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 March 31, 1995 Commission file number 0-16878
CBT CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1030727
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Broadway, Paducah, Kentucky
(Address of principal executive offices)
Indicate be check mark whether the registrant (a) 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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at March 31, 1995
Common Stock, No Par Value 7,952,108
Page 1
This filing contains 27 pages.
CBT CORPORATION
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets for periods ended
March 31, 1995 and December 31, 1994 3
Consolidated Statements of Income for Three
Months Ended March 31, 1995 and March 31, 1994 4
Consolidated Statements of Changes in
Stockholders' Equity for Three Months Ended
March 31, 1995 and March 31, 1994 5
Consolidated Statements of Cash Flows for Three
Months Ended March 31, 1995 and March 31, 1994 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations 12 - 22
PART II. OTHER INFORMATION
Item 1. through Item 6. 23
SIGNATURE PAGE 24
EXHIBIT INDEX 25
FINANCIAL DATA SCHEDULE 27
CBT CORPORATION AND SUBSIDIARIES (unaudited) (audited)
CONSOLIDATED BALANCE SHEETS ($ in thousands) March December
31 31
1995 1994
ASSETS
Cash and due from banks $28,093 $30,404
Investment securities to be held to maturity 48,981 48,175
Securities available for sale 147,886 161,478
Loans, net of unearned interest 619,738 616,009
Allowance for loan losses (11,366) (11,533)
Loans, net 608,372 604,476
Premises and equipment, net 16,535 15,910
Accrued interest receivable 5,937 6,068
Other 7,824 8,606
TOTAL ASSETS $863,628 $875,117
LIABILITIES
Deposits:
Non-interest bearing $65,248 $70,962
Interest bearing 599,696 598,615
Total deposits 664,944 669,577
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 48,601 56,976
Notes payable - U.S. Treasury 556 1,718
Revolving lines of credit 6,500 6,000
Federal Home Loan Bank advances 31,918 35,432
Term debt 5,092 5,092
Total borrowings 92,667 105,218
Accrued interest payable 4,329 3,881
Other 6,008 5,104
TOTAL LIABILITIES 767,948 783,780
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized
12,000,000 shares issued and outstanding;
7,952,108 shares March 31, 1995 and
7,927,113 shares December 31, 1994 4,100 4,100
Capital surplus 18,985 18,553
Retained earnings 75,429 74,070
Unrealized losses on securities available
for sale, net of deferred taxes (2,834) (5,386)
TOTAL STOCKHOLDERS' EQUITY 95,680 91,337
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $863,628 $875,117
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Ended
($ in thousands except per share data) March 31
1995 1994
INTEREST INCOME
Loans, including fees:
Taxable $14,593 $11,529
Tax-exempt 48 84
Securities:
Taxable 2,515 2,334
Tax-exempt 903 958
Other 72 117
Total interest income 18,131 15,022
INTEREST EXPENSE
Deposits 6,947 5,463
Other borrowings 1,415 588
Total interest expense 8,362 6,051
NET INTEREST INCOME 9,769 8,971
Provision for loan losses 231 311
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,538 8,660
NON-INTEREST INCOME
Trust and investment advisory fees 311 351
Service charges on deposit accounts 865 655
Insurance commissions 309 214
Gain (loss) on sale of securities (2) (4)
Other 360 358
Total non-interest income 1,843 1,574
NON-INTEREST EXPENSE
Salaries and employee benefits 4,454 3,347
Net occupancy 253 260
Depreciation and amortization 460 409
Supplies 186 169
Data processing 318 293
FDIC assessments 376 366
Tax on bank shares 295 272
Other 1,218 1,509
Total non-interest expense 7,560 6,625
INCOME BEFORE INCOME TAXES 3,821 3,609
INCOME TAXES 1,054 979
NET INCOME $2,767 $2,630
NET INCOME PER COMMON SHARE $0.35 $0.33
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
($ in thousands)
Total
Stockholders'
Equity
Balance, December 31, 1994 $91,337
Net income 2,767
Dividends on common stock (876)
Stock options exercised 432
Purchase of common stock (532)
Net change in unrealized gains (losses)
on securities available for sale 2,552
Balance, March 31, 1995 $95,680
Balance, December 31, 1993 $88,712
Net income 2,630
Dividends on common stock (673)
Stock options exercised 14
Purchase of common stock (32)
Net change in unrealized gains (losses)
on securities available for sale 492
Balance, March 31, 1994 $91,143
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended
($ in thousands) March 31
1995 1994
OPERATING ACTIVITIES:
Net income $2,767 $2,630
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 231 311
Depreciation 403 352
Amortization 57 57
