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 June 30, 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 42001
(Address of principal executive offices)
Registrant's telephone number, including area code (502) 575-5100
Indicate by 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 June 30, 1995
Common Stock, No Par Value 7,904,935
Page 1
This filing contains 33 pages.
CBT CORPORATION
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1995,
December 31, 1994 and June 30, 1994 3
Consolidated Statements of Income for Three
Months and Six Months Ended June 30, 1995 and
June 30, 1994 4
Consolidated Statements of Changes in Shareholders'
Equity for Six Months Ended June 30, 1995 and
June 30, 1994 5
Consolidated Statements of Cash Flows for Six
Months Ended June 30, 1995 and June 30, 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 4. 23
Item 5. and Item 6. 24
SIGNATURE PAGE 25
EXHIBIT INDEX 26
AMENDMENT TO ARTICLES OF INCORORATION 27 - 31
FINANCIAL DATA SCHEDULE 32 - 33
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited) (audited) (unaudited)
($ in thousands) June 30 December 31 June 30
1995 1994 1994
ASSETS
Cash and due from banks $31,922 $30,404 $32,482
Federal funds sold - - 50
Total cash and cash equivalents 31,922 30,404 32,532
Investment securities to be held to
maturity 47,368 48,175 47,905
Securities available for sale
(at fair market value) 149,107 161,478 177,767
Loans, net of unearned interest 634,268 616,009 566,348
Allowance for loan losses (11,424) (11,533) (11,649)
Loans, net 622,844 604,476 554,699
Premises and equipment, net 17,246 15,910 15,105
Accrued interest receivable 5,946 6,068 5,621
Other 6,483 8,606 8,204
TOTAL ASSETS $880,916 $875,117 $841,833
LIABILITIES
Deposits:
Non-interest bearing $68,786 $70,962 $66,322
Interest bearing 596,043 598,615 598,025
Total deposits 664,829 669,577 664,347
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 40,802 56,976 40,903
Notes payable - U.S. Treasury 1,984 1,718 1,996
Revolving lines of credit 7,024 6,000 8,000
Federal Home Loan Bank advances 50,614 35,432 22,950
Term debt 5,092 5,092 5,115
Total borrowings 105,516 105,218 78,964
Accrued interest payable 4,934 3,881 3,822
Other 6,419 5,104 4,231
TOTAL LIABILITIES 781,698 783,780 751,364
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized
12,000,000 shares; issued and out-
standing 7,904,935 shares at June 30,
1995; 7,927,113 shares at December 31,
1994; and 7,926,158 shares at June 30,
1994 4,100 4,100 4,100
Capital surplus 18,985 18,553 18,543
Retained earnings 76,528 74,070 69,891
Unrealized losses on securities available
for sale, net of deferred taxes (395) (5,386) (2,065)
TOTAL SHAREHOLDERS' EQUITY 99,218 91,337 90,469
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $880,916 $875,117 $841,833
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Ended Six Months Ended
($ in thousands except June 30 June 30
per share data) 1995 1994 1995 1994
INTEREST INCOME
Loans, including fees:
Taxable $15,230 $12,248 $29,823 $23,777
Tax-exempt 46 79 94 163
Securities:
Taxable 2,387 2,631 4,902 4,965
Tax-exempt 880 967 1,783 1,925
Other 5 75 77 192
Total interest income 18,548 16,000 36,679 31,022
INTEREST EXPENSE
Deposits 7,312 5,655 14,259 11,118
Other borrowings 1,396 711 2,811 1,299
Total interest expense 8,708 6,366 17,070 12,417
NET INTEREST INCOME 9,840 9,634 19,609 18,605
Provision for loan losses 259 384 490 695
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,581 9,250 19,119 17,910
NON-INTEREST INCOME
Trust and investment advisory
fees 397 360 708 711
Service charges on deposit
accounts 892 730 1,757 1,385
Insurance commissions 315 245 624 459
Net gain on sale of securities 135 115 133 111
Other 346 354 706 712
Total non-interest income 2,085 1,804 3,928 3,378
NON-INTEREST EXPENSE
Salaries and employee benefits 3,806 3,511 8,260 6,858
Net occupancy 285 230 538 490
Depreciation and amortization 427 445 887 854
Supplies 211 203 397 372
Data processing 356 266 674 559
FDIC assessments 375 365 751 731
Tax on bank shares 296 272 591 544
Other 1,822 1,739 3,040 3,248
Total non-interest expense 7,578 7,031 15,138 13,656
INCOME BEFORE INCOME TAXES 4,088 4,023 7,909 7,632
