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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the fiscal year ended December 31, 2000
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9715 Gate Parkway North
Jacksonville, Florida 32246
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 997-8484
Securities registered pursuant to Section 12(b) of the Act:
NONE Securities registered pursuant to Section 12(g) of the
Act: COMMON STOCK, Par value $ 0.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of the Registrant's common stock as
quoted on the National Association of Securities Dealers Automated Quotation
("NASDAQ") on March 1, 2001 was $46,777,396.
The number of shares of the Registrant's common stock outstanding as of March 1,
2001 was 6,099,376 shares, $0.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 2001 Annual Meeting Proxy Statement is incorporated by
reference in this report in Part III, pursuant to Instruction G of Form 10-K,
except for the information relating to executive officers and key employees. The
Company will file its definitive Proxy Statement with the Commission prior to
April 30, 2001.
PART I
BUSINESS
This Annual Report on Form 10-K contains forward-looking statements,
which involve risks and uncertainties which are described in this Annual Report
and in other filings with the Securities and Exchange Commission (the "SEC").
The actual results of CNB Florida Bancshares, Inc. (the "Company" or "CNB") may
differ significantly from the results discussed in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
does not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with Selected
Historical Financial Information and the Consolidated Financial Statements of
the Company, which are included in this Form 10-K.
GENERAL
The Company is a one-bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), which commenced operations in
1987 by acquiring the capital stock of CNB National Bank (the "Bank"), which had
been formed in 1986. The Company relocated its headquarters from Lake City,
Florida to Jacksonville, Florida during 2000 in connection with its expansion
plans described below. The Bank is a national banking association subject to the
supervision of the Office of the Comptroller of the Currency ("Comptroller"). It
provides traditional deposit, lending and mortgage products and services to its
commercial and retail customers through twelve full service branches located
within the following contiguous counties in Northeast Florida: Alachua, Baker,
Bradford, Columbia, Duval, Suwannee and Union County. At December 31, 2000, the
Company had total assets of $467.6 million, total loans of $380.8 million, total
deposits of $367.7 million, and total shareholders' equity of $44.6 million. Net
income for the years ended December 31, 2000, 1999 and 1998 was $2.5 million,
$2.9 million and $2.7 million, respectively.
EVOLUTION OF THE FLORIDA BANKING MARKET
Significant changes in interstate banking and branching laws, enacted during
the early 1980s, have allowed bank holding companies to aggressively expand into
new markets that have attractive growth rates and demographics. As a result,
substantial consolidation of the Florida banking market has occurred. Management
believes Florida has been particularly attractive to regional bank holding
companies because it is the fourth largest state in the country in terms of
total population and is among the ten fastest growing states in the country. As
more out-of-state bank holding companies enter the Florida market, the Company
believes that the number of depository institutions headquartered and operating
in Florida will continue to decline.
The Company has observed a similar consolidation trend in the markets in and
around Gainesville and Jacksonville (the "Expansion Markets"). Historically the
Company competed successfully in Columbia, Suwannee, Baker, Bradford and Union
Counties (the "Core Markets"), against larger bank holding companies for middle
market customers. In the Company's Expansion Markets, many of such customers
have preferred the banking services and products of banks that are locally
headquartered. Increasingly, however, large regional bank holding companies are
entering the Company's Expansion Markets by acquiring such previously locally
headquartered banks. For example, in January 1998, BankAmerica Corporation
formerly known as NationsBank Corporation completed its acquisition of
Jacksonville-based Barnett Banks, Inc. ("Barnett"), which, prior to its
acquisition, was the largest bank headquartered in Florida. The acquisition of
Barnett closely followed the acquisition of three of Jacksonville's five
community banks by SouthTrust Bank Corporation ("SouthTrust") and Compass
Bancshares, Inc. ("Compass") in 1996 and 1997. Similarly, Gainesville State
Bank, the largest community bank in Gainesville and Alachua County (the
"Gainesville Market"), was acquired by Compass in 1997. As a result, the Company
now competes in its Core Markets, and will compete in its Expansion Markets,
primarily with SunTrust Banks, Inc., BankAmerica, First Union Corporation,
SouthTrust, AmSouth Bancorporation and Compass, all of which are headquartered
outside of Florida.
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GROWTH OPPORTUNITY FOR THE COMPANY
Management believes that a significant segment of the historical customer
base of Barnett and the customer bases of other acquired community banks in
Northeast Florida, particularly individuals and small and medium-sized
businesses, prefer the personalized service that characterized their
relationships with the locally headquartered banks that were acquired. Many of
these personal relationships have been disrupted as the larger, regional
financial institutions increasingly focus on larger corporate customers, offer
primarily standardized loan and deposit products and services, and employ
centralized management and more remote decision-making. Thus, Company management
believes there exists a unique opportunity to address the under-served banking
needs of individuals and small and medium-sized businesses in its Expansion
Markets, which are contiguous and demographically similar to the Company's
existing Core Markets. Accordingly, the Company's current strategic focus is to
immediately capitalize on this market opportunity. In pursuing this opportunity,
the Company will continue to focus on that specific segment of the market to
which it has historically appealed. The Company believes that its historical
strategy of providing personalized and consistent service to its small and
middle-market corporate customers and individuals will allow it to continue to
compete profitably, not only in the markets that it presently serves but in
other markets as well.
BUSINESS STRATEGY
The Company's primary goal is to enhance profitability and shareholder
returns through aggressive but sound growth. The Company's long-term strategy is
to (i) continue to grow its full service banking operations by expanding into
new markets, (ii) leverage current branch capacity, (iii) expand its mortgage,
consumer and commercial lending activities, and (iv) continue to differentiate
itself from its larger competitors by emphasizing personalized,
relationship-driven service provided by a locally-headquartered financial
institution.
EXPAND IN UNDER-SERVED MARKETS
The consolidation of the banking industry in Northeast Florida has created a
window of opportunity for the Company to expand its operations in the Expansion
Markets. The Expansion Markets are contiguous and culturally similar to the Core
Markets. Like the Core Markets, the Expansion Markets consist in large part of
individuals and small and medium-sized businesses. The Company believes that its
familiarity with meeting the banking needs and expectations of similar customers
in the Core Markets makes the Company particularly qualified to attract banking
customers accustomed to banking with community banks in the Expansion Markets.
The recent consolidation also has dislocated qualified banking professionals who
have strong ties to, and an understanding of, their local markets. The Company
believes that it has attracted and will continue to attract qualified banking
professionals, thereby benefiting from their experience and their ability, in
many instances, to bring with them the banking business of their loyal
customers. These factors, together with the Bank's asset size and its capital
base, position the Company to work more effectively with middle-market customers
than many smaller community banks in the Expansion Markets.
PROVIDE COMMUNITY BANKING SERVICE
The Company believes that it can achieve the goals outlined above through a
continued commitment to the "community bank philosophy", which emphasizes
offering a broad range of personalized products and services through banking
professionals who understand the banking industry and the banking needs of the
local communities they serve. Each branch manager and individual loan officer is
given a certain degree of authority and discretion to approve loans and to price
loans and services in order to respond quickly and efficiently to the needs of
the Company's customers. In implementing this strategy, the Company will combine
the experience and customer networks of its loan officers with centralized
information technology to effectively price and provide customized banking
services to enhance overall profitability. The Company intends to pursue this
strategy throughout its Core and Expansion Markets and operate a multi-office
community bank that emphasizes decision-making at the local level.
To ensure that the Company's proposed expansion does not erode its standards
for service and quality, the Company created three operating divisions: the
Southern Division (Alachua County), the Eastern Division (Baker, Bradford and
Union counties), the Central Division. The Company created a fourth division,
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the First Coast Division, when it moved into the Jacksonville Market in 1999.
This new organizational structure will help to ensure that the Company's banking
products and services are tailored to the individual markets it serves, as
opposed to the "one size fits all" approach that generally is followed by larger
financial institutions. The divisions are headed by Division Presidents who
effectively have the authority to operate the division as a community bank, so
long as it is done within the parameters of the Company's policies.
DEPOSIT PRODUCTS AND SERVICES
The Company offers various deposit products and services to its retail and
commercial customers. These products include commercial and retail checking
accounts, specialized low-cost checking for customers who write few checks per
month, money market accounts for consumers and commercial customers, NOW
accounts and savings accounts. Additionally, the Company offers an
interest-bearing transaction account for seniors with no minimum balance
requirements, no service charge and no per-check charge. For customer
convenience and ease of storage, the Company offers image-based monthly account
statements, as well as an automated telephone banking service for balance
reporting. The Company's deposit services include cash management for commercial
customers for overnight investment, wire transfer services, collections, money
orders, safe deposit boxes and traveler's checks. The Bank is currently a member
of the STAR (formerly HONOR), PLUS and CIRRUS networks of automated teller
machines that may be used by Bank customers in major cities throughout the
United States. All deposits are insured by the FDIC up to the maximum amount
permitted by law (generally $100,000 per depositor subject to aggregation
rules).
LOAN PRODUCTS AND LENDING POLICY
IN GENERAL
The Company provides to customers a full range of short- to medium-term
commercial, agricultural, Small Business Administration ("SBA") guaranteed,
Farmers Home Administration guaranteed, long term residential mortgages and
personal loans, both secured and unsecured. Credit is extended consistent with a
comprehensive loan policy that governs advance rates, maturities and acceptable
collateral. The Company's loan policy grants lending authority using a tiered
schedule that grants authority to officers based on certain risk parameters
including the collateral type. Loans exceeding officer authority and exhibiting
certain risk parameters must be approved by the Executive Loan Committee.
Exceptions to the policy must be recommended by the applicable officer and
approved by either a Division President or the Credit Administrator within their
authority and approved by Executive Loan Committee of the Bank's Board of
Directors.
COMMERCIAL LOANS
Commercial loan products include short-term loans and lines of credit for
working capital purposes. These loans are generally secured by the borrower's
current assets, typically accounts receivables and inventory. Other commercial
loan products include intermediate term loans for farm and non-farm equipment,
crop loans and SBA guaranteed loans. SBA guaranteed loans include secured and
unsecured loans for working capital, business expansion and purchases of
equipment and machinery.
Lines of credit are subject to annual review and approval, generally no
later than 120 days after the closing of the customer's fiscal year end.
Advances are typically limited to 75% of eligible accounts receivable and up to
50% on inventory. These credits are usually monitored through the review of a
receivables aging report and borrowing base report.
Term loans having maturities greater than one year are generally secured by
equipment or rolling stock with advances limited to no more than 75.0% of cost.
In virtually all cases, the Bank requires the personal guaranty of the owners or
major shareholders of the borrower.
Agricultural loans are granted to experienced farmers with demonstrated
capabilities, acceptable historical cash flows, reasonable cash flow projections
and adequate secondary sources of repayment.
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COMMERCIAL REAL ESTATE LOANS
The Company's commercial real estate lending products include: construction
loans, mini-permanent and permanent financing for commercial properties,
acquisition and development loans for residential and commercial property
developers and investment property financing.
Construction loan borrowers are generally required to inject equity equal to
at least 20% of the total cost of the construction project before the Company
will advance funds on the loan. The Company advances funds pursuant to a draw
schedule and makes inspections prior to each draw request. The Company's
construction lending requirements also may include a plan and cost review,
depending on the complexity of the project. The plan and cost review and the
inspections are out-sourced by the Company to qualified professionals.
Mini-permanent and permanent financing loans are owner occupied projects
which demonstrate proven cash flows that result in a debt service coverage ratio
of at least 1.25 to 1, based on a twenty year amortization. Mini-permanent loan
amortization may be as long as twenty-five years, but normally requires balloon
maturities within five to eight years.
The Company extends acquisition and development loans to borrowers who have
historically fulfilled their financial obligations. The relevant acquisition or
development project must demonstrate acceptable absorption periods and should
have an equity investment of at least 25% of the total project costs. Such loans
typically mature within twenty-four months.
Loans on investment property are subject to the same underwriting criteria
as mini-permanent loans and include a threshold debt service coverage ratio of
at least 1.25 to 1.
RESIDENTIAL AND CONSUMER LOANS
Consumer lending products include open- and closed-ended home equity and
home improvement loans, automobile, boat, and recreational vehicle loans and
loans for other asset purchases. The Company offers Visa and MasterCard credit
and debit card products to consumers and commercial customers. Applications for
these products are evaluated based on the same credit requirements as direct
loans.
Loans to consumers are extended after a credit evaluation, including the
creditworthiness of the borrower, the purpose of the credit, and the secondary
source of repayment. Specifically, the lender reviews a credit bureau report for
the borrower's credit history and calculates a debt-to-income ratio based on the
borrower's gross monthly income to fixed debt payments. A ratio higher than 40%
is generally considered unacceptable. For automobile loans, the policy requires
a minimum down payment of 10% with maturities based on the age of the vehicle.
The Company offers a variety of 1-4 family residential loan products,
including residential construction loans and residential acquisition financing.
Residential construction financing typically includes a construction loan
agreement with a construction draw schedule and third party inspections. A
commitment for permanent financing is required prior to closing. Typical
residential construction loans mature within six to twelve months. The Company
offers a construction/permanent package loan product in instances where the
Company acts as the permanent lender.
Residential loans are originated for the Company's portfolio, as well as
for sale in the secondary market. The maximum loan amount is based on a loan to
value ratio of 80% or less, where the value is equal to the lesser of the cost
or the appraised value. A higher loan to value ratio is available when private
mortgage insurance can be obtained. The majority of these loans are originated
for sale in the secondary market and are sold on a servicing released basis. The
Company services loans originated for its portfolio.
5
LOAN REVIEW AND NONPERFORMING ASSETS
The Company's loan review officer, whose position is independent of the loan
production and administration process, has the responsibility to perform timely
reviews of credits in the portfolio with scope and assessment criteria
comparable to that of the Bank's regulators.
All new and renewed secured credits over $500,000 and unsecured credits over
$100,000 are reviewed within one week of approval. Additionally, a comprehensive
annual review is conducted on all credits over $250,000, past dues,
non-performing assets and other real estate owned. Smaller credits are reviewed
utilizing pre-determined standards, which include documentation and compliance,
by a person in loan operations, with exceptions referred to the loan review
officer. Problem credits, which include all non-performing assets, are reviewed
at least quarterly with written documentation which includes the reason for the
problem, collateral support, a plan for resolution of the problem and a time
frame for the resolution. Delinquent loans are reviewed at least weekly and
monitored by the Board of Directors of the Bank in the monthly meetings.
A written report is developed on the findings of the various loan review
functions and reported directly to the Audit Committee of the Company's Board of
Directors, which meets quarterly. The allowance for loan losses is reviewed
monthly in order to make the appropriate loan loss provision based on the loan
review findings, delinquency trends, historical loan losses and current economic
trends.