Amortization and accretion of securities 14 472
Loss on sale of securities 2 4
Gain on sale of premises and equipment (1) (51)
Changes in assets and liabilities:
Accrued interest receivable 131 186
Other assets (668) 66
Accrued interest payable 448 510
Other liabilities 904 798
Net cash provided by operating activities 4,288 5,335
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 100 1,431
Proceeds from sales of securities available for sale 24,165 19,520
Proceeds from maturities of securities available for
sale 1,400 4,601
Principal collected on mortgage-backed securities,
including those classified as available for sale 1,555 11,736
Payment for purchases of investment securities (10,524) (41,065)
Net increase in loans (4,127) (11,909)
Proceeds from sales of premises and equipment 1 471
Payment for purchase of premises and equipment (1,009) (608)
Net cash provided by (used in) investing activities 11,561 (15,823)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (4,633) 1,100
Net decrease in other short term borrowings (9,537) 629
Increase (decrease) in FHLB advances (3,514) 2,995
Cash advanced on revolving lines of credit 500 4,900
Principal payments on revolving lines of credit - (1,040)
Cash dividends paid (876) (673)
Stock options exercised 432 14
Purchase of common stock (532) (32)
Net cash provided by (used in) financing activities (18,160) 7,893
NET (DECREASE) IN CASH AND CASH EQUIVALENTS $(2,311) $(2,595)
CASH AND CASH EQUIVALENTS, BEGINNING OR PERIOD $30,404 $37,447
CASH AND CASH EQUIVALENTS, END OF PERIOD $28,093 $34,852
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $7,914 $5,541
Federal income taxes $0 $0
CBT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1995
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 three month period ending March 31,
1995, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. 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, 1994.
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.
Per Common Share Data
Net income per common share is based on 7,946,045 average shares
outstanding during the three months ended March 31, 1995, and
7,926,158 average shares outstanding during the three months
ended March 31, 1994. 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 declared on
September 25, 1994, and payable October 25, 1994.
Reclassifications
Certain reclassifications have been made in the 1994 financial
statements to conform to the presentation of the 1995 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.
Three Months
Ended
($ in thousands) March 31
1994
Interest Income:
CBT Corp as previously reported $11,379
BMC Bankcorp 3,643
Total as restated $15,022
Net Income:
CBT Corp as previously reported $2,134
BMC Bankcorp 496
Total as restated $2,630
NOTE 3: INVESTMENT SECURITIES TO BE HELD TO MATURITY
($ in thousands) March 31, 1995
ESTIMATED
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of
U.S. Government agencies $3,847 $3,790 $10 $67
State and political subdivisions 44,934 45,491 1,482 925
Other 200 191 - 9
Total securities $48,981 $49,472 $1,492 $1,001
December 31,1994
ESTIMATED
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of
U.S. Government agencies $3,851 $3,741 $15 $125
State and political subdivisions 44,124 42,473 539 2,190
Other 200 186 - 14
Total securities $48,175 $46,400 $554 $2,329
Certain investment securities to be held to maturity 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 $18,400,000 and
$18,627,000, respectively, at March 31, 1995.
NOTE 4: SECURITIES AVAILABLE FOR SALE
($ in thousands) March 31, 1995
ESTIMATED
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of
U.S. Government agencies $31,300 $31,003 $153 $450
State and political subdivisions 10,413 10,857 545 101
Mortgage-backed securities 90,173 86,269 248 4,152
Derivative securities 12,196 11,593 - 603
Federal Home Loan Bank stock 7,467 7,467 - -
Other 697 697 - -
Total securities $152,246 $147,886 $946 $5,306
December 31, 1994
ESTIMATED
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of
U.S. Government agencies $32,408 $31,469 $28 $967
State and political subdivisions 13,945 14,417 646 174
Mortgage-backed securities 104,543 97,632 177 7,088
Derivative securities 11,439 10,532 - 907
Federal Home Loan Bank stock 6,740 6,740 - -
Other 688 688 - -
Total securities $169,763 $161,478 $851 $9,136
Certain securities available for sale 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 $91,552,000 and $88,721,000, respectively, at
March 31, 1995. Federal Home Loan Bank stock, which is
classified as available for sale, is carried at cost.
