MANAGEMENT'S DISCUSSION AND ANALYSIS
OF 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 intercompany accounts and
transactions eliminated.
CBT reported record net income of $12,024,000 in 1995, an increase of
4.7 percent over earnings of $11,486,000 in 1994 and 15.1 percent over
earnings of $10,448,000 in 1993. Net income per share was $1.52 in 1995,
compared with $1.45 in 1994 and $1.32 in 1993, an increase of 4.8 percent and
15.2 percent, respectively. Net income per common share amounts for periods
prior to 1994 have been restated to reflect a two-for-one split of the
outstanding shares of common stock of CBT which was payable on October 25,
1994.
Return on average equity was 11.91 percent, compared with 12.42 percent
for 1994 and 12.30 percent for 1993. Return on average assets was 1.36
percent for 1995 compared with 1.37 percent for 1994 and 1.38 percent for
1993.
BMC Bankcorp, Inc. was acquired by CBT effective May 31, 1994. The
acquisition has been accounted for using the pooling of interests method of
accounting, and accordingly, the accompanying financial statements have been
restated to include the accounts and operations of BMC Bankcorp, Inc. for
periods prior to the acquisition.
CONSOLIDATED INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Net interest income 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 1995, tax-equivalent net interest income provided 83.5 percent of CBT's
tax-equivalent revenue, compared with 86.1 percent in 1994 and 83.3 percent in
1993. Total tax-equivalent net interest income was $41,410,000 in 1995, a 2.7
percent increase over the $40,323,000 reported in 1994. Growth in tax-equivalent
net interest income over 1994 was due to a moderate 4.4 percent growth in
average earning assets, which was partially offset by an 8 basis point decline
in net interest margin. The growth in average earning assets was created by an
11.3 percent increase in average loan outstandings for 1995. Loan growth in 1995
was achieved primarily in commercial and consumer loans. The growth in loan
outstandings was partially offset by a decrease in average outstandings for
securities and Federal funds sold.
The 1994 increase in tax-equivalent net interest income of 15.2 percent over
the $35,008,000 reported in 1993 was due to an 11.2 percent increase in average
earning assets and a 16 basis point increase in net interest margin. The
increase in average earning assets between years reflects increases in average
loan outstandings, offset in part by declines in average outstandings for
securities and Federal funds sold. Loan growth in 1994 was achieved primarily in
residential real estate and consumer loans.
CBT CORPORATION 1995 ANNUAL REPORT 13
Net interest margin, the ratio of tax-equivalent net interest income divided
by average earning assets, was 4.96 percent in 1995, compared with 5.04 percent
in 1994 and 4.88 percent in 1993. The following schedule presents yields and
rates on key components of interest income and interest expense which determine
the net interest margin.
FOR THE YEAR ENDED
DECEMBER 31
------------------------------
1995 1994 1993
Yield on securities 7.12% 6.93% 6.75%
Yield on loans (including fees) 9.91% 9.10% 9.21%
Yield on Federal funds sold 5.95% 3.42% 2.99%
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Yield on earning assets 9.22% 8.44% 8.34%
Rate on interest-bearing deposits 4.91% 3.97% 4.18%
Rate on borrowings 5.84% 4.44% 3.60%
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Rate on interest-bearing liabilities 5.05% 4.03% 4.13%
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Net interest rate spread 4.17% 4.41% 4.21%
Net interest margin (including fees) 4.96% 5.04% 4.88%
The decrease in net interest margin between 1995 and 1994 is due to
increased costs of savings and time deposits, along with higher borrowing
costs for 1995. These cost increases were partially offset by 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 75.6 percent of average earning assets in 1995, compared to 71.0
percent in 1994. The increase in net interest margin in 1994 over 1993
reflects declines in the cost of savings and time deposits, as well as
improved yields on mortgage-backed securities and Federal funds sold. Also
contributing to the improvement of 1994 over 1993 was the shift in asset mix
towards loans, which produce higher yields, and the increase in non-interest
bearing demand 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 $1,106,000 in 1995, an 18.8
percent decrease from the $1,361,000 provision level in 1994 and a 19.1
percent decrease from the $1,366,000 provision level in 1993. The provision
for loan losses was 0.18 percent of average loans in 1995, compared with 0.24
percent in 1994 and 0.28 percent in 1993. The decline in the amount of
provision for loan losses in 1995, compared with 1994 and 1993, reflects
management's assessment of the quality of the loan portfolio and the adequacy
of the allowance for loan losses at December 31, 1995.
Net loan losses were $1,641,000 in 1995, $826,000 in 1994, and $213,000
in 1993. Net loan losses as a percent of average loans were 0.26 percent in
1995, compared to 0.15 percent in 1994 and 0.04 percent in 1993. The increase
in net loan losses in 1995 over 1994 was due to the charge-off of a community
development loan of $300,000, increases in commercial and agricultural net
charge-offs and growth in consumer loan net charge-offs. The higher consumer
loan charge-offs reflect growth in that portfolio rather than a deterioration
in credit quality. The increase in net charge-offs in 1994 from 1993 was due
to a partial charge-off of a commercial credit in 1994 and the unusually low
level of net loan losses experienced in 1993.
NON-INTEREST INCOME
Non-interest income represented 16.5 percent of CBT's tax-equivalent
revenue in 1995, compared with 13.9 percent in 1994 and 16.7 percent in 1993.
Consolidated non-interest income increased 25.5 percent in 1995 to
$8,172,000, with increases in all major categories. Exclusive of the impact
of security sales, non-interest income increased 20.3 percent in 1995. Trust
and investment advisory fees increased 4.0 percent in 1995. In 1994, CBT
announced a strategic alliance with J.C. Bradford & Co. ("JCB"), a
Nashville-based regional brokerage firm, involving the placement of JCB
brokers in CBT banking locations. By December 31, 1995, JCB had an office at
each of CBT's bank subsidiaries in an effort to provide a full range of
brokerage services to customers. Service charges on deposit accounts and
credit related insurance commissions increased 29.6 percent and 26.6 percent,
respectively, over 1994. These increases reflect management's continued
emphasis on fee income opportunities. New deposit service charge programs
were implemented at all bank affiliates during the first quarter of 1995.
Additionally, increased collection efforts were made on all existing deposit
service charge programs, resulting in higher collection rates being achieved
during 1995 compared to 1994. The credit related insurance commission
increase reflects a better penetration rate by affiliates, especially at FCC
where the penetration rate was approximately 90 percent. The penetration rate
is a measure of what proportion of our consumer loan customers choose to
purchase optional credit-related insurance. In addition, securities portfolio
restructuring during 1995 resulted in net gains on security sales of
$268,000, compared to a net loss of $136,000 for 1994. All securities sold
were classified as available for sale.
14 CBT CORPORATION 1995 ANNUAL REPORT
(IN THOUSANDS)
FOR THE YEAR ENDED
DECEMBER 31 CHANGE
1995 1994 AMOUNT PERCENT
---------------------------------------------
Trust and investment
advisory fees $ 1,469 $ 1,413 $ 56 4.0
Service charges on
deposit accounts 3,656 2,821 835 29.6
Insurance commissions 1,281 1,012 269 26.6
Gain (loss) on sale of
assets and securities 171 (136) 307 NMF
Other 1,595 1,403 192 13.7
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Total non-interest
income $ 8,172 $ 6,513 $1,659 25.5
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Non-interest income decreased 7.2 percent or $504,000 in 1994, compared
with 1993. Excluding the gain realized in 1993 on the sale of finance
receivables and excluding the effects of security sales in 1994 and 1993,
non-interest income grew 5.0 percent. This increase was primarily the result
of increases in service charges on deposit accounts and commissions earned on
the sale of credit-related insurance.
NON-INTEREST EXPENSE
Consolidated non-interest expense increased 8.3 percent in 1995 to
$30,475,000, primarily due to increased salary and employee benefit costs,
net occupancy charges, data processing expenses, supplies and other costs,
offset by lower FDIC assessments, Bank shares tax expense and consulting and
professional services costs.
Of the $1,784,000 increase in salaries and employee benefits, $1,229,000
related to non-recurring charges associated with an extensive re-engineering
effort largely completed in 1995. Approximately $937,000 was expensed as a
result of the voluntary separation program offered by CBT to all employees in
March 1995, and approximately $292,000 was the charge associated with a
performance bonus paid to substantially all non-executive management
personnel in October 1995. Exclusive of the non-recurring charges, salaries
and employee benefits increased $555,000, or 4.0 percent.
Net occupancy charges increased $192,000, principally due to the impact
of growth in the number of FCC offices during 1995 and the opening of the new
United Commonwealth Bank facility. The $314,000 increase in data processing
expense relates to charges for additional services as well as costs
associated with upgrading technology at banking affiliates. The $174,000
increase in supplies was due primarily to costs associated with standardizing
bank product offerings at all bank affiliates. Other expenses increased
$1,001,000 largely as a result of expanded marketing and advertising,
increases in charitable contributions and community development efforts,
additional telephone costs, increased courier and postage expenses, growth in
audit and exam fees and charges associated with operational consolidations.
The $657,000 decline in FDIC assessments was a result of a $360,000 rebate on
prior assessments paid and a $297,000 benefit from a reduction in the
assessment rate. Bank shares tax expense declined $88,000 as a result of an
analysis of each bank affiliates' position. Consulting and other professional
services declined $805,000, principally because of the timing on consulting
fees expensed related to a third party service provider engaged to assist in
the re-engineering effort. These consulting expenses were $698,000 in 1994
and $206,000 in 1995.
