UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required) For the quarterly period ended
September 30, 2001
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required) For the transition period from
________ to ________
Commission File No. 0-25988
CNB Florida Bancshares, Inc.
----------------------------
(Exact Name of Registrant as Specified in Its Charter)
FLORIDA 59-2958616
------------------------------ -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9715 Gate Parkway North
Jacksonville, Florida 32246
------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 997-8484
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
The number of shares of the registrant's common stock outstanding as of October
31, 2001 was 6,082,377 shares, $0.01 par value per share.
CNB FLORIDA BANCSHARES, INC.
FINANCIAL REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
(unaudited)
Consolidated Statement of Financial Condition.........................3
Consolidated Statement of Income......................................4
Consolidated Statement of Cash Flows..................................6
Notes to Consolidated Financial Statements............................7
Selected Financial Data...............................................9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview.............................................................10
Results of Operations................................................10
Liquidity and Interest Rate Sensitivity..............................13
Earning Assets.......................................................16
Funding Sources......................................................20
Capital Resources....................................................20
Item 3. Quantitative and Qualitative Disclosure About Market Risk...21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...........................................22
Item 2. Changes in Securities ......................................22
Item 3. Defaults Upon Senior Securities ............................22
Item 4. Submission of Matters to a Vote of Security Holders ........22
Item 5. Other Information ..........................................22
Item 6. Exhibits and Reports on Form 8-K ...........................22
2
PART I
FINANCIAL INFORMATION
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
ASSETS (thousands)
Cash and cash equivalents:
Cash and due from banks $ 19,835 $ 20,769
Interest bearing deposits in other banks 554 129
------- -------
Total cash and cash equivalents 20,389 20,898
Investment securities available for sale 33,230 33,236
Investment securities held to maturity 5,457 7,460
Loans:
Commercial, financial and agricultural 266,233 192,540
Real estate - mortgage 158,626 120,663
Real estate - construction 43,404 33,648
Installment and consumer 40,623 33,970
------- -------
Total loans, net of unearned income 508,886 380,821
Less: Allowance for loan losses (4,850) (3,670)
------- -------
Net loans 504,036 377,151
Premises and equipment, net 26,307 22,433
Intangible assets 6,671 1,034
Other assets 5,702 5,381
------- -------
TOTAL ASSETS $ 601,792 $ 467,593
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing demand $ 69,539 $ 52,082
Savings, NOW and money market 189,443 129,865
Time (under $100,000) 155,582 115,406
Time ($100,000 and over) 108,190 70,333
------- -------
Total deposits 522,754 367,686
Securities sold under repurchase agreements and federal funds purchased 15,757 21,142
Short term borrowings 12,000 30,000
Other liabilities 5,039 4,129
------- -------
Total liabilities 555,550 422,957
------- -------
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;
6,085,077 and 6,099,376 shares issued and outstanding
at September 30, 2001 and December 31, 2000, respectively 61 61
Additional paid-in capital 30,456 30,581
Retained earnings 15,189 14,027
Accumulated other comprehensive income, net of tax 536 (33)
------- -------
Total shareholders' equity 46,242 44,636
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 601,792 $ 467,593
======= =======
3
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Nine Months Ended September 30,
2001 2000
------------ ------------
(thousands)
Interest Income
Interest and fees on loans $ 28,349 $ 20,610
Interest on investment securities available for sale 1,439 1,593
Interest on investment securities held to maturity 305 444
Interest on federal funds sold 94 177
Interest on interest bearing deposits 8 57
--------- ---------
Total interest income 30,195 22,881
Interest Expense
Interest on deposits 13,438 9,172
Interest on repurchase agreements and federal funds purchased 480 378
Interest on short-term borrowings 1,142 568
--------- ---------
Total interest expense 15,060 10,118
--------- ---------
Net interest income 15,135 12,763
Provision for Loan Losses 1,450 950
--------- ---------
Net interest income after provision for loan losses 13,685 11,813
Non-interest Income
Service charges 1,867 1,634
Secondary market mortgage loan sales 1,237 196
Other fees and charges 724 569
--------- ---------
Total non-interest income 3,828 2,399
--------- ---------
Non-interest Expense
Salaries and employee benefits 7,507 6,337
Occupancy and equipment expenses 2,221 1,576
Other operating expenses 4,590 3,433
--------- ---------
Total non-interest expense 14,318 11,346
--------- ---------
Income before income taxes 3,195 2,866
Income taxes 1,118 990
--------- ---------
NET INCOME $ 2,077 $ 1,876
========= =========
Earnings Per Share (Note 3):
Basic earnings per share $ 0.34 $ 0.31
========= =========
Weighted average shares outstanding 6,096,582 6,099,278
========= =========
Diluted earnings per share $ 0.33 $ 0.31
========= =========
Diluted weighted average shares outstanding 6,212,878 6,141,743
========= =========
4
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended September 30,
2001 2000
------------ ------------
(thousands)
Interest Income