NOTE 5: LOANS
($ in thousands) March 31 December 31
1995 1994
Commercial, industrial,
and agricultural loans $191,513 $191,243
Residential real estate loans 261,362 268,538
Installment loans 177,037 166,871
Total loans 629,912 626,652
Less: Unearned interest 10,174 10,643
Loans, net of unearned interest $619,738 $616,009
NOTE 6: PREMISES AND EQUIPMENT
($ in thousands) March 31 December 31
1995 1994
Land $1,996 $1,996
Buildings and improvements 15,087 15,071
Furniture and equipment 10,799 10,679
Construction in progress 1,963 1,145
Total premises and equipment 29,845 28,891
Less: Accumulated depreciation
and amortization 13,310 12,981
Net premises and equipment $16,535 $15,910
NOTE 7: INTEREST BEARING DEPOSITS
($ in thousands) March 31 December 31
1995 1994
NOW accounts $93,934 $103,631
Money Manager accounts 47,481 47,306
Individual retirement accounts 46,176 45,432
Savings accounts 48,657 49,174
Certificates of deposit under $100,000 291,825 281,904
Certificates of deposit $100,000 and 71,623 71,168
above
Total interest-bearing deposits $599,696 $598,615
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
CBT Corporation ("CBT") consists of four state chartered
commercial banks, one federal savings bank, and a consumer
finance company. The following discussion and analysis is
presented on a consolidated basis.
CBT reported record net income of $2,767,000 for the first
quarter of 1995, an increase of 5.2 percent over earnings for the
first quarter of 1994. Net income per share was $0.35 in the
first quarter of 1995, compared with $0.33 for the comparable
period in 1994, an increase of 6.1 percent. Return on average
equity was 11.48 percent for the first quarter of 1995 compared
with 11.82 percent for the first quarter of 1994. Return on
assets was 1.29 percent for the first quarter of 1995, compared
1.32 percent for the first quarter of 1994.
The per common share amount for the first quarter of 1994 has
been restated to reflect a two-for-one split of the outstanding
shares of common stock of CBT which was payable on October 25,
1994.
CBT's results for the periods prior to May 31, 1994 have been
restated to include the results of BMC Bankcorp, Inc. which was
acquired by CBT effective May 31, 1994 and has been accounted for
using the pooling of interests method of accounting. The
accompanying financial statements have been restated to include
the accounts and operations of BMC Bankcorp, Inc. for periods
prior to the acquisition.
Consolidated Income Statement Analysis
Net Interest Income
Net interest income on a tax-equivalent basis is the difference
between interest earned on assets and interest paid on
liabilities, with adjustments made to present yields on tax-
exempt assets as if such income was fully taxable. Changes in
the mix and volume of earning assets and interest-bearing
liabilities, their related yields, and overall interest rates
have a major impact on net income. For the first quarter of
1995, tax-equivalent net interest income provided 84.6 percent of
CBT's net revenues, compared with 85.6 percent of net revenues in
the first quarter of 1994.
Total tax-equivalent net interest income was $10,102,000 in the
first quarter of 1995, a 7.9 percent increase over the $9,356,000
reported in the first quarter of 1994. Growth in tax-equivalent
net interest income over 1994 was primarily due to a 9.1 percent
increase in average earning assets offset by an 8 basis point
decline in net interest margin. The increase in earning assets
is primarily due to an $89.1 million or 16.9 percent increase in
average loans outstanding.
Three Months Ended
March 31
1994 1995
Yield on loans (including fees) 9.63% 8.94%
Yield on investments 6.59% 7.15%
Yield on other earning assets 5.47% 4.76%
Yield on earning assets 8.98% 8.19%
Rate on interest-bearing deposits 4.72% 3.79%
Rate on other borrowings 5.48% 3.55%
Rate on interest-bearing liabilities 4.83% 3.77%
Net interest margin (including fees) 4.90% 4.98%
Net interest spread 4.15% 4.42%
Growth in loan balances was experienced in all major loan
categories. Commercial, industrial and agricultural loans of
$191.5 million at March 31, 1995 represented an increase of 5.6
percent as compared with the year earlier figures. Increased
borrowings by current customers along with modest growth in new
commercial loan business produced the increase.
Residential real estate loans increased $27.6 million or 11.8
percent to $261.3 million at March 31, 1995. This increase
occurred in spite of a rise in long-term interest rates over the
12 month period ended March 31, 1995. The relatively strong
regional economy coupled with increased sales efforts have
produced these results.
Consumer loans at March 31, 1995 were $177.0 million compared
with $130.3 million at March 31, 1994, an increase of $46.7
million or 35.8 percent. This strong growth, continuing the
trend line established for several years, was a result of CBT's
commanding local market share in indirect automobile and
manufactured housing installment credit. Strong sales of both of
these items assisted in producing this outstanding growth. In
addition, direct consumer loans grew as a result of expansion in
CBT's consumer finance company, Fidelity Credit Corporation
("FCC"). Six new FCC offices were opened between March 31, 1994
and March 31, 1995.