(IN THOUSANDS)
FOR THE YEAR ENDED
DECEMBER 31 CHANGE
1995 1994 AMOUNT PERCENT
---------------------------------------------
Salaries and employee
benefits $15,798 $14,014 $1,784 12.7
Net occupancy 1,175 984 191 19.5
Depreciation and
amortization 1,870 1,702 168 9.9
Data Processing 1,441 1,127 314 27.9
Supplies 918 744 174 23.4
FDIC assessments 878 1,535 (657) (42.8)
Tax on bank shares 1,070 1,158 (88) (7.6)
Consulting and
other professional
services 639 1,444 (805) (55.7)
Other 6,686 5,421 1,265 23.3
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Total non-interest
expense $30,475 $28,129 $2,346 8.3
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Non-interest expense increased $2,893,000 or 11.5 percent in 1994 over
1993. This increase resulted primarily from increased salaries and employee
benefits, fees paid for consulting and other professional business services,
and growth in other non-interest expense categories. Salaries and employee
benefits grew in 1994 as a result of merit increases and additions of key
staff positions required to support future business growth. Consulting and
other professional business services were utilized primarily in conjunction
CBT CORPORATION 1995 ANNUAL REPORT 15
with the re-engineering effort initiated in September 1994. Increases in
other non-interest expense, tax on bank shares, depreciation and
amortization, data processing, and FDIC assessments were partially offset by
declines in net occupancy and supplies.
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 1995, the efficiency ratio was 61.5 percent
compared to 60.1 percent in 1994. The increase was primarily due to
non-recurring costs associated with the reengineering effort. These
non-recurring costs include consulting fees, voluntary separation
compensation expense and other personnel-related charges. Excluding such
non-recurring costs, the efficiency ratio for 1995 was 58.8 percent and for
1994 was 58.6 percent. For both 1994 and 1993, CBT's efficiency ratio was
60.1 percent. CBT's efficiency ratio was maintained in 1994 compared to 1993
as revenue growth, primarily achieved in the form of an increase in
tax-equivalent net interest income due to loan growth, was sufficient to
support the increase of non-interest expenses.
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 was 28.3 percent in 1995, compared with
26.9 percent in 1994 and 25.4 percent in 1993. The increase in the effective
tax rate in 1995 from 1994 and 1993 is attributable to the decline of
tax-exempt income as a percentage of gross revenues. For more information on
income taxes, see Note 13 in the notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET ANAYLSIS
EARNING ASSETS
At December 31, 1995, earning assets were $850.6 million, compared with
$825.7 million at December 31, 1994. This increase is due to a $28.7 million
increase in loans, partially offset by a $4.8 million decline in securities
and a $1.0 million increase in Federal funds sold. Total earning assets at
December 31, 1995 consisted of loans, representing 75.6 percent, securities,
representing 24.1 percent and Federal funds sold, representing 0.3 percent.
Average earning assets in 1995 were $834.7 million, an increase of 4.4
percent over 1994. This increase was primarily due to an 11.3 percent
increase in average loans, partially offset by a 12.6 percent decline in
average taxable investment securities, a 5.2 percent reduction in average
tax-exempt investment securities, and a 67.7 percent decline in average
Federal funds sold. See Table 3 for a detailed analysis of earning assets.
Continued local economic strength and market position enabled CBT to
achieve growth in commercial and consumer loans, while primarily the interest
rate environment and refinancings resulted in lower residential real estate
outstandings. Commercial loans outstanding increased 11.0 percent over 1994
to $212.3 million, up $21.0 million. Considerable growth occurred in consumer
loans outstanding, net of unearned interest. At $178.8 million, net consumer
loans increased 14.5 percent compared to December 31, 1994. Increases were
achieved because of CBT's commanding local market share in indirect
automobile lending, an emphasis on direct consumer lending and the opening of
four new offices of FCC. Strong automobile sales in CBT's trade area also
assisted in producing growth in consumer loans.
Residential real estate outstandings declined $15.0 million or 5.6
percent from year-end 1994 to year-end 1995. It is the Corporation's policy
to portfolio or retain adjustable rate mortgages ("ARMs") and sell fixed rate
mortgages into the secondary residential real estate market. As long-term
interest rates stabilized and started to fall in 1995, more customers opted
for the fixed rate option. In addition, a portion of exisiting ARMs in the
Corporation portfolio refinanced at fixed rates. In both cases, residential
real estate outstandings were negatively affected. This activity, in
conjunction with contractual paydowns, exceeded ARM growth achieved in 1995.
A portion of the taxable investment securities portfolio was liquidated
in 1995 to fund local loan growth. The tax-exempt investment securities
portfolio declined primarily due to maturities and early call provisions.
Call provisions enable the municipality issuing the bond to "call," or repay
the obligation on a specific date. The interest rate environ-
16 CBT CORPORATION 1995 ANNUAL REPORT
ment generally determines call activity. During the fourth quarter of 1995,
the Corporation began to systematically purchase both taxable and tax-exempt
investment securities.
INVESTMENT RISK MANAGEMENT
CBT has certain investment securities in its held to maturity and
available for sale portfolios that are classified as derivative securities by
banking regulators. At the end of 1995, CBT had $200,000 book value of
Federal agency derivatives in its held to maturity portfolio, representing
less than one percent of total investment securities held to maturity. The
market value of these securities at December 31 ,1995 was $199,000. The book
and market value of these securities at December 31, 1994 was $200,000 and
$186,000, respectively.
In its available-for-sale portfolio, CBT had $11,747,000 and $11,439,000
book value at December 31, 1995 and 1994, respectively, in derivative
securities as defined by banking regulators. These amounts represent 7.4
percent and 6.7 percent of the total securities available for sale at the end
of 1995 and 1994, respectively. Derivative securities comprise a larger
percentage of the total investment securities available for sale primarily
because of the overall decline in the latter. In addition, $600,000 of
securities previously not classified as such were classified as derivatives
in 1995. Market value for these securities was $11,600,000 at the end of 1995
and $10,532,000 at the end of 1994. All are guaranteed by government agencies
and none have a maturity of over 6 years. At December 31, 1995 and 1994, 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 first quarter of 1994.
The statement requires that investment securities classified as available for
sale be reported at fair value with unrealized gains and losses reported, net
of deferred taxes, as a separate component of stockholders' equity. At
December 31, 1995, net unrealized gains related to investment securities
available for sale were $472,000, compared to net unrealized losses at
December 31, 1994 of $8,285,000.
CREDIT RISK MANAGEMENT
CBT manages exposure to credit risk through 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 1995, CBT's primary market areas continued to experience an
unemployment level below the national average, strong real estate values and
commercial development, and declining bankruptcy filings. Based on this
information, management believes that generally favorable economic conditions
are present in CBT's market areas. The Corporation's credit risk is
diversified by loan type. At December 31, 1995, 39 percent of the portfolio
consisted of residential real estate, 32 percent of commercial and 29 percent
of consumer loans. The latter two types gained 2 percent each compared to
year-end 1994 while residential real estate declined 4 percent.
Credit risk management also includes monitoring the performance of
existing portfolios. The Corporation has in place a comprehensive internal
credit review program to assess the current financial condition and operating
performance of significant commercial borrowers.
CBT is not aware of any loans classified for regulatory purposes at
December 31, 1995, 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
are classified as non-performing assets at December 31, 1995.
ALLOWANCE FOR LOAN LOSSES
At December 31, 1995, the allowance for loan losses ("ALLL") was $11.0
million, or 1.71 percent of net loans outstanding, compared with $11.5
million, or 1.87 percent at December 31, 1994. The ratio of the ALLL to
non-performing assets was 225.8 percent at December 31, 1995, compared with
499.9 percent at December 31, 1994. Non-performing assets consist of
non-accrual loans, loans past due ninety days or more that are still accruing
interest, and other real estate owned. The decline in the ratio is primarily
due to the increase in non-performing assets to $4.9 million at December 31,
1995 from $2.3 million at December 31, 1994,
CBT CORPORATION 1995 ANNUAL REPORT 17
coupled with the modest decline in the ALLL. The increase in non-performing
assets in 1995 resulted principally from the transfer of one commercial
credit to non-accrual status and an increase in other commercial and consumer
loan delinquencies and non-accruals. The outstanding principal balance on
that commercial credit at December 31, 1995 was approximately $1.8 million.
Refer to the Non-Performing Assets section for further discussion of this
credit.
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 31, 1993 Interagency
Policy Statement on the Allowance for Loan and Lease Losses. CBT managment
maintains the allowance available to cover future loan losses within the
entire loan portfolio and believes the ALLL is adequate at December 31, 1995
based on the current level of non-performing assets and the expected level of
future charge-offs. Table 9 details activity in the ALLL.
Subsequent to December 31, 1995, management became aware of negative
developments on a large commercial credit. All loans to the borrower, which
totaled approximately $7.2 million at January 31, 1996, were transferred to
non-accrual status effective January 1, 1996. The borrower has verbally
agreed to a business liquidation plan and as a result of this proposed
liquidation, a collateral deficiency is expected. Based upon initial
collateral valuations under the proposed liquidation plan, a loss not to
exceed $2.0 million is anticipated. The ALLL of $11.0 million at December 31,
1995 is adequate to absorb the expected loss on this credit without requiring
additional provisions for loan losses. There are no plans to advance
additional funds related to this credit.
NON-PERFORMING ASSETS
Table 8 presents data on CBT's non-performing assets. As defined
previously, non-performing assets consist of non-accrual loans, loans past
due ninety days or more that are still accruing interest, and other real
estate owned. At December 31, 1995, non-performing assets totaled $4.9
million, or 0.77 percent of net loans and other real estate owned, compared
with $2.3 million, or 0.37 percent of net loans and other real estate owned,
at December 31, 1994. The increase in the ratio reflects a rise in the amount
of non-accrual loans along with a slight increase in the amount of accruing
loans which are contractually 90 days or more past due. The bulk of the
increase in non-accrual loans is attributable to one commercial credit at a
subsidiary bank in the amount of approximately $1.8 million at December 31,
1995, about which there is serious doubt regarding the ability of the
borrowers to comply with the loan repayment terms. This loan was placed on
non-accrual during the first quarter of 1995. During subsequent quarters, the
borrowers made sporadic principal payments totaling approximately $240,000
which were applied to the outstanding principal balance. The value of the
collateral supporting the indebtedness has been conservatively estimated at
$500,000. Principals obligated on the credit have personally guaranteed its
repayment. There are no plans to advance additional funds related to this
credit.
At December 31, 1995, CBT has categorized $4.2 million of additional
credits as loans requiring more than normal oversight. These credits,
however, are not included in Table 8 because the borrowers are servicing
these loans in accordance with established repayment terms. This amount does
not include the $7.2 million commercial credit discussed previously.
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 if 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.