Interest and fees on loans $ 9,902 $ 7,568
Interest on investment securities available for sale 460 532
Interest on investment securities held to maturity 90 147
Interest on federal funds sold 66 17
Interest on interest bearing deposits 6 17
--------- ---------
Total interest income 10,524 8,281
Interest Expense
Interest on deposits 4,795 3,336
Interest on repurchase agreements and federal funds purchased 121 188
Interest on short-term borrowings 276 399
--------- ---------
Total interest expense 5,192 3,923
--------- ---------
Net interest income 5,332 4,358
Provision for Loan Losses 550 350
--------- ---------
Net interest income after provision for loan losses 4,782 4,008
Non-interest Income
Service charges 649 575
Secondary market mortgage loan sales 491 110
Other fees and charges 232 163
--------- ---------
Total non-interest income 1,372 848
--------- ---------
Non-interest Expense
Salaries and employee benefits 2,530 2,178
Occupancy and equipment expenses 825 558
Other operating expenses 1,842 1,155
--------- ---------
Total non-interest expense 5,197 3,891
--------- ---------
Income before income taxes 957 965
Income taxes 333 333
--------- ---------
NET INCOME $ 624 $ 632
========= =========
Earnings Per Share (Note 3):
Basic earnings per share $ 0.10 $ 0.10
========= =========
Weighted average shares outstanding 6,097,248 6,088,137
========= =========
Diluted earnings per share $ 0.10 $ 0.10
========= =========
Diluted weighted average shares outstanding 6,210,072 6,125,459
========= =========
5
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2001 2000
------------ ------------
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,077 $ 1,876
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,408 832
Provision for loan loss 1,450 950
Investment securities (accretion) amortization, net (5) 14
Non-cash compensation 17 44
Changes in assets and liabilities:
Other assets (664) (610)
Other liabilities 910 667
--------- ---------
Net cash provided by operating activities 5,193 3,773
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale (30,876) (858)
Proceeds from maturities of securities available for sale 21,798 3,214
Proceeds from maturities of securities held to maturity 3 562
Proceeds from called securities available for sale 10,000 489
Proceeds from called securities held to maturity 1,998 815
Net increase in loans (116,099) (80,569)
Purchases of premises and equipment, net (3,065) (7,998)
Branches acquired from Republic Bank 42,279 -
--------- ---------
Net cash used in investing activities (73,962) (84,345)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 92,702 51,294
Decrease in securities sold under repurchase agreements and
federal funds purchased (5,385) (465)
(Decrease) increase in short term borrowings (18,000) 35,000
Cash dividends paid (915) (917)
Repurchase of common stock (152) (395)
Exercise of options 10 89
--------- ---------
Net cash provided by financing activities 68,260 84,606
--------- ---------
(Decrease) increase in cash and cash equivalents (509) 4,034
Cash and cash equivalents at beginning of period 20,898 17,520
--------- ---------
Cash and cash equivalents at end of period $ 20,389 $ 21,554
========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 14,041 $ 9,329
========= =========
Taxes paid $ 1,479 $ 1,299
========= =========
6
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q which do not require all information and
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, such financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the results for the interim periods presented. Operating
results for the three and nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. Management's discussion and analysis should be read in
conjunction with the consolidated financial statements.
Note 2. Consolidation
The consolidated financial statements include the accounts of CNB Florida
Bancshares, Inc. and its wholly owned subsidiary, CNB National Bank. All
significant intercompany accounts and transactions have been eliminated.
Note 3. Earnings Per Share
Basic earnings per share is calculated based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share
is calculated based on the weighted average number of shares of common stock
outstanding and common stock equivalents, consisting of outstanding stock
options. Common stock equivalents are determined using the treasury method for
diluted shares outstanding. The difference between diluted and basic shares
outstanding is common stock equivalents from stock options and restricted stock
outstanding during the periods ended September 30, 2001 and 2000.
Note 4. Branch Acquisitions
On May 11, 2001, the Bank purchased the Lake City and Live Oak branches of
Republic Bank. The Bank acquired loans and deposits of approximately $12 million
and $64 million, respectively. The Bank also recorded a core deposit intangible
of $6 million, which is being amortized over its estimated life of 10 years.
Note 5. Comprehensive Income
Comprehensive income is defined as the total of net income and all other changes
in equity. The following table details the Company's comprehensive income for
the three and nine month periods ending September 30, 2001 and 2000.
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net Income $ 624 $ 632 $ 2,077 $ 1,876
Other Comprehensive Income (Loss), Net of Tax
Unrealized Gains (Losses) on Securities:
Unrealized Gains (Losses) on Securities
Arising During the Period 151 246 566 279
Less: Reclassification Adjustment - (2) (3) 9
---- ---- ----- -----
Total Unrealized Gains (Losses), Net of Tax
Recognized in Other Comprehensive Income 151 248 569 270
---- ---- ----- -----
Comprehensive Income, Net of Tax $ 775 $ 880 $ 2,646 $ 2,146
==== ==== ===== =====
7
Note 6. Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141").
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company will apply the provisions of SFAS 141 to future acquisitions.