Net interest margin, the ratio of tax-equivalent net interest
income divided by average earning assets, was 4.90 percent in
first quarter of 1995, compared with 4.98 percent in the first
quarter of 1994. The decrease in margin has occurred as CBT has
incurred higher interest rates on deposits and other borrowings
which have not yet been fully offset with increases in yields on
earning assets. Helping to offset these pressures was the shift
in the mix of earning assets from securities into loans, which
produce higher yields. For the first quarter of 1995, loans
comprised 74.2 percent of average earning assets compared with
69.2 percent of average earning assets in the first quarter of
1994.
Provision for Loan Losses
The provision for loan losses reflects management's judgment of
the cost associated with the credit risk inherent in CBT's loan
portfolio. The consolidated provision for loan losses was
$231,000 for the first quarter of 1995, a decrease of $80,000 or
25.7 percent compared with $311,000 provided in
the first quarter
of 1994. The provision for loan losses was 0.15 percent of
average loans for the first quarter of 1995, compared with 0.24
percent in the first quarter of 1994. The reduction in the loan
loss provision reflects continued recognition of the favorable
credit quality trends CBT has experienced in recent years.
Although the ratio of the allowance for loan loss reserve to
total loans has fallen from 2.11 percent at 1.83 percent, chiefly
as a result of increased loan volume, management believes the
total coverage levels are adequate based on the current levels of
charge-offs and non-performing assets.
Net loan losses for the first quarter of 1995 were $398,000
compared to a modest recovery for the first quarter of 1994. The
first quarter of 1995 included a $300,000 charge-off at one of
its subsidiary banks, Citizens Bank & Trust Company of Paducah
("Citizens"), related to the charge-off of a community
development-related loan.
The following is a progression of the allowance for loan losses:
Three Months Ended
($ in thousands) March 31
1995 1994
Balance, beginning of period $11,533 $10,998
Provision for loan losses 231 311
Loans charged-off (553) (101)
Recoveries 155 102
Net charge-offs (398) 1
Balance, end of period $11,366 $11,310
Non-Interest Income
Non-interest income represented 15.4 percent of CBT's tax-
equivalent revenue in the first quarter of 1995, compared with
14.4 percent in the first quarter of 1994. Consolidated non-
interest income increased by $269,000 or 17.1 percent. This
growth is attributable to increased service charge income (up
$210,000 or 32.1 percent) and credit-related insurance
commissions (up $95,000 or 44.4 percent.) Both of these items
are up due to a management emphasis on fee opportunities.
Three Months
Ended
($ in thousands) March 31 Change
1995 1994 Amount Percent
Trust and investment
advisory fees $311 $351 $(40) (11.4)
Service charges on
deposit accounts 865 655 210 32.1 655
Insurance commissions 309 214 95 44.4
Gain on sale of assets
and/or securities (2) (4) (2) 50.0
Other 360 358 2 (0.1)
Total non-interest income $1,843 $1,574 $269 17.1
In 1994, CBT announced a strategic alliance with J.C. Bradford
and Co. ("JCB"), a Nashville-based regional brokerage firm,
involving the placement of JCB brokers in CBT banking locations.
Because of the transition from another provider of brokerage
services to JCB, revenues from this activity declined $94,000
from the first quarter of 1994 to the first quarter of 1995.
Trust fees increased $54,000 in the first quarter of 1995,
compared with 1994, to partially offset the decline in brokerage
revenues. Trust fees were up at the lead bank primarily because
of fee schedule changes.
Non-Interest Expenses
The Corporation recognizes that control of non-interest expenses
is crucial to its continued competitiveness and in September 1994
undertook a process to review organizational structure, staffing
levels, core processes, and the use of technology in order to
position CBT for the future. This effort, announced under the
title "CBT 2000", involves the use of a consulting firm.
Analysis done in the fourth quarter of 1994 indicated that CBT
had human resource overcapacity. To facilitate the transition to
fewer employees, a voluntary separation package was offered to
all bank and holding company staff. The results for the first
quarter of 1995 include an accrual for employees who have elected
to accept the voluntary separation package. Salaries and
benefits increased $1,107,000 or 33.1 percent. Of this increase
$865,000 was the result of the accrual for voluntary separation.
Without this accrual, salaries and benefits would have increased
7.2 percent, a result of merit increases and additions to staff
required to support current and future business growth.
Depreciation expense is higher due to stepped up equipment
purchases to more fully leverage CBT's personnel and the
renovation of selected sales outlets. The other expense
category, which includes several smaller items, is down because
of increased expense controls and the reversal of accruals for
items not incurred as expected. Consolidated non-interest
expenses increased $935,000 or 14.1 percent to $7,560,000 for the
first quarter of 1995 compared with the first quarter of 1994.