Income taxes 1,161 1,109 2,215 2,088
NET INCOME $2,927 $2,914 $5,694 $5,544
NET INCOME PER COMMON SHARE $0.37 $0.37 $0.72 $0.70
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ in thousands)
Total
Shareholders'
Equity
Balance, December 31, 1994 $91,337
Net income 5,694
Dividends on common stock (1,745)
Stock options exercised 432
Purchase of common stock (1,491)
Net change in unrealized gain (loss)
on securities available for sale 4,991
Balance, June 30, 1995 $99,218
Balance, December 31, 1993 $88,712
Net income 5,544
Dividends on common stock (1,545)
Stock options exercised 158
Purchase of common stock (335)
Net change in unrealized gain (loss)
on securities available for sale (2,065)
Balance, June 30, 1994 $90,469
CBT CORPORATION AND SUBSIDIARIES Six Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS June 30
($ in thousands) 1995 1994
OPERATING ACTIVITIES:
Net income $5,694 $5,544
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 490 695
Depreciation 775 724
Amortization 112 130
Amortization and accretion of securities 5 428
Net gain on sale of securities (133) (111)
Net gain on sale of premises and equipment - (52)
Changes in assets and liabilities:
Accrued interest receivable 122 (132)
Other assets (676) 60
Accrued interest payable 1,053 1,268
Other liabilities 1,315 427
Net cash provided by operating activities 8,757 8,981
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 1,710 1,328
Proceeds from sales of securities available for
sale 24,933 27,105
Proceeds from maturities of securities available
for sale 3,882 9,264
Principal collected on mortgage-backed securities,
including those classified as available for sale 3,412 17,500
Payment for purchases of securities (12,953) (57,495)
Net increase in loans (18,858) (42,207)
Proceeds from sales of premises and equipment - 472
Payment for purchase of premises and equipment (2,111) (1,046)
Net cash provided by (used in) investing
activities 15 (45,079)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (4,748) 15,703
Net increase (decrease) in other short term
borrowings (15,908) 3,413
Increase in FHLB advances 15,182 5,989
Cash advanced on revolving lines of credit 1,024 7,800
Cash dividends paid (1,745) (1,545)
Stock options exercised 432 158
Purchase of common stock (1,491) (335)
Net cash provided by (used in) financing
activities (7,254) 31,183
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $1,518 $(4,915)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $30,404 $37,447
CASH AND CASH EQUIVALENTS, END OF PERIOD $31,922 $32,532
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $16,017 $11,149
Federal income taxes $1,994 $1,598
CBT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 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 and six month period ended June 30,
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 7,950,831 average shares
outstanding during the six months ended June 30, 1995, and 7,926,158
average shares outstanding during the six months ended June 30, 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
percent 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.
Six Months Ended
($ in thousands) June 30
1994
Interest Income:
CBT Corp as previously reported $23,593
BMC Bankcorp 7,429
Total as restated $31,022
Net Income:
CBT Corp as previously reported $4,425
BMC Bankcorp 1,119
Total as restated $5,544
BMC's interest income and net income of $6,202,000 and $938,000,
respectively, for the five months ended May 31, 1994 (unaudited) are
included in the consolidated statement of income for the six months ended
June 30, 1994.
NOTE 3: INVESTMENT SECURITIES TO BE HELD TO MATURITY
($ in thousands) June 30, 1995
ESTIMATED
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of
other
U.S. Government $2,842 $2,841 $23 $24
agencies
State and political 44,326 45,573 1,811 564
subdivisions
Other 200 195 - 5
Total securities $47,368 $48,609 $1,834 $593
December 31, 1994
ESTIMATED
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of
other
U.S. Government $3,851 $3,741 $15 $125
agencies
State and political 44,124 42,473 539 2,190
subdivisions
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 $11,558,000
and $11,779,000, respectively, at June 30, 1995.
