SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1994 Commission file number 0-16878
CBT CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1030727
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Broadway, Paducah, Kentucky 42001
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 575-5100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filled 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 26, 1994
Common Stock, No Par Value 7,926,158
CBT CORPORATION
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets for periods ended
September 30, 1994, and December 31, 1993 3
Consolidated Statements of Income for Three
Months and Nine Months Ended September 30,
1994, and 1993 4
Consolidated Statements of Changes in Stockholders'
Equity for Nine Months Ended September 30,
1994, and 1993 5
Consolidated Statements of Cash Flows
for Nine Months Ended September 30, 1994, and 1993 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations 12 - 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
CBT CORPORATION AND SUBSIDIARIES (unaudited) (audited)
CONSOLIDATED BALANCE SHEETS ($ in thousands) September 30 December 31
1994 1993
ASSETS
Cash and due from banks $26,574 $24,521
Federal funds sold 3,800 10,916
Money market investments - 2,010
Total cash and cash equivalents 30,374 37,447
Investment securities (fair value September 30,
1994 - $47,332 and December 31, 1993 - $49,250) 47,611 45,843
Securities available for sale (fair value
December 31, 1993 - $184,328) 167,183 181,027
Total investments 214,794 226,870
Loans (net of unearned interest) 602,515 524,185
Less allowance for credit losses (11,900) (10,998)
Loans, net 590,615 513,187
Premises and equipment, net 15,502 15,203
Accrued interest receivable 5,654 5,489
Other assets 7,603 7,280
Total assets $864,542 $805,476
LIABILITIES
Deposits:
Non-interest bearing $68,445 $61,505
Interest bearing 596,424 587,139
Total deposits 664,869 648,644
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 27,926 36,446
Notes payable - U.S. Treasury 2,000 2,000
Revolving lines of credit and other
short-term borrowings 9,073 1,263
FHLB advances 36,490 39
Total short-term borrowings 75,489 39,748
Long-term borrowings:
FHLB advances 17,897 16,922
Other term debt 5,069 5,092
Total long-term borrowings 22,966 22,014
Accrued interest payable 4,035 2,554
Other liabilities 5,553 3,804
Total liabilities 772,912 716,764
STOCKHOLDERS' EQUITY
Common stock, no par value,
authorized 12,000,000 shares;
issued and outstanding 7,926,158 shares 4,100 4,100
Capital surplus 18,543 18,543
Retained earnings 72,120 66,069
Unrealized loss on securities available for sale,
net of deferred tax (3,133) -
Total stockholders' equity 91,630 88,712
Total liabilities and stockholders' equity $864,542 $805,476
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months Ended
($ in thousands except per share data) September 30 September 30
(unaudited) 1994 1993 1994 1993
INTEREST INCOME
Loans, including fees:
Taxable $13,484 $11,051 $37,261 $32,535
Tax-exempt 50 89 213 286
Investment securities:
Taxable 2,739 2,527 7,704 7,913
Tax-exempt 910 901 2,835 2,632
Other interest income 14 117 206 240
Total interest income 17,197 14,685 48,219 43,606
INTEREST EXPENSE
Deposits 5,877 5,747 16,995 17,205
Other borrowings 965 473 2,264 1,419
Total interest expense 6,842 6,220 19,259 18,624
NET INTEREST INCOME 10,355 8,465 28,960 24,982
Provision for credit losses 359 250 1,054 1,029
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 9,996 8,215 27,906 23,953
NON-INTEREST INCOME
Trust and investment advisory fees 232 321 943 1,104
Service charges on deposit accounts 702 632 2,087 1,751
Insurance commissions 256 171 715 536
Investment securities gains (losses) (271) 56 (160) 133
Gain on sale of certain receivables - - - 553
Other 286 337 998 1,116
Total non-interest income 1,205 1,517 4,583 5,193
NON-INTEREST EXPENSE