Three Months
Ended
($ in thousands) March 31 Change
1995 1994 Amount Percent
Salaries and employee
benefits $4,454 $3,347 $1,107 33.1
Net occupancy 253 260 (7) (2.7)
Depreciation and
amortization 460 409 51 12.5
Supplies 186 169 17 10.1
Data Processing 318 293 25 8.5
FDIC assessments 376 366 10 2.7
Tax on bank shares 295 272 23 8.5
Other 1,218 1,509 (291) (19.3)
Total non-interest expense $7,560 $6,625 $935 14.1
The efficiency ratio, defined as non-interest expense divided by
tax-equivalent net revenues, is a measure of how effective a
financial services company is in leveraging its resources to
produce revenue. For the first quarter of 1995, CBT's efficiency
ratio was 63.29 percent compared with 60.61 percent for the first
quarter of 1994. Excluding the items related to CBT 2000, in the
first quarter of 1995, CBT's efficiency ratio was 58.81 percent.
Income Taxes
CBT's income tax planning is based upon the goal of maximizing
long-term, after-tax profitability. Income tax expense is
significantly affected by the mix of taxable versus tax-exempt
revenues.
The effective income tax rate for the first quarter of 1995 was
27.6 percent compared with 27.1 percent for the first three
months of 1994. The slight increase is attributable to tax-
exempt income as a percentage of gross revenues falling.
Consolidated Balance Sheet Analysis
Earning Assets
Average earning assets for the first quarter of 1995 were $832.1
million compared with $762.6 million for the year earlier period,
an increase of $69.5 million or 9.1 percent. The increase is
attributable to strong loan demand in the markets CBT serves.
Loan demand was funded, in part, through sales of securities;
average security balances declined by $15.0 million or 6.7
percent from the first quarter of 1994 to the first quarter of
1995. Other earning assets, primarily in the federal funds sold
category, declined by $4.6 million or 46.2 percent.
Securities available for sale declined from March 1994 to March
1995 as CBT sold securities to take advantage of loan demand.
Strong loan growth was fueled by healthy local economies coupled
with strong sales efforts. The shift to loans in the earning mix
allowed the Corporation to enjoy higher yields than would have
been achieved by leaving these funds invested in securities. In
1994, when accounting rules were established governing the
classification of securities between securities available for
sale and investment securities, CBT classified a relatively large
portion of its total securities as available for sale. These
securities are available for sale when market conditions are
favorable or there are funding needs. The strategy of maximizing
securities available for sale enabled CBT to sell securities to
fund loan growth.
CBT has certain securities in its held to maturity and available
for sale portfolios that are classified as derivative securities
by banking regulators. Regulators stress that the
appropriateness of these investments for a bank depends on
management's ability to understand, measure and monitor the risk
related to such investments. At March 31, 1995, CBT had $200,000
book value of federal agency derivatives in its held to maturity
portfolio. The market value of these securities on March 31,
1995 was $191,000. At December 31, 1994, book value of these
securities was $200,000 and market value was $186,000.
In its available for sale portfolio, CBT had $12,196,000 and
$11,439,000 book value at March 31, 1995 and December 31, 1994,
respectively, in derivative securities as defined by regulators.
These amounts represent 8.01 percent and 6.74 percent of the
total securities available for sale at March 31, 1995 and
December 31, 1994, respectively. Market value for these
securities was $11,593,000 at March 31, 1995 and $10,532,000 at
the end of 1994. At March 31, 1995, derivative securities
available for sale consisted of $7,890,000 in step-up bonds,
$3,806,000 of de-leveraged bonds, and $500,000 of index
amortizing notes. The step-up bonds have an increasing interest
rate during
the life of the bonds and are callable by the issuer
at specific intervals. The de-leveraged bonds pay an adjustable
rate of interest based on movement of an index; the index
amortizing notes have a fixed interest rate, with maturities
potentially fluctuating based on a mortgage index. All of these
securities are guaranteed by a government agency and have
maturities of seven years or less.
Leverage, the ratio of average assets to average stockholders'
equity, was 8.9 times during the first quarter compared with 9.1
times for the full 1994 year and 9.0 for the first quarter of
1994. The ratio has declined in spite of average asset growth of
7.6 percent from the first quarter of 1994 to 1995 due to strong
internal equity growth during the same period.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which was adopted by
CBT in the first quarter of 1994. The Statement requires that
investment securities classified as available for sale be
reported at fair value with unrealized gains and losses reported,
net of tax, as a separate component of stockholders' equity. As
of March 31, 1995, net unrealized losses related to investment
securities available for sale were $2.8 million, net of deferred
taxes. This net unrealized loss is a $2.6 million reduction from
year end 1994. In March 31, 1994 net unrealized gains were
$492,000.