In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangibles
("SFAS 142"). SFAS 142 requires, among other things, the discontinuance of
goodwill amortization and includes provisions for reassessment of the useful
lives of existing intangibles and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS 142 also
requires the Company to complete a two-step transitional goodwill impairment
test. The first step of the impairment test must be completed six months from
the date of adoption and the second step must be completed as soon as possible,
but no later than the end of the year of initial application. The Company will
be adopting the provisions of SFAS 142 on January 1, 2002. Therefore, the
Company is currently assessing but has not yet determined the impact of SFAS 142
on its financial position and results of operations. For the nine months ended
September 30, 2001, the Company recorded goodwill amortization expense of
$52,000.
In July 2001, the SEC released Staff Accounting Bulletin ("SAB") No. 102,
Selected Loan Loss Allowance Methodology and Documentation Issues. SAB No. 102
expresses the SEC staff's views on the development, documentation and
application of a systematic methodology in determining a GAAP allowance for loan
losses. The SAB stresses that the methodology for computing the allowance be
both disciplined and consistent, and emphasizes that the documentation
supporting the allowance and provision must be sufficient. SAB No. 102 provides
guidance that is consistent with the Federal Financial Institutions Examination
Council's ("FFIEC"), Policy Statement on Allowance for Loan and Lease Losses
Methodologies and Documentation for Banks and Savings Institutions, which was
also issued in July 2001. SAB No. 102 is applicable to all registrants with
material loan portfolios while the parallel guidance of the FFIEC is applicable
only to banks and savings institutions. The adoption of this bulletin did not
have a material impact on reported results of operations of the Company.
Note 7. Subsequent Event
On October 1, 2001, the Company modified its existing line of credit agreement
with a bank. The existing $10 million line of credit was modified through the
following structures:
o $3 million revolving line of credit maturing on June 30, 2002.
Interest is variable at 3-month Libor plus 145 basis points.
o $10 million term loan maturing October 3, 2006. Interest is
variable at 3-month Libor plus 170 basis points. Quarterly
principal payments begin in 2003 based on a 7-year
amortization schedule.
In addition, the Company entered into a $10 million pay-fixed interest rate swap
with the same bank. The fixed rate under the interest rate swap is 6.45% and the
variable rate is based on 3-month Libor plus 170 basis points. The swap matures
October 3, 2006 and has been designated as a cash flow hedge of the variable
interest payments on the $10 million term loan noted above.
8
CNB FLORIDA BANCSHARES, INC. AND SUBSIDIARY
Selected Financial Data
Nine Months Ended September 30,
2001 2000
------------ -------------
Dollars in thousands except per share information.
-----------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
Total interest income $ 30,195 $ 22,881
Total interest expense (15,060) (10,118)
----------- -----------
Net interest income 15,135 12,763
Provision for loan losses (1,450) (950)
------------ ------------
Net interest income after
provision for loan losses 13,685 11,813
Non-interest income 3,828 2,399
Non-interest expense (14,318) (11,346)
----------- -----------
Income before taxes 3,195 2,866
Income taxes (1,118) (990)
----------- -----------
Net income $ 2,077 $ 1,876
============ ===========
-----------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Basic earnings $ 0.34 $ 0.31
Diluted earnings 0.33 0.31
Book value 7.61 7.23
Dividends 0.15 0.15
Actual shares outstanding 6,085,077 6,091,300
Weighted average shares outstanding 6,096,582 6,099,278
Diluted weighted average shares outstanding 6,212,878 6,141,743
-----------------------------------------------------------------------------------------------------
KEY RATIOS:
Return on average assets 0.52% 0.65%
Return on average shareholders' equity 6.10 5.77
Dividend payout 44.11 48.39
Efficiency ratio 75.50 74.83
Total risk-based capital ratio 8.94 13.51
Average shareholders' equity to
average assets 8.47 11.18
Tier 1 leverage 6.66 10.48
-----------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AT PERIOD-END:
Assets $ 601,792 $ 433,540
Loans 508,886 346,457
Deposits 522,754 339,497
Shareholders' equity 46,242 44,042
-----------------------------------------------------------------------------------------------------
9
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 nine months ended September 30, 2001 and 2000. This financial
information should be read in conjunction with the unaudited consolidated
financial statements of CNB Florida Bancshares, Inc. ("the Company") and its
wholly owned subsidiary, CNB National Bank ("the Bank"), included in "Item 1.
Financial Statements" above and the audited consolidated financial statements
included in Form 10-K for the year ended December 31, 2000. The analysis
contains forward-looking statements with respect to financial and business
matters, which are subject to risks and uncertainties, that may change over a
period of time. These risks and uncertainties include but are not limited to
changes in interest rates, variances in actual versus projected growth in
assets, loan losses, the ability to control expenses, costs of opening new
branches and entering the First Coast and Gainesville markets, competitive
factors and general economic conditions, changes in government regulation, the
ability to attract and retain qualified personnel and the ability to attract new
loan and deposit relationships. Actual results could be significantly different
from the forward-looking statements contained herein. The Company has no foreign
operations; accordingly, there are no assets or liabilities attributable to
foreign operations.