Salaries and employee benefits 3,456 3,140 10,314 9,202
Net occupancy 228 329 718 1,002
Depreciation and amortization 412 387 1,266 1,139
Data processing 276 266 835 764
Supplies 171 165 543 494
Federal Deposit Insurance 367 337 1,098 1,007
Bank shares tax 273 241 817 706
Other 1,747 1,454 4,995 3,978
Total non-interest expense 6,930 6,319 20,586 18,292
INCOME BEFORE INCOME TAXES 4,271 3,413 11,903 10,854
Income tax expense 1,161 952 3,249 3,009
NET INCOME $3,110 $2,461 $8,654 $7,845
PER COMMON SHARE:
Net income $ .39 $ .31 $1.09 $ .99
Cash dividends $ .11 $ .10 $ .32 $ .29
CBT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands) Total Stockholders' Equity
Balance, December 31, 1993 $88,712
Net income 8,654
Dividends on common stock (2,417)
Stock options exercised 171
Purchase of common stock (357)
Unrealized loss on securities available for sale,
net of deferred tax (3,133)
Balance September 30, 1994 $91,630
Total Stockholders' Equity
Balance, December 31, 1992 $80,751
Net income 7,845
Dividends on common stock (1,657)
Purchase of common stock (58)
Balance September 30, 1993 $86,881
CBT CORPORATION AND SUBSIDIARIES Nine Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS September 30
($ in thousands) 1994 1993
OPERATING ACTIVITIES:
Net income $8,654 $7,845
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for credit losses 1,054 1,029
Depreciation 1,085 1,098
Amortization 182 41
Amortization and accretion of securities 537 1,053
Loss (gain) on sale of securities 160 (133)
Gain on sale of fixed assets (59) (12)
Changes in assets and liabilities:
Accrued interest receivable (165) 1
Other assets 1,180 (2,375)
Accrued interest payable 1,481 1,495
Dividends payable - (51)
Other liabilities 1,749 1,076
Net cash provided by operating activities 15,858 11,067
INVESTING ACTIVITIES:
Proceeds from maturities of
investment securities 2,118 14,127
Proceeds from sales of securities
available for sale 42,073 18,930
Proceeds from maturities of securities
available for sale 9,764 7,574
Principal collected on mortgage-backed
securities, including those classified
as available for sale 20,309 44,953
Payment for purchases of securities (67,703) (83,762)
Net increase in loans (78,482) (40,436)
Purchase of loans - (9,085)
Sale of finance receivables - 7,083
Proceeds from sales of premises and equipment 482 39
Payment for purchase of premises and equipment (1,807) (2,180)
Net cash used in investing activities (73,246) (42,757)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 16,225 (7,737)
Assumption of deposits - 61,860
Net decrease in other short term borrowings (8,520) (7,267)
Increase in FHLB advances 37,426 2,000
Proceeds from term debt - 115
Payments on other term debt (23) (4,000)
Cash advanced on revolving lines of credit 9,300 1,000
Principal payments on revolving lines of
credit (1,490) (7,000)
Cash dividends paid (2,417) (1,606)
Stock options exercised 171 -
Purchase of common stock (357) (58)
Net cash provided by investing activities 50,315 37,307
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (7,073) 5,617
CASH AND CASH EQUIVALENTS, JANUARY 1 37,447 39,932
CASH AND CASH EQUIVALENTS, SEPTEMBER 30 $30,374 $45,549
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest $17,778 $17,129
Federal income taxes $2,751 $3,113
CBT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1994
NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-1 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the nine month period ending September 30, 1994, are not necessarily
indicative of the results that may be expected for the year ended December
31, 1994. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Corporation's annual
report on Form 10-K for the year ended December 31, 1993.
CASH AND CASH EQUIVALENTS
For purpose of reporting cash flows, cash and cash equivalents include
cash and due from banks, federal funds sold and money market investments.