Credit Risk Management
CBT manages exposure to credit risk though loan portfolio
diversification by customer, industry, and loan type. As a
result, there is no undue concentration in any single sector.
Credit risk management also includes pricing loans to cover
anticipated future loan losses, funding and servicing cost, and
to allow for a profit margin. Loans by type appear below:
($ in thousands) March 31 December 31
1995 1994
Commercial, industrial, and $191,513 $191,243
agricultural loans
Residential real estate loans 261,362 268,538
Installment loans 177,037 166,871
Total loans 629,912 626,652
Less: Unearned interest 10,174 10,643
Loans, net of unearned interest $619,738 $616,009
As of March 31, 1995 CBT's commercial, industrial and
agricultural loans totaled $191,513,000 or 30.9 percent or total
loans, net of unearned interest ("net loans"). This percentage
is down from 33.8 percent for the year earlier figure and is a
result of strong growth in residential real estate and
installment loans in excess of that experienced in commercial,
industrial, and agricultural loans.
As of March 31, 1995, residential real estate loans totaled
$261.4 million or 42.2 percent of net loans, compared with $233.8
million or 43.6 percent of net loans as of December 31, 1994.
Net installment loans totaled $166.9 million or 26.9 percent of
net loans as of March 31, 1995, compared with $120.9 million or
22.6 percent of net loans as of March 31, 1994.
CBT is not aware of any loans classified for regulatory purposes
at March 31, 1995, that are expected to have a material impact on
CBT's future operating results, liquidity, or capital resources.
There are no material commitments to lend additional funds to
customers whose loans were classified as non-accrual at March 31,
1995.
Management is aware of one credit at a subsidiary bank in the
amount of approximately $1.9 million about which there is serious
doubt regarding the ability of the borrowers to comply with the
loan repayment terms. As of March 31, 1995, the credit was 31
days past due. The value of the collateral supporting the
indebtedness has been conservatively estimated at approximately
$500,000. Principals obligated on the credit have personally
guaranteed its repayment. There are no plans to advance
additional funds related to this credit.
Allowance for Credit Losses
At March 31, 1995, the allowance for loan losses was $11.4
million, or 1.83 percent of net loans outstanding, compared with
$11.5 million, or 1.87 percent at December 31, 1994. The ratio
of the allowance for loan losses to non-performing assets was
400.9 percent at March 31, 1995, compared with 499.9 percent at
December 31, 1994. Non-performing assets consist of non-accrual
loans, loans past-due ninety days or more that are still accruing
interest, and other real estate owned. While the ratio of the
allowance for loan losses to non-performing assets has declined
from December 1994 to March 1995 the ratio continues to compare
rather favorably to industry averages. The decline is chiefly a
result of higher 90 day past due loans, a trend that management
does not see continuing.
Although it is impossible for any lender to predict future loan
losses with complete accuracy, management monitors the allowance
for loan losses with the intent to provide for all losses that
can reasonably be anticipated based on current conditions. CBT
maintains the allowance available to cover future loan losses
within the entire loan portfolio.
Non-Performing Assets
The following table presents data on CBT's non-performing assets.
At March 31, 1995, non-performing assets totaled $2.8 million, or
0.46 percent of net loans and other real estate owned, compared
with $2.3 million, or 0.37 percent of net loans and other real
estate owned, at December 31, 1994.
($ in thousands) March December
31 31
1995 1994
Non-accrual loans $2,003 $1,806
Accruing loans which are contractually
past due 90 days or more 832 494
Total non-performing loans 2,835 2,300
Other real estate owned 0 7
Total non-performing assets $2,835 $2,307
The increase in the ratio reflects a rise in the amount of 90 day
past due loans of $338,000 or 68.4 percent along with a slight
increase in the amount of non-accrual loans. The bulk of this
increase is attributable to one credit at Citizens which is
expected to be current by the end of the next quarter.
CBT has a comprehensive credit grading system and internal loan
review process. That process fully complies with the loan review
guidelines set forth in the December 21, 1993 Interagency Policy
Statement on the Allowance for Loan and Lease Losses. CBT, at
March 31, 1995 has rated $4.4 million of credits as potential
problems. These credits are not included in the schedule of non-
performing assets above because the borrowers are servicing their
loans in accordance with established repayment terms.
Funding Sources
Interest-Bearing Liabilities
At March 31, 1995, interest-bearing liabilities totaled $692.4
million, a decrease of $11.4 or 1.6 percent from December 1994
figures. The slight decrease came about as CBT funded its loan
growth through the sale of securities available for sale. In
management's opinion, the rate that must be paid to attract new
deposits in existing markets and retain depositors who
extensively "rate shop" has not warranted paying such a rate when
alternative funding sources existed. In addition, over 1994 and
in particular the first quarter of 1995, the spread of Federal
Home Loan Bank advances over comparable Treasury rates has
widened, making those funding sources less attractive than in
earlier periods. The combination of the two factors has resulted
in CBT shrinking its security balances to fund loan growth.