ASSET/LIABILITY MANAGEMENT
The Bank's asset/liability policy is carried out through the Bank's risk
management function. The Bank manages asset growth, liquidity and capital in
order to maximize income and reduce interest rate risk. The risk management
group reviews and discusses the ratio of rate-sensitive assets to rate-sensitive
liabilities, the ratio of allowance for loan losses to outstanding and
nonperforming loans, and other variables, such as expected loan demand,
investment opportunities, core deposit growth within specified categories,
regulatory changes, monetary policy adjustments and the overall state of the
economy.
INVESTMENT POLICY
The Bank's investment portfolio policy is to maximize income consistent with
liquidity, asset quality, regulatory constraints and asset/liability objectives.
The Bank invests primarily in direct obligations of the United States,
obligations guaranteed as to principal and interest by the United States and
obligations of agencies of the United States. In addition, the Bank enters into
federal funds transactions with its principal correspondent banks. Other
investments consist primarily of Federal Reserve Bank and Federal Home Loan Bank
stock that are required for the Bank to be a member of, and to conduct business
with, such institutions. Dividends on such investments are determined by the
institutions and are payable semi-annually or quarterly.
COMPETITION
Within the Jacksonville, Gainesville and Core Markets in which CNB operates
(collectively, the "Markets"), there are competing financial institutions
consisting primarily of other commercial banks, savings and loan offices and
credit unions. Certain non-bank financial institutions affiliated with Florida
banks or thrift institutions offer limited financial services, including lending
and deposit gathering activities. The Bank also competes for deposits and loans
with brokerage firms, mobile home lenders, consumer finance companies, insurance
companies, mortgage banking companies, money market mutual funds and other
financial institutions.
In addition, the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking and Branching Act") has removed substantially
all state barriers to the acquisition of banks by out-of-state bank holding
companies. In addition, certain out-of-state bank holding companies have entered
the Florida banking market by acquiring failing thrift institutions and
commercial banks. Florida banks and bank holding companies also may enter the
Markets by acquiring a financial institution, by establishing de novo branches
or by forming de novo banks within the market.
6
Competition for deposit and loan business in the Markets will continue to be
intense because of existing competitors, the accelerating pace of product
deregulation and the likelihood of expansion into the Markets by other
institutions. Many of these institutions have significantly greater financial
resources than the Company. To compete, the Bank relies on specialized services,
responsive handling of customer needs, customer contact by Bank officers,
directors and staff, and the appeal of a locally-owned, relationship-driven
institution.
HISTORICAL GROWTH
The Bank has operated in Lake City, Columbia County, Florida since its
organization in 1986. In January 1987 the Company was formed as a bank holding
company to facilitate expansion opportunities. In 1988, the Company organized
Citizens Bank of Live Oak ("Citizens") and in November 1992 acquired an Anchor
Savings Bank ("Anchor") office in Macclenny. In 1990, the Bank opened its first
de novo branch in Fort White. In 1993, the Bank acquired additional banking
offices in Lake City, Florida and Live Oak, Florida from Anchor. The Company
consummated its first merger with another bank holding company on April 1, 1994,
when Bradford Bankshares ("Bradford") combined with the Company resulting in a
branch in Starke, Florida. On August 31, 1996, Riherd Bank Holding Company
("Riherd") merged with the Company. The Riherd merger resulted in three
additional offices for the Bank, one of which is located in Lake Butler, Florida
and two in Gainesville. Both the Bradford and the Riherd transactions were
accounted for as purchase transactions. In August 1997, the Bank opened its
eleventh office, located in Lake City, and in June 1999 expanded into
Jacksonville with its twelfth office. The Bank opened its second Jacksonville
branch in February, 2001, and plans to open a St. Augustine branch in May, 2001.
EMPLOYEES
As of December 31, 2000, the Bank had 212 full-time equivalent employees.
The Company's operations are conducted through the Bank and, consequently, the
Company does not have any separate employees.
SUPERVISION AND REGULATION
GENERAL
As a registered bank holding company, the Company is subject to the
supervision of, and regular inspection by, the Federal Reserve Board of
Governors (the "Federal Reserve") under the BHC Act. The Bank is organized as a
national banking association, which is subject to regulation, supervision and
examination by the Comptroller. The Bank is also subject to regulation by the
Federal Deposit Insurance Corporation (the "FDIC") and other federal regulatory
agencies. In addition, the Company and the Bank are subject to various other
laws and regulations and supervision and examination by other regulatory
agencies, all of which directly or indirectly affect the operations and
management of the Company and the Bank and their ability to make distributions.
The following discussion summarizes certain aspects of those laws and
regulations that affect the Company and the Bank.
The Holding Company is regulated by the Federal Reserve under the Federal
Bank Holding Company Act (BHC Act") which requires every bank holding company to
obtain the prior approval of the Federal Reserve before acquiring more than 5%
of the voting shares of any bank or all or substantially all of the assets of a
bank, and before merging or consolidating with another bank holding company. The
Federal Reserve (pursuant to regulation and published policy statement) has
maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve policy, the
Holding Company may be required to provide financial support for a subsidiary
bank at a time where absent such Federal Reserve policy, the Holding Company may
not deem it advisable to provide such assistance.
Until March of 2000, a bank holding company was generally prohibited from
acquiring control of any company which was not a bank and from engaging in any
business other than the business of banking or managing and controlling banks.
In April 1997, the Federal Reserve revised and expanded the list of permissible
non-banking activities in which a bank holding company could engage. However,
limitations continue to exist under certain laws and regulations. The recently
passed Gramm-Leach-Bliley Act repeals certain regulations pertaining to bank
holding companies and eliminates many of the previous prohibitions.
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Specifically, Title I of the Gramm-Leach-Bliley Act repeals Sections 20 and 32
of Glass-Steagall Act (12 U.S.C. 377 and 78, respectively) and is intended to
facilitate affiliations among bank, securities firms, insurance firms and other
financial companies. To further this goal, the Gramm-Leach-Bliley Act amends
Section 4 of the BHC Act (12 U.S.C. 1843) to authorize bank holding companies
and foreign banks that qualify as "financial holding companies" to engage in
securities, insurance and other activities that are financial in nature or
incidental to a financial activity. The activities of bank holding companies
that are not financial holding companies will continue to be limited to
activities authorized currently under the BHC Act, such as activities that the
Federal Reserve previously has determined in regulations and orders issued under
section 4(c)(8) of the BHC Act to be closely related to banking and permissible
for bank holding companies.
Pursuant to the Interstate Banking and Branching Act, bank holding
companies are able to acquire banks in states other than their respective home
states, without regard to the permissibility of such acquisitions under state
laws. The transaction would still be subject to any state requirement that the
Bank has been organized and operating for a minimum period of time, not to
exceed five years, and the requirement that the respective bank holding company,
prior to or following the proposed acquisition, controls no more than ten
percent (10%) of the total amount of deposits of insured depository institutions
in the United States and less than thirty percent (30%) of such deposits in that
state (or such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches. Florida does not
prohibit interstate branching within the state. Furthermore, pursuant to the
Interstate Banking and Branching Act, a bank is now able to open new branches in
a state in which it does not already have banking operations if such state
enacts a law permitting de novo branching.
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agencies. The likelihood and timing of any
such proposals or bills being enacted and the impact they might have on the
Company and the Bank cannot be determined at this time.
CAPITAL AND OPERATIONAL REQUIREMENTS
The Federal Reserve Board, the Comptroller and the FDIC have issued
substantially similar risk-based and leverage capital guidelines applicable to
United States banking organizations. In addition, those regulatory agencies may
from time to time require that a banking organization maintain capital above the
minimum levels, whether because of its financial condition or actual or
anticipated growth. The Federal Reserve Board risk-based guidelines define a
two-tier capital framework. Tier 1 capital consists of common and qualifying
preferred shareholders' equity, less certain intangibles and other adjustments.
Tier 2 capital consists of subordinated and other qualifying debt, and the
allowance for credit losses up to 1.25% of risk-weighted assets. The sum of Tier
1 and Tier 2 capital less investments in unconsolidated subsidiaries represents
qualifying total capital, at least 50% of which must consist of Tier 1 capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by
risk-weighted assets. Assets and off-balance sheet exposures are assigned to one
of four categories of risk weights, based primarily on relative credit risk. The
minimum Tier 1 capital ratio is 4% and the minimum total capital ratio is 8%.
The Company's Tier 1 and total risk-based capital ratios under these guidelines
at December 31, 2000, were 11.1% and 12.0%, respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. The Company's leverage ratio at December 31, 2000 was 9.8%. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among
other things, identifies five capital categories for insured depository
institutions (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized), and requires
the respective federal regulatory agencies to implement systems for "prompt
corrective action" for insured depository institutions that do not meet minimum
capital requirements within such categories. FDICIA imposes progressively more
restrictive constraints on operations, management and capital distributions,
depending on the category in which an institution is classified. Failure to meet
the capital guidelines could also subject a banking institution to capital
raising requirements. An "undercapitalized" bank must develop a capital
restoration plan and its parent holding company must guarantee that bank's
compliance with the plan. The liability of the parent holding company under any
such guarantee is limited to the lesser of 5% of the bank's assets at the time
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it became "undercapitalized" or the amount needed to comply with the plan.
Furthermore, in the event of bankruptcy of the parent holding company, such
guarantee would take priority over the parent's general unsecured creditors. In
addition, FDICIA requires the various regulatory agencies to prescribe certain
non-capital standards for safety and soundness related generally to operations
and management, asset quality and executive compensation and permits regulatory
action against a financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of at least 5% and not be subject to a capital
directive order. An "adequately capitalized" institution must have a Tier 1
capital ratio of at least 4%, a total capital ratio of at least 8% and a
leverage ratio of at least 4%, or 3% in some cases.
Banking agencies have also adopted regulations which mandate that regulators
take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. That
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have adopted final regulations
requiring regulators to consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance sheet position) in the determination of a bank's
capital adequacy. Concurrently, banking agencies have proposed a methodology for
evaluating interest rate risk. After gaining experience with the proposed
measurement process, those banking agencies intend to propose further
regulations to establish an explicit risk-based capital charge for interest rate
risk.
DISTRIBUTIONS
The Company's primary source of funds for cash distributions to its
shareholders is dividends received from the Bank. The Bank is subject to various
general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain capital above regulatory minimums.
The appropriate federal regulatory authority is authorized to determine under
certain circumstances relating to the financial condition of the bank or bank
holding company that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment of dividends.
In addition to the foregoing, the ability of the Company and the Bank to pay
dividends may be affected by the various minimum capital requirements and the
capital and non-capital standards established under FDICIA, as described above.
The right of the Company, its shareholders and its creditors to participate in
any distribution of the assets or earnings of the Bank is further subject to the
prior claims of creditors of the Bank.
"SOURCE OF STRENGTH" POLICY
According to Federal Reserve Board policy, the Company is expected to act as
a source of financial strength to the Bank and to commit resources to support
the Bank.
9
PROPERTIES
The Bank currently operates out of twelve branch offices and a non-customer
operations center. All branches have automated teller machines ("ATMs"). The
Company owns the following properties:
APPROXIMATE SQUARE YEAR ESTABLISHED/
OFFICE LOCATION FOOTAGE ACQUIRED
- ------------------------------------------------------------------ ------------------- -------------------
LAKE CITY (COLUMBIA COUNTY)
201 North Marion Street (1)............................... 22,000 1986
145 West Baya Avenue...................................... 10,100 1993
4420 U.S. 90 West......................................... 2,900 1997
1 CNB Place, East U.S. 90 (2)............................. 20,800 1996
LIVE OAK (SUWANNEE COUNTY)
205 White Avenue, S.E. ................................... 6,000 1988
1562 South Ohio Avenue.................................... 2,000 1993
FORT WHITE (COLUMBIA COUNTY)
Highway 27................................................ 2,200 1990
MACCLENNEY (BAKER COUNTY)
595 South Sixth Street.................................... 4,800 1992
STARKE (BRADFORD COUNTY)
606 West Madison Street................................... 8,000 1994
GAINESVILLE (ALACHUA COUNTY)
5027 Northwest 34th Street................................ 2,000 1996
7515 West University Avenue .............................. 12,000 2000
LAKE BUTLER (UNION COUNTY)
300 West Main Street...................................... 6,750 1996
JACKSONVILLE (DUVAL COUNTY)
9715 Gate Parkway North .................................. 26,000 2000
ST. AUGUSTINE (ST. JOHNS COUNTY)
U.S. 1 South (3).......................................... 5,000 2000
- -------------------------
(1) Main office.
(2) Location of the operations center.
(3) Scheduled to open in May, 2001.
The Company is currently leasing a branch in the Mandarin area of
Jacksonville (Duval County) which opened in February, 2001.
10
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of their properties are subject; nor are there material
proceedings known to be contemplated by any governmental authority; nor are
there material proceedings known to the Company, pending or contemplated, in
which any director, officer, affiliate or any principal security holder of the
Bank or the Company, or any associate of any of the foregoing is a party or has
an interest adverse to the Company.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
K. C. Trowell 62 Mr. Trowell is Chairman and Chief Executive
Officer of the Company and the Bank. He was
elected to the Board of Directors in 1987 and
serves as Chairman of the Executive Committee of
the Board of Directors of the Company and the
Bank. Mr. Trowell also serves on the Executive
Committee of the Bank's Board of Directors. He has
served as the Chairman and Chief Executive Officer
of the Company since its inception in 1987. Mr.
Trowell is a Lake City, Florida, native and has
been actively involved in commercial banking
management in North Florida for over twenty-five
years. He has also held management positions with
Bank of America in Lake City (and its
predecessors), American Bank of Jacksonville, and
Barnett Banks, Inc. in Jacksonville. He is a
former Chairman of the Board of Trustees of
Florida Bankers Insurance Trust. He is a past
director of Community Bankers of Florida, past
director of the Columbia County Committee of 100,
a founding director of North Central Florida
Areawide Development Company, and a former board
member and chairman of both Lake City Medical
Center and Columbia County Industrial Development
Authority.
G. Thomas Frankland 54 Mr. Frankland is the Executive Vice President and
Chief Financial Officer of the Company and the
Bank. Mr. Frankland served as Vice President and
Chief Financial Officer of AirNet Communications
Corporation in Melbourne, Florida, from March 1998
until he joined the Company in November 1998. From
May 1994 until August 1996, Mr. Frankland was Vice
Chairman and Chief Financial Officer of Ideon
Group, Inc. ("Ideon"). Following the acquisition
of Ideon by CUC International, Inc. ("CUC"), in
August 1996, Mr. Frankland continued in a
consulting capacity with CUC through December
1997. Prior to May 1994, Mr. Frankland was a
partner with Price Waterhouse LLP. During his 24
years with Price Waterhouse LLP, including the
seven years he served as managing partner of the
Jacksonville office, he specialized primarily in
the financial services industry. He currently
serves on the Board of Directors of the University
of Florida Foundation, the Warrington College of
Business Advisory Council, the Fisher School of
Accounting Steering Committee and the North
Florida Land Trust.