Generally, federal funds are purchased and sold for one-day periods.
INCOME TAXES
The provision for income taxes in the interim periods has been calculated
using the anticipated effective tax rate for the respective calendar year,
taking into consideration certain tax exempt loan and investment income.
Effective January 1, 1993, the Corporation adopted SFAS No. 109. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. The cumulative effect of the change in the method of
accounting for income taxes was not material.
PER COMMON SHARE DATA
Net income per common share is based on 7,926,158 shares outstanding
during the nine months and three months ended September 30, 1994, and
7,930,198 shares outstanding during the nine months ended and 7,928,598
during the three months ended September 30, 1993. Common stock options
are not included in net income per common share data since their effect
is not significant. All share and per share information reflects the
Corporation's 2-for-1 stock split on common shares in September, 1994.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1993 financial statements
to conform to the presentation of the 1994 financial statements.
NOTE 2: ACQUISITIONS
On May 31, 1994, CBT Corporation (CBT) of Paducah, Kentucky acquired 100%
of the outstanding shares of common stock of BMC Bankcorp, Inc. (BMC).
In the transaction, accounted for as a pooling of interests, BMC
shareholders received two shares of CBT common stock for each one share of
BMC common stock held. As a result of the exchange, CBT issued an
additional 1,195,560 shares of common stock. Accordingly, the accompanying
financial statements have been restated to include the accounts and
operations of BMC for periods prior to the merger.
Separate results of the combining entities are as follows:
($ in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
1993 1993
Interest Income:
CBT Corp as previously reported $10,967 $32,648
BMC Bankcorp 3,718 10,958
Total as restated $14,685 $43,606
Net Income:
CBT Corp as previously reported $1,755 $5,868
BMC Bankcorp 706 1,977
Total as restated $2,461 $7,845
BMC Bankcorp's net interest income and net income of $3,606,000 and
$938,000 respectively, for the five months ended May 31, 1994, are included
in the Consolidated Statement of Income for the nine month period ended
September 30, 1994.
NOTE 3: INVESTMENT SECURITIES
($ in thousands)
September 30, 1994
ESTIMATED
AMORTIZED MARKET GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of other
U.S. Government agencies $4,807 $4,752 $33 $88
State and political
subdivisions 42,804 42,580 1,192 1,416
Other 0 0 0 0
Total securities $47,611 $47,332 $1,225 $1,504
December 31, 1993
ESTIMATED
AMORTIZED MARKET GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of other
U.S. Government agencies $4,499 $4,625 $126 -
State and political
subdivisions 41,324 44,618 3,415 $121
Other 20 7 - 13
Total securities $45,843 $49,250 $3,541 $134
Certain investment securities were pledged to secure public deposits,
securities sold under agreements to repurchase, and for other purposes as
required or permitted by law. These pledged securities had an amortized
cost and estimated fair value of approximately $17,697,000 and $17,728,000
respectively at September 30, 1994.
NOTE 4: SECURITIES AVAILABLE FOR SALE
($ in thousands)
September 30, 1994
ESTIMATED
AMORTIZED MARKET GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of other
U.S. Government agencies $42,838 $41,968 $155 $1,025
State and political
subdivisions 13,944 14,798 977 123
Mortgage-backed securities 108,113 103,307 349 5,155
Other 7,108 7,110 3 1
Total securities $172,003 $167,183 $1,484 $6,304
December 31, 1993
ESTIMATED
AMORTIZED MARKET GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of other
U.S. Government agencies $40,750 $41,953 $1,250 $47
State and political
subdivisions 15,246 17,035 1,812 23
Mortgage-backed securities 122,364 123,431 1,481 414
Other 2,667 2,668 1 -
Total securities $181,027 $185,087 $4,544 $484
Certain investment securities were pledged to secure public deposits,
securities sold under agreements to repurchase, and for other purposes as
required or permitted by law. These pledged securities had an amortized
cost and estimated fair value of approximately $88,013,000 and $88,534,000
respectively at September 30, 1994.