RESULTS OF OPERATIONS
The Company's net income for the nine month period ended September 30,
2001 was $2.1 million, or $0.33 per diluted share, compared to $1.9 million, or
$0.31 per diluted share, for the nine month period in 2000. Net income for the
three month period ended September 30, 2001 was $624,000, or $0.10 per diluted
share, compared to $632,000, or $0.10 per diluted share, for the comparable
period in 2000. Total assets increased to $601.8 million at September 30, 2001
compared to $433.5 million at September 30, 2000, an increase of 39%. Included
in the results for a portion of the first nine months of 2001 is the impact of
the acquisition of the Lake City and Live Oak branches of Republic Bank in May
2001. In connection with the purchase, the Company acquired loans and deposits
of approximately $12 million and $64 million, respectively.
Net Interest Income
Net interest income is the single largest source of revenue for the
Bank and consists of interest and fee income generated by earning assets, less
interest expense paid on interest bearing liabilities. Net interest income was
$15.1 million for the nine month period ending September 30, 2001, compared to
$12.8 million for the comparable period in 2000, an increase of 19%. Interest
income for the three and nine month periods ended September 30, 2001, increased
$2.2 million, or 27%, and $7.3 million, or 32%, respectively, over the
comparable prior year periods. Loan growth was the primary contributor to the
increase in interest income. Interest expense rose $1.3 million, or 32% and $4.9
million, or 49% for the three and nine months ending September 30, 2001,
respectively, from the comparable 2000 periods. The increased interest expense
reflects deposit growth, including those accounts acquired from Republic Bank,
and partially mitigated the positive impact of loan growth on net interest
income.
Average loans increased $144.6 million or 48% and represented 91% of
total average earning assets for the nine months ended September 30, 2001 versus
86% for 2000. The Company's loan to deposit ratio at September 30, 2001 was 97%
compared to 104% at December 31, 2000.
The Company's net interest margin decreased to 4.13% in 2001, compared
to 4.85% in 2000. The decline in the margin is reflective of a drop in interest
rates of 400 basis points during the first nine months of 2001 coupled with an
increase in average time deposit rates.
Table 1: "Average Balances - Yields and Rates" provides the Company's
average volume of interest earning assets and interest bearing liabilities for
the nine months ended September 30, 2001 and 2000. Table 1a presents an analysis
of changes in interest income and expense.
10
Table 1: Average Balances - Yields and Rates
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
------------------------------------- -----------------------------------
Interest Interest
Average Income or Average Average Income or Average
Balance Expense Rate Balance Expense Rate
--------- ----------- ---------- --------- ---------- ----------
(dollars in thousands)
ASSETS:
Federal funds sold $ 3,178 $ 94 3.96% $ 3,951 $ 177 5.98%
Investment securities
available for sale 32,248 1,439 5.97 33,522 1,593 6.35
Investment securities
held to maturity 6,659 305 6.12 10,212 444 5.81
Loans (1) 447,375 28,349 8.47 302,824 20,610 9.09
Interest bearing deposits 346 8 3.09 1,148 57 6.63
------- --------- ---- ------- ------- ----
TOTAL EARNING ASSETS 489,806 30,195 8.24 351,657 22,881 8.69
All other assets 47,910 36,749
------- -------
TOTAL ASSETS $ 537,716 $ 388,406
======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY:
NOW and money markets $ 140,193 $ 3,018 2.88% $ 108,650 $ 2,698 3.32%
Savings 18,218 158 1.16 17,346 180 1.39
Time deposits 224,638 10,262 6.11 146,272 6,294 5.75
Repurchase agreements and
federal funds purchased 14,725 480 4.36 8,830 378 5.72
Short term borrowings 27,344 1,142 5.58 11,277 568 6.73
------- --------- ---- ------- ------- ----
TOTAL INTEREST BEARING
LIABILITIES 425,118 15,060 4.74 292,375 10,118 4.62
Demand deposits 60,654 48,759
Other liabilities 6,400 3,841
Shareholders' equity 45,544 43,431
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 537,716 $ 388,406
======= =======
---- ----
INTEREST SPREAD (2) 3.50% 4.07%
==== ====
--------- -------
NET INTEREST INCOME $ 15,135 $ 12,763
========= =======
NET INTEREST MARGIN (3) 4.13% 4.85%
===== ====
(1) Interest income on average loans includes loan fee recognition of $804,000
and $644,000 in 2001 and 2000, respectively.
(2) Represents the average rate earned minus average rate paid.
(3) Represents net interest income divided by total earning assets.