Bennett Brown 54 Mr. Brown is the Executive Vice President of the
Company and is the President and Chief Operating
Officer of the Bank. Mr. Brown joined the Company
in April 1999. Mr. Brown's background includes
leading the formation of Enterprise National Bank
of Jacksonville as President and Chief Executive
Officer in 1987 until it was acquired by Compass
Bancshares in early 1997. He served as City
President of Compass Bank in Jacksonville until
March 1999. Prior to forming Enterprise
11
Bank, Mr. Brown was with Florida National Bank for
10 years and was previously a National Bank
Examiner with the Office of the Comptroller of the
Currency for 7 years. Mr. Brown is a graduate of
the University of South Carolina with a major in
Banking and Finance. He currently is a member of
the Downtown Jacksonville Rotary Club, and a
member of the Board of Trustees for Wolfson
Children's Hospital in Jacksonville.
Martha S. Tucker 50 Ms. Tucker has served as Senior Vice President and
Controller of the Company and the Bank since July,
1997. From 1991 through 1997, Ms. Tucker was Vice
President and Cashier of the Bank. From 1988
through 1991, Ms. Tucker was Cashier for Citizens
Bank of Live Oak, which merged into the Bank in
November 1992. From 1986 to 1988, Ms. Tucker
served as Assistant Cashier for the Bank and prior
to 1986 held management positions with NationsBank
of Live Oak (and its predecessors). Ms. Tucker is
a life-long resident of Live Oak, Florida and has
over 33 years of banking experience. She is a
member of the Altrusa Club and the Suwannee County
Chamber of Commerce.
Lloyd D. Adams 53 Mr. Adams serves as the Central Division President
of the Bank and oversees the banking activities in
Suwannee and Columbia counties.. Prior to joining
the Company in May 1998, Mr. Adams served as the
Executive Vice President/Senior Corporate Banker
for Barnett Bank, North Central Florida from
November 1996 until January 1998. He served as
Senior Credit Policy Officer with Barnett from
1992 through 1996. Mr. Adams has a solid
background in retail and business banking
beginning his career in Live Oak in 1974. A native
of the area, Mr. Adams has deep roots as a
community leader and banker fort this division. He
is a graduate of Florida State University, Florida
School of Banking and the ABA Commercial Lending
Graduate School in Norman, OK. He is very much
involved in community service organizations and
his local church. He has been in the banking
industry for 26 years.
Robert E. Cameron 56 Mr. Cameron serves as the Southern Division
President of the Bank. Prior to joining the
Company in April 1998, Mr. Cameron was a Senior
Vice President of Barnett Bank of Alachua County
from 1988 until 1998. He also was a member of the
Board of Directors of United Gainesville Community
Development Board. He has worked in the banking
industry for 31 years. Currently he is a member of
the Board of Directors of the Gainesville Builders
Association and Child Care Resources and a member
of the City of Gainesville Development Review
Board.
John D. Kennedy 44 Mr. Kennedy has served as the Eastern Division
President of the Bank since August 1998. From 1996
through 1998, Mr. Kennedy was the President of the
Bank's Macclenny branch. From October 1973 until
August 1996 he was with The Citizens Bank of
Macclenny, where he served as President beginning
in January 1987. He is a member of the Board of
Directors of Baker County Hospital Authority,
Baker County Council on Aging and Baker County
Tip-Off Club. He is also Chairman of the Baker
County Education Foundation and President of the
Girls Softball League of Baker County. Mr. Kennedy
has 28 years of banking experience.
Suzanne M. Norris 37 Ms. Norris has served as Senior Vice President and
Senior Credit Administrator since July, 1997. Ms.
Norris came to the Bank in September, 1996 and has
15 years of banking experience, working in various
management and lending positions with NationsBank
in St. Petersburg, Tampa and Lake City, including
acting as commercial market manager/senior banking
executive for Lake City and Gainesville from June,
1995 to September, 1996. Ms. Norris, a graduate of
the University of Florida, has been active in the
community, having served as the President of the
12
Lake City/Columbia County Chamber of Commerce. She
currently serves on the Board of Trustees for Lake
City Community College, the Board of Directors for
the United Way of Suwannee Valley and Epiphany
Catholic School and is a member of Altrusa.
PART II
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's articles of incorporation authorize it to issue up to
10,000,000 shares of Common Stock. As of March 15, 2001, there were 6,099,376
shares of Common Stock issued and outstanding, and 391,784 shares subject to
currently exercisable options. On January 29, 1999, the Company's common stock
began trading on the NASDAQ National Market under the symbol "CNBB", resulting
from the issuance of 1,250,000 shares of common stock in the Company's initial
public offering at $10.25 per common share. Proceeds from the offering net of
underwriting discount and expenses totaled $11.4 million. The Company
contributed $10.0 million of the $11.4 million net proceeds from the offering to
CNB National Bank in February 1999. There is no trading information for any
prior years, since there was not an established market for the Company's common
stock. See Table 12:"Selected Quarterly Data" in Management's Discussion and
Analysis of Financial Condition for the quarterly market price for the last two
fiscal years.
Shareholders' equity at December 31, 2000 was $44.6 million, as compared to
$43.1 million at December 31, 1999. On July 15, 1998, the Company declared a
two-for-one stock split for shareholders of record on August 10, 1998, effective
August 17, 1998.
Company dividends for 1999 and 2000 consisted of the payment of quarterly
cash dividends in the amount of $0.05 per common share.
The Company's ability to pay dividends on the Common Stock depends
significantly on the ability of the Bank to pay dividends to the Company in
amounts sufficient to service its obligations. Such obligations may include an
obligation to make any payments with respect to securities issued in the future
which have an equal or greater dividend preference to the Common Stock. The Bank
may also issue additional capital stock or incur indebtedness. Furthermore, the
regulations of the Comptroller, regulatory capital levels and the net income of
the Bank determine its ability to pay dividends or make other capital
distributions.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
CNB FLORIDA BANCSHARES INC. AND SUBSIDIARY
SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
-------------- --------------- -------------- -------------- --------------
(dollars in thousands except per share information.)
- -------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
Interest Income $ 32,061 $ 23,758 $ 21,119 $ 19,420 $ 15,090
Interest Expense (14,736) (9,052) (9,417) (8,663) (6,612)
---------- ---------- ---------- ----------- -----------
Net Interest Income 17,325 14,706 11,702 10,757 8,478
Provision for Loan Loss (1,350) (1,160) (710) (440) (335)
---------- ---------- ---------- ----------- -----------
Net Interest Income After
Provision for Loan Losses 15,975 13,546 10,992 10,317 8,143
Non-Interest Income 3,338 2,952 2,392 2,153 1,777
Non-Interest Expense (15,481) (11,994) (9,298) (7,914) (6,360)
---------- ---------- ---------- ----------- -----------
Income Before Taxes 3,832 4,504 4,086 4,556 3,560
Income Taxes (1,325) (1,563) (1,407) (1,581) (1,247)
---------- ---------- ---------- ----------- -----------
Net Income $ 2,507 $ 2,941 $ 2,679 $ 2,975 $ 2,313
========== ========== ========== =========== ===========
- -------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE: (1)
Basic Earnings $ 0.41 $ 0.49 $ 0.55 $ 0.69 $ 0.67
Diluted Earnings 0.41 0.48 0.55 0.68 0.65
Book Value 7.32 7.04 6.36 5.98 5.08
Dividends 0.20 0.20 0.20 0.14 0.11
Actual Shares Outstanding 6,099,376 6,116,070 4,856,770 4,856,770 3,875,810
Basic Weighted Average Shares
Outstanding 6,095,471 5,995,474 4,856,770 4,327,534 3,478,248
Diluted Weighted Average Shares
Outstanding 6,134,270 6,069,737 4,897,922 4,406,616 3,547,390
- -------------------------------------------------------------------------------------------------------------------
KEY RATIOS:
Return on Average Assets 0.62 % 0.91 % 0.93 % 1.14 % 1.14 %
Return on Average Shareholders' Equity 5.74 % 7.03 % 8.92 % 12.38 % 13.88 %
Dividend Payout 48.78 % 40.82 % 36.36 % 20.29 % 16.54 %
Efficiency Ratio 74.92 % 67.92 % 65.97 % 61.30 % 62.02 %
Total Risk-Based Capital Ratio 12.00 % 17.25 % 16.62 % 18.67 % 13.58 %
Average Shareholders' Equity to
Average Assets 10.82 % 13.01 % 10.43 % 9.22 % 8.24 %
Tier 1 Capital to Total Assets/
Leverage Ratio 9.80 % 12.70 % 9.70 % 10.20 % 7.25 %
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AT YEAR END:
Assets $ 467,593 $ 346,076 $ 311,565 $ 273,331 $ 254,945
Gross Loans 380,821 266,084 187,015 159,649 148,824
Deposits 367,686 288,203 265,109 231,444 226,824
Short-Term Borrowings 51,142 12,063 12,570 9,157 3,766
Shareholders' Equity 44,636 43,075 30,896 29,025 19,669
- -------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Banking Locations 12 12 11 11 10
Full-Time Equivalent Employees 212 183 149 144 134
- -------------------------------------------------------------------------------------------------------------------
(1) Per share data reflects the two-for-one stock split effective August 17,
1998.
14
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 periods shown. This section should be read in conjunction with the
Consolidated Financial Statements and related notes. This discussion should
facilitate a better understanding of the major factors and trends which affect
the Company's financial condition and earnings performance, and how the
Company's performance during 2000 compares with prior years. Throughout this
section, CNB Florida Bancshares, Inc. and its subsidiary, CNB National Bank are
referred to as "CNB", "the Company".
On January 29, 1999, CNB completed its initial public offering and its
common stock began trading on the NASDAQ National Market. CNB shareholders now
have greater access to purchasing or selling shares of common stock and in
addition CNB obtained additional capital to support its expansion plans, as well
as for general corporate purposes. The Company contributed as capital to CNB
National Bank $10.0 million of the $11.4 million net proceeds from the offering
in February 1999.
The Company is pleased with the progress made toward its strategic
growth initiatives in 2000. Expansion activities are well underway in the
Jacksonville and Gainesville markets with the opening of new locations in both
markets during 2000 and a second Jacksonville branch (Mandarin) and a St.
Augustine branch (US 1 and SR 312) scheduled to be opened in the first and
second quarters of 2001, respectively. With the conversion to an improved data
processing platform during the fourth quarter of 2000 and the move into the
expanded Operations Center in the first half of 2001, operational support to our
growth initiatives will become more customer focused and cost-efficient.
Finally, the pending purchases of the Lake City and Live Oak banking offices of
Republic Bank will reduce our current dependency on borrowed funds for
liquidity, reduce our loan to deposit ratio and allow our loan growth momentum
to continue with improved interest margins.
The Company officially relocated its corporate offices to Jacksonville,
Florida effective January, 2001. Operational headquarters for CNB National Bank
continue to be located in Lake City.
Results of Operations
For 2000, the Company's earnings were $2.5 million, or $0.41 per
diluted share, compared to $2.9 million, or $0.48 per diluted share, and $2.7
million, or $0.55 per diluted share, in 1999 and 1998, respectively. The 2000
results continue to reflect the costs of the Company's expansion strategy in the
Jacksonville and Gainesville markets and the building of related production and
operating growth and expansion. The expansion into the new markets will increase
the Company's asset base and allow more effective utilization of capital. CNB
continues to focus its efforts on the people and operational platform necessary
to deliver the relationship-driven community banking services that customers are
seeking.
Net Interest Income/Margins
Net interest income (interest income less interest expense) is a major
component of the Company's net income, representing the earnings of CNB's
primary business of gathering funds from deposit sources and investing those
funds in loans and securities. The Company's main objective is to manage its
assets and liabilities to provide the largest possible amount of income while
balancing interest rate, credit quality, liquidity and capital risks. Operating
results in 2000 reflected strong loan demand as the loan to deposit ratio grew
to 104% at December 31, 2000 compared to 92% at the end of 1999. Table 1
presents a comparative earning asset composition as well as earning asset yields
and interest bearing liability rates for 2000, 1999 and 1998. Table 1a shows the
changes in net interest income by category due to shifts in volumes and rates
for years presented.
15
The loan growth in 2000 contributed to a 35% increase in interest
income over 1999. Higher funding costs, reflecting the Company's reliance on
short-term borrowings to meet loan demand, partially offset the positive impact
of loan growth on net interest income. Net interest income for 2000 was $17.3
million, up $2.6 million, or 18%, with the increase attributable to loan growth.
Increases in the level of short term borrowings, time, money market and
interest-bearing demand deposits were the main contributors to the $70.0
million, or 30%, growth in average interest bearing liabilities.
The 4.75% net interest margin achieved in 2000 is a 25-basis point
decrease over the 5.00% reported for 1999. The net interest margin is defined as
net interest income divided by average total earning assets and provides an
indication of the efficiency of the earnings from balance sheet activities. An
increase in 2000 of short term borrowings is the main contributing factor of the
decrease in 2000. The net interest margin of 4.75% is a 32-basis point increase
over the 4.43% reported in 1998.
16
Table 1: "Average Balances - Yields and Rates", below, presents
comparative earning asset composition as well as earning asset yields and
interest bearing liabilities for 2000, 1999 and 1998. Table 1a: "Analysis of
Changes in Interest Income and Expense" shows the changes in net interest income
by category due to shifts in volumes and rates for years presented.