NOTE 5: LOANS
September 30 December 31
($ in thousands) 1994 1993
Commercial, industrial,
and agricultural loans $221,648 $180,426
Residential real estate loans 249,563 222,867
Installment loans 141,409 130,457
Total loans 612,620 533,750
Unearned interest 10,105 9,565
Loans, net of unearned interest $602,515 $524,185
NOTE 6: PREMISES AND EQUIPMENT
September 30 December 31
($ in thousands) 1994 1993
Land $1,954 $2,084
Buildings and improvements 15,038 14,645
Furniture and equipment 10,410 9,627
Construction in progress 618 401
Accumulated depreciation
and amortization 12,518 11,554
Total premises and equipment $15,502 $15,203
NOTE 7: INTEREST BEARING DEPOSITS
September 30 December 31
($ in thousands) 1994 1993
NOW accounts $99,327 $104,051
Money Manager accounts 56,285 63,022
Individual retirement accounts 44,773 44,720
Savings 43,487 43,905
Certificates of deposit under $100,000 281,532 271,519
Certificates of deposit $100,000 and above 71,020 59,922
Total interest-bearing deposits $596,424 $587,139
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
CBT Corporation (the Corporation) is a bank holding company located in
Paducah, Kentucky. The Corporation provides banking services through
its banking subsidiaries, Citizens Bank & Trust (Citizens), Pennyrile
Citizens Bank & Trust Company (Pennyrile), Bank of Marshall County (BOMC)
and Graves County Bank (Graves). The Corporation also provides banking
services through its savings bank, United Commonwealth Bank (UCB) and
consumer finance services through its Citizens subsidiary, Fidelity Credit
Corporation (FCC).
On May 31, 1994, the Corporation completed its merger with BMC Bankcorp,
Inc., (BMC) the holding company of BOMC, Graves and UCB. At the time of
the merger BMC had total assets of $216 million, deposits of $189 million,
and stockholders' equity of $23 million. This merger was accounted for as
a pooling of interests; accordingly, all financial data has been adjusted
for the effects of this acquisition.
CBT, through its subsidiaries, provides a full range of corporate and retail
banking services, including the acceptance of checking, savings and time
deposits; making of secured and unsecured loans to corporations, individuals
and others; issuance of letters of credit and financial counseling for
individuals and institutions. Interest income on loans provides the largest
contribution to operating revenue.
Citizens and Pennyrile also provide a wide variety of personal and corporate
trust and trust related services including serving as executor of estates;
as trustee under testamentary and inter vivos trusts; as guardian of the
estates of minors and incompetents; and as financial advisor to and
custodian for individuals, corporations and others.
Citizens has eight offices located in McCracken County, Pennyrile has three
offices located in Christian County, BOMC has three offices located in
Marshall County, Graves has three offices located in Graves County and UCB
has one office located in Calloway County. FCC, which is primarily a
regional finance company, has eighteen offices located in Kentucky.
OVERVIEW
Net income for the first nine months of 1994 of $8,654,000 or $1.09 per
common share, is an increase of 10.3% over $7,845,000 or $0.99 per common
share for the first nine months of 1993. Net income for the third quarter
1994 of $3,110,000 or $0.39 per common share represents an increase of
26.4% over third quarter 1993 net income of $2,461,000 or $0.31 per common
share. All figures prior to the merger with BMC have been adjusted to
include the effects of this merger.
NET INTEREST INCOME
Net interest income, on a tax equivalent basis, is the difference between
interest earned on earning assets and interest expensed on interest bearing
liabilities. The net interest rate spread is the difference between the
average rate of interest earned on average earning assets and the average
rate of interest expensed on average interest bearing liabilities. The net
interest margin is net interest income divided by average earning assets.
For computational purposes, non-accrual loans are included in earning assets.
