either for himself or any other person, own,
manage, control, materially participate in, invest in, permit his name to be
used by, act as consultant or advisor to, render material services for (alone or
in association with any person, firm, corporation or other business
organization) or otherwise assist in any manner any entity that engages in or
owns, invests in, manages or controls any venture or enterprise engaged in a
banking business that is in actual competition with the Company (or any other
business of the type that constitutes a substantial portion of the Company's
business at the date the Executive ceases to be employed by the Company)
(collectively, a "Competitor"); provided, however, that the restrictions set
forth above shall immediately terminate and shall be of no further force or
effect (i) in the event of a default by the Company in the payment of any
compensation or benefits to which the Executive is entitled hereunder, which
default is not cured within ten (10) days after written notice thereof, or (ii)
at the election of the Executive if the Executive's employment has been
terminated by the Company other than for Cause and if the Executive (A) gives
written notice to the Company during the Non-Competition Period that he desires
to accept employment with a Competitor; and (B) agrees that the severance
payment specified in Section 4(a)(i) hereof shall be mitigated by the amount of
salary and pro rata target bonus payable to the Executive by the Competitor
based on the Executive's initial terms of employment and attributable to
employment during the Non-Competition Period (it being understood that the
amount of such mitigated severance shall be paid by the Executive to the Company
in a lump-sum payment within thirty (30) days after the Executive commences
employment with the Competitor and shall not be subject to subsequent
adjustments based on amounts actually paid to the Executive by the Competitor).
Nothing herein shall prohibit the Executive from being a passive owner of not
more than 2% of the equity securities of a corporation engaged in such business
which is publicly traded, so long as he has no active participation in the
business of such corporation. If the Employee receives severance payments in
accordance with Section
10
<PAGE>
4(a)(ii)(A) of this Agreement, then the length of the Non-Competition Period
shall be 36 months. In all other instances, it shall be 18 months.
(b) During the Non-Competition Period, the Executive shall
not, directly or indirectly, (i) induce or attempt to induce or aid others in
inducing an employee of the Company to leave the employ of the Company, or in
any way interfere with the relationship between the Company and an employee of
the Company except in the proper exercise of the Executive's authority, or (ii)
in any way interfere with the relationship between the Company and any customer,
supplier, licensee or other business relation of the Company.
(c) If, at the time of enforcement of this Section 8, a court
shall hold that the duration, scope, area or other restrictions stated herein
are unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope, area or other restrictions reasonable under such
circumstances shall be substituted for the stated duration, scope, area or other
restrictions.
(d) The covenants made in this Section 8 shall be construed as
an agreement independent of any other provisions of this Agreement, and shall
survive the termination of this Agreement. Moreover, the existence of any claim
or cause of action of the Executive against the Company or any of its
affiliates, whether or not predicated upon the terms of this Agreement, shall
not constitute a defense to the enforcement of these covenants.
(e) If the Executive is subject to a thirty six (36) month
Non-Competition Period, at Executive's option he may be released from the
constraints in Section 8(a) upon the following terms:
(i) Within 15 days from the Date of Termination,
Executive shall have given notice to the Company in writing of his election
to receive the severance payment under Section 4(a)(ii) in three equal annual
installments; and
(ii) Prior to 12 months from the Date of Termination,
Executive shall notify the Company in writing of his election to be released
from the provisions of Section 8(a) and forego additional payments under
Section 4.
Upon receipt by the Company of such written notice and completion of
a twelve (12) month Non-Competition Period, the remaining obligations of the
Executive under Section 8(a) and the remaining obligations of the Company
under Section 4 shall immediately terminate and be of no further force or
effect.
9. INDEMNITY. The Company will indemnify the Executive, in his capacity
as an officer and director of the Company, to the fullest extent permitted by
the Company's Articles of Incorporation and Bylaws.
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and the enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11
<PAGE>
11. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE TO: IF TO THE COMPANY TO:
Bennett Brown CNB, Inc.
201 North Marion Street
-------------------------- Lake City, FL 32055
-------------------------- Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(f) Any entitlements to the Executive created under Section
2(b) shall be contract rights to the extent not prohibited by law. However, the
Company shall not be required to amend, or refrain from amending, any of its
plans, practices, policies and programs to so provide the contract rights.
12
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
CNB, Inc.
By: /s/ K.C. TROWELL
-----------------------------
Title: Chairman, President and
Chief Executive Officer
EXECUTIVE:
/s/ BENNETT BROWN
---------------------------------
BENNETT BROWN
13
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