38
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 37 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 - 23
PART II. OTHER INFORMATION
Item 1. through Item 6. 24 - 25
SIGNATURE PAGE 26
EXHIBIT INDEX 27
AMENDMENT TO 1993 STOCK OPTION PLAN 28 - 35
FINANCIAL DATA SCHEDULE 36 - 37
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 repurchase 58,458 39,037 40,802
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, 1995; and
7,904,935 shares at June 30, 1995 4,100 4,100 4,100
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
taxes (2,080) 307 (395)
TOTAL SHAREHOLDERS' EQUITY 105,197 104,371 99,218
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $916,950 $904,741 $880,916
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Ended Six Months Ended
($ in thousands except per share data) June 30 June 30
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 accounts 871 892 1,630 1,757
Insurance commissions 329 315 641 624
Net 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 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 agencies $2,024 $2,018 $8 $14
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 agencies $2,333 $2,352 $27 $8
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
subdivisions 9,588 9,958 453 83
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
subdivisions 9,587 10,186 646 47
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 Ended Six Months 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%
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 $1,350,000
charge-off taken on one commercial account.
The following is a progression of the allowance for loan losses:
Three Months Ended Six Months Ended
($ 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 $163,000 for the
six months ended June 30, 1996 compared to June 30, 1995. As noted above,
the trust and investment advisory fees increased significantly, offset
partially by the decrease in gains on sales of securities. In addition,
service charges on deposit accounts decreased 7.2 percent due to a lower
collection rate in 1996. Management continues to focus on service charge
income, as well as other fee income opportunities.
The following table shows a breakdown of non-interest income:
Three Months Ended Six Months Ended
($ 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 re-
engineering 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 month 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 $637,000
decline in FDIC assessments was a result of a reduction in the assessment
rate which occurred in the third quarter of 1995. Other expenses increased
during the first quarter of 1996 as a result of expanded marketing and
advertising, additional telephone costs, increased courier and postage
expenses, growth in audit and exam fees and charges associated with
operational consolidations.
The following table shows a breakdown of non-interest expense:
Three Months Ended Six Months Ended
($ 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 tax-
equivalent 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 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
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 non-
accrual 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, non-
performing 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 67.8 percent at December 31, 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, long-
term 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 Assets) 5.00% 11.35% 6.35%
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.
Price
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,Jr 6,323,681 48,609
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
27 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:''''''''''''''''''''
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. 28 - 35
27 Financial Data Schedule 37
** Denotes management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Form 10-Q.
EXHIBIT 10(F)
CBT CORPORATION
1993 STOCK OPTION PLAN
(As Amended and Restated Effective March 16, 1996)
CBT CORPORATION
1993 STOCK OPTION PLAN
(As Amended and Restated Effective March 16, 1995)
Preamble
CBT Corporation adopted the CBT Corporation 1992 Incentive Stock
Option Plan, effective march 17, 1993. The Plan was subsequently approved
by the shareholders of the Company. The Company now desire to amend and
restate the Plan, subject to shareholder approval, effective for options
granted on and after March 16, 1995, to provide for granting of
nonstatutory stock options and to permit the Plan Committee to determine
the vesting period of options granted under the Plan. The Plan is renamed
"CBT Corporation 1993 Stock Option Plan" to reflect that nonstatutory
options can now be awarded under the Plan. These amendments shall not
affect outstanding options granted under the Plan before March 16, 1995,
and the provisions of the Plan as in effect before these amendments shall
apply to such options. The Plan as so amended and restated reads as
follows:
1. PURPOSE. The purpose of the Plan is to strengthen the Company by
providing an additional means of retaining and attracting competent
management personnel and by providing to participating officers and other
key employees of the Company and its Subsidiaries added incentive for high
levels of performance and for unusual efforts to increase the earnings of
the Company through the opportunity for stock ownership offered by the
Plan.