11
Table 1a: Analysis of Changes in Interest Income and Expense
(Unaudited)
NET CHANGE SEPTEMBER 30, NET CHANGE SEPTEMBER 30,
2000-2001 ATTRIBUTABLE TO: 1999-2000 ATTRIBUTABLE TO:
-------------------------- --------------------------
Net Net
Volume (1) Rate (2) Change Volume (1) Rate (2) Change
---------- -------- ------ ---------- -------- ------
(thousands)
INTEREST INCOME:
Federal funds sold $ (35) $ (48) $ (83) $ (389) $ 36 $ (353)
Investment securities available for sale (62) (92) (154) (630) 123 (507)
Investment securities held to maturity (155) 16 (139) 65 25 90
Loans 9,810 (2,071) 7,739 6,409 245 6,654
Interest bearing deposits (40) (9) ( 49) (366) 15 (351)
------ ------- ------ ------- ------- -------
Total 9,518 (2,204) 7,314 5,089 444 5,533
------ ------- ------ ------- ------- -------
INTEREST EXPENSE:
NOW and money markets 781 (461) 320 475 1,011 1,486
Savings 8 (30) (22) (1) (4) (5)
Time deposits 3,363 605 3,968 580 685 1,265
Repurchase agreements and
federal funds purchased 192 (90) 102 103 61 164
Short term borrowings 811 (237) 574 - 568 568
------ ------- -------- ------- ------- -------
Total 5,155 (213) 4,942 1,157 2,321 3,478
------ ------- ------- ------- ------- -------
Net interest income $ 4,363 $ (1,991) $ 2,372 $ 3,932 $ (1,877) $ 2,055
====== ======= ======= ======= ======= =======
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the actual average rate during the prior period.
(2) The rate variance reflects the change in the actual average rate multiplied
by the average balance outstanding during the prior period. Changes which
are not solely due to volume changes or solely due to rate changes have
been attributed to rate changes.
Non-Interest Income
Non-interest income for the nine months ended September 30, 2001 was
$3.8 million, an increase of $1.4 million, or 60% as compared to the same period
in 2000. For the three months ended September 30, 2001, non-interest income
increased $524,000 or 62% to $1.4 million as compared to $848,000 for the same
period in 2000. Service charges on deposit accounts increased to $233,000 for
the nine month period and $74,000 for the three month period ending September
30, 2001 as compared to the same periods in 2000. Other fee income, which
includes credit card fees, credit life insurance income, safe deposit box fees,
fees from mortgage loans sold to secondary markets, net gains and losses from
sale of securities and other miscellaneous fees, increased $450,000 in the third
quarter of 2001 compared to the third quarter of 2000 and increased $1.2 million
for the first nine months of 2001 versus the comparable period in 2000. The
increase in other fee income was primarily attributed to growth in mortgage loan
originations sold to secondary loan markets and higher service charge income.
Non-interest income, annualized, as a percentage of average assets was
0.95% for the nine months ended September 30, 2001, compared to 0.83% for the
comparable period in 2000.
Non-Interest Expense
Non-interest expense increased in the third quarter of 2001 compared to
the same period in 2000 by $1.3 million or 34%, and $3.0 million, or 26% for the
2001 nine month period versus the comparable period in 2000. Non-interest
expense, annualized, as a percentage of average assets for the nine month period
ending September 30, 2001 and 2000 was 3.56% and 3.90%, respectively.
12
Salaries and employee benefits increased $1.2 million or 18% to $7.5
million for the 2001 nine month period, compared to $6.3 million for the same
period in 2000. This increase reflects the opening of two new branches in our
First Coast market, in addition to the purchase of the Lake City and Live Oak
branches of Republic Bank.
Occupancy expense, including premises, furniture, fixtures and
equipment, increased $267,000, or 48% and $645,000, or 41%, respectively in
2001, over the comparable three and nine month periods in 2000. The increase is
primarily attributable to the increased costs resulting from branch openings in
Jacksonville and St. Augustine, the relocation during 2000 into new facilities
in Jacksonville and Gainesville and the expansion of our Lake City Operations
Center. The Bank also acquired two branches from Republic Bank in May 2001 and,
in connection with that transaction, closed an existing branch in Live Oak.
Other operating expenses increased $1.2 million, or 34%, for the first
nine months of 2001 compared to the same period in 2000. The following table
details the areas of significance in other operating expenses.
Table 2: Other Operating Expenses
Nine Months Ended September 30,
2001 2000
---------- ----------
(thousands)
Data processing $ 810 $ 486
Advertising and promotion 437 474
Telephone 430 436
Postage and delivery 495 405
Legal and professional 324 335
Supplies 427 304
Amortization of intangible assets 339 135
Loan expenses 191 127
Regulatory fees 167 110
Administrative 155 141
Insurance and bonding 80 60
Education expense 78 32
Dues and subscriptions 66 51
Directors fees 56 60
Other general operating 50 90
Other 485 187
------ ------
Total other operating expenses $4,590 $3,433
====== ======
Income Taxes
The Company's income tax expense in interim reporting periods is
determined by estimating the combined federal and state effective tax rate for
the year and applying such rate to interim pre-tax income. The Company's
estimated effective tax rate for the corresponding quarter and current year is
approximately 35%.
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. These funds can be obtained
by converting assets to cash or by attracting new deposits. Average liquid
assets (cash and amounts due from banks, interest bearing deposits in other
banks, federal funds sold and investment securities available for sale) totaled
$55.1 million and represented 12% of average total deposits during the nine
months of 2001, compared to $54.8 million and 17% for 2000. Average loans were
101% and 94% of average deposits for the nine month period ended September 30,
2001 and 2000, respectively.