Table 1: Average Balances - Yields and Rates
December 31, 2000 December 31, 1999 December 31, 1998
-------------------------------- ---------------------------------- ------------------------------
Interest Interest Interest
Average Income or Average Average Income or Average Average Income or Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- ---------- -------- --------- ---------- ---------- --------- --------- -------
(dollars in thousands)
ASSETS:
Federal Funds Sold $ 3,429 $ 208 6.07% $ 13,285 $ 643 4.84% $ 32,583 $ 1,701 5.22%
Investment Securities
Available for Sale 33,314 2,110 6.33 45,082 2,671 5.92 47,675 2,869 6.01
Investment Securities
Held to Maturity 9,869 572 5.80 9,151 504 5.51 6,519 326 5.00
Loans (1) 317,491 29,112 9.17 215,861 19,412 8.99 171,048 15,877 9.28
Interest Bearing Deposits 895 59 6.59 10,533 528 5.01 6,494 346 5.36
------- ------- ----- ------- ------- ---- ------- ------ ----
TOTAL EARNING ASSETS 364,998 32,061 8.78 293,912 23,758 8.08 264,319 21,119 7.99
All Other Assets 38,278 27,543 23,774
------- ------- -------
TOTAL ASSETS $ 403,276 $ 321,455 $ 288,093
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY:
NOW & Money Markets $ 110,387 $ 3,731 3.38 % $ 80,132 $ 1,749 2.18 % $ 68,950 $ 1,682 2.44%
Savings 17,095 238 1.39 17,445 245 1.40 16,379 312 1.90
Time Deposits 151,674 9,019 5.95 131,548 6,731 5.12 129,157 7,057 5.46
Federal Funds Purchased and
Repurchase Agreements 9,565 572 5.98 6,947 327 4.71 7,233 359 4.96
Short Term Borrowings 17,377 1,176 6.77 - - - - - -
Notes Payable & Debentures - - - - - - 85 7 8.00
------- ------- ----- ------- ------- ---- ------- ------- ----
TOTAL INTEREST BEARING
LIABILITIES 306,098 14,736 4.81 236,072 9,052 3.83 221,804 9,417 4.25
Demand Deposits 49,418 40,761 33,161
Other Liabilities 4,117 2,813 3,086
Shareholders' Equity 43,643 41,809 30,042
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 403,276 $ 321,455 $ 288,093
======= ======= =======
---- ---- ----
INTEREST SPREAD (2) 3.97% 4.25% 3.74%
==== ==== ====
------- ------- -------
NET INTEREST INCOME $ 17,325 $ 14,706 $ 11,702
======= ======= =======
NET INTEREST MARGIN (3) 4.75% 5.00% 4.43%
==== ==== ====
- -------------------
(1) Interest income on average loans includes loan fee recognition of $969,000,
$697,000 and $572,000 in 2000, 1999 and 1998 respectively.
(2) Represents the average rate earned minus average rate paid.
(3) Represents net interest income divided by total earning assets.
17
Table 1a: Analysis of Changes in Interest Income and Expense
NET CHANGE DECEMBER 31, NET CHANGE DECEMBER 31,
1999-2000 ATTRIBUTABLE TO: 1998-1999 ATTRIBUTABLE TO:
------------------------------ -----------------------------
Net Net
Volume (1) Rate (2) Change Volume (1) Rate (2) Change
---------- -------- ------ ---------- -------- ------
(thousands)
INTEREST INCOME:
Federal Funds Sold $ (477) $ 42 $ (435) $ (1,007) $ (51) $ (1,058)
Investment Securities Available for Sale (697) 136 (561) (158) (40) (198)
Investment Securities Held to Maturity 40 28 68 132 46 178
Loans 9,140 560 9,700 4,160 (625) 3,535
Interest Bearing Deposits (483) 14 (469) 218 (36) 182
---------- --------- --------- --------- -------- --------
Total 7,523 780 8,303 3,345 (706) 2,639
INTEREST EXPENSE:
NOW & Money Markets 661 1,321 1,982 273 (206) 67
Savings (5) (2) (7) 20 (87) (67)
Time Deposits 1,030 1,258 2,288 130 (456) (326)
Federal Funds Purchased and
Repurchase Agreements 124 121 245 (13) (19) (32)
Short Term Borrowings 1,176 - 1,176 - - -
Notes Payable & Debentures - - - (7) - (7)
--------- --------- -------- --------- -------- --------
Total 2,986 2,698 5,684 403 (768) (365)
--------- --------- -------- --------- -------- --------
Net Interest Income $ 4,537 $ (1,918) $ 2,619 $ 2,942 $ 62 $ 3,004
========= ========= ======= ========= ======== ========
(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 totaled $3.3 million in 2000, an increase of 13%
from the $3.0 million in 1999, which reflected a 23% increase from 1998. Service
charges on deposit account increased $119,000 or 6% in 2000, compared with
$311,000 or 17% in 1999. The main contributing factor for the increase in 1999
was an increase in service charge fees that went into effect March 1, 1999.
Other fee income, which includes credit card fees, credit life insurance income,
safe deposit box fees and other miscellaneous fees, had an increase of $267,000
or 32% in 2000 and $249,000 or 43% in 1999. The increase in 2000 is mainly
attributable to mortgage fees collected from the mortgage loans sold to
secondary markets.
Non-interest income as a percentage of average assets was 0.83% in
2000 compared to 0.92% and 0.83% in 1999 and 1998, respectively.
Non-Interest Expense
Non-interest expense increased by $3.5 million, or 29%, for the year
ended 2000, as compared to increases of $2.7 million, or 29%, and $1.4 million,
or 18%, for 1999 and 1998, respectively. At the end of 2000, non-interest
expenses as a percentage of average assets increased to 3.84%, as compared to
3.73% and 3.23% in 1999 and 1998, respectively. Non-interest expense for 2000
reflected the costs of the Company's expansion strategy in the Jacksonville and
Gainesville markets and the building of related production and operating
infrastructure, including people, facilities and an improved technology platform
to support growth and expansion.
Salaries and employee benefits for 2000 increased $2.1 million from
1999 compared to $1.6 million from 1998. The increase from 1999 to 2000 reflects
the continued execution of management's strategy to expand CNB National Bank
into new markets. The Company's banking subsidiary, CNB National Bank moved into
its new Gainesville headquarters located in the Tower Hill area during the
second quarter of 2000. During the 2000 third quarter the Bank opened its new
Deerwood Park branch in Jacksonville. CNB National Bank also acquired locations
in the Mandarin area of Jacksonville and St. Augustine for branch sites which
will open in the first and second quarters of 2001, respectively. As a
percentage of average total assets, salaries and employee benefits have
increased to 2.11% in 2000 compared to 2.01% and 1.67% in 1999 and 1998,
respectively.
18
Occupancy expenses (including furniture, fixtures & equipment)
increased to $2.2 million in 2000 compared to $1.8 million in 1999 and $1.6
million in 1998. The major factors affecting the increase in occupancy expenses
relate to the start-up costs, increase in real estate taxes, utilities and
depreciation on furniture and equipment for the new branches opened in
Jacksonville and Gainesville in 2000. CNB continues to monitor and assess its
building and equipment needs as it positions itself for future growth and
expansion. In 2000, construction began on the renovation and expansion of its
Operations Center, which will be completed in the first half of 2001. The
Operations Center has been expanded to allow centralization of operational
functions to accommodate the increased workload expected to accompany the
accelerated growth of CNB National Bank.
Other operating expenses at CNB increased 27% in 2000 compared to 1999
and 29% in 1999 compared to 1998. The increase in 2000 was attributable to: (1)
an increase in postage and delivery expense of $83,000, primarily due to
additional courier runs with the opening of the new branches; (2) an increase of
$105,000 in supplies, with the major contributing factors being start-up cost at
new branches and changes in proof documents due to the change in data
processors; (3) an increase of $161,000 in communication costs due to expansion;
(4) an increase of $187,000 in marketing expense due to the Company's
advertising and promotion expense in new markets and its present markets; and
(5) an increase of $160,000 in legal and professional costs. The main
contributing factors in 1999 was an increase in postage and delivery due to
additional courier runs, an increase in telephone expense, with much of the
increase resulting from the installation of a bank-wide data network. Other
contributing reasons were increases in legal and professional fees and marketing
expense.
The following table details the areas of significance in other
operating expenses.
Table 2: Other Operating Expenses
(Dollar amounts in thousands)
Year Ended December 31,
2000 1999 1998
----- ----- -----
Data processing $ 650 $ 590 $ 540
Postage and delivery 551 468 377
Telephone 584 423 271
Advertising and promotion 541 354 239
Legal and professional 487 327 225
Supplies 404 299 244
Administrative 196 182 123
Amortization of intangible assets 179 179 190
Loan expenses 194 165 133
Regulatory fees 149 143 134
Other general operating 174 52 17
Insurance and bonding 89 72 49
Education expense 62 53 44
Director fees 72 57 36
Dues and subscriptions 103 78 43
Other 287 281 222
--- --- ---
Total other operating expenses $ 4,722 $ 3,723 $ 2,887
===== ===== =====
19
Income Taxes
The effective tax rate for the year ended December 31, 2000 was 34.6%,
compared to 34.7% for 1999 and 34.4% for 1998. The consolidated provision for
income taxes decreased to $1.3 million in 2000, compared to $1.6 million in 1999
and $1.4 million in 1998. Tax exempt investment income had a positive impact on
the effective rate of 2.7%, 2.7% and 2.9% in 2000, 1999 and 1998, respectively.
Liquidity and Interest Rate Sensitivity
Liquidity is defined as the ability of the Company to meet anticipated
demands for funds under credit commitments and deposit withdrawals at a
reasonable cost on a timely basis. Management measures the Company's liquidity
position by giving consideration to both on-and off- balance sheet sources of
and demands for funds on a daily and weekly basis. Average funds can be obtained
by converting assets to cash or by attracting new deposits. Average liquid
assets (cash and amounts due from banks, interest-bearing deposits in other
banks, federal funds sold and securities available-for-sale) totaled $54.4
million and represented 16.5% of average total deposits during 2000, compared to
$81.1 million and 30.0% for 1999.
In addition to core deposit growth, sources of funds available to meet
liquidity demands include cash received through ordinary business activities
such as the collection of interest and fees, federal funds sold, loan and
investment maturities, lines for the purchase of federal funds by the Company
from its principal correspondent banks. The Company is also a member of the
Federal Home Loan Bank and has access to short-term and long-term funds. There
was an outstanding balance of $4.6 million in federal funds purchased and a
$30.0 million borrowing at Federal Home Loan Bank as of December 31, 2000.
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 instruments and instruments which are approaching
maturity. 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's gap and liquidity positions are reviewed on a regular
basis 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
changes and interest rates.
Table 3, "Rate Sensitivity Analysis" presents rate sensitive assets and
liabilities by maturity, separating fixed and variable interest rates. The
estimated fair value of each instrument category is also shown in the table.
While these fair values 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 on December 31, 2000, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances.
20
Table 3: Rate Sensitivity Analysis
December 31, 2000
(Dollars in thousands) Fair
1 Year 2 Years 3 Years 4 Years 5 Years Beyond TOTAL Value
------ ------- ------- ------- ------- ------ ----- -----
INTEREST-EARNING ASSETS:
Loans
Fixed Rate Loans $ 22,827 $ 27,712 $ 25,630 $ 25,531 $ 25,705 $ 66,125 $ 193,530 $ 193,362
Average Interest Rate 9.03% 8.93% 8.94% 8.71% 9.08% 8.28% 8.71%
Variable Rate Loans 57,223 14,479 10,864 4,029 8,134 92,562 187,291 187,291
Average Interest Rate 9.70% 9.51% 9.58% 9.59% 9.42% 8.81% 9.22%
Investment Securities(1)
Fixed Rate Investments 7,587 90 - 20,237 - 8,344 36,258 36,132
Average Interest Rate 6.49% 4.10% 6.01% 6.15% 6.14%
Variable Rate Investments - - - - - 1,568 1,568 1,574
Average Interest Rate 6.86% 6.86%
Other Earning Assets(2) 3,052 - - - - - 3,052 3,119
Average Interest Rate 6.77% 6.77%
------- ------- ------- ------- ------- ------- ------- --------
Total Interest-Earning Assets $ 90,689 $ 42,281 $ 36,494 $ 49,797 $ 33,839 $ 168,599 $ 421,699 $ 421,478
Average Interest Rate 9.16% 9.12% 9.13% 7.68% 9.16% 8.45% 8.69%
======= ======= ======= ======= ======= ======= ======= ========
INTEREST-BEARING LIABILITIES:
NOW $ 22,332 $ - $ - $ - $ - $ 52,257 $ 74,589 $ 74,589
Average Interest Rate 5.09% 1.23% 2.39%
Money Market 35,966 - - - - 2,832 38,798 38,798
Average Interest Rate 5.27% 2.82% 5.09%
Savings - - - - - 16,478 16,478 16,478
Average Interest Rate 1.39% 1.39%
CD's $100,000 and Over 60,360 9,009 964 - - - 70,333 70,325
Average Interest Rate 6.72% 7.35% 6.82% 6.80%
CD's Under $100,000 97,493 15,587 1,871 435 20 - 115,406 115,302
Average Interest Rate 6.26% 6.61% 5.84% 5.58% 6.16% 6.30%
Securities Sold Under
Repurchase Agreements and
Fed Funds Purchased 21,142 - - - - - 21,142 21,142
Average Interest Rate 6.17% 6.17%
Short Term Borrowings 30,000 - - - - - 30,000 30,000
Average Interest Rate 6.79% 6.79%
------ ------- ------- ------- ------- -------- ------- --------
Total Interest-Bearing
Liabilities $ 267,293 $ 24,596 $ 2,835 $ 435 $ 20 $ 71,567 $ 366,746 $ 366,634
Average Interest Rate 6.19% 6.88% 6.17% 5.58% 6.16% 1.33% 5.29%
======= ======= ======= ======= ======= ======= ======= ========
(1) Securities available for sale are shown at their amortized cost, excluding
market value adjustment for unrealized losses of $53,000.
(2) Represents interest bearing deposits with Banks, Federal Reserve Bank Stock,
Federal Home Loan Bank Stock and other marketable equity securities.
21
Core deposits, which represent all deposits other than time deposits in
excess of $100,000, averaged 83.4% of total average deposits in 2000 and 84.9%
in 1999. The Company closely monitors its reliance on time deposits in excess of
$100,000. The Bank does not nor has it ever solicited brokered deposits. Table
4, sets forth the amounts of time deposits with balances of $100,000 or more
that mature within indicated periods.
Table 4: Maturity of Time Deposits of $100,000 or More
December 31, 2000
Amount
----------
(thousands)
Three Months or Less $ 15,498
Three Through Six Months 16,087
Six Through Twelve Months 28,775
Over Twelve Months 9,973
---------
Total $ 70,333
=========
Lending Activities
Lending activities are CNB's single largest source of revenue. Although
management is continually evaluating alternative sources of revenue, lending is
the major segment of the Company's business and is key to profitability. Average
loans for year ended December 31, 2000 were $317.5 million, or 87% of average
earning assets as compared to $215.9 million, or 73% of average earning assets
for 1999.
The commercial loan portfolio includes commercial, financial and
agricultural loans as well as commercial real estate loans. As of December 31,
2000, the commercial loan portfolio comprised 51% of total loans compared to 51%
and 46% in 1999 and 1998, respectively. During 2000 and 1999, commercial loans
experienced their strongest growth in the Company's history. This growth was
primarily centered in our expansion markets.
During 2000, real estate mortgages experienced significant growth of
$34.4 million or 40%. As of December 31, 2000, the real estate mortgage loan
portfolio was 32% of total loans which was consistent with the 1999 ratio.