2. DEFINITIONS. For purposes of this Plan, capitalized words and
phrases shall have the following meanings:
A. Board. The word "Board" means the Company's Board of Directors.
B. Change in Control. The term Change in Control means: (a) any
share exchange or merger or consolidation of the Corporation or a
significant subsidiary of the corporation if either (i) the Corporation
will not be the surviving or acquiring corporation or will not own 100% of
the outstanding capital stock of the surviving or acquiring corporation
following the consummation of the transactions contemplated by the plan or
agreement of exchange, merger or consolidation, or (ii) there will be a
substantial change in the proportionate ownership of outstanding share of
voting stock of the Corporation as a result of the transactions
contemplated by such plan or agreement of exchange, merger or
consolidation; (b) any sale, lease, exchange, transfer or other disposition
of all or any substantial part of the assets of the Corporation or a
subsidiary of the Corporation followed by a liquidation of the Corporation;
(c) the commencement of any tender offer, exchange offer or other purchase
offer for, and / or any agreement to purchase, as much as (or more than)
30% of the outstanding Common Stock of the Corporation or a subsidiary of
the Corporation; or (d) the Board or the shareholders of the Corporation
approve, adopt, agree to recommend, or accept any agreement, contract,
offer or other arrangement providing for, or any series of transactions
resulting in, any of the transactions described above.
C. Code. The word "Code" means the Internal Revenue Code of 1986,
as amended.
D. Common Stock. The term "Common Stock" means the Company's common
stock or the common stock or securities of a Successor that have been
substituted therefor pursuant to Section 8.
E. Company. The word "Company" means CBT Corporation, a Kentucky
corporation, with its principal place of business at 333 Broadway, Paducah,
Kentucky 42001.
F. Exchange Act. The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended from time to time.
G. ISO. The acronym "ISO" means an option to purchase Common Stock
which at the time the option is granted qualifies as an incentive stock
option within the meaning of Code Section 422.
H. NSO. The acronym "NSO" means a nonstatutory stock option to
purchase Common Stock which at the time the option is granted does not
qualify as an ISO.
I. Option Price. The term "Option Price" means the price to be paid
for Common Stock upon the exercise of an option granted under the Plan, in
accordance with Section 7.A.
J. Optionee. The word "Optionee" means an employee to whom options
have been granted under the Plan.
K. Optionee Representative. The term "Optionee Representative"
means the personal representative of the Optionee's estate, and after final
settlement of the Optionee's estate, the successor or successors entitled
thereto by law.
L. Plan. The word "Plan" means the CBT Corporation 1993 Stock
Option Plan, as set forth herein, and as amended from time to time.
M. Plan Committee. The term "Plan Committee" means the committee
appointed by the Board to administer the Plan, pursuant to Section 4.
N. Subsidiary. The word "Subsidiary" means, as defined in Code
Section 424 (f), any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the time of the
granting of an option under the Plan, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock of one of the other corporations in such chain.
O. Successor. The work "Successor" means the entity surviving a
merger or consolidation with the Company, or the entity that acquires all
or a substantial portion of the Company's assets or outstanding capital
stock (whether by merger, purchase or otherwise).
P. Ten Percent Shareholder. The term "Ten Percent Shareholder"
means an employee who, at the time an option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or Subsidiary employing the Optionee
or of its parent (within the meaning of Code Section 424 (e)) or
Subsidiary.
3. STOCK SUBJECT TO PLAN. Subject to adjustment as provided in
Section 8, the aggregate number of shares of Common Stock which may be
issued under the Plan shall not exceed four hundred thousand (400,000)
shares. ________________ (_________) shares have been issued under the Plan
effective March 16, 1995, leaving _______________ shares (________) shares
available for issuance under the Plan effective March 16, 1995. Authorized
and unissued shares shall be delivered under the Plan. If any option
expires or terminates for any reason, the shares of Common Stock subject
thereto shall again become available under the Plan.