18 CBT CORPORATION 1995 ANNUAL REPORT
FUNDING SOURCES
NON-INTEREST BEARING DEPOSITS
Non-interest bearing deposits, which represent a portion of CBT's core
deposits, were $69.6 million at December 31, 1995, a decrease of $1.3 million
from December 31, 1994. Average non-interest bearing deposits were $67.0
million for 1995, compared with $64.0 million for 1994, a 4.7 percent
increase. Non-interest bearing deposits represented 8.8 percent of CBT's
total funding sources at December 31, 1995, compared with 9.2 percent at
December 31, 1994.
INTEREST-BEARING LIABILITIES
Interest-bearing liabilities for CBT consist of certain core deposits,
purchased deposits, short-term and long-term borrowings. At December 31,
1995, interest-bearing liabilities totaled $719.6 million, an increase of
$15.7 million over December 31, 1994. The increase is due to a $5.5 million
increase in interest-bearing deposits, a $4.3 million increase in short-term
borrowings, and a $5.9 million increase in long-term borrowings. For 1995
average interest-bearing liabilities were $704.1 million, compared with
$674.3 million in 1994, an increase of $29.8 million or 4.4 percent.
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 December 31, 1995, these funds accounted for
67.8 percent of CBT's total funding sources, compared with 68.1 percent at
December 31, 1994. The modest decline was caused by the higher growth rate of
other funding sources compared to interest-bearing core deposits. This level
of interest-bearing 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, decreased $2.0 million or 2.8 percent to
$69.1 million at December 31, 1995. The decline was desired because of the
rate sensitivity of this funding source. Purchased deposits represented 8.8
percent of CBT's total funding sources at December 31, 1995, compared with
9.2 percent at December 31, 1994.
SHORT-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 actively manages CBT's short-term borrowing position to maintain
acceptable net interest margins and liquidity. At December 31, 1995,
short-term borrowings accounted for 11.3 percent of CBT's total funding
sources, compared with 10.9 percent at December 31, 1994. The increase
primarily reflects growth in Federal Home Loan Bank advances of $25.5
million, partially offset by a $17.9 million decline in Federal funds
purchased and securities sold under agreements to repurchase.
The following table reflects the various levels of outstanding short-term
borrowings and related rates for CBT for the three years ended December 31,
1995.
1995 1994 1993
----------------------------------
Federal funds purchased and
securities sold under
agreements to repurchase:
Balance:
Average $43,457 $37,848 $35,832
Year-end 39,037 56,976 36,446
Maximum month-
end outstanding 57,369 58,123 72,895
Rate:
Average for the year 4.54% 3.31% 2.90%
Average at year-end 4.02% 4.45% 2.79%
Other short-term borrowings:
Balance:
Average $39,656 $17,847 $ 6,670
Year-end 50,017 27,781 7,951
Maximum month-
end outstanding 53,560 47,009 14,877
Rate:
Average for the year 5.86% 6.04% 4.47%
Average at year-end 5.70% 5.41% 5.11%
LONG-TERM BORROWINGS
Long-term borrowings, which totaled $26.4 million and $20.5 million at
December 31, 1995 and December 31 ,1994, respectively, include Federal Home
Loan Bank advances with maturities in excess of one year and term debt used
to fund
CBT CORPORATION 1995 ANNUAL REPORT 19
FCC. At December 31, 1995, long-term borrowings represented 3.3 percent of
CBT's total funding sources, compared with 2.6 percent at December 31, 1994.
The increase in long-term borrowings of $5.9 million was principally the
result of obtaining five year term debt during 1995 to partially fund FCC's
fixed rate consumer loan portfolio.
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 judgement 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 December 31, 1995 the
one year cumulative interest rate GAP was .91 and the cumulative interest
sensitivity gap as a percent of total assets was 82 percent. At December 31,
1994 the one year cumulative interest rate GAP was 1.05 and the cumulative
interest sensitivity gap as a percent of total assets was 93 percent. The
above levels were within stated corporate guidelines. AGAPof 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 measurment 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 began in 1994 to supplement 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 December 1995 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.
Finally, at Citizens, management has developed a model that identifies
the portion of year-to-date net interest income derived from interest rate
mismatches ("mismatch profits"). Identifying mismatch profits assists
management in understanding the relative importance of such profits, which by
their nature are largely beyond management's control, to overall net interest
income. For 1995, mismatch profits represent less than 3 percent of Citizens'
tax-equivalent net interest income.
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.
20 CBT CORPORATION 1995 ANNUAL REPORT
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 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 compares the regulatory requirements for "well
capitalized" institutions with the capital position of CBT:
WELL
CAPITALIZED ACTUAL EXCESS
----------------------------------------
December 31, 1995
Leverage Ratio
(equity to assets) 5.00% 11.36% 6.36%
Tier 1 Risk-Based 6.00% 16.13% 10.13%
Total Risk-Based 10.00% 17.38% 7.38%
December 31, 1994
Leverage Ratio
(equity to assets) 5.00% 10.81% 5.81%
Tier 1 Risk-Based 6.00% 15.95% 9.95%
Total Risk-Based 10.00% 17.20% 7.20%
Because of solid performance and conservative capital management, CBT has
consistently maintained a strong capital position. The above ratios compare
favorably with industry standards and CBT's peers.
At December 31, 1995, CBT's shareholders' equity, exclusive of the
unrealized loss on securities available for sale, net of deferred tax, grew
to $104.1 million or 7.6 percent from 1994 levels. CBT's internal capital
growth rate (ICGR) in 1995 was 8.3 percent. The ICGR represents the rate at
which CBT's average stockholders' equity grew as a result of earnings
retained (net income less dividends paid).
CBT declared quarterly dividends totaling $0.46 per share during 1995.
The dividend payout ratio for 1995 was 30.28 percent which falls within
management's payout range of 25 to 35 percent. In the third quarter of 1994,
CBT declared a two-for-one stock split payable on October 25, 1994.
During 1995, CBT purchased 54,217 common shares of its own stock to meet
the common stock issuance requirements of CBT's dividend reinvestment plan,
401K plan and incentive stock option plan. All common shares were purchased
at the current market price as of the transaction dates.
Management is currently not aware of any recommendation by regulatory
authorities which, if implemented, would have a material effect on CBT's
liquidity, capital resources or operations. Management is also not aware of
any events or uncertainties that will have or that are reasonably likely to
have a material effect on CBT's liquidity, capital resources or operations.
CBT CORPORATION 1995 ANNUAL REPORT 21
TABLE 1
SELECTED FINANCIAL DATA SUMMARY, LAST FIVE YEARS
($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA)
1995 1994 1993 1992 1991
-----------------------------------------------------------
RESULTS OF OPERATIONS:
Net interest income $ 40,174 $ 38,696 $ 33,598 $ 32,804 $ 29,241
Provisions for loan losses 1,106 1,361 1,366 2,441 2,847
Net interest income after provision
for loan losses 39,068 37,335 32,232 30,363 26,394
Non-interest income 7,904 6,649 6,330 5,587 5,035
Gain on sale of finance receivables - - 553 3 -
Gain (loss) on sale of securities 268 (136) 134 575 498
Non-interest expense 30,475 28,129 25,236 23,165 21,387
- -----------------------------------------------------------------------------------------------------
Income before income taxes 16,765 15,719 14,013 13,363 10,540
- -----------------------------------------------------------------------------------------------------
Income taxes 4,741 4,233 3,565 3,058 2,374
- -----------------------------------------------------------------------------------------------------
Net income $ 12,024 $ 11,486 $ 10,448 $ 10,305 $ 8,166
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA:
Net income $ 1.52 $ 1.45 $ 1.32 $ 1.30 $ 1.03
Cash dividends 0.46 0.43 0.39 0.36 0.35
Book value per common share at
year-end(a) 13.20 11.52 11.19 10.18 9.17
AVERAGES:
Assets $881,556 $838,608 $755,936 $ 716,915 $698,877
Deposits and corporate cash management
repurchase agreements 712,996 689,671 634,258 606,242 600,926
Loans, net 631,216 567,182 481,664 439,492 425,573
Stockholders' equity 100,999 92,495 84,914 77,549 69,539
PERFORMANCE RATIOS
Return on average assets(b) 1.36% 1.37% 1.38% 1.44% 1.17%
Return on average stockholders' equity(b) 11.91 12.42 12.30 13.29 11.74
Average stockholders' equity to average
assets 11.46 11.03 11.23 10.82 9.95
Dividend pay out ratio 30.28 28.63 23.19 21.11 24.31
Net charge-offs to average loans 0.26 0.15 0.04 0.27 0.34
Allowance for loan losses as a percentage
of year-end loans 1.71 1.87 2.10 2.12 1.96
Net interest margin (tax equivalent) 4.96 5.04 4.88 4.99 4.63
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
(a)Includes SFAS 115.
(b)Excludes SFAS 115.
22 CBT CORPORATION 1995 ANNUAL REPORT
TABLE 2
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(TAX EQUIVALENT BASIS, $ IN THOUSANDS)
1995 VS 1994 1994 VS 1993
ATTRIBUTED TO ATTRIBUTED TO
---------------------------------------------------------------------------
TOTAL TOTAL
DOLLAR DOLLAR
VOLUME RATE CHANGE VOLUME RATE CHANGE
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME ON:
Loans, net $ 5,830 $ 5,065 $10,895 $7,879 $ (617) $7,262
Taxable investment securities (1,301) 678 (623) (445) 339 (106)
Tax-exempt investments securities (274) (387) (661) 691 (224) 467
Federal funds sold and other (154) 55 (99) (134) 27 (107)
- -------------------------------------------------------------------------------------------------------------------
Total interest income 4,101 5,411 9,512 7,991 (475) 7,516
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE ON:
Deposits 157 5,626 5,783 1,710 (1,215) 495
Federal funds purchased and securities sold
under agreements to repurchase 186 535 721 58 157 215
Other 1,095 829 1,924 1,351 140 1,491
- ------------------------------------------------------------------------------------------------------------------
Total interest expense 1,438 6,990 8,428 3,119 (918) 2,201
- ------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 2,663 $(1,579) $ 1,084 $4,872 $ 443 $5,315
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Note: For purposes of this schedule, changes which are not due solely to volume
or solely to rate have been allocated to rate.
