7
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996 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 30,1996
Common Stock, No Par Value 7,866,469
Page 1
This filing contains XX pages.
CBT CORPORATION
PART I. FINANCIAL INFORMATION PAGE
NO.
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996,
December 31, 1995 and June 30,1995 3
Consolidated Statements of
Income for Three Months and Six
Months Ended June 30, 1996 and
June 30, 1995 4
Consolidated Statements of Changes in
Shareholders' Equity for Six Months Ended
June 30, 1996 and June 30, 1995 5
Consolidated Statements of Cash Flows for
Six Months Ended June 30, 1996 and June 30,
1995 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations 13 - 22
PART II. OTHER INFORMATION
Item 1. through Item 6. 23 -24
SIGNATURE PAGE 25
EXHIBIT INDEX 26
AMENDMENT TO 1993 STOCK OPTION PLAN 27-37
FINANCIAL DATA SCHEDULE 28
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(audited) (unaudited) ($ in thousands)
June 30 December 31 June 30
1996 1995 1995
ASSETS
Cash and due from banks $30,669 $33,662 $31,922
Federal funds sold 1,000 1,000 -
Total cash and cash equivalents 31,669 34,662 31,922
Securities to be held to maturity 54,760 46,427 47,368
Securities available for sale
(at fair market value) 157,163 158,474 149,107
Loans, net of unearned interest 650,186 644,661 634,268
Allowance for loan losses (9,896) (11,004) (11,424)
Loans, net 640,290 633,657 622,844
Premises and equipment, net 18,493 18,872 17,246
Accrued interest receivable 6,770 6,752 5,946
Other 7,805 5,897 6,483
TOTAL ASSETS $916,950 $904,741 $880,916
LIABILITIES
Deposits:
Non-interest bearing $55,365 $69,628 $68,786
Interest bearing 598,939 604,106 596,043
Total deposits 654,304
673,734 664,829
Borrowings:
Federal funds purchased and
securities
sold under agreements to 58,458
39,037 40,802
repurchase
Notes payable - U.S. Treasury 2,021
459 1,984
Revolving lines of credit 5,000
4,000 7,024
Federal Home Loan Bank advances 71,173
61,893 50,614
Term debt 10,069
10,069 5,092
Total borrowings 146,721
115,458 105,516
Accrued interest payable 4,840
4,341 4,934
Other 5,888
6,837 6,419
TOTAL LIABILITIES 811,753
800,370 781,698
SHAREHOLDERS' EQUITY
Common stock, no par value, authorized
12,000,000 shares; issued and
outstanding
7,866,469 shares at June 30, 1996;
7,907,435 shares at December 31, 4,100
4,100 4,100
1995; and
7,904,935 shares at June 30, 1995
Capital surplus 17,981
19,003 18,985
Retained earnings 85,196
80,961 76,528
Unrealized gains (losses) on
securities
available for sale, net of deferred (2,080)
307 (395)
taxes
TOTAL SHAREHOLDERS' EQUITY 105,197
104,371 99,218
TOTAL LIABILITIES AND $916,950
$904,741 $880,916
SHAREHOLDERS' EQUITY
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Six
Months Ended
Ended
($ in thousands except per share June 30
June 30
data)
1996 1995 1996 1995
INTEREST INCOME
Loans, including fees:
Taxable $15,654 $15,230 $31,227
$29,823
Tax-exempt 37 46 78 94
Securities:
Taxable 2,539 2,387 5,044 4,902
Tax-exempt 942 880 1,810 1,783
Other 7 5
26 77
Total interest income 19,179 18,548
38,185 36,679
INTEREST EXPENSE
Deposits 7,042 7,312
14,213 14,259
Borrowings 1,706 1,396
3,322 2,811
Total interest expense 8,748 8,708
17,535 17,070
NET INTEREST INCOME 10,431 9,840
20,650 19,609
PROVISION FOR LOAN LOSSES 485 259 955 490
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,946 9,581
19,695 19,119
NON-INTEREST INCOME
Trust and investment advisory fees 535 397
1,000 708
Service charges on deposit 871 892
1,630 1,757
accounts
Insurance commissions 329 315 641 624
Net gain (loss) on sale of 21 135 34 133
securities
Other 365 346 786 706
Total non-interest income 2,121 2,085
4,091 3,928
NON-INTEREST EXPENSE
Salaries and employee benefits 3,916 3,806
7,878 8,260
Net occupancy 328 285 681 538
Depreciation and amortization 554 427
1,108 887
Supplies 212 211 456 397
Data processing 371 356 786 674
FDIC assessments 57 375 114 751
Tax on bank shares 303 296 606 591
Other 1,828 1,822
3,535 3,040
Total non-interest expense 7,569 7,578
15,164 15,138
INCOME BEFORE INCOME TAXES 4,498 4,088
8,622 7,909
INCOME TAXES 1,300 1,161
2,492 2,215
NET INCOME $3,198 $2,927
$6,130 $5,694
NET INCOME PER COMMON SHARE $0.41 $0.37
$0.78 $0.72
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
($ in thousands)
Total Shareholders
' Equity Balance,
December 31, 1995 $104,371
Net income 6,130
Dividends on common stock (1,895)
Stock options exercised 42
Purchase of common stock (1,064)
Net change in unrealized gains (losses) on
securities available for sale (2,387)
Balance, June 30, 1996 $105,197
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 gains (losses) on
securities available for sale
(4,991)
Balance, June 30, 1995
$99,218
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Six
Months Ended
($ in thousands)
June 30
1996 1995
OPERATING ACTIVITIES
Net income $6,130
$5,694 Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 955 490
Depreciation 994 775
Amortization 114 112
Amortization and accretion of securities 32 5
Loss (gain) on sale of securities (33) (133)
Changes in assets and liabilities:
Accrued interest receivable (18) 122
Other assets (736) (676)
Accrued interest payable 499 1,053
Other liabilities (949) 1,315
Net cash provided by operating activities 6,988 8,757
INVESTING ACTIVITIES
Proceeds from maturities of securities to be held 1,139 1,710
to maturity
Proceeds from sales of securities available for -
24,933
sale