The following schedule presents yields and rates on key components of
interest income and interest expense. Also presented are net interest
spread and net interest margin for the first nine months and third quarters
of 1994 and 1993.
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
Yield on loans (including fees) 9.25% 9.09% 9.06% 9.35%
Yield on investments 6.92% 7.03% 6.85% 6.82%
Yield on other earning assets 6.05% 3.85% 4.10% 3.22%
Yield on earning assets 8.59% 8.76% 8.38% 8.47%
Rate on interest-bearing
deposits 3.97% 4.04% 3.93% 4.22%
Rate on other borrowings 4.62% 3.47% 4.07% 3.62%
Rate on interest-bearing
liabilities 4.05% 3.99% 3.94% 4.17%
Net interest margin
(including fees) 5.24% 4.82% 5.11% 4.94%
Net interest spread 4.54% 4.77% 4.44% 4.30%
The Corporation's yield on earning assets declined 9 basis points from the
first nine months of 1993 to the first nine months of 1994. Net interest
margin and spread increased because the drop in yield on earning assets
decreased less than the decrease in the rate on interest bearing
liabilities. Two major factors are behind this. First, loan growth as
measured by year to date averages for the first nine months of 1994 is up
$83.4 million or 17.7% over comparable 1993 figures. Loan growth has been
greater than earning asset growth of $81.1 million or 11.5% for the same
periods. Loans are typically made at higher rates, with the result that
as the relative percentage of loans to earning assets has increased, earning
asset yield is higher holding all other factors constant. Secondly, security
yields have remained strong (up 3 basis points from 1993) because as general
interest rates have increased in the last year, mortgage paydowns have
greatly decreased, causing decreased amortization on mortgage backed
securities which make up a large portion of the security portfolio. Rates
on other earning assets are of no material effect; other earning assets
account for approximately 1% of total earning assets.
The rate for the Corporation's overall cost of funds has declined 23 basis
points to 3.94% for the first nine months of 1994. The decline is less
than the decline observed for the 3 months ended June 30, as the positive
effect of time deposits originating in earlier years repricing at lower
levels has been lessened by recent increases in pricing on transaction
accounts and time deposits (as compared to rates paid earlier in the year).
Net interest spread increased 14 basis points from 4.30% in the first
nine months of 1993 to 4.44% in the first nine months of 1994, and net
interest margin is up 17 basis points to 5.11%, due to the aforementioned
items.
For the third quarter of 1994, yield on earning assets declined 17 basis
points from last year's third quarter, while the rate on interest bearing
liabilities increased 6 basis points. Net interest margin increased over
the third quarter of 1993 by 42 basis points, while net interest spread
decreased by 23 basis points. Rate on interest bearing liabilities is up
as the Corporation has funded some of its recent loan growth with expensive
(relative to 1993) other borrowings as its deposit growth has not increased
fast enough to cover the large loan growth. The decline in spread is
attributable to the relatively expensive other borrowings increase in the
third quarter. Net interest margin however, increased due to the large
increase in free funds.
PROVISION FOR CREDIT LOSSES
The provision for credit losses in the first three quarters of 1994
increased $25,000 or 2.43% from 1993 figures. Citizens, (the lead bank)
reduced its provision by half over the previous year, but increases were
recorded at other business units, particularly FCC, which increased its
provision due to growth in its receivables and higher charge-offs. The
allowance for credit losses has decreased from 2.15% of loans at September
30, 1993, to 1.98% of loans at September 30, 1994. This decrease is
attributable to the large growth in loan volumes. Charge-off expreience,
the long-term driving factor behind provision expense, remained at low
levels. For the first nine months of 1994, annualized provision expense
is at 0.25% of net loans compared with 0.29% in 1993.