The Company's loan to deposit ratio at December 31, 2000 was 104%
compared to 92% at the end of 1999. Continued loan growth in 2000 contributed to
a 35% increase in interest income for the year 2000 over the year 1999. Higher
funding costs, reflecting the Company's reliance on short term borrowings to
meet loan demand, partially offset the positive impact of loan growth on net
interest income.
As of December 31, 2000 the Company had total gross loans of $380.8
million, as compared to $266.1 million at December 31, 1999, an increase of
$114.7 million or 43%. The composition of the Company's loan portfolio for the
past five years is presented in Table 5.
Table 5: Loan Portfolio Composition
As of December 31,
Types of Loans 2000 1999 1998 1997 1996
-------------- ------------ ----------- ------------ ------------ ------------
(thousands)
Commercial, Financial and Agricultural $ 192,540 $ 136,937 $ 85,208 $ 69,238 $ 68,595
Real Estate - Construction 33,648 18,926 8,527 3,336 4,029
Real Estate - Mortgage 120,663 86,275 72,357 68,561 56,787
Installment and Consumer 33,970 23,946 20,923 18,514 19,413
---------- ---------- ---------- ---------- ----------
Total Loans, Net of Unearned Discount 380,821 266,084 187,015 159,649 148,824
Less: Allowance for Loan Losses (3,670) (2,671) (1,875) (1,495) (1,396)
---------- ---------- ---------- ---------- ----------
Net Loans $ 377,151 $ 263,413 $ 185,140 $ 158,154 $ 147,428
========== ========== ========== ========== ==========
22
Table 6 sets forth the maturity distribution for selected components of
the Company's loan portfolio as of December 31, 2000. Demand loans and
overdrafts are reported as due in one year or less, and loan maturity is based
upon scheduled principal payments.
Table 6: Maturity Schedule of Selected Loans
December 31, 2000
0-12 1-5 Over 5
Months Years Years Total
-------- --------- ---------- ---------
(thousands)
Commercial, Financial & Agricultural $ 41,867 $ 82,022 $ 68,651 $ 192,540
Real Estate - Construction 29,110 4,538 - 33,648
All Other Loans 9,073 55,524 90,036 154,633
------- ------- ------- -------
Total $ 80,050 $142,084 $158,687 $ 380,821
======= ======= ======= =======
Fixed Interest Rate $ 22,827 $104,578 $ 66,125 $ 193,530
Variable Interest Rate $ 57,223 $ 37,506 $ 92,562 $ 187,291
Loan concentrations are considered to exist where there are amounts
loaned to multiple borrowers engaged in similar activities which collectively
would be similarly impacted by economic or other conditions and when the total
of such amounts exceed 25% of total capital. Due to the lack of diversified
industry and the relative proximity of markets served, the Company has
concentrations in geographic as well as in types of loans funded. The Bank's
three largest concentration categories are: Land Development, Commercial Real
Estate and Professional.
Loan Quality
Non-performing assets consist of non-accrual loans, loans past due 90
days or more and still accruing interest, other real estate owned and
repossessions. Non-performing assets increased from $831,000 at December 31,
1999 to $1.5 million at December 31, 2000. Non-performing assets as a percentage
of total assets increased to 0.32% in 2000 from 0.24% in 1999. The increase in
non-performing assets is attributed to several loans in the process of
collection and renewing that are past due over 90 days or more and still
accruing.
Management is continually analyzing its loan portfolio in an effort to
recognize and resolve its problem assets as quickly and efficiently as possible.
Table 7 sets forth certain categories of risk elements on non-performing assets
for the past five years.
Table 7: Non-Performing Assets
December 31,
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(dollars in thousands)
Non-Accrual Loans $ 579 $ 549 $ 1,393 $ 1,045 $ 87
Past Due Loans 90 Days or
More and Still Accruing 840 180 22 158 229
Other Real Estate Owned &
Repossessions 56 102 613 320 88
------- ------- ------- ------- -------
Total Non-Performing Assets $ 1, 475 $ 831 $ 2,028 $ 1,523 $ 404
======= ======= ======= ======= =======
Percent of Total Assets 0.32% 0.24% 0.65% 0.56% 0.16%
===== ===== ===== ===== =====
23
The allowance for loan losses represents a reserve for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on past due and other loans that management believes require
attention. The provision for loan losses is a charge to earnings in the current
period to maintain the allowance for loan losses at an adequate level. Loans are
charged against the allowance when management believes collection of the
principal is unlikely. Management considers the allowance appropriate and
adequate to cover potential losses inherent 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 8: Allocation of Allowance for Loan Losses
December 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
(dollars in thousands)
Commercial, Financial
and Agricultural $ 2,607 50.5% $ 1,670 51.5% $ 1,061 45.6% $ 932 43.4% $ 821 46.1%
Real Estate - Construction 15 8.8% 12 7.1% 6 4.5% 9 2.1% 5 2.7%
Real Estate - Mortgage 293 31.7% 220 32.4% 127 38.7% 163 42.9% 154 38.2%
Consumer 734 9.0% 769 9.0% 621 11.2% 391 11.6% 416 13.0%
Unallocated 21 - - - 60 - - - - -
----- ----- ------ ----- ------- ----- ------- ----- ------ -----
Total $ 3,670 100% $ 2,671 100% $ 1,875 100% $ 1,495 100% $ 1,396 100%
===== ===== ====== ===== ======= ===== ======= ===== ====== =====
The allowance for loan losses on December 31, 2000, was $3.7 million,
or 0.96% of total loans outstanding, net of unearned income compared to $2.7
million or 1.00% at December 31, 1999. The increase in the allowance is a direct
result of the loan growth experienced in 2000.
24
Table 8 provides an allocation of the allowance for loan losses to
specific loan categories for each of the past five years. Table 9: "Activity in
Allowance for Loan Losses" indicates activity in the allowance for loan losses
for the years 2000, 1999, 1998, 1997 and 1996.
Table 9: Activity in Allowance for Loan Losses
2000 1999 1998 1997 1996
------------- -------------- ----------- ------------ -------------
(dollars in thousands)
Balance at Beginning of Year $ 2,671 $ 1,875 $ 1,495 $ 1,396 $ 946
Allowance Acquired by Merger - - - - 370
Loans Charged-Off:
Commercial, Financial and Agricultural 75 312 123 160 79
Real Estate, Mortgage 40 13 3 - 1
Consumer 409 309 296 248 203
------ ------ ------ ------ ------
Total Loans Charged-Off (524) (634) (422) (408) (283)
Recoveries on Loans Previously Charged-Off:
Commercial, Financial and Agricultural 32 188 41 24 7
Real Estate Mortgage - - 7 - 1
Consumer 141 82 44 43 20
------ ------ ------ ------ ------
Total Loan Recoveries 173 270 92 67 28
------ ------ ------ ------ ------
Net Loans Charged-Off (351) (364) (330) (341) (255)
------ ------ ------ ------ ------
Provision for Loan Losses
Charged to Expense 1,350 1,160 710 440 335
------ ------ ------ ------ ------
Ending Balance $ 3,670 $ 2,671 $ 1,875 $ 1,495 $ 1,396
====== ====== ====== ====== ======
Total Loans Outstanding $ 380,821 $ 266,084 $ 187,015 $ 159,649 $ 148,824
Average Loans Outstanding $ 317,491 $ 215,861 $ 171,048 $ 155,168 $ 117,450
Allowance for Loan Losses
to Loans Outstanding 0.96% 1.00% 1.00% 0.94% 0.94%
Net Charge-Offs to
Average Loans Outstanding 0.11% 0.17% 0.19% 0.22% 0.22%
Investment Portfolio
The Company uses its securities portfolio to assist in maintaining
proper interest rate sensitivity in the balance sheet, to provide securities to
pledge as collateral for public funds and repurchase agreements, and to provide
an alternative investment for available funds. The total recorded value of
securities was $40.7 million for 2000, a decrease of 11% from $45.7 million in
1999.
Securities are classified as either held-to-maturity or
available-for-sale. Securities available-for-sale, which made up 82% of the
total investment portfolio at December 31, 2000 had a value of $33.2 million.
Securities in the available-for-sale portfolio are recorded at fair value on the
balance sheet and unrealized gains and losses associated with these securities
are recorded, net of tax, as a separate component of shareholders' equity. At
December 31, 2000, shareholders' equity included a net unrealized loss of
$33,000, compared to a $537,000 unrealized loss at December 31, 1999.
As a percent of total earning assets, the investment portfolio has
decreased to a level of 10% at December 31, 2000 compared to 15% the for year
ended 1999. The decrease in the size of the portfolio relative to total earning
assets is directly related to the increase in loan growth.
The Company invests primarily in direct obligations of the United
States, obligations guaranteed as to the principal and interest by the United
States and obligations of agencies of the United States. In addition, the
Company enters into federal funds transactions with its principal correspondent
banks. The Federal Reserve Bank and Federal Home Loan Bank also require equity
investments to be maintained by the Company.
25
Table 10 sets forth the breakdown of investment securities by
maturities and Table 10a displays the average yield by range of maturities.
Table 10: Maturity Distribution of Investment Securities (1)
December 31, 2000
Dollars in Thousands Held to Maturity Available for Sale
- -------------------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
U.S. Treasury:
One Year or Less $ - $ - $ 7,494 $ 7,515
Over One Through Five Years - - - -
----------- ------------ ------------ -----------
Total U.S. Treasury - - 7,494 7,515
U.S. Government Agencies
and Corporations:
Over One Through Five Years - - 20,000 19,834
Over Five Through Ten Years 7,457 7,455 - -
----------- ------------ ------------ -----------
Total U.S. Government Agencies
and Corporations 7,457 7,455 20,000 19,834
Obligations of State and Political
Subdivisions:
One Year or less - - 90 90
Over One through Five Years - - 327 327
Over Ten Years - - 608 630
----------- ------------ ------------ -----------
Total Obligations of State and
Political Subdivisions - - 1,025 1,047
Mortgage-Backed Securities (2):
One Year or Less 3 3 - -
Over One Through Five Years - - - -
Over Five Through Ten Years - - 524 524
Over Ten Years - - 1,322 1,326
------------ ------------ ----------- -----------
Total Mortgage-Backed Securities 3 3 1,846 1,850
Other Securities:
Over Ten Years (3) - - 2,924 2,990
------------ ------------ ----------- -----------
Total Other Securities - - 2,924 2,990
------------ ------------ ----------- -----------
Total Securities $ 7,460 $ 7,458 $ 33,289 $ 33,236
============ ============ =========== ===========
(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 10a: Weighted Average Yield by Range of Maturities
December 31,
2000 1999
---- ----
One Year or Less 6.49% 5.81%
Over One through Five Years 6.00 6.15
Over Five through Ten Years 6.18 5.78
Over Ten Years(1) 6.45 5.65
(1) Represents adjustable rate, mortgage-backed securities which are
repriceable within one year.
26
Capital Resources
Shareholders' equity at December 31, 2000 was $44.6 million, as
compared to $43.1 million at December 31, 1999. In 2000, the Board of Directors
declared dividends totaling $0.20 per share, consistent with 1999. At December
31, 2000, the Company's common stock had a book value of $7.32 per share
compared to $7.04 per share in 1999.
On January 29, 1999 the Company began trading on the NASDAQ National
Market under the symbol "CNBB" after issuing 1,250,000 shares of common stock in
the initial public offering at $10.25 per common share. Proceeds from the
offering net of underwriting discount and expenses totaled $11.4 million, which
are being used to support expansion plans and for general corporate purposes.
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Under capital adequacy guidelines
the Company must meet specific capital guidelines that involve quantitative
measures of its assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classification are also subject to qualitative judgements by the regulators
about components, risk weightings and other factors.
Quantitative measures as defined by regulation and established to
ensure capital adequacy require the Bank to maintain minimum amounts and ratios
of Total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
average assets. If such minimum amounts and ratios are met, the Bank is
considered "adequately capitalized." If a bank exceeds the requirements of
"adequately capitalized" and meets even more stringent minimum standards, it is
considered to be "well capitalized." As of December 31, 2000, the Bank meets all
capital adequacy requirements to which it is subject.
At December 31, 2000, the Company's Tier 1 capital, total risk-based
capital and Tier 1 leverage ratios were 11.1%, 12.0% and 9.8%, respectively.
Selected capital ratios at year end 2000 as compared to 1999 are shown in Table
11.
Table 11: Capital Ratios
December 31, Well Capitalized Regulatory
2000 1999 Requirements Minimums
---------- ---------- ------------ --------
Risk Based Capital Ratios:
Tier 1 Capital Ratio 11.1% 16.2% 6.0% 4.0%
Total Capital to
Risk-Weighted Assets 12.0% 17.3% 10.0% 8.0%
Tier 1 Leverage Ratio 9.8% 12.7% 5.0% 4.0%
27
Quarterly Financial Information
Table 12 sets forth, for the periods indicated, certain consolidated
2000 and 1999 quarterly financial information of the Company. This information
is derived from the Company's unaudited financial statements which include, in
the opinion of management, all normal recurring adjustments which management
considers necessary for a fair presentation of the results for such periods. The
results for any quarter are not necessarily indicative of results for any future
period.
Table 12: Selected Quarterly Data
2000 1999
---------------------------------------- ---------------------------------------
(dollars in thousands, except per share data)
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
- ----------------------------------- ---------------------------------------- ---------------------------------------
Summary of Operations:
Net interest income $ 4,562 $ 4,358 $ 4,311 $ 4,094 $ 3,998 $ 3,774 $ 3,589 $ 3,345
Provision for loan losses (400) (350) (300) (300) (375) (275) (310) (200)
------- ------- ------- ------- -------- ------- ------- -------
Net interest income after
provision for loan losses 4,162 4,008 4,011 3,794 3,623 3,499 3,279 3,145
Other income 939 848 780 771 783 739 743 687
Other expenses (4,135) (3,891) (3,758) (3,697) (3,465) (3,026) (2,819) (2,684)
------- ------- ------- ------- ------- ------- ------- -------
Income before income tax expense 966 965 1,033 868 941 1,212 1,203 1,148
Income tax expense (335) (333) (359) (298) (322) (423) (418) (400)
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 631 $ 632 $ 674 $ 570 $ 619 $ 789 $ 785 $ 748
======= ======= ======= ======= ======= ======= ======= =======
Per Common Share:
Basic earnings per common share $ 0.10 $ 0.10 $ 0.11 $ 0.09 $ 0.09 $ 0.13 $ 0.13 $ 0.13
Diluted earnings per common share 0.10 0.10 0.11 0.09 0.09 0.13 0.13 0.13
Dividends Declared 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05
Book Value 7.32 7.23 7.13 7.09 7.04 7.05 6.99 6.99
Market Price (1)
High 9.25 8.75 8.50 9.38 10.56 10.88 10.25 10.25
Low 7.25 7.13 7.13 7.25 9.00 8.75 9.66 8.00
Close 8.00 8.50 7.75 7.63 9.63 10.69 10.00 9.75
Balance Sheet Data:(end of quarter)
Assets $ 467,593 $433,540 $398,489 $ 373,483 $ 346,076 $ 330,106 $ 314,816 $ 315,653
Loans, net 377,151 346,457 313,127 290,077 263,413 228,371 214,686 198,323
Deposits 367,686 339,497 329,304 322,472 288,203 274,456 263,408 262,895
Shareholders' Equity 44,636 44,042 43,566 43,306 43,075 43,075 42,715 42,691
28
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
On January 28, 1997, the Securities and Exchange Commission adopted
amendments to Regulation S-K, Regulation S-X, and various forms (Securities Act
Release No. 7386) to clarify and expand existing requirements for disclosures
about derivatives and market risks inherent in derivatives and other financial
instruments. No derivative financial instruments are held by the Company, but
other financial instruments, which include investments, loans and deposit
liabilities are included in the Company's balance sheet. The release requires
quantitative and qualitative disclosures about market risk. See section titled
"Liquidity and Interest Rate Sensitivity" for further discussion on the
Company's management of interest rate risk.