CBT CORPORATION 1995 ANNUAL REPORT 23
TABLE 3
THREE YEAR AVERAGE BALANCE AND NET INTEREST ANALYSIS
(TAX EQUIVALENT BASIS, $ IN THOUSANDS)
1995 1994 1993
-------------------------- ----------------------------- ----------------------------
AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/
BALANCE & FEES RATE BALANCE & FEES RATE BALANCE & FEES RATE
---------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans, net(1) $631,216 $62,533 9.91% $567,182 $51,638 9.10% $481,664 $44,376 9.21%
Taxable investment securities 55,481 3,633 6.55 58,986 3,521 5.97 55,696 3,680 6.61
Tax-exempt investments securities 53,921 4,642 8.61 56,862 5,302 9.32 49,740 4,835 9.72
Mortgage-backed securities 91,925 6,060 6.59 109,668 6,795 6.20 120,500 6,742 5.60
Federal funds sold 2,167 129 5.95 6,713 228 3.40 11,202 335 2.99
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 834,710 76,997 9.22% 799,411 67,484 8.44% 718,802 59,968 8.34%
Non-earning assets
Cash and due from banks 28,714 24,263 22,663
Premises and equipment, net 17,438 14,881 14,244
Other 12,106 11,647 10,715
Allowance for loan losses (11,412) (11,594) (10,488)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $881,556 $838,608 $755,936
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Demand deposits $139,551 $ 4,374 3.13% $157,599 $ 4,312 2.74% $154,315 $ 4,136 2.68%
Time deposits 411,016 23,545 5.73 391,146 18,106 4.63 360,523 17,935 4.97
Savings deposits 46,769 1,432 3.06 44,638 1,151 2.58 37,632 1,003 2.67
Federal funds purchased and
securities sold under agreements
to repurchase 43,457 1,975 4.54 37,848 1,254 3.31 35,832 1,039 2.90
Borrowings 63,286 4,262 6.74 43,106 2,338 5.42 16,609 847 5.10
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST- BEARING LIABILITIES 704,079 35,588 5.10% 674,337 27,161 4.03% 604,911 24,960 4.13%
NON-INTEREST-BEARING LIABILITIES
Demand deposits 67,044 63,999 57,995
Other 9,434 7,777 8,116
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 780,557 746,113 671,022
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 100,999 92,495 84,914
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $881,556 $838,608 $755,936
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $41,409 $40,323 $35,008
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 4.96% 5.04% 4.88%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
(1) Non-accruing loans are included in the average balances.
24 CBT CORPORATION 1995 ANNUAL REPORT
Table 4
INTEREST RATE SENSITIVITY ANALYSIS - DECEMBER 31, 1995
($ IN THOUSANDS)
WITHIN 6 MOS.- 1-5 AFTER
6 MOS. 1 YEAR YEARS 5 YEARS TOTAL
-----------------------------------------------------------------
Securities held to maturity $ 940 $ 1,154 $ 11,677 $ 32,656 $ 46,427
Securities available for sale 39,669 20,674 56,543 41,588 158,474
Loans (2) 193,090 96,848 285,967 68,756 644,661
Other assets - - - 55,179 55,179
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS (1) $ 233,699 $ 118,676 $354,187 $198,179 $904,741
- --------------------------------------------------------------------------------------------------------------------------
Non-interest bearing deposits $ 3,481 $ 3,481 $ 27,852 $ 34,814 $ 69,628
Interest bearing deposits 303,794 117,296 181,227 1,789 604,106
Borrowed funds 63,245 23,355 28,500 358 115,458
Other liabilities/equity - - - 115,549 115,549
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES/EQUITY (1) $ 370,520 $ 144,132 $237,579 $152,510 $904,741
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $(136,821) $ (25,456) $116,608 $ 45,669
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $(136,821) $(162,277) $(45,669) $ -
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Gap as a percent of total assets at December 31, 1995 85% 82% 95% 100%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Gap as a percent of total assets at December 31, 1994 87% 93% 96% 100%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
(1) The various assets and liabilities reflected above do not include repricing
estimates.
(2) Excludes non-accrual loans.
(3) Savings, NOW and Money Manager accounts can be repriced at any time. For
purposes of this analysis, approximately 25% of such accounts have been
included in the "within 6 months" category, approximately 25% of such
accounts have been included in the "6 months to 1 year" category, with
the remaining 50% of such accounts included in the "1 to 5 year" category.
TABLE 5
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES HELD TO MATURITY
DECEMBER 31, 1995
($ IN THOUSANDS)
ESTIMATED
FAIR
AMORTIZED COST MARKET
----------------------------------------------------------------
WITHIN 1-5 5-10 AFTER
1 YEAR YEARS YEARS 10 YEARS TOTAL TOTAL
----------------------------------------------------------------
U. S. Treasury securities and obligations
of other U. S. Government agencies $ 300 $2,033 $ - $ - $ 2,333 $ 2,352
State and other political subdivisions 1,492 2,628 12,050 27,724 43,894 46,068
Structured Bonds - 200 - - 200 199
- ------------------------------------------------------------------------------------------------------------------------
Total $1,792 $4,861 $12,050 $27,724 $46,427 $48,619
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Weighted average tax equivalent yield 8.10% 7.19% 9.57% 8.76% 8.78% 8.34%
- ------------------------------------------------------------------------------------------------------------------------
CBT CORPORATION 1995 ANNUAL REPORT 25
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR
SALE - DECEMBER 31, 1995
($ IN THOUSANDS)
ESTIMATED
FAIR
AMORTIZED COST MARKET
----------------------------------------------------------------
WITHIN 1-5 5-10 AFTER
1 YEAR YEARS YEARS 10 YEARS TOTAL TOTAL
----------------------------------------------------------------
U. S. Treasury securities and obligations
of other U. S. Government agencies $7,244 $22,578 $ - $15,000 $ 44,822 $ 45,236
State and other political subdivisions - 4,073 3,105 2,408 9,586 10,186
Mortgage backed 268 4,807 9,465 69,413 83,953 83,557
Structured bonds - 6,500 942 - 7,442 7,426
De-leveraged bonds 500 3,304 - - 3,804 3,684
IAN - 500 - - 500 490
Other - - - 7,895 7,895 7,895
- ------------------------------------------------------------------------------------------------------------------------
Total $8,012 $41,762 $13,512 $94,716 $158,002 $158,474
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Weighted average tax equivalent yield 5.70% 6.79% 7.40% 7.11% 6.97% 6.93%
- ------------------------------------------------------------------------------------------------------------------------
All mortgage-backed securities met the FFIEC stress test guidelines at
December 31, 1995 and 1994. The average expected maturities of such
securities is approximately 6 years.
TABLE 6
LOAN PORTFOLIO AT DECEMBER 31, FIVE YEAR SUMMARY
($ IN THOUSANDS)
1995 1994 1993 1992 1991
-----------------------------------------------------------
Commercial $212,266 $191,243 $180,426 $182,821 $181,591
Residential 253,556 268,538 222,867 176,572 154,280
- -------------------------------------------------------------------------------------------------------------
Consumer 189,036 166,871 130,457 113,043 111,385
- -------------------------------------------------------------------------------------------------------------
Total loans 654,858 626,652 533,750 472,436 447,256
Less: unearned interest 10,197 10,643 9,565 13,348 14,150
- -------------------------------------------------------------------------------------------------------------
Loans, net $644,661 $616,009 $524,185 $459,088 $433,106
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TABLE 7
COMPOSITION OF LOAN PORTFOLIO AT DECEMBER 31, BY TYPE
1995 1994 1993 1992 1991
-----------------------------------------------------------
Commercial 32% 30% 34% 39% 41%
Residential 39% 43% 42% 37% 34%
Consumer 29% 27% 24% 24% 25%
- -------------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
26 CBT CORPORATION 1995 ANNUAL REPORT
TABLE 8
NON-PERFORMING ASSETS - DECEMBER 31
($ IN THOUSANDS)
1995 1994 1993 1992 1991
-----------------------------------------------------------
Non-accrual loans $4,059 $1,806 $ 759 $1,173 $1,883
Ninety days past due 785 494 298 528 1,549
Other real estate owned 30 7 128 844 1,234
- -------------------------------------------------------------------------------------------------------------
Total non-performing assets $4,874 $2,307 $1,185 $2,545 $4,666
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Non-performing assets as a % of total loans and
other real estate owned 0.77% 0.37% 0.23% 0.54% 1.04%
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TABLE 9
ALLOWANCE FOR LOAN LOSSES
($ IN THOUSANDS)
1995 1994 1993 1992 1991
-----------------------------------------------------------
Balance, beginning of year $ 11,533 $ 10,998 $ 10,022 $ 8,764 $ 7,346
Loans Charged-Off:
Commercial 687 488 283 725 1,324
Residential 159 33 32 84 90
Consumer 1,150 734 518 807 803
- -------------------------------------------------------------------------------------------------------------
Total 1,996 1,255 833 1,616 2,217
- -------------------------------------------------------------------------------------------------------------
RECOVERIES ON CHARGED-OFF LOANS:
Commercial 122 245 352 180 525
Residential 23 20 61 22 35
Consumer 210 164 207 235 199
- -------------------------------------------------------------------------------------------------------------
Total 355 429 620 437 759
- -------------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 1,641 826 213 1,179 1,458
PROVISION FOR LOAN LOSSES 1,106 1,361 1,366 2,441 2,847
ADJUSTMENTS RELATED TO PURCHASE/SALE OF FINANCE
RECEIVABLES 6 0 (177) (4) 29
- -------------------------------------------------------------------------------------------------------------
Balance, end of year $ 11,004 $ 11,533 $10,998 $ 10,022 $ 8,764
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Average loans for the year $631,216 $567,182 $481,664 $439,492 $425,573
Allowance/ year-end loans 1.71% 1.87% 2.10% 2.12% 1.96%
Net charge- offs/average loans 0.26% 0.15% 0.04% 0.27% 0.34%
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TABLE 10
MANAGEMENT'S ALLOCATION OF ALLOWANCE FOR LOAN LOSSES - DECEMBER 31
($ IN THOUSANDS)
1995 1994 1993 1992 1991
-----------------------------------------------------------
Commercial $ 4,834 $ 3,724 $ 3,359 $ 3,408 $ 4,392
Residential 1,425 1,500 1,488 1,089 627
Consumer 2,750 2,559 2,486 2,110 1,700
Unallocated 1,995 3,750 3,665 3,415 2,045
- -------------------------------------------------------------------------------------------------------------
Total $11,004 $11,533 $10,998 $10,022 $ 8,764
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
CBT CORPORATION 1995 ANNUAL REPORT 27
TABLE 11
CONTRACTUAL LOAN MATURITIES AND INTEREST SENSITIVITY
($ IN THOUSANDS)
DECEMBER 31, 1995
ONE YEAR ONE THROUGH OVER TOTAL
OR LESS FIVE YEARS FIVE YEARS GROSS LOANS
------------------------------------------------------------
Commercial $118,200 $ 67,567 $26,499 $212,266
Residential 89,882 123,962 39,712 253,556
Consumer 81,856 94,438 2,545 178,839
- -------------------------------------------------------------------------------------------------------------
Total $289,938 $285,967 $68,756 $644,661
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Loans with predetermined rate $111,365 $125,849 $15,256 $252,470
Loans with floating rate 178,573 160,118 53,500 392,191
- -------------------------------------------------------------------------------------------------------------
Total $289,938 $285,967 $68,756 $644,661
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TABLE 12
AVERAGE DEPOSITS AND CORPORATE CASH MANAGEMENT REPURCHASE AGREEMENTS
($ IN THOUSANDS)