The following is a progression of the allowance for credit losses:
Nine Months Ended
September 30
($ in thousands) 1994 1993
Balance, beginning of period $10,998 $10,022
Provision for credit losses 1,054 1,029
Adjustments related to purchases
and sales of finance receivables - (177)
Loans charged-off (472) (457)
Recoveries 320 383
Net charge-offs 152 74
Balance, end of period $11,900 $10,800
Net charge-offs for the third quarter of 1994 were $108,000 compared with
$11,000 in the third quarter of 1993. Even though this represents an
increase, both numbers are small in relation to loan balances. Third
quarter 1994 annualized net charge-offs to net loans is 0.07%. Third
quarter 1994 provision for credit losses increased $109,000 or 43.6%
chiefly at FCC, driven by growth in receivables as a result of its
expansion into new geographic markets.
NON-PERFORMING ASSETS
Non-performing assets remain at favorable levels. Total non-performing
assets at September 30, 1994 were $1.49 million compared with $1.29 million
at September 30, 1993. The non-performing ratio at September 30, 1994,
was 0.25%, versus 0.26% at September 30, 1993.
The accrual of interest income is reviewed for discontinuance when a loan
becomes 90 days past due. Management may elect to continue the accrual of
interest when the estimated net realizable value of collateral is sufficient
to cover the principal balance and accrued interest or, in the opinion of
management, the interest is collectable.
The following table provides a summary of non-performing loans and other
real estate owned:
September 30 December 31 September 30
($ in thousands) 1994 1993 1993
Non-accrual loans $ 865 $ 758 $ 979
Accruing loans which are
contractually past due
90 days or more 618 342 311
Other real estate owned 7 128 3
Total non performing loans
and other real estate owned $1,490 $1,228 $1,293
Non performing Loans and OREO to
total loans and OREO 0.25% 0.23% 0.26%
The lead bank of the Corporation, Citizens, has a comprehensive internal
credit review process for the early detection of potential problem credits.
Citizens, at September 30, 1994, rated $6.2 million of credits as potential
problems. These credits are not included in the schedule of non-performing
assets above since the borrowers are servicing their loans in accordance
with established repayment terms.
This internal credit review process is being extended throughout the entire
Corporation. Based on credit reviews, external regulatory examinations,
and favorable delinquency ratios and non-performing loan levels, it is
believed there are no material potential credit problems at the other units.
NON-INTEREST INCOME
Non-interest income for the first nine months of 1994 of $4,583,000 was
$610,000 or 11.8% lower than the first nine months of 1993. $293,000 of
the difference is due to the $160,000 in security losses taken in 1994 as
compared to the $133,000 in security gains booked in 1993. Gains were
taken in 1993 to better take advantage of an anticipated rise in interest
rates. The security losses taken in 1994 reflect securities sold at a loss
used to fund loan growth. 1993 numbers included a one-time gain on the
sale of receivables in the amount of $553,000. This gain was a result of
the sale of all Tennessee offices of FCC in a strategic move to concentrate
expansion within Kentucky. With this gain excluded and security
transactions excluded, non-interest income would have been up $236,000 or
5.2%. Trust and investment advisory fees for the first three quarters of
1994 were down $161,000 or 14.6% from year earlier figures. The 1993
trust income included fees from the settlement of several large estates.
Also, in the second quarter of 1994, a long-term strategic decision was
made to change brokerage alliances. The Corporation began an affiliation
with J. C. Bradford & Co., in an effort to expand the range of brokerage
services it can offer its customers. Due to the switch in affiliations,
slightly less brokerage income was realized in the second and third
quarters of 1994. This decline was more than offset by year-to-date
increases over last year in service sharges of $336,000 or 19.2%, which
was due to larger deposits and higher service charge schedules, coupled
increased insurance commissions of $179,000 or 33.3%.
Non-interest income for the third quarter 1994 was down from the third
quarter 1993 by $312,000. For reasons outlined above, 1993 numbers
included $56,000 in security gains while 1994 numbers included $271,000
in security losses. Excluding these security transactions, non-interest
income essentially flat, up $15,000 or 1.0%. Increases in service charges
and insurance commissions balanced out the lower trust and investment
advisory fee revenues.