NOTE 4: SECURITIES AVAILABLE FOR SALE
($ in thousands) June 30, 1995
ESTIMATED
AMORTIZED FAIR GROSS UNREALIZED
COST VALUE GAIN LOSS
U.S. Treasury securities
and obligations of
U.S. Government agencies $31,151 $31,427 $425 $149
State and political 9,609 10,115 591 85
subdivisions
Mortgage-backed securities 89,018 87,973 500 1,545
Derivative securities 12,212 11,867 4 349
Federal Home Loan Bank stock 7,623 7,623 - -
Other 102 102 - -
Total securities $149,715 $149,107 $1,520 $2,128
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 13,945 14,417 646 174
subdivisions
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 $95,412,000 and
$95,176,000, respectively, at June 30, 1995. Federal Home Loan Bank stock,
which is classified as available for sale, is carried at cost.
NOTE 5: LOANS
($ in thousands) June 30 December 31
1995 1994
Commercial, industrial,
and agricultural loans $195,220 $191,243
Residential real estate loans 263,120 268,538
Installment loans 186,212 166,871
Total loans 644,552 626,652
Less: Unearned interest 10,284 10,643
Loans, net of unearned interest $634,268 $616,009
NOTE 6: PREMISES AND EQUIPMENT
($ in thousands) June 30 December 31
1995 1994
Land $1,996 $1,996
Buildings and improvements 15,115 15,071
Furniture and equipment 11,159 10,679
Construction in progress 2,677 1,145
Total premises and equipment 30,947 28,891
Less: Accumulated depreciation
and amortization 13,701 12,981
Net premises and equipment $17,246 $15,910
NOTE 7: INTEREST BEARING DEPOSITS
($ in thousands) June 30 December 31
1995 1994
NOW accounts $91,492 $103,631
Money Manager accounts 43,748 47,306
Individual retirement accounts 46,635 45,432
Savings accounts 46,091 49,174
Certificates of deposit under $100,000 297,166 281,904
Certificates of deposit $100,000 and 70,911 71,168
above
Total interest bearing deposits $596,043 $598,615
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
CBT Corporation ("CBT") is a multi-bank holding company that consists of
four state chartered commercial banks, one federal savings bank, and a
consumer finance company. CBT's banking subsidiaries have a total of 18
banking locations in Western Kentucky and its consumer finance subsidiary
has 21 offices located throughout the state. The following discussion and
analysis is presented on a consolidated basis.
The results of CBT's operations 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.
CBT reported record net income of $5,694,000 for the first six months of
1995, an increase of 2.7 percent over earnings of $5,544,000 for the first
six months of 1994. Net income for the second quarter of 1995 was
$2,927,000 compared to $2,914,000 for the second quarter of 1994. The
second quarter 1995 net income increased 5.8 percent over the first quarter
earnings. Net income per share for the second quarter 1995 remained
consistent with the second quarter of 1994 at $0.37. For the first six
months of 1995, net income increased 2.9 percent to $0.72, compared with
$0.70 for the same period in 1994.
Return on average equity was 11.59 percent for the first six months of 1995
compared with 12.40 percent for the first six months of 1994. Return on
average assets was 1.32 percent for the first six months of 1995, compared
with 1.37 percent for the first six months of 1994.
At June 30, 1995, risk-based capital ratios of 15.83 percent for Tier 1 and
17.08 percent for Total Risk-Based well exceeded the minimum ratios set for
a well-capitalized financial institution. CBT Corporation's leverage ratio
of average assets to average shareholders' equity was 11.14 percent
compared to 10.77 percent for the same period ended in 1994. This increase
in leverage reflects a strong growth in internal equity.
The per common share amount for the first six months 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.
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. For the first six months of 1995, tax-equivalent net
interest income provided 83.8 percent of CBT's net revenues, compared with
85.1 percent of net revenues in the first six months of 1994.
Total tax-equivalent net interest income for the second quarter of 1995
increased 1.7 percent to $10,163,000, up $172,000 from the same period of
1994. For the first six months of 1995, tax-equivalent net interest income
was $20,265,000, a 4.7 percent increase over the $19,347,000 reported in
the first six months of 1994. Growth in tax-equivalent net interest income
over 1994 was primarily due to a 7.1 percent increase in average earning
assets offset by an 11 basis point decline in net interest margin. The
year-to-date increase in earning assets is primarily due to an $81.9
million or 15.2 percent increase in average loans outstanding.
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.
The following schedule presents yields and rates on key components of
interest income and interest expense. Net interest margin which is tax
equivalent interest income expressed as a percentage of total average
earning assets is also presented below.