Financial instruments that have market risk are included in Table 3:
"Rate Sensitivity Analysis". These instruments are shown by maturity, separated
by 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 judgement of the most appropriate factors, there
is no assurance that, were the Company to have disposed of such instruments at
December 31, 2000, the estimated fair values would necessarily have been
achieved at that date, since market values may differ depending on various
circumstances. The estimated fair values at December 31, 2000 would not
necessarily be considered to apply at subsequent dates.
FINANCIAL STATEMENTS
The consolidated financial statements which follow have been audited by
the Company's independent certified public accountants, Arthur Andersen LLP.
Their opinion on the Company's consolidated financial statements is also
included therein.
29
CNB Florida Bancshares, Inc.
and Subsidiary
Consolidated Financial Statements
30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of CNB
Florida Bancshares, Inc. and Subsidiary:
We have audited the accompanying consolidated statement of financial condition
of CNB FLORIDA BANCSHARES, INC. (a Florida corporation) AND SUBSIDIARY as of
December 31, 2000 and 1999 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNB Florida Bancshares, Inc.
and Subsidiary as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Jacksonville, Florida
January 26, 2001
31
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
December 31,
2000 1999
------------ ----------
(dollars in thousands)
ASSETS
Cash and due from banks $ 20,769 $ 17,235
Interest-bearing deposits in other banks 129 285
-------- --------
Total cash and cash equivalents 20,898 17,520
Investment securities available for sale 33,236 35,111
Investment securities held to maturity 7,460 10,582
Loans, net 377,151 263,413
Premises and equipment, net 22,433 14,395
Other assets 6,415 5,055
-------- --------
Total assets $ 467,593 $ 346,076
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand $ 52,082 $ 42,110
Savings, NOW and money market 129,865 112,103
Time under $100,000 115,406 89,141
Time $100,000 and over 70,333 44,849
-------- --------
Total deposits 367,686 288,203
Securities sold under repurchase agreements and federal funds purchased 21,142 12,063
Short term borrowings 30,000 -
Other liabilities 4,129 2,735
-------- --------
Total liabilities 422,957 303,001
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 17 and 18)
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,
6,099,376 shares issued and outstanding for 2000 and
6,116,070 shares issued and outstanding for 1999 61 61
Additional paid-in capital 30,581 30,805
Retained earnings 14,027 12,746
Accumulated other comprehensive (loss) income, net of taxes (33) (537)
-------- -------
Total shareholders' equity 44,636 43,075
-------- -------
Total liabilities and shareholders' equity $467,593 $346,076
======== =======
The accompanying notes are an integral part of these financial statements.
32
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31,
2000 1999 1998
---------- ------------ ----------
(dollars and shares in thousands)
INTEREST INCOME
Interest and fees on loans $29,112 $19,412 $15,877
Interest on investment securities available for sale 2,110 2,671 2,869
Interest on investment securities held to maturity 572 504 326
Interest on federal funds sold 208 643 1,701
Interest on interest-bearing deposits 59 528 346
------ ------ ------
Total interest income 32,061 23,758 21,119
------ ------ ------
INTEREST EXPENSE
Interest on deposits 12,988 8,725 9,051
Interest on repurchase agreements and federal funds purchased 572 327 359
Interest on short term borrowings 1,176 - -
Interest on notes payable - - 7
------ ------ ------
Total interest expense 14,736 9,052 9,417
------ ------ ------
NET INTEREST INCOME 17,325 14,706 11,702
PROVISION FOR LOAN LOSS 1,350 1,160 710
------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS 15,975 13,546 10,992
------ ------ ------
NON-INTEREST INCOME
Service charges 2,241 2,122 1,811
Other fees and charges 1,097 830 577
Gain on sale of securities - - 4
------ ------ ------
Total non-interest income 3,338 2,952 2,392
------ ------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits 8,539 6,461 4,819
Occupancy and equipment expenses 2,220 1,810 1,592
Other operating expenses 4,722 3,723 2,887
------ ------ ------
Total non-interest expense 15,481 11,994 9,298
------ ------ ------
INCOME BEFORE INCOME TAXES 3,832 4,504 4,086
INCOME TAXES 1,325 1,563 1,407
------ ------ ------
NET INCOME $ 2,507 $ 2,941 $ 2,679
====== ====== ======
EARNINGS PER SHARE
Basic earnings per share $ 0.41 $ 0.49 $ 0.55
====== ====== ======
Basic weighted average shares outstanding 6,095 5,995 4,857
====== ====== ======
Diluted earnings per share $ 0.41 $ 0.48 $ 0.55
====== ====== ======
Diluted weighted average shares outstanding 6,134 6,070 4,898
====== ====== ======
The accompanying notes are an integral part of these financial statements.
33
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2000, 1999 AND 1998
Accumulated
Other
(dollars and shares in thousands) Common Stock Additional Comprehensive Total
----------------- Paid-In Retained Income (Loss), Shareholders'
Shares Value Capital Earnings Net of Taxes Equity
====== ===== ========== ========= ============== =========
BALANCE, December 31, 1997 4,856 $ 49 $ 19,465 $ 9,256 $ 255 $ 29,025
Comprehensive income:
Net income 2,679
Change in unrealized gain on investment
securities available for sale, net of taxes 163
Total comprehensive income 2,842
Cash dividends (971) (971)
------- ----- -------- -------- ------ -------
BALANCE, December 31, 1998 4,856 49 19,465 10,964 418 30,896
Comprehensive income:
Net income 2,941
Change in unrealized gain on investment
securities available for sale, net of taxes (955)
Total comprehensive income 1,986
Cash dividends (1,159) (1,159)
Issuance of common stock, net of offering cost 1,250 12 11,356 11,368
Exercise of stock options 2 9 9
Repurchase of common stock (10) (96) (96)
Issuance of restricted stock 18 71 71
------- ----- -------- --------- ------ --------
BALANCE, December 31, 1999 6,116 61 30,805 12,746 (537) 43,075
Comprehensive income:
Net income 2,507
Change in unrealized gain on investment
securities available for sale, net of taxes 504
Total comprehensive income 3,011
Cash dividends (1,226) (1,226)
Exercise of stock options 33 113 113
Repurchase of common stock (50) (395) (395)
Issuance of restricted stock 58 58
------- ------ -------- --------- ------ ---------
BALANCE, DECEMBER 31,2000 6,099 $ 61 $ 30,581 $ 14,027 $ (33) $ 44,636
======= ====== ======== ========= ====== =========
The accompanying notes are an integral part of these financial statements.
34
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
------ ------ ------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,507 $ 2,941 $ 2,679
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,176 971 894
Provision for loan losses 1,350 1,160 710
Investment securities amortization (accretion), net 13 (278) 54
Non-cash compensation 58 71 -
Deferred income tax benefit (370) (242) (14)
Changes in assets and liabilities:
Other assets (1,469) 82 (515)
Other liabilities 1,394 (255) 735
------ ------ -----
Net cash provided by operating activities 4,659 4,450 4,543
------ ------ -----
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (115,088) (79,433) (27,696)
Purchases of investment securities available for sale (1,068) (20,413) (28,908)
Purchases of investment securities held to maturity - (8,754) -
Proceeds from called investment securities available for sale 472 3,000 -
Proceeds from called investment securities held to maturity 1,245 - -
Proceeds from maturities of investment securities available for sale 3,287 40,442 22,654
Proceeds from maturities of investment securities held to maturity 1,852 1,064 5,121
Purchases of premises and equipment (9,035) (4,432) (1,341)
------- ------ ------
Net cash used in investing activities (118,335) (68,526) (30,170)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 79,483 23,094 33,665
Net increase (decrease) in securities sold under repurchase agreements
and federal funds purchased 9,079 (507) 3,413
Short-term borrowings 30,000 - -
Repayment of note payable - - (1,450)
Cash dividends (1,226) (1,159) (971)
Issuance of common stock - 11,368 -
Repurchase of common stock (395) (96) -
Exercise of stock options 113 9 -
------- ------ ------
Net cash provided by financing activities 117,054 32,709 34,657
------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,378 (31,367) 9,030
CASH AND CASH EQUIVALENTS, beginning of year 17,520 48,887 39,857
------- ------ ------
CASH AND CASH EQUIVALENTS, end of year $ 20,898 $ 17,520 $ 48,887
======= ====== ======
The accompanying notes are an integral part of these financial statements.
35
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization and Nature of Operations
CNB Florida Bancshares, Inc. (the "Company") is a registered bank holding
company incorporated in Florida. The Company operates a wholly owned
banking subsidiary, CNB National Bank (the "Bank"), which is chartered as
a national bank. The Bank is a member of the Federal Reserve System and
conducts business from 12 banking offices in north Florida.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and the Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation. The Company follows generally accepted
accounting principles and reporting practices applicable to the banking
industry in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in Preparation of Consolidated Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investment Securities
Available for Sale
Securities available for sale represent investment securities
which are used for asset/liability, liquidity, and other funds
management purposes which may be sold in response to changes in
interest rate risk, prepayment risk or other similar economic
factors. These securities are recorded at fair value, with
unrealized gain and losses, net of deferred income taxes,
recorded in the accumulated other comprehensive (loss) income
component of shareholders' equity.
Held to Maturity
Securities held to maturity represent investment securities
where the Company's intent and ability is to hold the
securities to maturity. These securities are stated at cost,
adjusted for amortization of premiums and accretion of
discounts.
36
Amortization and accretion of premiums and discounts are recognized
as adjustments to interest income. Realized gains and losses are
recognized using the specific identification method.
Loans, Loan Fees and Interest Income
Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan loss. Interest on substantially all loans other than
certain installment loans is calculated by using the simple interest
method on daily balances of the principal amounts outstanding. Interest on
some installment loans is recognized using the rule-of-78s method, the
results of which are not materially different than the interest method.
Loan fees, net of loan origination costs, are deferred and amortized as
yield adjustments over the respective loan terms using a method which does
not differ significantly from the interest method. For 2000, 1999 and
1998, loan fees included in interest and fees on loans amounted to
approximately $969,000, $697,000 and $572,000, respectively.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to income. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes will be
adequate to absorb inherent losses on existing loans that may become
uncollectible based on evaluations of the collectibility of the loans. The
evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions that may affect
the borrowers' ability to pay. Accrual of interest is discontinued on
loans that are 90 days or more past due, unless substantially
collateralized and in the process of collection, or sooner if, in the
opinion of management, the borrower's financial condition is such that
collection of principal or interest is doubtful.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to
expenses as incurred. Gains and losses on dispositions are reflected in
income.
Long-lived assets are evaluated regularly for other-than-temporary
impairment. If circumstances suggest that their value may be impaired, an
assessment of recoverability is performed prior to any write-down of the
asset.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosure
are initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the
lower of carrying amount or at fair value, less cost to sell.
37
Intangibles
The Company has intangible assets with carrying amounts of approximately
$1,033,000 and $1,187,000 at December 31, 2000 and 1999, respectively.
Intangible assets consist of core deposits and goodwill. Core deposit
intangibles are being amortized over a 10-year period using the
straight-line method. Goodwill is being amortized over a 15-year period on
a straight-line method. Amortization of intangible assets was
approximately $179,000, $179,000 and $190,000 for 2000, 1999 and 1998,
respectively.
Periodically, the Company reviews its intangible assets for
events or changes in circumstances that may indicate that the carrying
amounts of the assets are not recoverable.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. This method requires the recognition of deferred tax assets and
liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
The Company and the Bank file consolidated federal and state income tax
returns. Under a tax-sharing arrangement, income tax charges or credits
are generally allocated to the Company and the Bank on the basis of their
respective taxable income or loss that is included in the consolidated
income tax return, as determined by the separate return method.
Earnings Per Share
Basic earnings per share is calculated based on weighted average number of
shares of common stock outstanding. Diluted earnings per share is
calculated based on the weighted average number of shares of common stock
and common stock equivalents outstanding. 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 and restricted stock outstanding in the
years ended December 31, 2000, 1999 and 1998.
Supplemental Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, interest-bearing deposits in other banks and
federal funds sold. Generally, federal funds are purchased and sold for
one-day periods and all cash equivalents have an original maturity of 90
days or less. Cash paid for interest was approximately $13,330,000,
$9,206,000 and $9,049,000 during 2000, 1999 and 1998, respectively, and
cash paid for income taxes was approximately $1,759,000, $1,720,000 and
$1,384,000 during 2000, 1999 and 1998, respectively.
38
Accounting Pronouncements
In September 2000, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", a replacement of SFAS No. 125. The
statement revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures. The statement is effective for fiscal years ending after
December 15, 2000. The adoption of this standard did not have a
material impact on reported results of operations of the Company.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" as amended. The statement
establishes accounting and reporting standards for derivative
instruments (including certain derivative instruments imbedded in other
contracts). The statement is effective for fiscal years beginning after
June 15, 2000. The adoption of this standard did not have a material
impact on reported results of operations of the Company.