Proceeds from maturities of securities available 12,660 3,882
for sale
Principal collected on mortgage-backed securities,
including those classified as available for sale 5,326 3,412
Payment for purchases of securities (29,818)
(12,953) Net increase in loans
(7,588) (18,858) Proceeds from sale of premises and
equipment 14 -
Payment for purchase of premises and equipment (630)
(2,111)
Net cash (used in) provided by investing (18,897) 15
activities
FINANCING ACTIVITIES
Net decrease in deposits (19,430) (4,748)
Net increase (decrease) in short-term borrowings 20,983
(15,908)
Net increase in FHLB advances 9,280
(15,182)
Net cash advanced on revolving lines of credit 1,000 1,024
Cash dividends paid (1,895) (1,745)
Stock options exercised 42 432
Purchase of common stock (1,064) (1,491)
Net cash provided by (used in) financing 8,916 (7,254)
activities
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,993) (1,518)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,662 30,404
CASH AND CASH EQUIVALENTS, END OF PERIOD $31,669
$31,912
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $8,249
$16,017
Federal income taxes $2,773 $1,994
CBT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Presentation Basis
The accompanying unaudited consolidated financial
statements of CBT Corporation 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. The financial statements
include the accounts of CBT Corporation (the Parent
Company) and its wholly-owned subsidiaries: Citizens Bank &
Trust Company (Citizens), Pennyrile Citizens Bank & Trust
Company, Bank of Marshall County, Graves County Bank and
United Commonwealth Bank FSB. Collectively these entities
constitute the "Corporation", which provides financial
services primarily in western Kentucky and
surrounding communities. Fidelity Credit Corporation is a
wholly-owned subsidiary of Citizens. All significant
inter-company accounts and transactions have been
eliminated in consolidation.
Operating results for the three month period and six month
period ended June 30, 1996, are not necessarily indicative
of the results that may be expected for the year ended
December 31, 1996. 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, 1995.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and federal
funds sold.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level
considered adequate to provide for potential losses based
on management's evaluation of the loan portfolio,
including the financial strength of guarantors, valuation of
collateral, and the likelihood of further collection based
upon the borrower's financial condition, as well as on
prevailing and anticipated economic conditions.
Although management believes it uses the best information
available to make determinations with respect to the
Corporation's allowances, future adjustments may be
necessary if economic or other conditions differ
substantially from the economic and other conditions in
the assumptions used in making the initial determinations,
and such adjustments could be material.
Effective January 1, 1995, the Corporation adopted SFAS No.
114. Accounting by Creditors for Impairment of a Loan"
as amended by SFAS No. 118 "Accounting by Creditors
for Impairment of a Loan-Income Recognition and
Disclosures." These pronouncements require that impaired
loans be measured based upon the present value of expected
future cash flows, discounted at the loans' effective
interest rate or at the loans' market price or fair value
of collateral, if the loan is collateral dependent. When the
measure of the impaired loan is less than that recorded
investment in the loan, the impairment is recorded through a
valuation allowance that is included in the allowance for
loan losses. The adoption of these pronouncements did not
have a material impact on the Corporation's consolidated
financial statements.
The Corporation's impaired loans are generally measured on a
loan by loan basis. Interest payments received on
impaired loans are recorded as interest income unless
collection of the loan is doubtful, in which case payments
are recorded as a reduction of principal.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation of premises and equipment is
computed using the straight-line and accelerated methods
over the estimated useful lives of the assets, as follows:
Years
Buildings and improvements 15 - 35
Furniture and fixtures 7
Equipment 5
Repurchase Agreements
Certain securities are sold under agreements to repurchase
and are treated as financings. The obligation to repurchase
such securities is reflected as a liability on the
consolidated balance sheets. The dollar amounts of
securities underlying the agreements are included in the
respective asset accounts.
Trust Fees and Assets
Revenues from trust services are reported on the cash basis
in accordance with customary banking practice. Reporting
such revenues on the accrual basis would not materially
affect the accompanying consolidated financial statements.
Assets held in a fiduciary or agency capacity for customers
and beneficiaries are not included in the consolidated
financial statements as such items are not assets of the
Corporation.
Securities to be Held to Maturity and Securities Available
for Sale
Effective January 1, 1994, the Corporation changed its method
of accounting for securities to conform with Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting
for Certain Investments in Debt and Equity Securities."