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
Yield on loans (including fees) 9.94% 8.99% 9.71% 8.94%
Yield on investments 7.16% 6.88% 7.16% 6.79%
Yield on other earning assets 2.86% 5.84% 5.83% 4.52%
Yield on earning assets 9.11% 8.35% 9.09% 8.27%
Rate on interest-bearing deposits 4.95% 3.83% 4.83% 3.81%
Rate on other borrowings 5.48% 3.85% 5.48% 3.77%
Rate on interest-bearing
liabilities 5.00% 3.83% 4.93% 3.81%
Net interest margin(including
fees) 4.93% 5.10% 4.93% 5.04%
Net interest spread 4.11% 4.52% 4.16% 4.46%
Loan growth was experienced in all major loan categories. Commercial,
industrial and agricultural loans increased over the June 30, 1994 total of
$186.6 million by 4.6 percent to $195.2 million at June 30, 1995.
Increased borrowings by current customers along with modest growth in new
commercial loan business produced the increase.
Residential real estate loans increased from December 31, 1994 by $18.2
million or 7.5 percent to $262.1 million at June 30, 1995. The relatively
strong regional economy coupled with increased sales efforts have produced
these results.
Consumer loans at June 30, 1995 were $186.2 million compared with $143.8
million at June 30, 1994, an increase of $42.4 million or 29.5 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 June 30, 1994 and June 30, 1995.
Net interest margin, the ratio of tax-equivalent net interest income
divided by average earning assets, was 4.93 percent in second quarter of
1995, compared with 5.10 percent in the second quarter of 1994. CBT has
increased the rates paid on deposits to remain competitive in the
marketplace. This factor along with higher rates paid on other borrowings
has caused the current decrease in interest margin. This decrease is being
partially offset by the sales of securities to fund loan growth. Loans
have typically produced higher yields as demonstrated in the table above.
Net interest spread which is the net yield earned on earning assets less
the rate paid on interest bearing liabilities was 4.11 percent for the
quarter ended June 30, 1995, 41 basis points lower than the second quarter
net interest spread of last year which was 4.52 percent. At June 30, 1995,
average loans comprised 75.0 percent of average earning assets compared
with 70.0 percent of average earning assets at mid-year 1994.
Year-to-date net interest margin remained constant at 4.93 percent for 1995
which was slightly lower (11 basis points) than 1994 year-to-date net
interest margin at 5.04 percent. Net interest spread was 30 basis points
lower than 1994 figures from 4.46 percent to 4.16 percent. This decrease
in net interest margin and net interest spread are attributable to the same
factors identified above for the second quarter comparison of 1995 versus
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 $259,000 for the second quarter
of 1995, a decrease of $125,000 or 32.5 percent compared with $384,000
provided in the second quarter of 1994. The provision for loan losses was
an annualized 0.17 percent of average loans for the second quarter of 1995,
compared with an annualized 0.28 percent in the second 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.
The ratio of the allowance for loan loss reserve to total loans has fallen
from 2.06 percent to 1.80 percent, chiefly as a result of increased loans.
Management believes the allowance for loan losses is adequate based on the
current level of non-performing assets and the expected level of future
charge-offs.
Net loan losses for the second quarter of 1995 were $207,000 compared to
$45,000 for the second quarter of 1994. Adjustments to the progression of
the allowance for loan losses include a $6,000 discount related to the
purchase of finance receivables at CBT's consumer finance affiliate.
The following is a progression of the allowance for loan losses:
Three Months Ended Six Months Ended
($ in thousands) June 30 June 30
1995 1994 1995 1994
Balance, beginning of period $11,366 $11,310 $11,533 $10,998
Provision for loan losses 259 384 490 695
Adjustments related to
purchase of finance 6 - 6 -
receivables
Loans charged-off (293) (186) (846) (287)
Recoveries 86 141 241 243
Net charge-offs (207) (45) (605) (44)
Balance, end of period $11,424 $11,649 $11,424 $11,649
Non-Interest Income
Non-interest income represented 17.0 percent of CBT's tax-equivalent
revenue in the second quarter of 1995, compared with 15.3 percent in the
second quarter of 1994. Consolidated non-interest income increased for the
second quarter of 1995 by $281,000 or 15.6 percent over the second quarter
of 1994. Non-interest income has increased in most major categories,
particularly in the areas of service charges on deposit accounts and
insurance commissions which have increased by $162,000 and $70,000 over the
second quarter of 1994, respectively. This growth is in response to
management's emphasis on fee opportunities.