4. ADMINISTRATION.
A. Plan Committee. The Board shall appoint an option committee,
known as the Plan Committee, to administer the Plan, whose membership shall
be determined and reviewed from time to time by the Board. Members of the
Plan Committee shall serve until delivery of their written resignation to
the Board or until removal by the Board. The Plan Committee shall consist
of not less than three (3) members of the Board who are not and have not at
any time for one (1) year before appointment to the Committee been eligible
to receive stock or options under any plan of the company or any of its
affiliates. Members of the Plan Committee shall be subject to any
additional restrictions necessary to satisfy the requirements for
disinterested administration of the Plan as set fourth in Rule 16b=3 under
the Exchange Act.
B. Plan Administration. The Plan Committee shall have full power
and authority to construe, interpret and administer the Plan any may from
time to time adopt such rules and regulations for carrying out the Plan as
it may deem proper and in the Company's best interests. The decision of a
majority of the members of the Plan Committee shall constitute the decision
of the Plan Committee and the Plan Committee may act either at a meeting at
which a majority of the members of the Plan Committee is present, or by a
writing signed by all of the members of the Plan Committee. The
interpretation of any provisions of the Plan by the Plan Committed shall be
final, conclusive, and binding upon all persons and the officers of the
Company shall place into effect and shall cause the Company to perform its
obligations under the Plan in accordance with the determinations of the
Plan Committee in administering the Plan.
5. GRANT OF OPTIONS.
A. Plan Committee's Authority. Subject to the terms, provisions and
conditions of the Plan, the Committee shall have exclusive jurisdiction:
(i) to select the employees to whom options shall be granted; (ii) to
authorize the granting of ISOs, NSOs or a combination of ISOs and NSOs to
employees; (iii) to determine the number of shares of Common Stock subject
to each option; (iv) to determine the time or times when options will be
granted, the manner in which each option shall be exerciseable, and the
duration of the exercise period; (v) to fix such other provisions of the
option agreement as it may deem necessary or desirable consistent with the
terms of the Plan; and (vi) to determine all other questions relating to
the administration of the Plan.
B. $100,000 ISO Exercisability Limitation. Notwithstanding Section
5.A, the aggregate fair market value (determined as of the date the option
is granted) of the Common Stock for which ISOs will first become
exercisable by an Optionee is any calendar year under all ISO plans of the
Company and its Subsidiaries shall not exceed $100,000. Options granted
in excess of this limitation shall constitute NSOs.
6. ELIGIBILITY. Key employees of the Company and its Subsidiaries,
including officers and directors who are also employees of the Company or a
Subsidiary, are eligible to receive ISOs and NSOs under the Plan. Key
employees to whom options may be granted under the Plan will be those
selected by the Plan Committee from time to time who, in the sole
discretion of the Plan Committee, have contributed in the past or who may
be expected to contribute materially in the future to the successful
performance of the Company and its Subsidiaries.
7. TERMS OF OPTIONS. Each option granted under the Plan shall
evidenced by an option agreement signed by the Optionee and by a member of
the Plan Committee on behalf of the Commune. An option agreement shall
constitute a binding contract between the Company and the Optionee, and
every Optionee, upon acceptance of such option agreement, shall be bound by
the terms and restrictions of the Plan and of the option agreement. Such
agreement shall be subject to the following express terms and conditions
and to such other terms and conditions that are not inconsistent with the
Plan as the Plan Committee may deem appropriate.
A. Option Price. The Option Price per share of Common Stock shall
be determined by the Plan Committee at the time an option is granted. The
Option Price for ISOs shall be not less than: (i) the fair market value of
Common Stock on the date of grant, or (ii) in the case of an ISO granted to
a Ten Percent Shareholder, one hundred ten percent (110%) of the fair
market value of Common Stock on the date of grant. The fair market value
of common Stock shall be determined by the average of the closing bid and
asked quotations or the closing high bid quotation, whichever is available,
for the Common Stock in the over--the-counter market, as reported by the
National Association of Securities Dealers Automated Quotation System on
the business day immediately preceding the date of grant. The Option Price
shall be subject to adjustment as provided in Section 8.