Securities to be held to maturity are reported at cost,
adjusted for premiums and discounts and consist of securities
for which the Corporation has the positive intent and
ability to hold to maturity. Available for sale
securities are reported at fair value and consist of
securities not classified as securities to be held to
maturity. Unrealized holding gains and losses, net of
deferred taxes, on available for sale securities are
reported as a net amount in a separate component of
shareholders' equity until realized.
Federal Home Loan Bank stock is not considered to be a
marketable equity security under SFAS No. 115 and,
therefore, is carried at cost. The stock is included in
securities available for sale.
Amortization of premiums and accretion of discounts are
recorded primarily on the interest method. Gains and
losses on disposition of investment securities and
securities available for sale are computed by the specific
identification method.
Loans and Interest Income
Loans are stated at the principal balance outstanding, net
of unearned interest. Interest on loans is based
upon the principal balance outstanding, except interest
on some consumer installment loans, which is recognized on
the sum-of-the-years-digits method, and does not differ
materially from the interest method.
The accrual of interest income is generally reviewed for
discontinuance when a loan becomes 90 days past due as to
principal or interest. When interest is discontinued,
all unpaid accrued interest is reversed. Management may
elect to continue the accrual of interest when the estimated
net realizable value of collateral is sufficient to cover
the principal balance and accrued interest or, in the
opinion of management, the interest is collectible.
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 and non-
deductible expenses.
Per Common Share Data
Net income per common share data for the three months ended
June 30, 1996 and 1995 is based upon 7,879,471 average
shares outstanding and 7,950,831 average shares outstanding,
respectively. Net income per common share data for the six
months ended June 30, 1996 and 1995 is based upon 7,892,530
average shares outstanding and 7,948,756 average shares
outstanding, respectively.
Reclassifications
Certain reclassifications have been made in the 1995
financial statements to conform to the presentation of the
1996 financial statements.
Uses of Estimates in the Preparation of Financial Statements
The preparation of financial statements requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
NOTE 2: SECURITIES TO BE HELD TO MATURITY
($ in thousands) June 30,
1996
ESTIMATED
AMORTIZED FAIR
GROSS UNREALIZED
COST VALUE
GAIN LOSS
U.S. Treasury securities and
obligations
of other U.S. Government $2,024 $2,018
$8 $14
agencies
State and political subdivisions 52,736 53,161
1,616 1,191
Total securities $54,760 $55,179
$1,624 $1,205
December 31,
1995
ESTIMATED
AMORTIZED FAIR
GROSS UNREALIZED
COST VALUE
GAIN LOSS
U.S. Treasury securities and
obligations
of other U.S. Government $2,333 $2,352
$27 $8
agencies
State and political subdivisions 43,894 46,068
2,435 261
Other 200 199
- - 1
Total securities $46,427 $48,619
$2,462 $270
Certain securities to be held to maturity were pledged to
secure public deposits, securities sold under agreements
to repurchase, and other
purposes as required or permitted by law. These pledged
securities had an estimated amortized cost and
estimated fair value of approximately $13,755,727 and
$13,775,739 respectively, at June 30, 1996.
NOTE 3: SECURITIES AVAILABLE FOR SALE
($ in thousands) June 30, 1996
ESTIMATED
AMORTIZED FAIR GROSS
UNREALIZED
COST VALUE GAIN
LOSS
U.S. Treasury securities
and obligations of other
U.S. Government agencies $53,929 $52,761
$110 $1,278
State and political 9,588 9,958
453 83
subdivisions
Mortgage-backed securities 82,992 80,744
326 2,574
Derivative securities 5,482 5,328
2 156
Federal Home Loan Bank stock 8,270 8,270
- - -
(at cost)
Other 102 102
- - -
Total securities $160,363 $157,163
$891 $4,091
December 31,
1995
ESTIMATED
AMORTIZED FAIR GROSS
UNREALIZED
COST VALUE GAIN
LOSS
U.S. Treasury securities and
obligations of other
U.S. Government agencies $44,821 $45,236
$479 $64
State and political 9,587 10,186
646 47
subdivisions
Mortgage-backed securities 83,952 83,557
576 971
Derivative securities 11,747 11,600
10 157
Federal Home Loan Bank Stock 7,873 7,873
- - -
(at cost)
Other 22 22
- - -
Total securities $158,002 $158,474
$1,711 $1,239
Certain securities available for sale were pledged to
secure public deposits, securities sold under agreements
to repurchase, and other purposes as required or permitted
by law. These pledged securities had an amortized cost
and estimated fair value of approximately $98,256,691 and
$96,243,008 respectively, at June 30, 1996.