Core Deposits
In CBT's banking subsidiaries, demand deposits, NOW, Money
Manager, Individual Retirement and savings accounts, and
certificates of deposit under $100,000 provide a stable source of
funding. At March 31, 1995 these deposits represented 72.7
percent of earning assets compared with a similar calculation as
of December 31, 1994 of 72.5 percent. This level of core
deposits is considered appropriate by management given CBT's
asset mix.
Non-Interest Bearing Deposits
Non-interest bearing deposits of $65.2 million have fallen $5.7
million or 8.0 percent from December 31, 1994 levels. This
decrease relates primarily to seasonal factors. The March 31,
1995 balances compare favorably with year earlier figures, up
$5.2 million or 8.6 percent.
Purchased Deposits
Purchased deposits, which the Corporation defines as certificates
of deposit with denominations of $100,000 or more, represented
8.8 percent of total earning assets at March 31, 1995 compared
with 8.6 percent at December 31, 1994.
Other Borrowings
Other borrowings at CBT represented 11.3 percent of earning
assets at March 31, 1995 compared with the 12.7 percent of
earning assets at December 31, 1994. In absolute terms,
borrowings fell $12.6 million during the quarter ending March 31,
1995. The small decline, which is not significant, is a result
of the sale of securities to pay down short term borrowings and
equity becoming a greater relative source of funding. Federal
funds purchased and securities sold under agreements to
repurchase fell $8.4 million or 14.7 percent.
Asset and Liability Management
The goal of the asset and liability management process is to
manage the structure of the balance sheet to provide the maximum
level of net interest income while maintaining acceptable levels
of interest rate risk (as defined below) and liquidity. The focal
point of this process for much of 1994 was the Asset and
Liability Management Committee (ALCO) of CBT's lead bank,
Citizens. In addition to considering the position of this bank,
ALCO did review at a summary level the overall risk to changes in
interest rates and the liquidity of CBT on a consolidated basis
during its monthly meetings. In the fourth quarter of 1994, this
committee's scope was expanded to include the entire corporation,
with a corporate ALCO being formed that meets monthly to consider
CBT's consolidated interest rate risk and liquidity posture. The
committee takes an active role in maintaining and hedging CBT's
profitability under a variety of interest rate scenarios.
Interest Rate Risk and Its Measurement
Interest rate risk is the risk that future changes in interest
rates will reduce net interest income or the market value of
CBT's balance sheet. Management uses various measurement tools
to monitor and adjust CBT's interest rate risk position. One
measurement tool is the GAP report, which classifies assets and
liabilities and their respective yields and costs in terms of
maturity or repricing date. While considerable judgment is
necessary to appropriately classify certain balance sheet items
that do not have contractual maturity or repricing dates, the GAP
report provides management a basic measure of interest rate risk.
CBT monitors the GAP position of each subsidiary individually
(Fidelity Credit Corporation is included with Citizens), as well
as on a consolidated basis.
Because of the limitations of GAP reports, CBT uses a computer
model to estimate the impact of various parallel shifts in the
yield curve on net interest income and market value. This model
is run monthly for each subsidiary, as well as on a consolidated
basis.
At Citizens, management has developed a model that identifies the
portion of year-to-date net interest income derived from interest
rate mismatches ("mismatch profits"). Identifying mismatch
profits assists management in understanding the relative
importance of such profits, which by their nature are largely
beyond management's control, to overall net interest income. For
the first quarter of 1995, mismatch profits represent less than 3
per cent of Citizen's tax-equivalent net interest income. CBT
believes that these results are indicative of the Corporation as
a whole.
Management of Interest Rate Risk
The management of interest rate risk is governed by an asset and
liability management policy in place at Citizens. The policy
specifies targets based primarily on the GAP report. During
1994, Citizens operated within the policy guidelines.
Consolidated GAP reports produced for the end of the first
quarter of 1995, indicated that CBT's consolidated interest rate
risk position was also in compliance with policy.
Changes in Interest Rate Risk
In 1994, CBT supplemented its use of the GAP model, with a
computer modeling approach that measures effects on net interest
income and the fair value of equity under a variety of interest
rate scenarios. CBT's management believes the two approaches
complement each other in understanding the impact of changes in
interest rates. Based on modeling using March 1995 data, CBT
would expect its net interest income to decline no more than 2%
under a 300 basis point parallel shift upward or downward of the
yield curve. The GAP approach of measuring interest rate risk
produced a 1 year cumulative interest rate GAP of 1.00 on March
31, 1995 compared with a GAP of .97 on December 31, 1994.