1995 1994 1993 1992
------------------------------------------------------
Savings, daily interest checking $140,212 $144,408 $132,927 $113,285
Money market accounts and corporate cash
management repurchase agreements 80,941 90,118 82,814 84,173
Certificates of deposit $100,000 and over 68,664 67,299 62,314 60,118
Other time deposits 342,351 23,847 298,208 295,116
- -------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 632,168 625,672 576,263 552,692
Demand deposits 67,045 63,999 57,995 53,550
- -------------------------------------------------------------------------------------------------------------
Total deposits and corporate cash
management repurchase agreements $699,213 $689,671 $634,258 $606,242
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
TABLE 13
CERTIFICATES OF DEPOSIT OF $100,000 OR MORE - DECEMBER 31
($ IN THOUSANDS)
1995 1994
------------------------
3 months or less $12,728 $13,144
3 - 6 months 25,333 12,804
6 - 12 months 15,882 25,355
Over 12 months 15,199 19,865
- -------------------------------------------------------------------------------
Total $69,142 $71,168
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
28 CBT CORPORATION 1995 ANNUAL REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
CBT Corporation
Paducah, Kentucky
We have audited the consolidated balance sheet of CBT Corporation (a Kentucky
corporation)and subsidiaries as of December 31, 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of
CBT Corporation and subsidiaries as of December 31, 1994 and for the years ended
December 31, 1994 and 1993, were audited by other auditors, whose report, dated
February 3, 1995, expressed an unqualified opinion on those statements and
included an explanatory paragraph that described the Corporation's change in
accounting for securities effective January 1, 1994, as discussed in Note 1 to
the consolidated financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CBT Corporation and
subsidiaries as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Anderson LLP
Nashville, Tennessee
February 22, 1996
MANAGEMENT'S STATEMENT OF FINANCIAL REPORTING
The management of CBT Corporation (the "Corporation")and its subsidiaries has
prepared the accompanying consolidated financial statements and related
financial information contained in this annual report. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles to reflect, in all material respects, the substance of
events and transactions that should be accounted for or disclosed. The financial
statements include amounts that are based on management's best estimates and
judgements at the time of preparation. In presenting such financial information,
management is responsible for content and consistency of preparation.
Management of the Corporation has developed a system of internal control that is
intended to provide reasonable assurance as to the integrity and reliability of
the consolidated financial statements, the safeguarding of assets from material
loss or misuse, and the detection of fraudulent financial reporting. Through an
audit services agreement, the Corporation has engaged an independent public
accounting firm to implement an internal auditing program that audits the
effectiveness of the internal control system. The system is continually
reviewed, evaluated, and, where appropriate, modified to accommodate current
conditions. Management recognizes that estimates and judgements are required to
assess and balance the relative costs and expected benefits of the internal
controls and realizes that errors or irregularities may nevertheless occur.
However, management believes that the Corporation's internal control system
provides reasonable assurance that errors or irregularities that could be
material to stockholders' equity are prevented or would be detected on a timely
basis and corrected in the normal course of business.
The audit committee of the board of directors, composed solely of outside
directors, oversees the Corporation's system of internal control, including the
financial reporting process, and the independent external auditors, on behalf of
the board of directors. The audit committee meets periodically with Arthur
Andersen LLP (the Corporation's independent auditors) and with management to
review matters relative to the nature, extent and results of internal and
external audit work, their evaluations of the adequacy of internal controls, and
the quality of financial reporting. The independent auditors have direct access
to the audit committee, with or without management present.
The Corporation's consolidated financial statements have been audited by Arthur
Andersen LLP. Their responsibility is to express an opinion on the Corporation's
consolidated financial statements and, in performing their audit, to evaluate
the Corporation's internal control structure to the extent they deem necessary
in order to issue an opinion on the Corporation's consolidated financial
statements. Their opinion is based on their audit, which was conducted in
accordance with generally accepted auditing standards and is believed by them to
provide a reasonable basis for their opinion.
William J. Jones John E. Sircy Jeffrey R. Nieder
President and Executive Vice President Senior Vice President and
Chief Executive Officer and Chief Operating Officer Chief Financial Officer
CBT CORPORATION 1995 ANNUAL REPORT 29
CONSOLIDATED BALANCE SHEETS
CBT CORPORATION AND SUBSIDIARIES
AT DECEMBER 31, 1995 AND 1994
(IN THOUSANDS EXCEPT FOR COMMON SHARE DATA)
1995 1994
------------------------------
ASSETS
Cash and due from banks $ 33,662 $ 30,404
Federal funds sold 1,000 -
- ------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 34,662 30,404
Securities to be held to maturity (Fair values: 1995 $48,619; 1994 $46,400) 46,427 48,175
Securities available for sale (Amortized cost: 1995 $158,002; 1994 $169,763) 158,474 161,478
Loans, net of unearned interest 644,661 616,009
Allowance for loan losses (11,004) (11,533)
- ------------------------------------------------------------------------------------------------------------------
Loans, net 633,657 604,476
Premises and equipment, net 18,872 15,910
Accrued interest receivable 6,752 6,068
Other 5,897 8,606
- ------------------------------------------------------------------------------------------------------------------
Total assets $904,741 $875,117
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Non-interest bearing $ 69,628 $ 70,962
Interest bearing 604,106 598,615
- ------------------------------------------------------------------------------------------------------------------
Total deposits 673,734 669,577
- ------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase 39,037 56,976
Notes payable - U. S. Treasury 459 1,718
Revolving lines of credit and other 4,023 6,023
Federal Home Loan Bank advances 45,535 20,040
- ------------------------------------------------------------------------------------------------------------------
Total short-term borrowings 89,054 84,757
- ------------------------------------------------------------------------------------------------------------------
Long-term borrowings:
Federal Home Loan Bank advances 16,358 15,392
Term debt 10,046 5,069
- ------------------------------------------------------------------------------------------------------------------
Total long-term borrowings 26,404 20,461
- ------------------------------------------------------------------------------------------------------------------
Accrued interest payable 4,341 3,881
Other liabilities 6,837 5,104
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 800,370 783,780
- ------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized 12,000,000 shares; issued and
outstanding 7,907,435 and 7,927,113 shares at December 31, 1995
and 1994, respectively 4,100 4,100
Capital surplus 19,003 18,553
Retained earnings 80,961 74,070
Unrealized gains (losses) on securities available for sale, net of deferred taxes 307 (5,386)
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 104,371 91,337
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $904,741 $875,117
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
30 CBT CORPORATION 1995 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
CBT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1995 1994 1993
-------------------------------------
INTEREST INCOME
Loans, including fees:
Taxable $62,303 $51,266 $43,863
Tax-exempt 171 266 377
Securities:
Taxable 9,692 10,315 10,409
Tax-exempt 3,467 3,782 3,561
Other 129 228 348
- ---------------------------------------------------------------------------------------------------------------
Total interest income 75,762 65,857 58,558
- ---------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 29,351 23,569 23,074
Borrowings 6,237 3,592 1,886
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 35,588 27,161 24,960
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 40,174 38,696 33,598
PROVISION FOR LOAN LOSSES 1,106 1,361 1,366
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 39,068 37,335 32,232
- ---------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust and investment advisory fees 1,469 1,413 1,485
Service charges on deposit accounts 3,656 2,821 2,510
Insurance commissions 1,281 1,012 737
Gain (loss) on sale of securities 268 (136) 134
Gain on sale of finance receivables - - 553
Other 1,498 1,403 1,598
- ---------------------------------------------------------------------------------------------------------------
Total non-interest income 8,172 6,513 7,017
- ---------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 15,798 14,014 12,868
Net occupancy 1,175 984 1,206
Depreciation and amortization 1,870 1,702 1,619
Data processing 1,441 1,127 1,030
Supplies 918 744 857
FDIC assessments 878 1,535 1,382
Tax on bank shares 1,070 1,158 942
Consulting and other professional services 639 1,444 454
Other 6,686 5,421 4,878
- ---------------------------------------------------------------------------------------------------------------
Total non-interest expense 30,475 28,129 25,236
- ---------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 16,765 15,719 14,013
INCOME TAXES 4,741 4,233 3,565
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $12,024 $11,486 $10,448
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income $ 1.52 $ 1.45 $ 1.32
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Cash dividends $ 0.46 $ 0.43 $ 0.39
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
CBT CORPORATION 1995 ANNUAL REPORT 31
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CBT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT FOR SHARES)
Net Unrealized
Gains (Losses)
Common Stock on Securities Total
-------------------- Capital Retained Available Stockholders'
Shares Amount Surplus Earnings for Sale Equity
----------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 7,930,998 $4,100 $18,552 $58,098 $ - $80,750
Net income - - - 10,448 - 10,448
Dividends on common stock - - - (2,423) - (2,423)
Purchase of common stock (4,840) - (9) (54) - (63)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 7,926,158 4,100 18,543 66,069 - 88,712
Cumulative effect to January 1, 1994 of
change in accounting for securities - - - - 2,639 2,639
Net income - - - 11,486 - 11,486
Dividends on common stock - - - (3,288) - (3,288)
Stock options exercised 18,935 - 182 - - 182
Purchase of common stock (17,980) - (172) (197) - (369)
Change in unrealized gains (losses) on
securities available for sale, net - - - - (8,025) (8,025)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 7,927,113 4,100 18,553 74,070 (5,386) 91,337
Net income - - - 12,024 - 12,024
Dividends on common stock - - - (3,642) - (3,642)