3. INVESTMENT SECURITIES
Amortized cost and estimated fair value of investment securities available
for sale at December 31, 2000 and 1999 are as follows (in thousands):
2000 U.S. U.S. State, Mortgage-
Treasury Government County, and Backed
Securities Agencies Municipal Securities Other Total
---------- ---------- ----------- ---------- ----- -----
Amortized cost $ 7,494 $ 20,000 $ 1,025 $ 1,846 $ 2,924 $ 33,289
Gross unrealized:
Gains 21 - 22 4 66 113
Losses - (166) - - - (166)
------- -------- ------ ------ ------ -------
Estimated fair value $ 7,515 $ 19,834 $ 1,047 $ 1,850 $ 2,990 $ 33,236
======= ======== ====== ====== ====== =======
1999 U.S. U.S. State, Mortgage-
Treasury Government County, and Backed
Securities Agencies Municipal Securities Other Total
---------- ---------- ----------- ---------- ----- -----
Amortized cost $ 9,980 $ 20,000 $ 1,583 $ 2,550 $ 1,855 $ 35,968
Gross unrealized:
Gains 34 - - 3 52 89
Losses - (938) (8) - - (946)
------- ------ ----- ------ ------ ------
Estimated fair value $ 10,014 $ 19,062 $ 1,575 $ 2,553 $ 1,907 $ 35,111
======= ====== ===== ====== ====== ======
39
Amortized cost and estimated fair value of investment securities held to
maturity at December 31, 2000 and 1999 are as follows (in thousands):
2000 U.S. Mortgage-
Government Backed
Agencies Securities Total
---------- ---------- ------
Amortized cost $ 7,457 $ 3 $ 7,460
Gross unrealized:
Gains - - -
Losses (2) - (2)
-------- --------- --------
Estimated fair value $ 7,455 $ 3 $ 7,458
======== ========= ========
1999 U.S. Mortgage-
Government Backed
Agencies Securities Total
---------- ---------- ---------
Amortized cost $ 8,721 $ 1,861 $ 10,582
Gross unrealized:
Gains - - -
Losses (589) (76) (665)
------- --------- --------
Estimated fair value $ 8,132 $ 1,785 $ 9,917
======= ========= ========
Interest income earned on tax-exempt securities in 2000, 1999 and 1998 was
approximately $52,000, $87,000 and $83,000, respectively. Dividends of
approximately $146,000, $113,000 and $93,000 on stock of the Federal Reserve
Bank and the Federal Home Loan Bank are included in interest on investment
securities available for sale in 2000, 1999 and 1998, respectively.
The amortized cost and estimated fair value of securities at December 31, 2000,
by contractual maturity, are shown below (in thousands):
Investment Securities Investment Securities
Available for Sale Held to Maturity
-----------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------- ------------- ------------ --------------
Due in:
One year or less $ 7,584 $ 7,605 $ - $ -
After one through five years 20,327 20,161 - -
After five through ten - - 7,457 7,455
Over ten years 608 630 - -
Mortgage-backed securities and others 4,770 4,840 3 3
--------- --------- -------- ---------
$ 33,289 $ 33,236 $ 7,460 $ 7,458
========= ========= ======== =========
At December 31, 2000, U. S. Treasury and Government agency securities with an
amortized cost of approximately $25,896,000 and an estimated fair value of
approximately $25,834,000 were pledged to secure public funds, treasury tax and
loan deposits, and repurchase agreements.
40
4. LOANS, ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
Loans at December 31, 2000 and 1999 were comprised of the following (in
thousands):
2000 1999
----------- -----------
Commercial, financial, and agricultural $ 192,540 $ 136,937
Real estate - construction 33,648 18,926
Real estate - mortgage 120,663 86,275
Installment and consumer lines 33,970 23,946
--------- ---------
Total loans, net of unearned discount 380,821 266,084
Less allowance for loan losses (3,670) (2,671)
--------- --------
Net loans $ 377,151 $ 263,413
========= ========
Activity in the allowance for loan losses account was as follows for the
years ended December 31, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
------ ------ -------
Balance beginning of year $ 2,671 $ 1,875 $ 1,495
Provision 1,350 1,160 710
Charge-offs (524) (634) (422)
Recoveries 173 270 92
------- ------- -------
Balance at end of year $ 3,670 $ 2,671 $ 1,875
======= ======= =======
Nonaccrual loans totaled approximately $579,000 and $549,000 at December
31, 2000 and 1999, respectively. Foregone interest, which would have
otherwise been recorded on nonaccrual loans, including those loans that
were nonaccrual at sometime during the year and later paid, reinstated or
charged off, was approximately $25,000, $23,000 and $56,000, in 2000, 1999
and 1998, respectively. In addition to nonaccrual loans, nonperforming
assets include other real estate owned related to property acquired by
foreclosure in settlement of debt. Other real estate owned was
approximately $19,000 and $88,000 at December 31, 2000 and 1999,
respectively, and is included in other assets in the accompanying
consolidated statement of financial condition.
41
The Company recognizes income on impaired loans primarily on the cash
basis. Any change in the present value of expected cash flows is
recognized through the allowance for loan losses. Impaired loan
information for the year ended December 31, 2000, 1999 and 1998 is as
follows (in thousands):
2000 1999 1998
---- ---- ----
Impaired loans with an allowance $ 1,041 $ 686 $ 1,744
-------- -------- --------
Total impaired loans $ 1,041 $ 686 $ 1,744
======== ======== ========
Allowance for impaired loans $ 213 $ 159 $ 408
======== ======== ========
Interest income recognized on
impaired loans during the year $ 40 $ 21 $ 93
======== ======== ========
The average balance of impaired loans during 2000, 1999 and 1998
approximated $1.2 million.
5. PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following components at
December 31 (in thousands):
2000 1999
---------- ----------
Buildings and improvements $ 15,731 $ 8,757
Equipment and furnishings 6,974 5,382
Land 4,738 3,904
Construction in progress 1,421 1,813
------- --------
28,864 19,856
Less accumulated depreciation (6,431) (5,461)
------- --------
$ 22,433 $ 14,395
======= ========
Depreciation was approximately $997,000, $792,000 and $704,000 for 2000,
1999 and 1998, respectively.
6. TIME DEPOSITS
At December 31, 2000, the scheduled maturities of time certificates of
deposit are as follows (in thousands):
2001 $157,853
2002 24,596
2003 2,835
2004 435
2005 and thereafter 20
--------
$185,739
========
42
7. REPURCHASE AGREEMENTS AND SHORT TERM BORROWINGS
The Bank has entered into repurchase agreements with several customers
under which the Bank pledges investment securities owned and under its
control as collateral against the one-day agreements. The daily average
balance of these agreements during 2000, 1999, and 1998 was approximately
$7,666,000, $6,854,000 and $7,233,000, respectively. Interest expense in
2000, 1999 and 1998 was approximately $447,000, $322,000 and $359,000,
respectively, resulting in an average rate paid of 5.83% in 2000, 4.70% in
1999 and 4.97% in 1998. The highest amount outstanding during 2000, 1999
and 1998 was approximately $16,542,000, $10,700,000 and $12,570,000,
respectively.
During 2000 the Bank received funding from Federal Home Loan Bank advances
and at December 31, 2000 had a balance in the amount of $30,000,000. The
advances are collateralized by its residential mortgage portfolio and the
average rate paid in 2000 on the Federal Home Loan Bank advances was 6.77%.
Interest expense paid in 2000 on Federal Home Loan Bank advances was
approximately $1,176,000. The highest amount outstanding during 2000 was
the advance of $30,000,000 at December 31, 2000.
8. OTHER OPERATING EXPENSES
Components of other operating expenses are as follows for the years ended
December 31, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
----- ----- -----
Data processing $ 650 $ 590 $ 540
Postage and delivery 551 468 377
Advertising and promotion 541 354 239
Supplies 404 299 244
Amortization of intangible assets 179 179 190
Telephone 584 423 271
Legal and professional 487 327 225
Loan expense 194 165 133
Regulatory fees 149 143 134
Administrative 196 182 123
Other general operating 174 52 17
Insurance and bonding 89 72 49
Education expense 62 53 44
Directors fees 72 57 36
Dues and subscriptions 103 78 43
Other 287 281 222
----- ----- -----
$ 4,722 $ 3,723 $ 2,887
===== ===== =====
43
9. INCOME TAXES
The income tax provision (benefit) for the years ended December 31, 2000,
1999 and 1998 consisted of the following components (in thousands):
2000 1999 1998
---- ---- ----
Current:
Federal $ 1,432 $ 1,598 $ 1,365
State 263 207 56
----- ----- -----
Total $ 1,695 $ 1,805 $ 1,421
===== ===== =====
Deferred:
Federal $ (315) $ (244) $ (147)
State (55) 2 133
----- ----- -----
Total $ (370) $ (242) $ (14)
===== ===== =====
Total:
Federal $ 1,117 $ 1,354 $ 1,218
State 208 209 189
----- ----- -----
Total $ 1,325 $ 1,563 $ 1,407
===== ===== =====
Deferred income tax assets and liabilities reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities and their respective tax bases. Significant components of and
the resultant deferred tax assets and liabilities at December 31, 2000 and
1999 are as follows:
2000 1999
---- ----
Deferred tax liabilities:
Property and equipment $ (697) $ (650)
Unearned loan fees (78) (81)
Other items (32) -
----- -----
(807) (731)
----- -----
Deferred tax assets:
Loan loss provisions 1,191 858
Unrealized loss on investment
securities available for sale 20 320
Intangible assets 125 105
Other items - 39
----- -----
1,336 1,322
----- -----
Net deferred tax asset (liability) $ 529 $ 591
===== =====
44
The reasons for the differences between the statutory federal income tax
rate and the effective tax rate are summarized as follows for the years
ended December 31, 2000, 1999 and 1998:
2000 1999 1998
------ ------ ------
Statutory rates 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Effect of tax-exempt income (2.7) (2.7) (2.9)
State income taxes, net 2.5 2.5 2.6
Nondeductible expenses 0.8 0.9 0.7
----- ----- -----
34.6% 34.7% 34.4%
===== ===== =====
10. COMPREHENSIVE INCOME
The Company's comprehensive income consists of net income and changes in
unrealized gains (losses) on securities available-for-sale, net of income
taxes.
Comprehensive income for 2000, 1999 and 1998 is calculated as follows (in
thousands):
2000 1999 1998
------ ------ ------
Unrealized gains (loss) recognized in other comprehensive
income (net):
Before tax $ 804 $ (1,523) $ 258
Income tax expense 300 (568) 95
----- ------- -----
Net of tax $ 504 $ (955) $ 163
===== ======= =====
Amounts reported in net income:
Gain on sale of securities $ - $ - $ 4
Net amortization (accretion) 13 (278) 54
----- ------- -----
Reclassification adjustment 13 (278) 58
Income tax expense (5) 96 (20)
----- ------- -----
Reclassification adjustment, net of tax $ 8 $ (182) $ 38
===== ======= =====
Amounts reported in other comprehensive income:
Unrealized gains (loss) arising during period, net of tax $ 512 $ (1,137) $ 201
Reclassification adjustment, net of tax (8) 182 (38)
----- ------- -----
Unrealized gains (loss) recognized in other comprehensive
income (net) 504 (955) 163
Net income 2,507 2,941 2,679
----- ------- -----
Total comprehensive income $ 3,011 $ 1,986 $ 2,842
===== ======= =====
45
11. LOANS TO RELATED PARTIES
Certain officers and directors, and companies in which they held a 10% or
more beneficial ownership, were indebted to (or in some cases, guaranteed
loans by) the Bank. An analysis of such activities follows (in thousands):
2000 1999
-------- ---------
Balance, January 1 $ 3,685 $ 3,306
New loans and advances 3,179 1,646
Repayments (excluding renewals) (2,021) (1,267)
-------- --------
Balance, December 31 $ 4,843 $ 3,685
======== ========
The loans analyzed above were made in the normal course of business at
prevailing interest rates and terms.
12. DIVIDEND RESTRICTIONS
The Company's primary source of funds is dividends it receives from the
Bank. The payment of dividends by the Bank, in turn, is subject to the
regulations of the Comptroller of the Currency, which require, among other
things, that dividends be paid only from net profits of the current and
immediately preceding two years. At December 31, 2000, the Bank had
approximately $2,426,000 of retained earnings available for dividends to
the Company without being required to seek special regulatory approvals.
13. EQUITY
Dividends Declared
The Company declared cash dividends of $.20 per share in 2000, 1999 and
1998.
Common Stock
During February 1999, the Company sold 1,250,000 shares of common stock
resulting in proceeds of approximately $11.4 million, net of underwriting
discount and expenses.
14. STOCK BASED COMPENSATION
Stock Options
The Company has long-term incentive plans that provide stock-based awards,
including stock options to certain key employees. The terms of the
Performance-Based Incentive Plan ("the Plan"), which were approved by
shareholders at the annual meeting in April 1998, allow for a maximum
grant of 540,000 shares. Prior to the approval of the Plan, there were
issued and outstanding options totaling 166,766 of which 33,306 were
exercised in 2000. There are 32,400 shares remaining to be issued under
the Plan as of December 31, 2000. Generally, the options granted under the
Plan become exercisable over a three to four year period following the
year of grant, and expire ten years after the date of the grant. The grant
46
price of all options has been equal to the estimated fair market value of
a share of stock as of the date of grant.
Options outstanding and the activity for December 31, 2000, 1999 and 1998
are presented below:
2000 1999 1998
------------------------ ------------------------- ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Grant Price Shares Grant Price Shares Grant Price
-------- ------------- --------- ------------- ------- -------------
Employee stock option plans:
Outstanding at beginning of year 552,566 $7.63 359,766 $6.26 166,766 $4.32
Options granted 102,500 8.64 214,600 9.92 193,000 7.93
Options exercised 33,306 3.41 1,800 5.00 - -
Options forfeited - - 20,000 8.00 - -
--------- ------ ------- ------ ------- -----
Outstanding at end of year 621,760 $7.58 552,566 $7.63 359,766 $6.26
========= ====== ======= ====== ======= =====
Options exercisable at year-end 391,784 $7.40 258,466 $5.90 184,500 $4.98
========= ====== ======= ====== ======= =====
Weighted-average fair value of
options granted during the year $2.86 $2.59 $1.98
========= ======= =======
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," in accounting for its
stock option and award plans and has adopted the disclosure-only option
under Statement of Financial Accounting Standards, ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." If the Company had adopted the
accounting provisions of SFAS 123 and recognized expense for the fair
value of employee stock options granted in 2000, 1999 and 1998, over the
vesting life of the options, pro forma net income would be as indicated
below (dollars in thousands, except per share data):
As Reported Pro Forma
----------------------------------- -----------------------------------
2000 1999 1998 2000 1999 1998
-------- --------- --------- -------- -------- ---------
Net income $2,507 $2,941 $2,679 $2,407 $2,658 $ 2,634
Basic earnings per common share $ 0.41 $ 0.49 $ 0.55 $ 0.39 $ 0.44 $ 0.54
Diluted earnings per common share $ 0.41 $ 0.48 $ 0.55 $ 0.39 $ 0.44 $ 0.54
In determining the pro forma disclosures above, the fair value of options
granted was estimated on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes model was developed to estimate
the fair value of traded options, which have different characteristics
than employee stock options, and changes to the subjective assumptions
used in the model can result in materially different fair value estimates.