13
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 and lines for the purchase of federal funds by the Company
from its principal correspondent banks. In addition, the Company has a 364-day
$10 million line of credit with one of its correspondent banks, which was
modified subsequent to September 30, 2001 (see Note 7). The Company is also a
member of the FHLB and has access to short-term and long- term funds.
Outstanding borrowings at September 30, 2001 and 2000 with the FHLB and other
financial institutions were $12.0 million and $3.1 million, respectively.
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 risk 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 of changes in interest rates on net
interest income.
In Table 3, "Rate Sensitivity Analysis", rate sensitive assets and
liabilities are shown, 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 at September 30, 2001, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances.
14
Table 3: Rate Sensitivity Analysis
September 30, 2001
(dollars in thousands)
Fair
1 Year 2 Years 3 Years 4 Years 5 Years Beyond TOTAL Value
------ ------- ------- ------- ------- ------ ----- -----
INTEREST-EARNING ASSETS:
Investment securities (1)
Fixed rate investments $ 4,541 $ - $ 18,137 $ 4,100 $ 5,457 $ 684 $ 32,919 $ 33,638
Average interest rate 3.81% 5.63% 5.36% 6.15% 5.39% 5.43%
Variable rate investments - - - - - 1,071 1,071 1,086
Average interest rate 6.40% 6.40%
Loans
Fixed rate loans 57,265 34,882 35,835 31,405 30,614 66,963 256,964 253,536
Average interest rate 8.53% 8.85% 8.69% 8.79% 8.56% 7.92% 8.47%
Variable rate loans 76,521 28,368 25,005 16,966 13,850 91,212 251,922 251,922
Average interest rate 6.67% 6.43% 6.81% 6.94% 6.85% 7.80% 7.09%
Other earning assets (2) 4,395 - - - - - 4,395 4,517
Average interest rate 5.84% 5.84%
------- ------ ------ ------ ------ ------- ------- -------
Total interest-earning assets $ 142,722 $ 63,250 $ 78,977 $ 52,471 $ 49,921 $ 159,930 $ 547,271 $ 544,699
Average interest rate 7.30% 7.76% 7.39% 7.92% 7.82% 7.83% 7.63%
======= ====== ====== ====== ====== ======= ======= =======
INTEREST-BEARING LIABILITIES:
Savings $ - $ - $ - $ - $ - $ 19,836 $ 19,836 $ 19,836
Average interest rate 1.00% 1.00%
NOW 35,488 - - - - 67,342 102,830 102,830
Average interest rate 3.24% 0.76% 1.62%
Money market (3) 62,565 - - - - 4,212 66,777 66,777
Average interest rate 3.82% 2.00% 3.71%
CD's under $100,000 135,858 11,692 3,667 4,365 - - 155,582 154,490
Average interest rate 5.21% 5.21% 4.91% 4.84% 5.19%
CD's $100,000 and over 97,524 6,657 1,938 1,955 116 - 108,190 107,418
Average interest rate 5.60% 5.61% 4.80% 4.74% 6.55% 5.57%
Securities sold under
repurchase agreements and
federal funds purchased 15,757 - - - - - 15,757 15,757
Average interest rate 2.37% 2.37%
Short term borrowings 12,000 - - - - - 12,000 12,000
Average interest rate 4.02% 4.02%
-------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 359,192 $ 18,349 $ 5,605 $ 6,320 $ 116 $ 91,390 $ 480,972 $ 479,108
Average interest rate 4.71% 5.36% 4.87% 4.81% 6.55% 0.87% 4.01%
======= ======= ======= ======= ======= ======= ======= =======
(1) Securities available for sale are shown at their amortized cost, excluding
market value adjustment for unrealized gains of $856,000.
(2) Represents interest bearing deposits with other banks, Federal Reserve Bank
Stock, Federal Home Loan Bank Stock and other marketable equity securities.
(3) All Money Market accounts $25,000 and over and 30% of Money Market accounts
under $25,000 have been designated as maturing within one year.
15
Core deposits, which represent all deposits other than time deposits in
excess of $100,000, were 79% of total deposits at September 30, 2001 and 81% at
December 31, 2000. The Bank closely monitors its reliance on time deposits in
excess of $100,000, which are generally considered less stable and less reliable
than core deposits. Table 4, below, sets forth the amounts of time deposits with
balances of $100,000 or more that mature within indicated periods. The Bank does
not nor has it ever solicited brokered deposits.
Table 4: Maturity of Time Deposits of $100,000 or More
September 30, 2001
(dollars in thousands)
Amount
Three months or less $ 28,416
Three through six months 28,340
Six through twelve months 40,768
Over twelve months 10,666
-------
Total $108,190
=======
EARNING ASSETS
Loans
During the nine month period ending September 30, 2001, average loans
were $447.4 million and were 101% of average deposits, compared to $302.8
million and 94% for 2000. Total loans have increased by $128.1 million, or 34%,
since December 31, 2000. Loan growth has occurred in all of the portfolios, with
the most significant increase in commercial, financial and agricultural loans
and real estate- mortgage loans. Average loans as a percent of average earning
assets increased to 91% for the nine months ending September 30, 2001, compared
to 86% for the comparable period in 2000. The following table reflects the
composition of the Company's loan portfolio as of September 30, 2001 compared to
December 31, 2000.