The following table shows a breakdown of non-interest income:
Three Months Ended Six Months Ended
($ in thousands) June 30 June 30
1995 1994 1995 1994
Trust and investment
advisory fees $397 $360 $708 $711
Service charges on
deposit accounts 892 730 1,757 1,385
Insurance commissions 315 245 624 459
Net gain on sale of 135 115 133 111
securities
Other 346 354 706 712
Total non-interest income $2,085 $1,804 $3,928 $3,378
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 $106,000 from the first six months of 1994 to the first six months
of 1995. This decline has reversed course, and in the second quarter of
1995 brokerage income increased over the first quarter income by 140
percent from $65,000 to $155,000. In a continued effort to provide a full
range of services at all banking locations, J. C. Bradford has recently
opened a new satellite office at the Bank of Marshall County affiliate in
Benton, Kentucky and at the Hopkinsville, Kentucky affiliate, Pennyrile
Citizens Bank & Trust, and plans are under way to open a new office in the
United Commonwealth Savings Bank office at Murray, Kentucky pending
regulatory approval. Trust and investment advisory fees increased $37,000
in the second quarter of 1995, compared with 1994. Trust fees were up at
the lead bank primarily because of fee schedule changes.
Non-Interest Expenses
Non-interest expenses increased $547,000 from $7.0 million in the second
quarter of 1994 to $7.6 million for the second quarter of 1995. Salaries
and benefits comprise a major part of the increase at $295,000. This
increase is due to the re-alignment and replacement of departing employees
in connection with a voluntary separation program that was offered earlier
this year as part of "CBT 2000". Temporary help utilized during job
transitions and over-staffing expenses that occurred during this second
quarter (due to training of replacement personnel) are expected to be
minimized by the end of this year. The increase in other expenses was also
attributed in part to the re-structuring of core processes and
technological advances made as part of this transition.
The following table shows a breakdown of non-interest expense:
Three Months Ended Six Months Ended
($ in thousands) June 30 June 30
1995 1994 1995 1994
Salaries and employee benefits $3,806 $3,511 $8,260 $6,858
Net occupancy 285 230 538 490
Depreciation and amortization 427 445 887 854
Supplies 211 203 397 372
Data Processing 356 266 674 559
FDIC assessments 375 365 751 731
Tax on bank shares 296 272 591 544
Other 1,822 1,739 3,040 3,248
Total non-interest expense $7,578 $7,031 $15,138 $13,656
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 second
quarter of 1995, CBT's efficiency ratio was 61.87 percent compared with
59.61 percent for the second quarter of 1994.
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 second quarter of 1995 was 28.4
percent compared with 27.6 percent for the second quarter of 1994. The
slight increase is attributable to the decline of tax-exempt income as a
percentage of gross revenues.
Consolidated Balance Sheet Analysis
Earning Assets
Average earning assets for the second quarter of 1995 were $826.5 million
compared with $786.4 million for the year earlier period, an increase of
$40.1 million or 5.1 percent. The increase is attributable to the
continuation of strong loan demand in the markets CBT serves. Loan demand
was funded, in part, through sales of securities; average security balances
declined by $30.1 million or 13.1 percent from the second quarter of 1994
to the second quarter of 1995. Other earning assets, primarily in the
federal funds sold category, declined by $6.9 million or 72.2 percent.
Securities available for sale declined from June 1994 to June 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 June 30,
1995, CBT had $200,000 book value of federal agency derivatives in its held
to maturity portfolio. The market value of these securities on June 30,
1995 was $195,000. 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 $12,212,000 and $11,439,000
book value at June 30, 1995 and December 31, 1994, respectively, in
derivative securities as defined by regulators. These amounts represent
8.2 percent and 6.74 percent of the total securities available for sale at
June 30, 1995 and December 31, 1994, respectively. Market value for these
securities was $11,867,000 at June 30, 1995 and $10,532,000 at the end of
1994. At June 30, 1995, derivative securities available for sale consisted
of $7,907,000 in step-up bonds, $3,805,000 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.