NOTE 4: LOANS
($ in thousands) June 30 December
31 June 30
1996 1995
1995
Commercial, industrial,
and agricultural loans $209,874
$212,266 $195,220
Residential real estate loans 259,260
253,556 263,120
Installment loans 190,188
189,036 186,212
Total loans 659,322
654,858 644,552
Less: Unearned interest 9,136
10,197 10,284
Total loans, net of unearned $650,186
$644,661 $634,268
interest
NOTE 5: PREMISES AND EQUIPMENT
($ in thousands) June 30 December
31 June 30
1996 1995
1995
Land $1,971
$1,971 $1,996
Buildings and improvements 17,833
17,715 15,115
Furniture and equipment 13,959
13,537 11,159
Construction in progress 59
20 2,677
Total premises and equipment 33,822
33,243 30,947
Less: Accumulated depreciation
and amortization 15,329
14,371 13,701
Net premises and equipment $18,493
$18,872 $17,246
NOTE 6: INTEREST BEARING DEPOSITS
($ in thousands) June 30 December
31 June 30
1996 1995 1995
NOW accounts $95,517
$101,448 $91,492
Money Manager accounts 37,597
45,581 43,748
Individual retirement accounts 48,443
50,601 46,635
Savings accounts 50,633
44,845 46,091
Certificates of deposit under $100,000 280,978
292,489 297,166
Certificates of deposit $100,000 and 85,771
69,142 70,911
above
Total interest bearing deposits $598,939
$604,106 $596,043
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.
The banks' 17 locations provide financial services
primarily in western Kentucky, while the finance company has
25 locations throughout Kentucky. The following discussion
and analysis is presented on a consolidated basis, with
all significant inter-company accounts and transactions
eliminated.
For the first six months of 1996, CBT reported net income of
$6,130,000, an increase of
7.66 percent from the first six months of 1995, which was
reported at $5,694,000. Net income per share was $.78 for
the six months ended June 30, 1996 compared with $.72 for
the six months ended June 30, 1995, an increase of 8.3
percent.
Return on average equity was 11.61 percent for the first six
months of 1996 compared with 11.59 percent for the first six
months of 1995. Return on average assets was 1.36 percent
for the first six months of 1996, compared with 1.32 percent
for the first six months of 1995.
Consolidated Income Statement Analysis
Net Interest Income
Net interest income is the difference between interest earned
on assets and interest incurred on liabilities. It is
affected by changes in the mix and volume of earning assets
and interest-bearing liabilities, their related yields, and
overall interest rates. For discussion purposes herein, net
interest income is presented on a tax-equivalent basis
with adjustments made to present yields on tax-exempt
assets as if such income was fully taxable.
In the second quarter of 1996, tax-equivalent net interest
income provided 83.5 percent of CBT's net revenue, compared
with 84.7 percent in the second quarter of 1995. Total tax-
equivalent net interest income for the second quarter of
1996 increased 5.9 percent from the second quarter a year
ago. Growth in tax-equivalent net interest income for 1996
over 1995 was due to moderate growth in interest earning
assets of 2.4 percent and a 12 basis point increase in net
interest margin.
Net interest margin, the ratio of tax-equivalent net
interest income divided by average earning assets, was
5.05 percent and 4.93 percent for the three months ended
June 30, 1996 and June 30 ,1995, respectively. The following
schedule presents yields and rates on key components of
interest income and interest expense.
Three Months Six
Months Ended
Ended
June 30
June 30
1996 1995
1996 1995
Yield on securities 6.98% 7.16% 6.96% 7.14%
Yield on loans (including fees) 9.89% 9.79% 9.86% 9.71%
Yield on federal funds sold and other
money market investments 3.65% 2.86% 4.61% 5.97%
Yield on earning assets 9.16% 9.16% 9.14% 9.08%
Rate on interest-bearing deposits 4.74% 4.96% 4.78% 4.83%
Rate on borrowings 5.21% 5.51% 5.27% 5.48%
Rate on interest bearing 4.83% 5.04% 4.87% 4.93%
liabilities
Net interest spread 4.33% 4.12% 4.27% 4.15%
Net interest margin (including fees) 5.05% 4.93% 5.01% 4.93%
The increase in net interest margin between the second
quarter of 1996 versus 1995 is due to higher yields on
earning assets, specifically the loan yields. There was a
shift in asset mix towards loans, which generally produce
higher yields. Average loans comprised 74.7 percent of
average
earning assets in the second quarter of 1996, compared to 76
percent in the second quarter of 1995. This increase was
partially offset by increased costs of time deposits.
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 $485,000 for the second quarter of 1996, a 87.3
percent increase from the $259,000 in the second quarter of
1995. The second quarter provision for loan losses was
.30 percent of
average loans on an annualized basis, compared with .17
percent in the prior year. The consolidated provision
for loan losses was $955,000 for the six months ended
June 30, 1996, a 94.8 percent increase from the $490,000
for the same period in 1995. The increase in the amount
of provision for loan losses in 1996 compared with 1995
reflects management's intention to maintain an adequate
allowance position.
Net loan losses were $447,000 for the second quarter of
1996 compared to $207,000 for the second quarter of 1995.
Net loan losses as a percent of average loans on an
annualized basis were .28 percent for the three months ended
June 30, 1996, compared to .13 percent for the three months
ended June 30, 1995. Net loan losses were $2,063,000 and
$605,000 for the six months ended June 30, 1996 and 1995,
respectively. The increase in net loan losses in 1996
over 1995 is primarily attributable to a $1,350,000 charge-
off taken on one commercial account.