Stock options exercised 50,565 - 450 - - 450
Purchase of common stock (70,243) - - (1,491) - (1,491)
Change in unrealized gains (losses) on
securities available for sale, net - - - - 5,693 5,693
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 7,907,435 $4,100 $19,003 $80,961 $ 307 $104,371
- --------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
32 CBT CORPORATION 1995 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
CBT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
1995 1994 1993
--------------------------------
OPERATING ACTIVITIES
Net income $12,024 $11,486 $ 10,448
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,106 1,361 1,366
Depreciation 1,646 1,449 1,494
Amortization 224 253 126
Deferred income taxes (38) (327) 79
Amortization and accretion of securities 19 842 1,391
Loss (gain) on sale of securities (263) 136 (134)
Gain on sale of premises and equipment (53) (63) (3)
Gain on sale of finance receivables - - (553)
Changes in assets and liabilities:
Accrued interest receivable (684) (579) (44)
Other assets (775) 1,648 (2,989)
Accrued interest payable 460 1,327 (95)
Dividends payable (77) - -
Other liabilities 1,965 982 (153)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,554 18,515 10,933
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 3,718 3,411 16,246
Proceeds from sales of securities available for sale 38,210 48,178 18,657
Proceeds from maturities of securities available for sale 8,282 9,383 10,562
Principal collected on mortgage-backed securities, includin
those classified as available for sale 8,315 25,017 67,429
Payment for purchases of securities (44,770) (78,036) (114,903)
Net increase in loans (30,287) (92,650) (63,484)
Purchase of loans - - (9,085)
Sale of finance receivables - - 7,635
Proceeds from sale of premises and equipment 124 508 37
Payment for purchase of premises and equipment (4,679) (2,601) (2,844)
Net cash received on branch acquisition - - 57,480
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,087) (86,790) (12,270)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 4,157 20,933 (2,549)
Net increase(decrease) in other short-term borrowings (19,198) 20,248 172
Increase in FHLB advances 26,461 18,471 1,426
Proceeds from term debt 5,000 - 12,150
Payments on term debt (23) (23) (4,000)
Cash advanced on revolving lines of credit 4,000 15,800 1,000
Principal payments on revolving lines of credit (6,000) (11,040) (6,960)
Cash dividends paid (3,565) (2,970) (2,323)
Stock options exercised 450 182 -
Purchase of common stock (1,491) (369) (63)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 9,791 61,232 (1,147)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,258 (7,043) (2,484)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 30,404 37,447 39,931
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $34,662 $30,404 $ 37,447
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $35,128 $25,834 $ 25,056
- ------------------------------------------------------------------------------------------------------------------------
Federal income taxes $ 4,013 $ 4,345 $ 4,060
- ------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
CBT CORPORATION 1995 ANNUAL REPORT 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CBT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS - CBT Corporation consists of four state
chartered commercial banks, one Federal savings bank and a consumer finance
company which provide services to customers primarily in western Kentucky and
surrounding communities.
The following is a summary of the significant accounting policies:
CONSOLIDATION AND PRESENTATION BASIS - The consolidated financial
statements of CBT Corporation have been prepared in conformity with generally
accepted accounting principles including the general practice of the banking
industry. The consolidated 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
(Pennyrile), Bank of Marshall County (BOMC), Graves County Bank (GCB), and
United Commonwealth Bank FSB (UCB). Collectively these entities constitute
the "Corporation", which provides financial services primarily in western
Kentucky and surrounding communities. Fidelity Credit Corporation (FCC) is a
wholly-owned subsidiary of Citizens. All significant intercompany accounts
and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash
and cash equivalents include cash and due from banks and Federal funds sold.
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 tax, on available for sale securities are
reported as a net amount in a separate component of stockholders' equity
until realized. The change had the effect of increasing stockholders' equity
at January 1, 1994 by $2,639,000.
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
collectable.
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.
34 CBT CORPORATION 1995 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the 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.
INCOME TAXES - Effective January 1, 1993, the Corporation adopted SFAS
No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred taxes
are recorded using the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS No.
109, the effect on deferred tax assets and liabilities of changes in tax
rates is recognized in income in the period that includes the enactment date.
The cumulative effect of the change in the method of accounting for income
taxes from Accounting Principles Board Opinion 11 to SFAS No. 109 was not
material.
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.
PER COMMON SHARE DATA - Net income per common share data is based upon
7,928,155, 7,926,168 and 7,928,578 average shares outstanding for the years
ended December 31, 1995, 1994 and 1993, respectively. All share and per share
data has been restated to reflect a 2-for-1 common stock split declared by
the Board of Directors on September 28, 1994, payable October 25, 1994. All
share and per share data has also been restated to reflect the May 31, 1994
acquisition of BMC Bankcorp and its subsidiaries, which was accounted for
under the pooling of interests method. The delutive effect of common stock
options are not included in net income per common share data since their
effect is not significant.
USES OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect 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.
CBT CORPORATION 1995 ANNUAL REPORT 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
On May 31, 1994, the Corporation completed a Plan of Merger with BMC
Bankcorp, Inc. (BMC), a bank holding company, and its wholly-owned
subsidiaries, BOMC, GCB and UCB. As a result of the transaction, 1,195,560
shares of common stock were issued by the Corporation in exchange for all of
the issued and outstanding stock of BMC. The merger was accounted for as a
pooling of interests, and accordingly, the accompanying financial statements
have been restated to include the accounts and operations of BMC prior to the
merger.
Separate results of the combining entities are as follows:
(IN THOUSANDS)
Year Ended
December 31, 1993
-------------------
Interest income:
CBT Corporation, as previously reported $44,071
BMC 14,487
- -----------------------------------------------------------------------
Total, as restated $58,558
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Net income:
CBT Corporation, as previously reported $ 7,912
BMC 2,536
- -----------------------------------------------------------------------
Total, as restated $10,448
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
BMC's interest income and net income of $6,202,000 and $938,000,
respectively, for the five months ended May 31, 1994 (unaudited) are included
in the consolidated statement of income for the year ended December 31, 1994.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
Included in cash and due from banks are certain non-interest bearing
deposits that are held at the Federal Reserve in accordance with reserve
requirements specified by the Federal Reserve Board of Governors. The average
amount of those reserve balances was approximately $2,581,000 and $2,251,000
during 1995 and 1994, respectively.
4. SECURITIES TO BE HELD TO MATURITY
(IN THOUSANDS)
December 31, 1995
-------------------------------------------
Gross Unrealized
Amortized Estimated ----------------
Cost Fair Value Gain Loss
U. S. Treasury securities and obligations
of 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 $46,427 $48,619 $2,462 $270
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
December 31, 1994
-------------------------------------------
Gross Unrealized
Amortized Estimated ----------------
Cost Fair Value Gain Loss
U. S. Treasury securities and obligations
of U. S. Government agencies $ 3,851 $ 3,741 $ 15 $ 125
State and political subdivisions 44,124 42,473 539 2,190
Other 200 186 - 14
- -----------------------------------------------------------------------------------------
Total $48,175 $46,400 $554 $2,329
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
The maturity distribution of investment securities to be held to maturity
is as follows:
(IN THOUSANDS)
December 31, 1995
-----------------------------
Estimated
Amortized Fair
Cost Value
Within 1 year $ 1,792 $ 1,763
1 - 5 years 4,861 4,909
5 - 10 years 12,050 13,030
Over 10 years 27,724 28,917
- --------------------------------------------------------------------------
Total $46,427 $48,619
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
In November 1995, the Financial Accounting Standards Board released a
special report on SFAS No. 115 that permitted a one-time reclassification of
securities held to maturity to the available for sale category. No securities
held to maturity were reclassified to securities available for sale during
1995. There were no sales of investment securities classified as held to
maturity during 1995.
36 CBT CORPORATION 1995 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain investment securities 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 $11,281,000 and
$11,730,000, respectively, as of December 31, 1995.
5. SECURITIES AVAILABLE FOR SALE
(IN THOUSANDS)
December 31, 1995
-------------------------------------------
Gross Unrealized
Amortized Estimated ----------------
Cost Fair Value Gain Loss
U. S. Treasury securities and obligations
of 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 - at cost 7,873 7,873 - -
Other 22 22 - -
- -----------------------------------------------------------------------------------------
Total $158,002 $158,474 $1,711 $1,239
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
December 31, 1994
-------------------------------------------
Gross Unrealized
Amortized Estimated ----------------
Cost Fair Value Gain Loss
U. S. Treasury securities and obligations
of U. S. Government agencies $ 32,408 $ 31,469 $ 28 $ 967
State and political subdivisions 13,945 14,417 646 174
Mortgage-backed securities 104,543 97,632 177 7,088
Derivative securities 11,439 10,532 - 907
Federal Home Loan Bank Stock - at cost 6,740 6,740 - -
Other 688 688 - -
- -----------------------------------------------------------------------------------------
Total $169,763 $161,478 $851 $9,136
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
The maturity distribution of securities available for sale is as follows:
(IN THOUSANDS)
December 31, 1995
-----------------------------
Estimated
Amortized Fair
Cost Value
Within 1 year $ 8,012 $ 8,031
1 - 5 years 41,762 42,106
5 - 10 years 13,512 13,875
Over 10 years 94,716 94,462
- --------------------------------------------------------------------------
Total $158,002 $158,474
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Mortgage-backed securities have been allocated in the above table by
contractual maturity date.