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 shareholders'
equity. As of June 30, 1995, net unrealized losses related to investment
securities available for sale were $395,000, net of deferred taxes. This
net unrealized loss is a $5.0 million reduction from year end 1994 of $5.4
million. At June 30, 1994 net unrealized losses were $2.1 million.
Credit Risk Management
CBT manages exposure to credit risk though loan portfolio diversification
by customer, industry, and loan type. As a result, there is no undue
concentration in any single sector.
Loans by type appear below:
($ in thousands) June 30 December 31 June 30
1995 1994 1994
Commercial, industrial,
and agricultural loans $195,220 $191,243 $186,583
Residential real estate loans 263,120 268,538 243,895
Installment loans 186,212 166,871 145,836
Total loans 644,552 626,652 576,314
Less: Unearned interest 10,284 10,643 9,966
Loans, net of unearned interest $634,268 $616,009 $566,348
As of June 30, 1995 CBT's commercial, industrial and agricultural loans
totaled $195.2 million or 30.8 percent or total loans, net of unearned
interest ("net loans"). This percentage is down from 32.9 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 June 30, 1995, residential real estate loans totaled $262.1 million
or 41.5 percent of net loans, compared with $243.9 million or 43.1 percent
of net loans for the year earlier period. Net installment loans totaled
$186.2 million or 29.4 percent of net loans as of June 30, 1995, compared
with $145.8 million or 25.8 percent of net loans as of June 30, 1994.
CBT is not aware of any loans classified for regulatory purposes at June
30, 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 June 30, 1995.
Management is aware of one credit at a subsidiary bank in the amount of
approximately $1.89 million at June 30, 1995, about which there is serious
doubt regarding the ability of the borrowers to comply with the loan
repayment terms. At March 31, 1995, the credit was placed on non-accrual
status. During the second quarter of 1995, the obligor made principal
payments of $60,000. Subsequent to June 30, 1995, the obligor has made
additional principal payments of $62,000. 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 Loan Losses
At June 30, 1995, the allowance for loan losses was $11.4 million, or 1.80
percent of net loans outstanding, compared with $11.6 million, or 2.06
percent at June 30, 1994. The ratio of the allowance for loan losses to
non-performing assets was 262.9 percent at June 30, 1995, compared with
538.3 percent at June 30, 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 June 1994 to
June 1995, the ratio continues to compare rather favorably to industry
averages. The decline is chiefly a result of higher non-accrual loans,
particularly the $1.9 million credit previously mentioned.
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 June
30, 1995, non-performing assets totaled $4.3 million, or 0.69 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) June 30 December 31
1995 1994
Non-accrual loans $3,770 $1,806
Accruing loans which are contractually
past due 90 days or more 576 494
Total non-performing loans 4,346 2,300
Other real estate owned - 7
Total non-performing assets $4,346 $2,307
The increase in the ratio reflects a rise in the amount of non-accrual
loans along with a slight increase in the amount of accruing loans which
are contractually 90 days or more past due. The bulk of this increase is
attributable to one credit at a CBT affiliate.
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 June 30, 1995 has rated $4.0
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 June 30, 1995, interest-bearing liabilities totaled $701.6 million, an
increase of $24.6 or 3.6 percent from $677.0 million reported at June 30,
1994. The increase is due to increased borrowings to supplement the sales
of securities 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 June 30, 1995 these
deposits represented 71.0 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.
Management has recently launched a new marketing campaign designed to
expand the core customer base.
Non-Interest Bearing Deposits
Non-interest bearing deposits of $68.8 million have fallen $2.2 million or
3.07 percent from December 31, 1994 levels. The June 30, 1995 balances
compare favorably with year earlier figures, up $2.5 million or 3.6
percent.
Purchased Deposits
Purchased deposits, which the Corporation defines as certificates of
deposit with denominations of $100,000 or more, increased $1.4 million or
2.0 percent to $70.9 million up from $69.5 million at June 30, 1994. These
purchased deposits represent 8.5 percent of total earning assets.
Other Borrowings
Other borrowings at CBT remained fairly constant at 12.7 percent of earning
assets at June 30, 1995 and December 31, 1994. A shift in other borrowings
from federal funds purchased to Federal Home Loan Bank Advances occurred
during the first half of 1995 to take advantage of lower rates. Federal
funds purchased and securities sold under agreements to repurchase
decreased $16.2 million from $57.0 million to $40.8 million as a result.