The following is a progression of the allowance for loan
losses:
Three Months Six
Months Ended
Ended
($ in thousands) June 30 June 30
1996 1995
1996 1995
Balance, beginning of period $9,858 $11,366
$11,004 $11,533
Adjustment for finance receivables - 6 - 6
Provision for loan losses 485 259 955 490
Loans charged off (576) (293)
(2,295) (846)
Recoveries 129 86 232 241
Net charge-offs (447) (207)
(2,063) (605)
Balance, end of period $9,896 $11,424
$9,896 $11,424
Allowance for loan losses to total
loans,
net of unearned interest 1.52% 1.80%
1.52% 1.80%
Net charge-offs to average loans 0.28% 0.13%
0.65% 0.20%
Non-performing assets to period-end
loans and other real estate 1.65% 0.69%
1.65% 0.69%
Non-Interest Income
Non-interest income represents 9.80 percent of CBT's tax-
equivalent revenue in the second quarter of 1996, compared
with 10.1 percent in the second quarter of 1995.
Consolidated non-interest income increased 1.7 percent in the
second quarter of 1996 to $2,121,000. Trust and investment
advisory fees increased 34.8 percent from $397,000 to
$535,000 over the second quarter of 1995. This increase
reflects the higher brokerage volumes being generated through
CBT's strategic alliance with J.C. Bradford & Co. ("JCB"), a
Nashville-based regional brokerage firm. All other non-
interest income decreased 6.0 percent over the second quarter
of 1995. This decrease was primarily because of reduced
gains on the sale of securities. During 1995, certain
securities were sold to generate liquidity for the
corporation. In 1996, certain securities were called,
resulting in small gains.
Consolidated non-interest income increased 4.2 percent or
$163,000 for the six months ended June 30, 1996 compared to
June 30, 1995. As noted above, the trust and investment
advisory fees increased significantly, offset partially by
the decrease in gains on sales of securities. In addition,
service charges on deposit accounts decreased 7.2 percent due
to a lower collection rate in 1996. Management continues to
focus on service charge income, as well as other fee income
opportunities.
The following table shows a breakdown of non-interest income:
Three Months Six
Months Ended
Ended
($ in thousands) June 30
June 30
1996 1995
1996 1995
Trust and investment advisory fees $535 $397
$1,000 $708
Service charges on deposit accounts 871 892
1,630 1,757
Insurance commissions 329 315
641 624
Gain (loss) on sale of securities 21 135
34 133
Other 365 346
786 706
Total non-interest income $2,121 $2,085
$4,091 $3,928
Non-Interest Expenses
Total non-interest expense remained consistent on an overall
basis for the three months and six months ended June 30, 1996
compared to 1995. Salaries and employee benefits for the six
months ended June 30, 1996 decreased $382,000 from the same
period in 1995, as the first quarter of 1995 included
$865,000 of non-recurring costs associated with an extensive
reengineering effort. Exclusive of the non-recurring
charges, salaries and benefits increased $483,000. Net
occupancy expense increased $143,000 between 1996 and 1995
for the six months period. This is principally due to growth
in the number of FCC offices and the opening of the United
Commonwealth Bank facility in the third quarter of 1995.
Depreciation and amortization increased 24.9 percent, or
$221,000, reflective of the significant investment CBT has
made in technology, facilities and equipment
over the last year. The $112,000 increase in data processing
expense relates to charges for additional services as well as
costs associated with upgrading technology at banking
affiliates. Supplies increased $59,000, due primarily to
costs associated with standardizing bank product offerings at
all bank affiliates during the first quarter of 1996. The
$637,000 decline in FDIC assessments was a result of a
reduction in the assessment rate which occurred in the third
quarter of 1995. Other expenses increased during the first
quarter of 1996 as a result of expanded marketing and
advertising, additional telephone costs, increased courier
and postage expenses, growth in audit and exam fees and
charges associated with operational consolidations. Other
expenses remained constant between the second quarters of
1996 and 1995.
The following table shows a breakdown of non-interest
expense:
Three Months Six
Months Ended
Ended
($ in thousands) June 30
June 30
1996 1995
1996 1995
Salaries and employee benefits $3,916 $3,806
$7,878 $8,260
Net occupancy 328 285
681 538
Depreciation and amortization 554 427
1,108 887
Supplies 212 211
456 397
Data processing 371 356
786 674
FDIC assessments 57 375
114 751
Tax on bank shares 303 296
606 591
Other 1,828 1,822
3,535 3,040
Total non-interest expense $7,569 $7,578
$15,164 $15,138
The efficiency ratio, defined as non-interest expense
divided by taxequivalent revenue, is a measure of how
effective a financial services company is in leveraging
its resources to produce revenue. A lower ratio indicates
better performance. For the six months ended June 30,
1996, CBT's efficiency ratio was 59.76 percent compared with
62.57 percent for the same period in 1995.
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 three months ended
June 30, 1996 and December 31, 1995 was 28.9 percent and 27.6 percent,
respectively. The
effective income tax rate for the six months ended June 30,
1996 and 1995 was 28.9 percent and 28.0 percent,
respectively.
Consolidated Balance Sheet Analysis
Earning Assets
At June 30, 1996, earning assets were $862.1 million,
compared with $830.7 million at June 30, 1995. This increase
is due to a $15.9 million increase in loans combined with
a $15.5 million increase in securities. Total earning
assets at June 30, 1996 consisted of loans, representing
75.4 percent and securities, representing 24.6 percent.
Average earning assets for the second quarter of 1996
were $857.0 million, an increase of 3.7 percent over the
second quarter of 1995.