Derivative securities available for sale at December 31, 1995 consist of
$7,426,000 of step-up bonds, $3,086,000 of de-leveraged bonds, $490,000 of
index amortizing notes, and $598,000 in ratchet adjustable rate bonds. At
December 31, 1994, derivative securities available for sale consisted of
$7,399,000 of step-up bonds, $2,623,000 of de-leveraged bonds, and $510,000
of index amortizing notes. The step-up bonds have an increasing interest rate
during the life of the bonds and are callable by the issuer at specific
intervals. The de-leveraged bonds pay an adjustable rate of interest based on
movement of an index; and the indexed amortizing notes have a fixed interest
rate, with maturities potentially fluctuating based on a mortgage index.
Ratchet adjustable rate bonds are tied to market rates plus or minus a fixed
factor. All of these securities are guaranteed by a government agency and
have maturities of six years or less.
Net realized gains on sales of securities available for sale were
$268,000 in 1995. Net realized losses on sales of securities available for
sale were $136,000 in 1994.
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 estimated
amortized cost and estimated fair value of approximately $95,245,000 and
$94,742,000, respectively, as of December 31, 1995.
CBT CORPORATION 1995 ANNUAL REPORT 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LOANS AND ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
December 31,
----------------------------
1995 1994
Commercial, industrial, and agricultural loans $212,266 $191,243
Residential real estate loans 253,556 268,538
Installment loans 189,036 166,871
- -------------------------------------------------------------------------------
Total loans 654,858 626,652
Less: Unearned interest 10,197 10,643
- -------------------------------------------------------------------------------
Loans, net of unearned interest $644,661 $616,009
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Loans outstanding and unfunded commitments are primarily concentrated in
the Corporation's market area which encompasses western Kentucky and
surrounding communities. The Corporation's credit exposure is diversified
with secured and unsecured loans to consumers, small businesses and large
corporations. Although the Corporation has a diversified loan portfolio, the
ability of customers to honor loan commitments is based, in part, on the
economic stability of the geographic region and/or industry in which they do
business.
At December 31, 1995 and 1994, non-accrual loans totaled $4,059,000 and
$1,806,000, respectively, and loans contractually past due 90 days or more
totaled $785,000 and $494,000, respectively. If those loans on a non-accrual
status had been current and in accordance with their original loan terms,
interest income would have been approximately $390,000 and $80,000 greater in
1995 and 1994, respectively. Interest income recorded on these loans was
$75,000 and $158,000 for 1995 and 1994, respectively. At December 31, 1995
and 1994, there were no troubled debt restructurings.
The activity in the allowance for loan losses follows:
(IN THOUSANDS)
Years Ended December 31,
----------------------------
1995 1994 1993
Balance, beginning of year $11,533 $10,998 $10,022
Provision for loan losses 1,106 1,361 1,366
Adjustments related to purchase/sale of
finance receivables 6 - (177)
Charge-offs (1,996) (1,255) (833)
Recoveries 355 429 620
- -------------------------------------------------------------------------
Net charge-offs (1,641) (826) (213)
- -------------------------------------------------------------------------
Balance, end of year $11,004 $11,533 $10,998
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Impaired loans and the related loan loss reserve amounts at December 31,
1995 required by SFASNo 114 are as follows:
(IN THOUSANDS)
Recorded Loan
Investment Reserve
---------------------------
Impaired loans with loan loss reserves $3,576 $1,066
Impaired loans with no loan loss reserve 335 -
- -------------------------------------------------------------------------
Total $3,911 $1,066
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
The Corporation recognized approximately $50,000 of interest income on
impaired loans during 1995.
It is the policy of the Corporation to review each prospective credit in
order to determine an adequate level of security or collateral prior to
making the loan. The type of collateral will vary and ranges from liquid
assets to real estate.
At December 31, 1995 and 1994, there were no significant credit
concentrations by industry or customer bases.
Certain directors and executive officers of the Corporation and their
associates are customers of, and have other transactions with the Corporation
in the normal course of business. All loans to these individuals are made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and do not involve more than the normal risk of collectability or present
other unfavorable features.
Total loans to officers, directors, and associates of such persons,
follows:
(IN THOUSANDS)
Balance, beginning of year $15,345
New loans 7,520
Repayments (3,749)
Changes in officers, directors and associates 1,577
- --------------------------------------------------------------------------
Balance, end of year $20,693
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
38 CBT CORPORATION 1995 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PREMISES AND EQUIPMENT
(IN THOUSANDS)
December 31,
----------------------------
1995 1994
Land $ 1,971 $ 1,996
Buildings and improvements 17,715 15,071
Furniture and equipment 13,537 10,679
Construction in progress 20 1,145
- --------------------------------------------------------------------------
Total premises and equipment 33,243 28,891
Accumulated depreciation and amortization 14,371 12,981
- --------------------------------------------------------------------------
Net premises and equipment $18,872 $15,910
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
8. INTEREST BEARING DEPOSITS
(IN THOUSANDS)
December 31,
-----------------------------
1995 1994
NOW accounts $101,448 $103,631
Money Manager accounts 45,581 47,306
Individual Retirement accounts 50,601 45,432
Savings accounts 44,845 49,174
Certificates of deposit under $100,000 292,489 281,904
Certificates of deposit $100,000
and above 69,142 71,168
- ---------------------------------------------------------------------------
Total interest bearing deposits $604,106 $598,615
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
9. BORROWINGS
(IN THOUSANDS)
December 31,
----------------------------
1995 1994
Short-term:
Federal funds purchased and
securities sold under agreements
to repurchase $39,037 $56,976
Notes payable - U. S. Treasury 459 1,718
Revolving line of credit 4,023 6,023
Federal Home Loan Bank advances 45,535 20,040
- --------------------------------------------------------------------------
Total short-term borrowings $89,054 $84,757
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Long-term:
Term debt $10,046 $ 5,069
Federal Home Loan Bank advances 16,358 15,392
- --------------------------------------------------------------------------
Total long-term borrowings $26,404 $20,461
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The weighted average interest rate on federal funds purchased and
securities sold under agreements to repurchase at December 31, 1995 was 3.55
percent.
A revolving line of credit with a regional bank, which expires in July
1996, provides for maximum borrowings of $10,000,000. Interest on the line is
payable quarterly at the lesser of (1) one-quarter of one percentage point
less than the participating bank's prime rate or (2) a rate one and one-tenth
percentage points above the thirty-day London Interbank Offered Rate (LIBOR).
The actual rate at December 31, 1995 was 6.725 percent. Borrowings under the
line are collateralized by accounts receivable of FCC.
The Federal Home Loan Bank (FHLB) advances are collateralized by a
blanket pledge of all the Corporation's one-to-four family residential real
estate loans. The advances bear interest at 4.65 percent to 6.35 percent at
December 31, 1995, with a weighted average interest rate of 5.66 percent.
The term debt bears interest of 7.75% at December 31, 1995 and is
collateralized by accounts receivable of FCC.
The loan agreement for the revolving line of credit, FHLB advances and
term notes stipulate, among other items, maintenance of certain operating and
equity ratios, and that the Corporation will not incur any additional secured
debt, or sell or encumber investments in its subsidiaries without the
lenders' prior consent. At December 31, 1995, the Corporation was in
compliance with all covenants contained in the loan agreements.
Maturities of long-term borrowings outstanding at December 31, 1995 are
as follows:
(IN THOUSANDS)
1997 $16,023
1998 23
1999 -
2000 10,000
2001 -
Thereafter 358
- -------------------------------------------------------------------------
Total $26,404
- -------------------------------------------------------------------------
CBT CORPORATION 1995 ANNUAL REPORT 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. REGULATORY MATTERS
Regulatory banking laws restrict the amount of dividends that may be paid
by the subsidiary banks to the parent without obtaining prior approval of the
regulatory authority. Under such restrictions, the subsidiary banks have
available $20,044,000, for payment of dividends to the parent as of December
31, 1995.
The Corporation's subsidiary banks are required to maintain minimum
amounts of capital to total "risk weighted" assets, as identified by the
banking regulators. At December 31, 1994 and 1995, the Corporation's
subsidiary banks are required to have minimum Tier 1 Risk Based Capital, and
Total Risk Based Capital Ratios of 4 percent and 8 percent, respectively. All
of the Corporation's subsidiary banks and savings bank had Tier 1 Risk Based
Capital of at least 12.88 percent and 11.51 percent, Total Risk Based Capital
of at least 14.23 percent and 12.76 percent and a leverage ratio of at least
8.47 percent and 8.61 percent at December 31, 1995 and 1994, respectively.
11. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Corporation may be subject to
various legal proceedings. In the opinion of management and counsel,
liabilities, if any, arising from such proceedings presently pending would
not have a material adverse effect on the consolidated financial statements.
In December 1995, the Corporation entered into an agreement with a vendor
to provide data processing services. Under the terms of the agreement, the
vendor will provide services until the Corporation gives notice of
termination, at which time the ageement will remain in effect for a 3 year
term. Annual fees vary with volume of business, system needs, services
provided by the vendor and whether the Corporation has given notice of
termination. Management estimates fees in 1996 under the agreement to be
approximately $1,000,000, net of pass-through costs such as
telecommunications cost.
12. COMMON STOCK OPTIONS
Under the Corporation's 1986 Stock Option Plan, options for 210,000
shares of the Corporation's common stock had been reserved. At December 31,
1995, options for 105,500 shares were outstanding, of which 71,664 shares
were exercisable at an average price of $10.24 per share.
In 1993, an additional 400,000 shares of the Corporation's common stock
were reserved for future grant. At December 31, 1995, options to purchase
288,750 shares of common stock were outstanding, of which 2,000 were
excerisable at an average price of $18.63.