B. Option Period. Subject to Section 7.C, each option agreement
shall specify the period for which the option thereunder is granted and
shall provide that the option shall expire at the end of such period. The
Plan Committee may extend such period provided that, in the case of an ISO,
such extension shall not in any way disqualify the option as an ISO without
the Optionee's consent. In no case shall such period, including any such
extensions, exceed ten (10) years from the date of grant, provided,
however, that in the case of an ISO granted to a Ten Percent Stockholder,
such period, including extensions, shall not exceed five (5) years from the
date of grant.
C. Lapse of ISO. An ISO shall lapse at the earliest of the
following times:
(1) ten (10) years from the date of grant;
(2) five (5) years after the date of this Agreement if Optionee
is a Ten Percent Shareholder on the date of this Agreement); or
(3) three (3) months after termination of employment with the
Company or a Subsidiary for reasons other than death, Disability, or
discharge for cause;
(4) one (1) year after termination of employment with the
Company or a Subsidiary because of Optionee's death or Disability; or
(5) immediately upon termination of employment through discharge
for cause, as determined by the Plan Committee in its sole discretion; or
(6) on the date Optionee becomes employed by or renders services
for a financial institution in competition with the Company or its
Subsidiaries in any county in which the Company or any of its
Subsidiaries is located following Optionee's termination of employment
with the Company or its Subsidiaries, as determined by the Plan
Committee in its sole discretion.
D. ISO Installment Exercise Period. Except to the extent provided
otherwise by section 7.H, in no event shall an ISO be exercisable during
the first tow (2) years after the date of grant. Thereafter, an ISO may be
exercised on or after the anniversary of the date of grant in three (3)
equal annual installments so that the full grant may be exercised not
sooner than four (4) years after the date of grant.
E. Leaves of Absence. The Plan Committee may, in its discretion,
treat all or any portion of any period during which an Optionee is on
military or on an approved leave of absence from the Company or a
Subsidiary as a period of employment of the Optionee by the Company or
Subsidiary for purposes of accrual of the Optionee's rights under the Plan.
Notwithstanding the foregoing, if a leave of absence exceeds ninety (90)
days and reemployment is not guaranteed by contract or statute, the
Optionee's employment by the company or a Subsidiary for the purposes of
the Plan shall be deemed to have terminated on the 91st day of the leave.
F. Manner of Exercise. To exercise an option, the Optionee shall
deliver to the Company: (i) seven (7) days' prior written notice
specifying the number of shares as to which the option is being exercised
and, if determined by counsel for the Company to be necessary, representing
that such shares are being acquired for investment purposes only and not
for purpose of resale or distribution; and (ii) payment by the Optionee, or
a broker-dealer (as provided in Section 7.G), for such shares of the Option
Price for the number of shares with respect to which the option is
exercised. On or before the expiration of the sever (7) day notice period,
and provided that all conditions precedent contained in the Plan are
satisfied, the Company shall, without transfer or issuance tax or other
incidental expenses to Optionee, deliver to Optionee, at the offices of the
Company, a certificate or certificates for the Common Stock. Options are
exercisable only in whole shares, and fractional share interests shall be
disregarded. If Optionee fails to accept delivery of the Common Stock, the
Optionee's rights to exercise the applicable portion of the option shall
terminate.
G. Payment for Share. Except as otherwise provided in this Section
7, the Option Price for the Common Stock shall be paid in full when the
option is exercised. Subject to such rules as the Committee may impose,
the Option Price may be paid in whole or in part in (i) cash, (ii) whole
shares of Common Stock owned by the Optionee evidenced by negotiable
certificates, (iii) by a combination of such methods of payment, or (iv)
such other consideration as shall constitute lawful consideration for the
issuance of Common Stock and be approved by the Committee including without
limitation, assurance satisfactory to the Committee from a broker
registered under the Exchange Act of the delivery of the proceeds of an
imminent sale of the Common Stock to be issued pursuant to the exercise of
such option, such sale to be made at the directions of the Optionee).