Table 5: Loan Portfolio Composition
September 30, December 31,
2001 2000
-------------- --------------
(thousands)
Commercial, financial and agricultural $ 266,233 $ 192,540
Real estate - mortgage 158,626 120,663
Real estate - construction 43,404 33,648
Installment and consumer 40,623 33,970
------- -------
Total loans, net of unearned income 508,886 380,821
Less: allowance for loan losses (4,850) (3,670)
------- -------
Net loans $ 504,036 $ 377,151
======= =======
Loan Quality
The allowance for loan losses represents a reserve for potential
losses in the loan portfolio. On an ongoing basis, management attempts to
maintain the allowance for loan losses at levels sufficient to provide for
losses inherent in the loan portfolio. The allowance for loan losses is
established through a provision charged to expense. In determining the adequacy
of the reserve for loan losses, management considers those levels maintained by
other peer banks, conditions of the individual borrowers, the Company's
historical loan loss experience and the general economic environment, as well as
16
the overall portfolio composition. Loans are charged against the allowance when
it is recognized that collection of the principal is unlikely. The allowance for
loan losses on September 30, 2001 was 0.95% of total loans, compared to 0.96% on
December 31, 2000. Table 6: "Allocation of Allowance for Loan Losses", set forth
below, indicates the specific reserves allocated by loan type.
Table 6: Allocation of Allowance for Loan Losses
September 30, December, 31
2001 2000
------------------------- -----------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
-------- ------------- -------- -------------
(dollars in thousands)
Commercial, financial
and agricultural $ 3,297 52% $ 2,607 50%
Real estate - mortgage 421 31% 293 32%
Real estate - construction 22 9% 15 9%
Consumer 948 8% 734 9%
Unallocated 162 - 21 -
----- ---- ------ ----
Total $ 4,850 100% $ 3,670 100%
===== ==== ====== ====
Total non-performing assets increased by $708,000 or 48% to $2.2
million on September 30, 2001, compared to $1.5 million on December 31, 2000.
Non-performing assets as a percentage of total assets increased to 0.36% on
September 30, 2001 from 0.32% on December 31, 2000. Non-accrual loans have
increased $1.2 million since December 31, 2000. This increase is primarily due
to four commercial real estate loans filing bankruptcy or going to foreclosure.
Table 7: Non-Performing Assets
September 30, December 31,
2001 2000
---------- ----------
(dollars in thousands)
Non-accrual loans $ 1,781 $ 579
Past due loans 90 days or
more and still accruing 241 840
Other real estate owned
and repossessions 161 56
------ -------
Total non-performing assets $ 2,183 $ 1,475
====== ======
Percent of total assets 0.36% 0.32%
The determination of the reserve level rests upon management's judgment
about factors affecting loan quality and assumptions about the economy.
Management considers the period-end allowance appropriate and adequate to cover
inherent losses in the loan portfolio; however, management's judgment is based
upon a number of assumptions about future events, which are believed to be
reasonable, but which may or may not prove to be valid. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the allowance for loan losses will
not be required. Table 8: "Activity in Allowance for Loan Losses", below,
indicates activity in the allowance for loan losses for the nine month period
ending September 30, 2001 and 2000.
17
Table 8: Activity in Allowance for Loan Losses
September 30,
2001 2000
--------- ---------
(dollars in thousands)
Balance at beginning of year $ 3,670 $ 2,671
Allowance acquired by acquisition 110 -
Loans charged-off:
Commercial, financial and agricultural 272 64
Real estate, mortgage 46 40
Real estate, construction - -
Consumer 288 239
------ ------
Total loans charged-off (606) (343)
Recoveries on loans previously charged-off:
Commercial, financial and agricultural 107 25
Real estate, mortgage 21 -
Real estate, construction - -
Consumer 98 122
------ ------
Total loan recoveries 226 147
------ ------
Net loans charged-off (380) (196)
------ ------
Provision for loan losses charged to expense 1,450 950
------ ------
Ending balance $ 4,850 $ 3,425
====== ======
Total loans outstanding $ 508,886 $ 346,457
Average loans outstanding $ 447,375 $ 302,824
Allowance for loan losses to loans outstanding 0.95% 0.99%
Net charge-offs to average loans outstanding, annualized 0.11% 0.09%
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 $38.7 million at September 30, 2001, a decrease of 5% from $40.7
million at the end of 2000.
Securities are classified as either held-to-maturity or
available-for-sale which are recorded at amortized cost and fair market value,
respectively. Securities available-for-sale, which made up 86% of the total
investment portfolio as of September 30, 2001 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
September 30, 2001, shareholders' equity recorded a net unrealized gain of
$536,000, compared to a $33,000 net unrealized loss at December 31, 2000.
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.