Stock options have been adjusted to reflect a 2 for 1 stock split in
October 1994. Activity with respect to outstanding common stock options
follows:
1995 1994 1993
------------------------------
Outstanding, beginning
of year 236,065 202,000 149,500
Granted at $9.84 per share,
January 1992 - - -
Granted at $13.33 per share,
May 1992 - - -
Exercised at average price
of $7.36 - - -
Granted at $14.50 per share
in January, 1993 - - 46,500
Granted at $19.38 per share
in November, 1993 - - 6,000
Granted at $19.13 per share
in January 1994 - 51,000 -
Granted at $21.00 per share
in January 1994 - 2,000 -
Granted at $20.38 per share
in April 1994 - 4,000 -
Granted at $19.88 per share
in June 1994 - 23,000 -
Granted at $21.25 per share
in July 1994 - 4,000 -
Exercised at average price
of $9.61 - (18,935) -
Granted at $22.50 per share
in January 1995 56,000 - -
Granted at $23.75 per share
in March 1995 160,000 - -
Granted at $20.75 per share
in October 1995 2,500 - -
Granted at $20.50 per share
in December 1995 2,500 - -
Exercised at average price
of $8.89 (50,565) - -
Forfeited (12,250) (31,000) -
- ------------------------------------------------------------------
Outstanding, end of year 394,250 236,065 202,000
- ------------------------------------------------------------------
- ------------------------------------------------------------------
40 CBT CORPORATION 1995 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994, are as follows:
(IN THOUSANDS)
December 31,
-------------------
1995 1994
Deferred tax assets:
Allowance for credit losses $3,381 $3,213
Net unrealized losses on
securities available for sale - 2,899
Other 563 473
- --------------------------------------------------------------------------
Total gross deferred tax assets 3,944 6,585
- --------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 1,296 1,202
Net unrealized gain on
securities for sale 58 -
Other 406 280
- --------------------------------------------------------------------------
Total gross deferred tax liabilities 1,760 1,482
- --------------------------------------------------------------------------
Net deferred tax asset (included
in other assets) $2,184 $5,103
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Income tax expense consisted of:
(IN THOUSANDS)
Years Ended December 31,
----------------------------
1995 1994 1993
----------------------------
Current $4,779 $4,560 $3,486
Deferred (benefit) (38) (327) 79
- -------------------------------------------------------------------
Total $4,741 $4,233 $3,565
- -------------------------------------------------------------------
- -------------------------------------------------------------------
The tax expense (benefit) relating to gains on sales of securities
(exclusive of non-deductible net capital losses) approximated $93,000 in
1995, $(46,000) in 1994, and $46,000 in 1993.
The reasons for the difference between income taxes in the consolidated
financial statements and the amount computed by applying the statutory rate
to income before income taxes are as follows:
(IN THOUSANDS)
Years Ended December 31,
----------------------------
1995 1994 1993
----------------------------
Taxes at statutory rate of 35% $5,868 $5,502 $4,764
Increase (decrease)
resulting from:
Tax-exempt interest income (1,109) (1,263) (1,215)
Other, net (18) (6) 16
- -------------------------------------------------------------------
Total $4,741 $4,233 $3,565
- -------------------------------------------------------------------
- -------------------------------------------------------------------
14. EMPLOYEE BENEFIT PLANS
Employees are covered by two defined contribution employee benefit plans
("Plans"). All employees are eligible to participate in the Plans after
completing various lengths of employment. Participants are immediately vested
in employee contributions, with 100 percent vesting in employer contributions
after 5 years of service or upon attainment of normal retirement age. The
annual cost of the Plans is based upon percentages of participant
compensation and contributions to the Plans, plus any discretionary amounts
as determined by the Board of Directors. Total costs charged to operations
for the Plans in 1995, 1994, and 1993 were $770,000, $836,000 and $647,000,
respectively.
15. OFF-BALANCE SHEET INSTRUMENTS AND COMMITMENTS
The Corporation has financial instruments which are not reflected in the
consolidated financial statements. These include commitments to extend credit
and irrevocable standby letters of credit. These instruments involve elements
of credit and interest rate risk. The same credit and collateral policies are
used by the Corporation in issuing these financial instruments as are used
for loans.
Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the payment by a customer to a third party. The
terms and risk of loss involved in issuing standby letters of credit are
similar to those involved in issuing loan commitments and extending credit.
As of December 31, 1995 and 1994, commitments outstanding under standby
letters of credit totaled $4,682,000 and $4,271,000, respectively.
CBT CORPORATION 1995 ANNUAL REPORT 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments to extend credit are agreements to lend to a customer under a
set of specified terms and conditions. Commitments generally have fixed
expiration dates or termination clauses, variable interest rates, and may
require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Loan commitments may be
secured or unsecured. In the case of secured commitments, collateral varies
but may include commercial or residential properties, business assets such as
inventory, equipment, accounts receivable, securities, or other business or
personal assets, or guarantees. At December 31, 1995 and 1994, commitments to
extend credit totaled $63,515,000 and $81,507,000, respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Corporation using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimate of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Corporation could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The fair value of investment securities to be held to maturity and
securities available for sale is based on quoted market prices, dealer
quotes, and prices obtained from independent pricing services. The fair value
of loans, deposits, and various types of borrowings and term debt is
estimated based on present values using entry-value interest rates applicable
to each category of such financial instruments. The fair value of commitments
to extend credit are not included as they are not material.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and 1994.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
both dates, and therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
(IN THOUSANDS)
December 31
----------------------------------------------
1995 1994
-----------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Assets:
Cash and cash equivalents $ 34,662 $ 34,662 $ 30,404 $ 30,404
Securities to be held to maturity 46,427 48,619 48,175 46,400
Securities available for sale 158,474 158,474 161,478 161,478
Loans, net of unearned interest 644,661 641,815 616,009 606,261
Liabilities:
Deposits:
Non-interest bearing $ 69,628 $ 69,628 $ 70,962 $ 70,962
Interest bearing 604,106 607,447 598,615 593,513
Short-term borrowings 89,054 89,648 84,757 84,315
Long-term borrowings 26,404 26,438 20,461 20,085
42 CBT CORPORATION 1995 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. QUARTERLY STATISTICAL INFORMATION (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1995 1994
---------------------------------------------------------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Gross interest income:
CBT Corporation $19,820 $19,263 $18,548 $18,131 $17,638 $17,197 $16,000 $11,379
- -------------------------------------------------------------------------------------------------------------------------
BMC Bankcorp, Inc. - - - - - - - 3,643
- -------------------------------------------------------------------------------------------------------------------------
Total $19,820 $19,263 $18,548 $18,131 $17,638 $17,197 $16,000 $15,022
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Net interest income:
- -------------------------------------------------------------------------------------------------------------------------
CBT Corporation $10,348 $10,217 $ 9,840 $ 9,769 $ 9,736 $10,355 $ 9,634 $ 6,821
- -------------------------------------------------------------------------------------------------------------------------
BMC Bankcorp, Inc. - - - - - - - 2,150
- -------------------------------------------------------------------------------------------------------------------------
Total $10,348 $10,217 $ 9,840 $ 9,769 $ 9,736 $10,355 $ 9,634 $ 8,971
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Net income:
- -------------------------------------------------------------------------------------------------------------------------
CBT Corporation $ 3,423 $ 2,907 $ 2,927 $ 2,767 $ 2,832 $ 3,110 $ 2,914 $ 2,134
- -------------------------------------------------------------------------------------------------------------------------
BMC Bankcorp, Inc. - - - - - - - 496
- -------------------------------------------------------------------------------------------------------------------------
Total $ 3,423 $ 2,907 $ 2,927 $ 2,767 $ 2,832 $ 3,110 $ 2,914 $ 2,630
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Earnings per share:
- -------------------------------------------------------------------------------------------------------------------------
CBT Corporation $ 0.43 $ 0.37 $ 0.37 $ 0.35 $ 0.36 $ 0.39 $ 0.37 $ 0.27
------------------------------------------------------------------------------------------------------------------------
BMC Bankcorp, Inc. - - - - - - - 0.06
- -------------------------------------------------------------------------------------------------------------------------
Total $ 0.43 $ 0.37 $ 0.37 $ 0.35 $ 0.36 $ 0.39 $ 0.37 $ 0.33
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
18. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
AT DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
1995 1994
--------------------
Assets:
Cash and cash equivalents* $ 2,051 $ 1,847
Investment in subsidiaries* 100,989 87,846
Dividends receivable from subsidiaries* - 1,000
Other assets 3,297 1,667
- --------------------------------------------------------------------------------------------------------
Total assets $106,337 $92,360
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Accrued liabilities $ 829 $ 1,023
Other liabilities 1,137 -
Stockholders' equity, net of unrealized losses on securities available for sale 104,371 91,337
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $106,337 $92,360
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
*Eliminated completely or partially in consolidation.
CBT CORPORATION 1995 ANNUAL REPORT 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
1995 1994 1993
-------------------------------
Income:
Dividends from subsidiaries* $ 6,680 $ 6,139 $ 2,904
Interest income 58 48 24
Gain on sale of securities - - 36
Rental income - 55 66
- ----------------------------------------------------------------------------------------------------
Total income 6,738 6,242 3,030
Expenses 2,972 910 761
- ----------------------------------------------------------------------------------------------------
Income before income taxes 3,766 5,332 2,269
Income taxes (benefit) (1,108) (162) (208)
- ----------------------------------------------------------------------------------------------------
Income before equity in undistributed net income of subsidiaries 4,874 5,494 2,477
Equity in undistributed net income of subsidiaries* 7,150 5,992 7,971
- ----------------------------------------------------------------------------------------------------
Net income $12,024 $11,486 $10,448
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
*Eliminated in consolidation
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
1995 1994 1993
-------------------------------
Operating activities:
Net income $12,024 $11,486 $10,448
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net of income of subsidiaries (7,150) (5,992) (7,971)
Gain on sale of securities - - (36)
Change in other assets (1,630) (1,067) 60
Change in accrued and other liabilities 866 (150) 118
Change in dividends receivable from subsidiaries 1,000 (376) (109)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,110 3,901 2,510
- -----------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of premises - - (382)
Contribution of capital to subsidiaries (300) (1,000) (2)
Contribution of fixed assets - - -
Payment for purchases of securities - - (6,525)
Proceeds from sales of securities - - 6,563
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (300) (1,000) (346)
- -----------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from term debt - - 115
Cash dividends paid (3,565) (2,970) (2,323)
Stock options exercised 450 182 -
Purchase of common stock (1,491) (369) (63)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,606) (3,157) (2,271)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 204 (256) (107)
Cash and cash equivalents, beginning of year 1,847 2,103 2,210
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,051 $ 1,847 $ 2,103
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
44 CBT CORPORATION 1995 ANNUAL REPORT