NON-INTEREST EXPENSE
Non-interest expense for the first nine months of 1994 of $20,586,000
represents an increase of $2,294,000 or 12.5% over the same 1993 period.
Of this increase, merger related expenses amounted to approximately
$300,000. Salary related expenses for the first nine months of 1994 were
up $1,112,000 or 12.1% compared to the same periods in 1993 as headcount
has increased and the Corporation has positioned itself for future
expansion with the addition of several new management personnel. Other
components of non-interest expense were up largely in line with increased
asset growth and inflation.
Third quarter 1994 non-interest expense of $6,930,000 was up $611,000 or
9.7% from third quarter 1993 levels. Salary related expenses increased
$316,000 or 10% for the same reason as year-to-date increases. Other
non-interest expenses increased third quarter 1994 to third quarter 1993
also due to asset growth and inflation.
Management recognizes that non-interest expenses are controllable. In the
third quarter of 1994, the Corporation retained a management consulting
firm to conduct a study with goals of redesigning core processes, reducing
non-interest expense, and expanding revenue. Although most of the
implementation of the plan will be in 1995, some changes are already being
introduced.
INCOME TAXES
Effective tax rates for the first nine months of 1994 and 1993 were 27.29%
and 27.72% of income before income taxes, respectively. The effective tax
rate has fallen slightly as the effect of increased tax exempt assets have
been slightly offset by non-deductible merger expenses. The Corporation
adjusts for deferred taxes on a quarterly basis.
LIQUIDITY
Liquidity represents a bank's ability to generate cash or otherwise obtain
funds at a reasonable price to satisfy commitments to borrowers as well as
demands of depositors. Loan and investment portfolios are managed to
provide liquidity through maturity and marketability of those assets.
It is a major responsibility of management to maximize net interest income
within prudent liquidity constraints. Internal corporate guidelines have
been established to constantly measure liquid assets as well as relevant
ratios concerning earning asset levels and purchased funds. Each subsidiary
of the Corporation is also required to monitor these same indicators and
report regularly to its own senior management and board of directors.
The liquidity of the Corporation depends primarily on the dividends paid to
it as sole shareholder of its subsidiaries. In addition to dividends,
another primary source of liquidity for the Corporation includes unused
credit lines with correspondent banks. In addition to maintaining a
satisfactory level of liquidity, management must control the degree of
interest rate risk assumed on the balance sheet. Managing this risk
involves running detailed interest rate scenarios and determining the
effect on net interest income under each scenario. Management also monitors
the amount of interest sensitive assets relative to interest sensitive
liabilities over specific time intervals. The Corporation's one year
cumulative ratio is within policy limits at 1.01% as of September 30, 1994.
All of the bank and savings bank subsidiaries of the Corporation are members
of the Federal Home Loan Bank (FHLB) of Cincinnati. Members, based on
certain criteria, are required to purchase common stock in the FHLB. This
stock is redeemable at par and pays dividends on a quarterly basis. At
September 30, 1994, total advances from the FHLB were $54,387,000. The
Corporation, through its subsidiaries, has the ability to borrow additional
funds based upon further stock purchase. Membership in the FHLB gives the
member banks great flexibility in managing any future deposit runoff and
allows the banks to more aggressively price deposit accounts without having
significant liquidity concerns.
CAPITAL RESOURCES
Current regulatory guidelines for minimum capital requirements assign
measures of credit risk to balance sheet and off-balance sheet exposure.