Investment Risk Management
CBT has certain securities in its available for sale
portfolio that are
classified as derivative securities by banking regulators.
At June 30, 1996 and December 31, 1995, respectively,
CBT had $5,482,000 and
$11,747,000 book value in derivative securities. These
amounts represent 3.4 percent and 7.4 percent of the total
securities available for sale at June 30, 1996 and December
31, 1995, respectively. Market value for these securities
was $5,328,000 at June 30, 1996 and $11,600,000 at December
31, 1995. The significant decrease in such securities is
due to calls issued in 1996 based upon a favorable
interest rate environment. All
are
guaranteed by government agencies and none have a maturity of
over 6 years. At June 30, 1996, all derivative securities
met the Federal Financial Institutions Examinations Council
stress test guidelines which are measures of the
suitability of various investment securities for bank
portfolios. The amount and nature of these securities pose
no undue risk to CBT's financial position and there are
no plans to acquire additional derivative securities.
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 second 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 deferred
taxes, as a separate component of shareholders' equity.
As of June 30, 1996, net unrealized losses related to
investment securities available for sale were
$2,080,000, net of deferred taxes. At December 31,
1995, the fair value of securities available for sale
reflected unrealized gains of $307,000.
Credit Risk Management
CBT manages exposure to credit risk though loan portfolio
diversification by customer, industry, and loan type. As a
result, there is no undue concentration in any single
sector. CBT annually evaluates economic conditions
affecting its lending markets. Economic indicators such
as unemployment levels, construction activity, and
bankruptcy filings are evaluated. During the second
quarter of 1996, CBT's primary market areas continued to
experience a favorable unemployment level, strong real
estate values and commercial development. CBT's credit
risk is diversified by loan type. At June 30,
1996, 39 percent of the portfolio consisted of residential
real estate, 32 percent of commercial and 29 percent of
consumer loans.
Credit risk management also includes monitoring the
performance of existing portfolios. CBT has in place a
comprehensive internal credit review program to assess the
current financial condition and operating performance of
significant commercial borrowers.
Loans by type appear below:
($ in thousands) June 30 December
31 June 30 1996 1995 1995
Commercial, industrial, and
agricultural $209,874
$212,266 $195,220
loans
Residential real estate loans 259,260
253,556
263,120
Installment loans 190,188
189,036
186,212
Total loans 659,322
654,858
644,552
Unearned interest 9,136
10,197
10,284
Total loans, net of unearned $650,186
$644,661 $634,268
interest
CBT is not aware of any loans classified for regulatory
purposes at June 30, 1996, that are expected to have a
material impact on CBT's future operating results,
liquidity, or capital resources. CBT continues to
classify its loans consistent with current regulatory
review results. There are no material commitments to lend
additional funds to customers whose loans were classified as
non-accrual at June 30, 1996.
Allowance for Loan Losses
At June 30, 1996, the allowance for loan losses was $9.9
million, or 1.52 percent of net loans outstanding,
compared with $11.0 million, or 1.71 percent at December
31, 1995. The ratio of the allowance for loan losses to
non-performing assets was 92.00 percent at June 30, 1996,
compared with 225.8 percent at December 31, 1995. Non-
performing assets consist of nonaccrual loans, loans past-
due ninety days or more that are still accruing interest,
restructured loans, and other real estate owned. The ratio
of the allowance for loan losses to non-performing
assets has declined significantly from June 1995 to June
1996. The decline primarily reflects the impact of a group
of related commercial credits at a subsidiary bank, which
were classified as non-performing assets effective January
1996. The amount of these credits is approximately $5.4
million at June 30, 1996, following a $1.35 million charge-
off against this credit during the first quarter of 1996.
As of June 30, 1996, these credits remained classified as non-
performing assets. Subsequent to June 30, 1996, the parties
involved have verbally agreed to rewrite the loans at market
terms and conditions. As of July 31, 1996, total losses
related to this relationship have been $2.75 million.
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 has a comprehensive credit grading
system and other internal loan monitoring systems. Such
systems fully comply with the loan review guidelines set
forth in the December 21, 1993 Interagency Policy Statement
on the Allowance for Loan and Lease Losses. CBT
management maintains the allowance available to cover future
loan losses within the entire loan portfolio and believes
the allowance for loan losses is adequate at June 30, 1996
based on the current level of non-performing assets and the
expected level of future charge-offs.
Non-Performing Assets
The following table presents data on CBT's non-performing
assets. As previously defined, non-performing assets consist
of non-accrual loans, loans past due ninety days or more that
are still accruing interest, restructured loans, and other
real estate owned. At June 30, 1996, nonperforming assets
totaled $10.7 million, or 1.67 percent of net loans and other
real estate owned, compared with $4.9 million, or 0.77
percent of net loans and other real estate owned, at December
31, 1995. As discussed previously, this increase reflects a
group of related commercial credits totaling approximately
$5.4 million. Of this amount, $1.8 million has been
restructured. The remaining portion totaling $3.6 million
consists of two notes to a single borrower. A $1.1 million
note is secured by collateral valued at $800,000 to
$1,000,000. A $2.5 million note has nominal collateral
support. Personal guarantees exist on the obligation.