Moreover, subject to such restrictions, terms and conditions as the
Committee may impose, an Optionee may request the Company to "pyramid" the
Optionee's shares; that is, to automatically apply the shares which the
Optionee is entitled to receive on the exercise of a portion of an option
to satisfy the exercise for additional portions of the option, thus
resulting in multiple simultaneous exercises of an option by use of whole
shares as payment. If payment of the Option Price is made in Common stock,
the value of the Common Stock used for payment of the Option Price shall be
the fair market value of the Common Stock, determined in accordance with
Section 7.A, on the business day preceding the day written notice of
exercise is delivered to the Company./
H. Acceleration. Notwithstanding the provisions of Sections 7.B or
D to the contrary, if there is a Change in Control, the exercise dates of
all outstanding options shall accelerate so that each option outstanding
may be exercised on or after the date of the Change in Control.
I. ISOs. Each option agreement which provides for the grant of an
ISO shall contain such terms and provisions as the Plan Committee deems
necessary or desirable to qualify such option as an ISO within the meaning
of Code Section 422.
J. Transferability of Options. Options granted under the Plan may
not be transferred by the Optionee otherwise than by will or the laws of
descent and distribution, and during the lifetime of the Optionee to whom
granted, may be exercised only by such Optionee.
8. ADJUSTMENT OF SHARES. In the event of capital adjustment after
the effective date of the Plan in the Common Stock of the Company by
reason of any reorganization, recapitalization, stock split, stock
dividend, combination or exchange of shares, merger or consolidation, or
any other change (after the effective date of the Plan) in the nature or
number of shares of Common Stock of the Company, a proportionate adjustment
shall be made in the maximum number and kind of shares which may be
delivered under the Plan, and in the Option Price under and the number and
kind of shares of Common Stock covered by outstanding options granted under
the Plan. By virtue of such a capital adjustment, the price of any share
under option shall be adjusted so that there will be no change in the
aggregate purchase price payable upon exercise of any such option. Such
determination by the Plan Committee shall be conclusive.
Without limiting the generality of the foregoing, if (a) there is a
Change in Control of the Company, and (b) as a result of the transactions
contemplated by the Change in Control, a Successor will acquire all or a
substantial portion of the assets or outstanding capital stock of the
Company, then the kind of shares of common stock which shall be subject to
the Plan and to each outstanding option shall automatically be converted
into a replace by share of common stock, or such other class of equity
securities having rights and preferences no less favorable than common
stock of the Successor, and the number of shares subject to the options and
the purchase price per share upon exercise of the options shall be
correspondingly adjusted, so that, by virtue of such Change in Control of
the Company, each optionee shall have the right to purchase (i) that number
of shares of the Successor which, as of the date of the Change in Control,
have a fair market value equal to the fair market value of the shares of
the company theretofore subject to an option, (ii) for a purchase price per
share which, when multiplied by the number of shares of the Successor
subject to the option, shall equal the aggregate exercise price at which
the Optionee could have acquired shares of the Company under such option.
The granting of an option pursuant to this Plan shall not affect in
any way the right and power of the Company to make adjustments,
reorganizations, reclassifications, or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell or transfer
all of any part of its business or assets; provided, however, that the
Company shall not, and shall not permit its Subsidiaries to, recommend or
agree or consent to a transaction or series of transactions which would
result in a Change of Control of the Company unless and until the person or
persons acquiring or succeeding to assets or capital stock of the Company
or its Subsidiaries as a result of such transaction or transactions agrees
to be bound by the terms of the Plan so far as it pertains to options
therefore granted and agrees to assume and perform the obligations of the
Company and its Successor under the Plan.
9. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Upon the exercise of
an option at a time when there is not in effect a registration statement
under the Securities Act of 1933 and any applicable state securities laws
(the "Securities Laws") relating to the shares of Common Stock issuable
upon exercise thereof and available for deliver, a prospectus meeting the
requirements of the Securities laws, the shares of Common Stock may be
issued only if the Optionee or Optionee Representative represents and
warrants in writing to the Company that the shares being purchased are
being acquired for investment and not with a view to the distribution
thereof. The shares of the Common Stock shall contain such legends or
other restrictive endorsements as counsel for the Company shall deem
necessary or proper. No shares of Common Stock shall be purchased upon the
exercise of any option unless and until there shall have been satisfied any
applicable requirements of the Securities and Exchange Commission or other
regulatory agencies having jurisdiction and of any exchanges upon which
stock of the Company may be listed. The Company covenants that it will
take all actions necessary to register under the Securities Laws the Common
Stock issuable upon exercise of options granted pursuant to this Plan.
10. NO RIGHTS AS SHAREHOLDER. No Optionee or Optionee's
Representative shall have any rights as a shareholder with respect to
Common Stock subject to Optionee's option before the date of transfer to
the Optionee of a certificate for such shares.
11. NO RIGHTS TO CONTINUED EMPLOYMENT. The Plan and any option
granted under the Plan shall not confer upon any Optionee any right with
respect to continuance of employment by the Company or any Subsidiary, nor
shall it interfere in any way with the right of the Company or any
Subsidiary by which an Optionee is employed to terminate Optionee's
employment at any time.
12. TERMINATION. The Plan shall terminate on December 31, 2002, and
may be terminated at any earlier time by the Plan Committee. No option
shall be granted after termination of the Plan. Termination of the Plan,
however, shall not affect the validity of any option theretofore granted
under the Plan.
13. AMENDMENT. The Board shall have the right, at any time, to
amend, suspend or terminate the Plan in any respect that it may deem to be
in the best interests of the Company, except that, without approval by
shareholders of the Company holding not less than a majority of the votes
represented and entitled to b voted at a duly held meeting of the Company's
shareholders, no amendment shall be made if shareholder approval is
necessary to continue to qualify the Plan under the Securities and Exchange
commission Rule 16b-3. No amendment of the Plan, however, may, without the
consent of the Optionee or optionee Representative, make any changes in any
outstanding option theretofore granted under the Plan which would adversely
affect the rights of such Optionee or Optionee Representative.
14. TAX WITHHOLDING. Upon the exercise of any option granted under
the Plan, or upon the disposition of any Common Stock acquired by the
exercise of an ISO granted under the Plan within two (2) years from the
date of grant or one (1) year after such Common Stock is transferred to the
Optionee, the Company shall have the right to require Optionee to remit to
the Company an amount sufficient to satisfy all federal, state and local
withholding tax requirements, or, alternatively, the Company shall have the
right to retain Common Stock otherwise payable to the Optionee pursuant to
exercise of an option in an amount sufficient to satisfy such withholding
requirements, before the delivery to the Optionee of any certificate(s) for
shares of Common Stock.
15. GOVERNING LAW. This Plan and the stock option agreements
entered into under the Plan shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Kentucky.
16. EFFECTIVE DATE. This Plan, as amended and restated, is effective
upon the approval by the Board on March 16, 11995; subject, however, to the
ratification of this Plan, as amended and restated, by the shareholders of
the Company. The Plan was originally approved by the Board on March 17,
1993 and ratified by the affirmative vote of a majority of the shares
present or represented by proxy at the Annual Meeting of Stockholders held
on April 20, 1993. The effective date of each option shall be the day on
which it is granted to any Optionee.
Dated as of the 16th day of March, 1995.
CBT CORPORATION
By: ______________________
Title: ___________________
ATTEST:
_________________________
EXHIBIT 27
FINANCIAL DATA SCHEDULE
(filed in electronic format)
FOR
CBT CORPORATION
For the Period Ended
JUNE 30, 1996