The following table summarizes the Corporation's capital ratios:
Well
Required Capitalized Actual
September 30, 1994
Leverage ratio 4% 5.5% 10.35%
Tier 1 ratio 4% 6% 15.49%
Total risk-based capital ratio 8% 10% 16.74%
December 31, 1993
Leverage ratio 4% 5.5% 11.01%
Tier 1 ratio 4% 6% 14.97%
Total risk-based capital ratio 8% 10% 16.22%
Management is currently not aware of any recommendations by regulatory
authorities which, if implemented, would have a material effect on the
Corporation's liquidity, capital resources, or operations.
MARKET DATA
At September 30, 1994, the Corporation had issued and outstanding
7,926,158 shares of common stock which was held by approximately
1,430 shareholders. Shareholders have received cash dividends per
share of common stock quarterly in 1993 and thus far in 1994.
CBT Corporation common stock is traded on the NASDAQ National Market
under the symbol CBTC. The Corporation's common stock began trading
on the National Market during the third quarter of 1994; previously it
had been traded on the NASDAQ Small-Cap Market.
The following table summarizes transactions in common stock and cash
dividends declared in 1994 and 1993. The trading price information
reflects the range of actual reported sales prices for CBT Corporation
common stock as reported by NASDAQ.
Price
Quarter High Low Dividends
September 30, 1994 $ 22.75 $ 20.75 $ .11
June 30, 1994 21.50 19.50 .11
March 31, 1994 23.38 18.50 .10
December 31, 1993 19.25 17.75 .10
September 30, 1993 18.25 16.50 .10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a.) The exhibits set out on the Exhibit Index included
as page 22 of this report are furnished as a part of
this report.
(b.) No reports on Form 8-K were filed during the
quarter ended September 30, 1994.
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.
CBT CORPORATION
DATE: November 8, 1994 SIGNED: /s/ John E. Sircy
John E. Sircy
Executive Vice President
and Chief Operating Officer
EXHIBIT INDEX
NUMBER DESCRIPTION
4(a) Articles of Incorporation of CBT Corporation,
as amended are incorporated by reference to
Exhibit 4(a), of Amended Form 10-Q of CBT
Corporation dated September 6, 1994.
4(b) By-Laws of CBT Corporation are incorporated
by reference to Exhibit 3, to the Registration
Statement on Form S-14, of CBT Corporation
(Registration No. 2-83583).
10(a) **CBT Corporation 1986 Stock Option Plan
incorporated by reference to Exhibit 4, of
Registration Statement on Form S-8 of CBT
Corporation (Registration No. 33-28512).
10(b) **CBT Corporation 1993 Stock Option Plan
incorporated by reference to Form 10-Q
of CBT Corporation dated March 31, 1993.
10(c) **Salary Continuance Agreement, incorporated
by reference to Exhibit 10(c) of the Form 10-K
of CBT Corporation for the year ended December
31, 1990.
10(d) **Incentive Compensation Plans, incorporated by
reference to Exhibit 10(d) of the Form 10-K of
CBT Corporation for the year ended December 31,
1990.
10(e) Agreement to Purchase Assets and Assume Liabilities
dated February 1, 1993, among Union Planters
Corporation, Security Trust Savings and Loan
Association, and CBT Corporation is incorporated
by reference to Exhibit 10(e) of the Form 10-K of CBT
Corporation for the year ended December 31, 1992.
10(f) Plan of Exchange and Share Exchange Agreement
dated July 19, 1993, between CBT Corporation and
Pennyrile Bancshares, Inc. are incorporated by
reference to Exhibit 2, of the Registration
Statement on Form S-4 of CBT Corporation dated
September 30, 1993 [File No. 33-69644].
10(g) Agreement and Plan of Reorganization and Plan of
Merger dated January 10, 1994, between CBT
Corporation, CBT Acquisition Corporation, and BMC
Bankcorp, Inc. are incorporated by reference to Exhibits
2(a) and (b) of Form 8-K of CBT Corporation dated
January 10, 1994.
** Denotes management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Form 10-Q.
EXHIBIT 27
Financial Data Schedules of CBT Corporation
(submitted only in electronic format)