The following tables set forth the maturity distribution and the
weighted average yields of the Company's investment portfolio.
18
Table 9: Maturity Distribution of Investment Securities (1)
September 30, 2001
(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 $ - $ - $ 1,500 $ 1,500
----------- ----------- ------- -------
Total U.S. Treasury - - 1,500 1,500
U.S. Government Agencies
and Corporations:
One year or less - - 2,951 2,942
Over one through five years 5,457 5,454 22,000 22,683
---------- ---------- ------- -------
Total U.S. Government Agencies 5,457 5,454 24,951 25,625
and Corporations
Obligations of State and Political
Subdivisions:
One year or less - - 90 91
Over one through five years - - 237 242
Over ten years - - 608 648
---------- ---------- ------- ---------
Total Obligations of State and - - 935 981
Political Subdivisions
Mortgage-Backed Securities (2):
Over five through ten years - - 230 233
Over ten years - - 917 931
---------- ---------- ------- -------
Total Mortgage-Backed Securities - - 1,147 1,164
Other Securities:
Over ten years (3) - - 3,840 3,960
---------- ---------- ------- -------
Total Other Securities - - 3,840 3,960
---------- ---------- ------- -------
Total Securities $ 5,457 $ 5,454 $ 32,373 $ 33,230
========== ========== ======= =======
(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 10: Weighted Average Yield by Range of Maturities
September 30, 2001 December 31, 2000 September 30, 2000
------------------ ----------------- ------------------
One Year or Less 2.56% 6.49% 6.24%
Over One through Five Years 5.39% 6.00% 6.00%
Over Five through Ten Years 6.06% 6.18% 6.18%
Over Ten Years (1) 6.34% 6.45% 6.36%
(1) Represents adjustable rate mortgage-backed securities which are
repriceable within one year.
19
Other Earning Assets
Temporary investment needs are created in the day-to-day liquidity
movement of the Bank and are satisfied by selling excess funds overnight (Fed
Funds Sold) to larger, well capitalized banking institutions. If these funds
become excessive, management determines what portion, if any, of the liquidity
may be rolled into longer term investments as securities.
FUNDING SOURCES
Deposits
The Bank does not rely on purchased or brokered deposits as a source of
funds. Instead, competing for deposits within its market area serves as the
Bank's fundamental tool in providing a source of funds to be invested primarily
in loans. The following table sets forth certain deposit categories for the
periods ended September 30, 2001 and December 31, 2000.
Table 11: Total Deposits
September 30, December 31,
2001 2000
----------- ------------
(thousands)
Non-interest bearing:
Demand checking $ 69,539 $ 52,082
Interest bearing:
NOW checking 102,830 74,589
Money market checking 66,777 38,797
Savings 19,836 16,479
Certificates of deposit 263,772 185,739
-------- --------
Total deposits $ 522,754 $ 367,686
======== ========
CAPITAL RESOURCES
Shareholders' equity at September 30, 2001 was $46.2 million, as
compared to $44.6 million at December 31, 2000. At September 30, 2001, the
Company's common stock had a book value of $7.61 per share compared to $7.32 per
share at December 31, 2000.
The Company is subject to various 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 component 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 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 September 30, 2001, the Bank met all
capital adequacy requirements to which it is subject.
Selected capital ratios at September 30, 2001 compared to September 30,
2000 and regulatory requirements are as follows:
20
Table 12: Capital Ratios
September 30, September 30, Well Capitalized Regulatory
2001 2000 Requirements Minimums
------------ ------------ ------------ --------
Risk Based Capital Ratios:
Tier 1 Capital Ratio
Consolidated 8.0% 12.5% 6.0% 4.0%
Bank 9.3% 9.9% 6.0% 4.0%
Total Capital to
Risk-Weighted Assets
Consolidated 8.9% 13.5% 10.0% 8.0%
Bank 10.3% 10.9% 10.0% 8.0%
Tier 1 Leverage Ratio
Consolidated 6.7% 10.5% 5.0% 4.0%
Bank 7.8% 8.5% 5.0% 4.0%
QUANTITATIVE AND QUALITATIVE 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 were held by the Company at
September 30, 2001 (the Company entered into an interest rate swap on October 3,
2001, as more fully described in Note 7 of Item 1.), but other financial
instruments, which include investments, loans, deposit liabilities and
borrowings 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, 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 values 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 September 30,
2001, 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 September 30, 2001 would not necessarily be considered
to apply at subsequent dates.
21
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - There are no material pending legal
proceedings to which the Company or any of its subsidiaries is
a party or of which any of their property is the subject.
Item 2. Changes in Securities - Not applicable.
Item 3. Defaults Upon Senior Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders - Not
applicable.
Item 5. Other Information - Not applicable.
Item 6. Exhibits and Reports on Form 8-K -
(a) Exhibits:
None.
(b) Form 8-K:
None.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNB Florida Bancshares, Inc.
--------------------------------
(Registrant)
By: /s/ G. Thomas Frankland
--------------------------
G. Thomas Frankland
Executive Vice President
and Chief Financial Officer
Date: November 9, 2001
23