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 all of
1995 has been the Asset and Liability Management Committee (ALCO) of CBT.
The corporate ALCO 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, with Fidelity Credit Corporation
included as part of Citizens Bank & Trust Company of Paducah ("Citizens").
The GAP is also monitored 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 second quarter of 1995, mismatch profits represent less
than 1.8 percent of Citizens' 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 each subsidiary. The policy specifies
targets based primarily on the GAP report. At the current time all
affiliates are operating within the policy guidelines. Consolidated GAP
reports produced for the end of the second 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 June 1995 data, CBT would expect its net interest income to decline
no more than one percent under a 200 basis point parallel shift upward or
downward of the yield curve. The GAP approach of measuring interest rate
risk produced a one year cumulative interest rate GAP almost perfectly
matched at .99 on June 30, 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
June 30, 1995
Leverage Ratio 5.00% 11.14% 6.14%
Tier I 6.00% 15.83% 9.83%
Total Risk-Based 10.00% 17.08% 7.08%
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 June 30, 1995, was
15.83 percent and its total capital to risk-based assets ratio was 17.08
percent, compared with 15.64 percent and 16.89 percent at December 31,
1994, respectively. CBT's leverage ratio was 11.14 percent at June 30,
1995, compared with 10.81 percent at December 31, 1994. The slight
increase in the ratio from December to June 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.
At June 30, 1995, CBT's shareholders' equity, exclusive of the unrealized
loss on securities available for sale, net of deferred tax, grew $2.9
million or 3.0 percent from December 1994 levels. This increase equates to
an annualized internal capital growth rate (ICGR) for 1995 of 7.9 percent.
The ICGR represents the rate at which CBT's average shareholders' 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.
The dividend payout ratio for the second quarter of 1995 was 30.6 percent
which falls within management's range for maintaining a dividend payout
ratio 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 July 31, 1995, the Corporation had issued and outstanding 7,952,108
shares of common stock which was held by approximately 1,470 shareholders.
Shareholders have received cash dividends per share of common stock on a
quarterly basis 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 1995 and 1994. 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
June 30, 1995 $24.00 $19.75 $.11
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
(a) The Annual Meeting of Shareholders was held on Tuesday,
April 18, 1995.
(b) Each persons named in the proxy statement as a nominee
for director was elected.
(c) The following are the voting results on each of the
matters which were submitted to the shareholders:
Election of Directors:
Against
Director For or Withheld
Irving P. Bright Jr. 6,798,392 720
John L. Burman 6,772,800 720
Patrick J. Cvengros 6,805,220 720
William H. Dyer 6,432,171 720
Louis A. Haas 6,810,535 720
Joe Tom Haltom 6,758,230 720
Kerry B. Harvey 6,695,241 720
F. Donald Higdon 6,801,792 720
William J. Jones 6,810,535 720
Ted S. Kinsey 6,573,237 720
Louis M. Michelson 6,418,401 720
Bill B. Morgan 6,771,086 720
Louis D. Myre 6,418,229 720
David M. Paxton 6,381,941 720
Robert P. Petter 6,428,737 720
Joseph A. Powell 6,799,985 720
William A. Usher 6,810,535 720
Proposal to Amend the Articles of Incorporation of the
Corporation to add a new Article XIII relating to the
indemnification of directors,
officers, and employees of the Corporation:
Against
Proposal For or Withheld Abstain
To Amend Articles
of Incorporation 6,034,979 629,686 1,287,693
The text of the matters referred to under this Item 4 is set
forth in the proxy statement dated March 7, 1995 previously
filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
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 June 30, 1995. However, on July 5, 1995 a
Form 8-K was filed notifying the SEC of a change in
independent accountants. This change was effective
as of June 28, 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: August 14, 1995 SIGNED:/s/ John E. Sircy
John E. Sircy
Executive Vice President
and Chief Operating Officer
(Principal Financial Officer)
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
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) Articles of Amendment to the Articles of
Incorporation of CBT Corporation. 27 - 31
4(c) 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) 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 32 - 33
** Denotes management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Form 10-Q.
EXHIBIT 4(b)
AMENDMENT TO
ARTICLES OF INCORPOARION
FOR
CBT CORPORATION
EXHIBIT 27
FINANCIAL DATA SCHEDULE
(filed in electronic format)
FOR
CBT CORPORATION
For the Period Ended
JUNE 30, 1995