The weighted-average grant date fair values of the options granted during
2000, 1999 and 1998 were based on the following assumptions:
47
Risk-Free Dividend
Interest Rates Yield
------------------------------ -----------------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ------- ------ -----
Performance-Based Incentive and other
stock option plans 6.52% 5.89% 4.62% 2.50% 2.03% 2.50%
Expected Lives Volatility
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
Performance-Based Incentive and other
stock option plans 6 years 6 years 6 years 0.30% 0.20% 0.25%
Compensation expense under the fair value-based method is recognized over
the vesting period of the related stock options. Accordingly, the pro
forma results of applying SFAS No. 123 in 2000, 1999 and 1998 may not be
indicative of future amounts.
The following table summarizes information about stock options outstanding
at December 31, 2000.
Outstanding Exercisable
------------------------------------------- ---------------------------
Average Average
Exercise Average Exercise Exercise
Price Range Shares Life Price Shares Price
- ------------------ ------------ ---------- ----------- ----------- -------------
$3.06-$3.64 21,920 1.95 $ 3.43 21,920 $ 3.43
$4.00-$4.68 67,108 4.82 4.14 67,108 4.14
$5.00-$8.00 254,732 7.86 7.69 194,682 7.63
$9.00-$10.25 278,000 8.30 9.74 108,074 9.80
------- ---- ---- ------- ----
Total 621,760 7.52 $ 8.07 391,784 $ 7.40
======= ==== ==== ======= ====
Restricted Stock
The Company awarded 17,500 shares of restricted stock under the
Performance-Based Incentive Plan (6,875 shares vested in 2000 and 6,250
shares vested in 1999). The weighted average price of restricted stock
vested during 2000 and 1999 was $8.64 and $8.00, respectively.
48
15. EMPLOYEE BENEFITS
The Company sponsors a 401(k) profit-sharing plan in which substantially
all full-time employees are eligible to participate. This plan allows
eligible employees to defer a portion of their salaries on a pretax basis.
The Company matches these deferrals on a pro rata basis as defined in the
plan. Contributions and administrative expenses related to the plan
totaled approximately $214,000, $100,000 and $99,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
Health and Welfare Plan
The Company also provides health care, dental care, disability and life
insurance benefits to all employees. Total cost related to these benefits
for 2000, 1999 and 1998 were approximately $561,000, $453,000 and
$354,000, respectively.
16. CAPITAL
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Under capital adequacy
guidelines, the Company must meet specific capital guidelines that involve
quantitative measures of its assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. Capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures as defined by regulation and established to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios
of Total and Tier I capital to risk-weighted assets and of Tier I capital
to average assets. If such minimum amounts and ratios are met, the Bank is
considered "adequately capitalized." If a bank exceeds the requirements of
"adequately capitalized" and meets even more stringent minimum standards,
it is considered to be "well capitalized." As of December 31, 2000, the
Bank meets all capital adequacy requirements to which it is subject.
49
The following table summarizes the actual and required capital levels and
ratios for the Company and the Bank at December 31, 2000 and 1999.
Adequately Well
Actual Capitalized Capitalized
Amount Ratio Amount Ratio Amount Ratio
------- ------ ------------ ------- ------------ -----
As of December 31, 2000:
Total capital (to risk-weighted assets):
Consolidated $47,306 12.0% $31,559 8.0% $39,448 10.0%
Bank 37,959 9.9% 30,838 8.0% 38,548 10.0%
Tier I capital (to risk-weighted assets):
Consolidated 43,636 11.1% 15,779 4.0% 23,669 6.0%
Bank 34,289 8.9% 15,419 4.0% 23,129 6.0%
Tier I capital (to average assets):
Consolidated 43,636 9.8% 17,862 4.0% 22,328 5.0%
Bank 34,289 7.8% 17,500 4.0% 21,875 5.0%
As of December 31, 1999:
Total capital (to risk-weighted assets):
Consolidated 45,096 17.3% 20,942 8.0% 26,178 10.0%
Bank 36,797 14.0% 21,018 8.0% 26,273 10.0%
Tier I capital (to risk-weighted assets):
Consolidated 42,425 16.2% 10,471 4.0% 15,707 6.0%
Bank 34,126 13.0% 10,509 4.0% 15,764 6.0%
Tier I capital (to average assets):
Consolidated 42,425 12.7% 13,363 4.0% 16,704 5.0%
Bank 34,126 10.3% 13,219 4.0% 16,523 5.0%
17. COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance Sheet Risk
The financial statements do not reflect various commitments and contingent
liabilities, or off-balance sheet risks, that arise in the normal course
of business to meet the financing needs of customers. These include
commitments to extend credit and to honor standby letters of credit. These
instruments involve, to varying degrees, elements of credit, interest
rate, and liquidity risks in excess of amounts reflected in the balance
sheets. The extent of the Bank's involvement in these commitments or
contingent liabilities is expressed by the contractual, or notional,
amounts of the instruments.
The Company's maximum exposure to credit loss under standby letters of
credit and commitments to extend credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in
establishing commitments and issuing letters of credit as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer so long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The amount of
collateral obtained, if any, is based on management's credit evaluation in
50
the same manner as though an immediate credit extension were to be
granted. Commitments to extend credit amount to approximately $77,000,000
and $52,000,000 at December 31, 2000 and 1999, respectively.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities. The Company had approximately
$6,760,000 and $4,156,000 of standby letters of credit outstanding at
December 31, 2000 and 1999, respectively. The Company does not anticipate
any material losses as a result of participating in standby letters of
credit or commitments to extend credit.
Concentrations of Credit Risk
The Bank originates residential and commercial real estate loans and other
consumer and commercial loans primarily in the north Florida area. In
addition, the Bank occasionally purchases loans, primarily in Florida.
Although the Bank has a diversified loan portfolio, a substantial portion
of its borrowers' ability to repay their loans is dependent upon economic
conditions in the Bank's market area.
Federal Reserve Requirement
The Federal Reserve Board requires that certain banks maintain reserves,
based on their average deposits, in the form of vault cash and average
deposit balances at a Federal Reserve Bank. The requirement as of December
31, 2000 and 1999 was approximately $8.8 million and $6.8 million,
respectively.
Legal Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company
is a defendant in certain claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with
legal counsel, the ultimate disposition of these matters is not expected
to have a material adverse effect on the consolidated financial condition,
operations, or liquidity of the Company.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Many of the Company's assets and liabilities are short-term financial
instruments whose carrying values approximate fair value. These items
include cash and due from banks, interest-bearing deposits with other
banks, federal funds sold, federal funds purchased, securities sold under
repurchase agreements and other short term borrowings. In cases where
quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. The resulting fair
values may be significantly affected by the assumptions used, including
the discount rates and estimates of future cash flows.
51
The methods and assumptions used to estimate the fair value of the
Company's other financial instruments are as follows:
Investment Securities
Fair values for investment securities are based on quoted market
prices. If a quoted market price is not available, fair value is
estimated using market prices for similar securities.
Loans
The loan portfolio is segregated into categories and the fair
value of each loan category is calculated using present value
techniques based on projected cash flows and estimated discount
rates. The calculated present values are then reduced by an
allocation of the allowance for loan losses against each
respective loan category.
Deposits
The fair values of noninterest-bearing deposits, NOW accounts,
money market accounts, and savings accounts are the amounts
payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining
maturities.
Commitments to Extend Credit and Standby Letters of Credit
The estimated fair values for other financial instruments and
off-balance sheet loan commitments are considered to approximate
carrying amounts at December 31, 2000 and 1999.
The Company's financial instruments which have estimated fair values
differing from their respective carrying values are presented as follows
at December 31, 2000 and 1999 (in thousands):
2000 1999
----------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------ -------------- -------------- -----------
Financial assets:
Investment securities held to maturity $ 7,460 $ 7,458 $ 10,582 $ 9,917
Net loans $ 377,151 $ 376,983 $ 263,413 $ 261,910
Financial liabilities:
Time deposits $ 185,739 $ 185,627 $ 133,990 $ 134,046
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 financial instruments at December 31, 2000, the estimated
fair values would necessarily have been achieved at that date, since market
values may differ depending on various circumstances. The estimated fair values
at December 31, 2000 would not necessarily be indicative of fair values at
future dates.
52
19. BRANCH ACQUISITIONS
In December 2000, the Bank entered into a definitive agreement to
acquire two branch offices in existing markets from Republic Bank. Under terms
of the agreement, the Bank will purchase the banking facilities, acquire
approximately $12 million in consumer and residential loans and assume
approximately $65 million in deposits. Existing Republic Bank employees of the
branches will be offered employment with the Bank. The transaction is
anticipated to close in May 2001, pending receipt of regulatory approval.
53
20. CONDENSED FINANCIAL DATA (PARENT COMPANY ONLY)
Statement of Financial Condition
December 31, 2000 and 1999
Assets
2000 1999
-------------- ------------
(dollars in thousands)
Cash and cash equivalents $ 372 $ 4,187
Investment in CNB National Bank 35,153 34,670
Building and improvements 8,800 3,790
Other assets 339 428
------- -------
Total assets $ 44,664 $ 43,075
======= =======
Liabilities and Shareholders' Equity
Liabilities
Other liabilities $ 28 $ -
------- -------
Total liabilities 28 -
------- -------
Shareholders' equity
Common stock 61 61
Additional paid-in capital 30,581 30,805
Retained earnings 14,027 12,746
Accumulated other comprehensive (loss) income,
net of taxes (33) (537)
------- -------
Total shareholders' equity 44,636 43,075
------- -------
Total liabilities and shareholders'
equity $ 44,664 $ 43,075
======= =======
54
Statement of Income
December 31,
2000 1999 1998
----------- ----------- -----------
(dollars in thousands)
Dividend income $2,755 $1,679 $1,853
Interest income 71 298 328
Interest expense - - (7)
------ ------ ------
Net interest and dividend income 2,826 1,977 2,174
Noninterest income, net 2 - -
Noninterest expense, net (451) (1,016) (110)
Realized losses on available for sale securities (50) - -
------ ------ ------
Income before income taxes and equity in undistributed net
income of subsidiary 2,327 961 2,064
Income tax benefit (provision) 160 268 (79)
------ ------ ------
Income before equity in undistributed
net income of subsidiary 2,487 1,229 1,985
Equity in undistributed net income of subsidiary 20 1,712 694
------ ------ ------
Net income $2,507 $2,941 $2,679
====== ====== ======
55
Statement of Cash Flows
December 31,
2000 1999 1998
--------- --------- ---------
(dollars in thousands)
Cash flows from operating activities:
Net income $2,507 $2,941 $2,679
Ajustments to reconcile net income to net cash (used in)
provided by operating activities:
Undistributed earnings of subsidiary (20) (1,712) (694)
Depreciation 41 - -
Non-cash compensation 58 71 -
Unrealized gain on available for sale securities (17) - -
Changes in assets and liabilities:
Other assets 204 (1,891) (135)
Other liabilities 28 (10) -
------ ------ -----
Net cash (used in) provided by operating
activities 2,801 (601) 1,850
------ ------ -----
Cash flows from investing activities:
Cash paid related to investment in subsidiary - (10,000) -
Cash paid related to land purchase - (1,339) (677)
Purchases - buildings and improvements (5,010) - -
Purchase of available for sale securities (98) - -
----- ------ ------
Cash flows from financing activities:
Payments on notes payable - - (1,450)
Cash dividends (1,226) (1,159) (971)
Proceeds from issuance of common stock 113 11,377 -
Payment to repurchase common stock (395) (96) -
----- ------ -----
Net cash provided by (used in)financing activities (1,508) 10,122 (2,421)
----- ------ -----
Net (decrease) increase in cash and cash equivalents (3,815) (1,818) (1,248)
Cash and cash equivalents, beginning of year 4,187 6,005 7,253
----- ------ ------
Cash and cash equivalents, end of year $ 372 $ 4,187 $ 6,005
===== ====== ======
56
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
PART III
Except for the information relating to the Company's executive officers and
its key employees, the material required by items 10 through 13 is hereby
incorporated by reference from the Company's definitive proxy statement pursuant
to Instruction G of Form 10-K. The Company will file its definitive Proxy
Statement with the Commission prior to April 30, 2001.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits.3(i) Articles of Incorporation (Incorporated by
reference to Exhibit 3.3 to the Company's
Registration Statement No. 33-71082, as amended,
on Form S-4 filed February 8,1994).
3(ii) By-laws (Incorporated by reference to Exhibit 3.4
to the Company's Registration Statement No.
33-71082, as amended, on Form S-4 filed February
8, 1994).
10(i) Bennett Brown Employment Agreement (Incorporated
by reference to Exhibit 10 of the Company's June
30, 1999 10-Q filed on August 16, 1999).
10(ii) K. C. Trowell Employment Agreement (Incorporated
by reference to Exhibit 10 (i) to the Company's
Pre-Effective Amendment No. 1 to its Registration
Statement on Form S-2 filed as of January 26,
1999).
10(iii) G. Thomas Frankland Employment Agreement
(Incorporated by reference to Exhibit 10 (ii) to
the Company's Pre-Effective Amendment No. 1 to its
Registration Statement on Form S-2 filed as of
January 26, 1999).
10(iv) 1998 Performance-Based Incentive Plan
(Incorporated by reference to Exhibit 99 to the
Company's Registration Statement on Form S-8 filed
December 7, 1998).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen, LLP, independent
certified public accountants .
27 Financial Data Schedule.
Report of Form 8-K:
- ------------------
The Company did not file a form 8-K during the last quarter of 2000.
57
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CNB Florida Bancshares, Inc.
-------------------------------------
(Registrant)
By: /s/ G. Thomas Frankland
-------------------------------------
G. Thomas Frankland
Executive Vice President
and Chief Financial Officer
Date: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------------- ---------- ------------
/s/ Thomas R. Andrews Director March 28, 2001
-------------------------------
Thomas R. Andrews
/s/ Audrey S. Bullard Director March 28, 2001
-------------------------------
Audrey S. Bullard
/s/ Raymon J. Land Director March 28, 2001
-------------------------------
Raymon J. Land
/s/ Marvin H. Pritchett Director March 28, 2001
-------------------------------
Marvin H. Pritchett
/s/ William J. Streicher Director March 28, 2001
-------------------------------
William J. Streicher
/s/ Halcyon E. Skinner Director March 28, 2001
-------------------------------
Halcyon E. Skinner
/s/ K. C. Trowell Chairman, CEO & Director March 28, 2001
-------------------------------
K. C. Trowell
/s/ G. Thomas Frankland Executive Vice President March 28, 2001
------------------------------- and Chief Financial Officer
G. Thomas Frankland (Principal Financial Officer
/s/ Martha S. Tucker Controller March 28, 2001
------------------------------- (Principal Accounting Officer)
Martha S. Tucker
58