Liquidity Management
Liquidity management involves planning to meet funding needs at a
reasonable cost, as well as developing contingency plans to meet
unanticipated funding needs or a loss of funding sources.
Liquidity management for CBT is monitored by ALCO, which takes
into account the marketability of assets, the sources and
stability of funding, and the level of unfunded loan commitments.
CBT's consumer deposits provide stability with respect to
liquidity. In addition, membership in the Federal Home Loan Bank
of Cincinnati provides a cost-effective alternate source of
funding.
Capital Management
CBT believes that a strong capital position is vital to continued
profitability and to promote depositor and investor confidence.
Bank subsidiaries are required to maintain capital levels
sufficient to qualify for "well capitalized" status with banking
regulators and to meet anticipated growth needs. Net income is
the primary source of new capital for subsidiaries. Net income
of subsidiaries in excess of capital requirements is available to
CBT in the form of dividends and is used primarily to pay
corporate dividends.
Well
Capitalized Actual Excess
March 31, 1995
Leverage Ratio 5.00% 11.20% 6.20%
Tier I 6.00% 16.00% 10.00%
Total Risk-Based 10.00% 17.25% 7.25%
December 31, 1994
Leverage Ratio 5.00% 10.81% 5.81%
Tier I 6.00% 15.64% 9.64%
Total Risk-Based 10.00% 16.89% 6.89%
Because of solid performance and conservative capital management,
CBT has a strong capital position. CBT's Tier 1 capital ratio at
March 31, 1995, was 16.00 percent and its total capital to risk-
based assets ratio was 17.25 percent, compared with 15.64 percent
and 16.89 percent at December 31, 1994, respectively. CBT's
leverage ratio was 11.20 percent at March 31, 1995, compared with
10.81 percent at December 31, 1994. The slight increase in the
ratio from December to March is primarily attributable to
internal equity growth. These ratios compare favorably to the
regulatory "well capitalized" minimums of 6.0 percent for Tier 1,
10.0 percent for total capital to risk-based assets, and 5.0
percent for leverage ratio.
CBT's stockholders' equity, exclusive of the unrealized loss on
securities available for sale, net of deferred tax, grew $1.8
million or 1.9 percent from December 1994 levels. This increase
equates to an annualized internal capital growth rate (ICGR) for
1995 of 7.4 percent. The ICGR represents the rate at which
CBT's average stockholders' equity grew as a result of earnings
retained (net income less dividends paid).
CBT declared an $0.11 per share dividend in the second quarter of
1995 compared with a $0.10 cent per share dividend in the second
quarter of 1994. This represents a 10 percent increase in the
quarterly dividend rate and reflects CBT's continuing record of
strong earnings performance and its policy of maintaining the
dividend payout ratio in a range of 28 to 32 percent. In the
third quarter of 1994, CBT declared a two-for-one stock split
payable on October 25, 1994.
Management is currently not aware of any recommendation by
regulatory authorities which, if implemented, would have a
material effect on the Corporation's liquidity, capital
resources, or operations.
Market Data
At March 31, 1995, the Corporation had issued and outstanding
7,952,108 shares of common stock which was held by approximately
1,466 shareholders. Shareholders have received cash dividends
per share of common stock quarterly in 1994 and thus far in 1995.
CBT Corporation common stock is traded on the NASDAQ Stock Market
under the symbol CBTC.
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
March 31, 1995 $24.75 $21.00 $ .11
December 31, 1994 23.00 20.63 .11
September 30, 1994 22.75 20.75 .11
June 30, 1994 21.50 19.50 .11
March 31, 1994 23.38 18.50 .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 25 of this report are furnished as a part
of this report.
(b) No reports on Form 8-K were filed during the
quarter ended March 31, 1995.
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: May 10, 1995 SIGNED: /s/ John E. Sircy
John E. Sircy
Executive Vice President
and Chief Operating Officer
(Principal Financial 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 Exhibit 1 of
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) **Description of Incentive Compensation Plan,
incorporated by reference to Exhibit 10(d) of the
Form 10-K of CBT Corporation for the year ended
December 31, 1990.
10(e) 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(f) 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.
27 Financial Data Schedule
** Denotes management contracts or compensatory plans or
arrangements required to be filed as exhibits to this Form 10-Q.
EXHIBIT 27
FINANCIAL DATA SCHEDULE
(filed in electronic format)
FOR
CBT CORPORATION
For the Period Ended
MARCH 31, 1995