Subsequent to June 30, 1996, the parties involved have
verbally agreed to rewrite the loans under market terms and
conditions, after charging-down an additional $1.4 million.
($ in thousands) June 30 December
31 June 30 1996
1995 1995
Non-accrual loans $8,772
$4,059 $3,770
Accruing loans which are
contractually
past due 90 days or more 1,954
785 576 Total non-performing loans
10,726 4,844 4,346
Other real estate owned 30 30 -
Total non-performing assets $10,756
$4,874 $4,346
In 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan", (FAS
114). It was subsequently amended in 1994 with the issue of
FAS 118, "Accounting by Creditors for Impairment of a Loan
Income Recognition and Disclosure". FAS 114, as amended,
requires that impaired loans be measured based on the
present value of expected future cash flow discounted at
the loan's effective rate, at the loan's market price, or
the fair value of the collateral is the loan is
collateral dependent. CBT adopted FAS 114 in 1995. The
adoption of FAS 114 did not have a material effect on CBT's
consolidated financial statements.
Funding Sources
Non-Interest Bearing Deposits
Non-interest bearing deposits, which represent a portion
of CBT's core deposits, were $55.4 million at June 30,
1996, a $14.2 million decrease from December 31, 1995.
Average non-interest bearing deposits were $63.8 for the
second quarter of 1996 compared with $67.0 million for
fourth quarter of 1995. Non-interest bearing deposits
represented 6.9 percent of
CBT's total funding sources at June 30, 1996, compared with 8.8 percent at
December 31, 1995.
Interest-Bearing Liabilities
Interest-bearing liabilities for CBT consist of certain
core deposits, purchased deposits, short-term and long-term
borrowings. At June 30, 1996, interest-bearing liabilities
totaled $745.6 million, an increase of $25.8 million over
December 31, 1995. The increase is due to a $21.7 million
increase in short-term borrowings (primarily Federal funds
purchased), a $9.3 million increase in long-term borrowings
and a $5.2 million decrease in interest bearing deposits.
Interest-bearing Core Deposits - In CBT's banking
subsidiaries, NOW, Money Manager, Individual Retirement and
savings accounts, and certificates of deposit under
$100,000 provide a stable source of funding. At June 30,
1996 these deposits accounted for 64.1 percent of CBT's
total funding sources compared with 68.2 percent of June
30, 1995. This level of core deposits is considered
appropriate by management given CBT's asset mix.
Purchased Deposits - Purchased deposits, which CBT defines
as certificates of deposit with denominations of $100,000 or
more, increased $14.9 million or 21 percent to $85.8
million from $70.9 million at June 30, 1995. Purchased
deposits represented 10.7 percent of CBT's total funding
sources at June 30, 1996, compared with 8.8 percent at
December 31, 1995.
Borrowings - CBT's borrowing include both short-term
and long-term borrowings. Short-term borrowings
include Federal funds purchased, securities sold under
agreements to repurchase, U.S. Treasury notes payable,
revolving lines of credit, and short-term Federal Home Loan
Bank advances. Management views short-term borrowings as
a cost-effective alternative to purchased deposits and
interest bearing core deposits and actively manages CBT's
short-term borrowing position to maintain acceptable net
interest margins and liquidity. At June 30, 1996,
short-term borrowings accounted for 12.9 percent of CBT's
total funding sources, compared with 11.3 percent at
December 31, 1995. The increase primarily reflects Federal
funds purchased. Long-term borrowings, which totaled
$43.4 million and $26.4 million at June 30, 1996 and
December 31, 1995, respectively, include Federal Home Loan
bank advances with maturities in excess of one year and
term debt used to fund FCC. At June 30, 1996, longterm
borrowings represented 5.4 percent of CBT's total funding
sources compared with 3.3 percent at December 31, 1995.
Asset and Liability Management
Banking institutions manage the inherently different maturity
and repricing characteristics of earning assets and interest-
bearing funding to achieve a desired interest rate
sensitivity position and to limit their exposure to interest
rate risk. 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 is the Asset and Liability Management Committee
(ALCO) of CBT, an executive level management committee.
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. The actual
management of interest rate risk is governed by an asset and
liability management policy.
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. Management uses various measurement
tools to monitor 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 dates. 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
(FCC is included with Citizens), as well as on a consolidated
basis. The asset and liability management policy at
each subsidiary specifies targets based primarily on the
one year cumulative GAP position in conjunction with a
market volatility risk analysis At June 30, 1996 the one
year cumulative interest rate GAP was .98. At December 31,
1995 the one year cumulative interest rate GAP was .91.
The above levels were within stated corporate guidelines.
A GAP of less than one indicates that, over the time horizon
measured, more liabilities will reprice than assets.
Generally, such a position is favorable in a falling
interest rate environment.
GAP as an interest rate risk measurement tool has some
limitations, in that it is a static measurement and does
not capture basis risk or risk that varies non-
proportionally with rate movements. Because of such
limitations, CBT supplements its use of GAP with a
computer model to estimate the impact of various parallel
shifts in the yield curve on net interest income and fair
value of equity under a variety of interest rate scenarios.
CBT's management believes the two approaches compliment
each other in understanding the impact of changes in
interest rates. Based on modeling using June 1996 data, CBT
would expect its net interest income to change no more than
5 percent under a 200 basis point parallel shift up or down
of the yield curve.
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.
The following analysis shows comparisons between the
regulatory requirements for "well capitalized" institutions
and the actual capital position of CBT:
Well
Capitalized Actual
Excess
June 30, 1996
Leverage Ratio (Equity to 5.00% 11.54% 6.54%
Assets)
Tier 1 Risk-Based 6.00% 16.35% 10.35%
Total Risk-Based 10.00% 17.60% 7.60%
December 31, 1995
Leverage Ratio (Equity to 5.00% 11.35% 6.35%
Assets)
Tier 1 Risk-Based 6.00% 16.12% 10.12%
Total Risk-Based 10.00% 17.37% 7.37%
Because of solid performance and conservative capital
management, CBT has consistently maintained a strong
capital position. These ratios compare favorably with
industry standards and CBT's peers.
At June 30, 1996, CBT's shareholders' equity, exclusive of
the unrealized loss on securities available for sale, net
of deferred tax, grew $3.2 million from December 1995
levels. CBT's internal capital growth rate (ICGR) for
the six months ended June 30, 1996 was 8.1 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 a $0.12 per share dividend in the second quarter
of 1996. The dividend payout ratio for the second quarter of
1996 was 30.9 percent which falls within management's payout
range of 25 to 35 percent.
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. Management is also not
aware of any events or uncertainties that will have or that
are reasonably likely to have a material impact on CBT's
liquidity, capital resources or operations.
Market Data
At June 30, 1996, CBT had issued and outstanding 7,866,469
shares of common stock which was held by approximately 1478
shareholders. Shareholders have received cash dividends per
share of common stock on a quarterly basis in 1995 and thus
far in 1996.
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 1996 and 1995.
The trading price information reflects the range of
actual reported sales prices for CBT Corporation common
stock as reported by NASDAQ.
Pric
e
Quarter High Low
Dividends
June 30, 1996 24.25 21.50 0.12
March 31, 1996 24.50 21.50 0.12
December 31, 1995 23.00 20.00 0.12
September 30, 1995 24.25 19.25 0.12
June 30, 1995 24.00 19.75 0.11
March 31, 1995 24.75 21.00 0.11
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
16, 1996
(b) Each person 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
Abstain
Irving P. Bright, 6,323,681 48,609
Jr.
John L. Burman 6,323,035 48,609
Patrick J. Cvengros 6,303,197 48,609
William H. Dyer 6,323,681 48,609
Louis A. Haas 6,319,966 48,609
Joe Tom Haltom 6,371,111 48,609
Kerry B. Harvey 6,297,007 48,609
F. Donald Higdon 5,920,753 48,609
William J. Jones 6,290,495 48,609
Ted S. Kinsey 6,356,339 48,609
Louis M. Michelson 5,987,460 48,609
Bill B. Morgan 6,358,786 48,609
Louis D. Myre 5,906,083 48,609
David M. Paxton 5,873,235 48,609
Robert P. Petter 6,323,681 48,609
Joseph A. Powell 6,252,898
48,609
William A. Usher 6,323,681
48,609
Proposal to Amend the Corporation,s 1993
Stock Option Plan:
Against
Proposal For or Withheld
Abstain
To Amend 1993 Stock
Option Plan 5,506,754 699,794
68,841
The text of the matters referred to under this Item
4 is set forth
in the proxy statement dated March 8, 1996
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 XX of this report are
furnished as a part of this report.
(b) No Form 8-K has been filed during the
second quarter of
1996.
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, 1996 SIGNED:/s/
Jeffrey R. Nieder
Jeffrey R. Nieder
Senior Vice
President
and Chief
Financial Officer
EXHIBIT INDEX
NUMBER DESCRIPTION
PAGE
3(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.
3(b) Articles of Amendment to the Articles of
Incorporation
of CBT Corporation are incorporated by
reference to Exhibit 4(b) of Form 10-Q
of CBT Corporation
dated June 30, 1995.
3(c) By-Laws of CBT Corporation are
incorporated
by reference to Exhibit 3, to the
Registration Statement of Form S-14 of
CBT Corporation (Registration No. 2-
83583).
10(a) **Form of Severance Protection
Agreement
between CBT Corporation and certain
executive officers is incorporated by
reference to Exhibit 10 of Form 10-Q of
CBT Corporation dated September 30,
1995.
10(b) **CBT Corporation 1986
Stock Option Plan is
incorporated by reference to Exhibit 4
of Registration Statement on Form S-8 of
CBT Corporation (Registration No. 33-
28512).
10(c) **CBT Corporation 1993
Stock Option Plan
is incorporated by reference to Form
10-Q
of CBT Corporation dated June 30, 1993.
10(d) **Salary Continuance Agreement
is incorporated
by reference to Exhibit 10(c) of the
Form 10-K
of CBT Corporation for the year ended
December
31, 1990.
10(e) **Description of Incentive
Compensation Plan is
incorporated by reference to Exhibit
10(d) of the Form 10-K of CBT
Corporation for the year ended
December 31, 1990.
10(f) **CBT Corporation 1993 Stock Option
Plan, as amended and restated effective
March 16, 1995.
27 Financial Data Schedule 27
** Denotes management contracts or compensatory plans or
arrangements required to be filed as exhibits to this Form 10-
Q.