EXHIBIT NO. 13
CBT CORPORATION'S
ANNUAL REPORT TO SHAREHOLDERS
for the
Fiscal Year Ended
DECEMBER 31, 1996
Page 28
- - 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' 18 locations provide financial services primarily in
western Kentucky, while the finance company has 27 locations throughout the
state. The following discussion and analysis is presented on a consolidated
basis, with all significant intercompany accounts and transactions eliminated.
CBT reported net income of $11,625,000 in 1996, a decrease of 3.3 percent
compared to earnings of $12,024,000 in 1995 and a 1.2 percent increase over
earnings of $11,486,000 in 1994. Net income per share was $1.48 in 1996,
compared with $1.52 in 1995 and $1.45 in 1994.
Return on average equity was 10.78 percent in 1996, compared with 11.91
percent for 1995 and 12.42 percent for 1994. Return on average assets was 1.26
percent for 1996 compared with 1.36 percent for 1995 and 1.37 percent for 1994.
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 1996, tax-equivalent net interest income provided 83.0 percent of CBT's
tax-equivalent revenue, compared with 83.5 percent in 1995 and 86.1 percent in
1994. Total tax equivalent net interest income was $42,670,000 in 1996, a 3.0
percent increase over the $41,410,000 reported in 1995. Growth in tax-equivalent
net interest income over 1995 was due to a 4.1 percent growth in average earning
assets, which was partially offset by an 5 basis point decline in net interest
margin. The growth in average earning assets was caused by an 5.4 percent
increase in average loans and a 5.6 percent growth in average securities in 1996
compared to 1995. Average consumer loans grew 9.6 percent in 1996 over 1995,
while average commercial and residential real estate loans each increased 1.9
percent year-over-year. Average taxable securities, exclusive of mortgage-backed
instruments, increased 24.4 percent in 1996 compared to 1995, while average tax-
exempt securities grew 12.1 percent for the same period. Average mortgage-backed
securities declined 9.5 percent in 1996 compared to 1995, as the Corporation
realigned its securities portfolio mix to manage its interest rate and liquidity
risk profile.
CBT CORPORATION 1996 ANNUAL REPORT
Page 29
The 1995 increase in tax-equivalent net interest income of 2.7 percent over
the $40,323,000 reported in 1994 was due to an 4.4 percent increase in average
earning assets offset in part by an 8 basis point decrease in net interest
margin. The increase in average earning assets between years reflects an 11.3
percent increase in average loans, offset in part by declines in average
securities and Federal funds sold. Loan growth in 1995 over 1994 was achieved
primarily in commercial and consumer loans.
Net interest margin, the ratio of tax-equivalent net interest income
divided by average earning assets, was 4.91 percent in 1996, compared with 4.96
percent in 1995 and 5.04 percent in 1994. 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
-------------------------
Yields/Costs 1996 1995 1994
- --------------------------------------------------------------------------
Securities 6.99% 7.12% 6.93%
Loans(including fees) 9.76% 9.91% 9.10%
Federal funds sold 5.38% 5.95% 3.42%
- --------------------------------------------------------------------------
Earning asset yields 9.08% 9.22% 8.44%
Interest-bearing deposits 4.85% 4.91% 3.97%
Borrowings 5.33% 5.84% 4.44%
- --------------------------------------------------------------------------
Interest-bearing liability costs 4.93% 5.05% 4.03%
- --------------------------------------------------------------------------
Net interest rate spread 4.15% 4.17% 4.41%
Net interest margin (including fees) 4.91% 4.96% 5.04%
The modest decline in net interest margin between 1996 and 1995 is due to
lower earning asset yields, which dropped 14 basis points, partially mitigated
by lower interest-bearing liability costs, which fell 12 basis points. A portion
of the decline in loan yields is a result of increased non-accrual loans in 1996
compared to 1995. The decrease in net interest margin in 1995 compared to 1994
reflects increases in the cost of savings and time deposits, as well as higher
other borrowing costs in 1995, offset in part by higher earning asset yields.
Loan yields were substantially higher in 1995 compared to 1994. Higher interest
costs and loan yields in 1995 were due primarily to an increase in the general
level of interest rates.
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's judgment of the current
period cost associated with maintaining adequate reserves for the credit risk
inherent in CBT's loan portfolio. The consolidated provision for loan losses was
$2,883,000 in 1996, a 160.7 percent increase from the $1,106,000 provision level
in 1995 and a 111.8 percent increase from the $1,361,000 provision level in
1994. The provision for loan losses was 0.44 percent of average loans in 1996,
compared with 0.18 percent in 1995 and 0.24 percent in 1994. The increase in the
amount of provision for loan losses in 1996, compared with 1995 and 1994,
reflects the significant increase in loan charge-offs in 1996, principally
related to two commercial credits.
Net loan losses were $5,644,000 in 1996, $1,641,000 in 1995, and $826,000
in 1994. Net loan losses as a percent of average loans were 0.85 percent in
1996, compared to 0.26 percent in 1995 and 0.15 percent in 1994. The increase in
net loan losses in 1996 over 1995 was due to charge-offs on two commercial
credits totaling $3.6 million as well as higher consumer loan charge-offs. The
increase in net charge-offs in 1995 from 1994 was due to the charge-off of a
community development loan of $300,000 and modest increases in commercial,
agricultural and consumer loan losses.
NON-INTEREST INCOME
Non-interest income represented 17.0 percent of CBT's tax-equivalent
revenue in 1996, compared with 16.5 percent in 1995 and 13.9 percent in 1994.
Consolidated non-interest income increased 6.9 percent in 1996 to $8,732,000.
Exclusive of the impact of security sales, non-interest income increased 10.0
percent in 1996. Trust and investment advisory fees increased 43.7 percent to
$2,111,000 in 1996 compared to $1,469,000 in 1995, with trust fees growing 17.6
percent and investment advisory fees growing 93.7 percent. Both fee sources
increased because of higher business volume. Service charges on deposit accounts
declined 8.6 percent to $3,341,000 compared to 1995's total of $3,656,000 as
customers opted for non-fee based deposit accounts and because the collection
rate on existing charges fell from the 1995 level. Credit insurance commissions
increased 3.8 percent in 1996 to $1,330,000 over 1995's total of $1,281,000,
primarily because of direct consumer loan growth in the
CBT CORPORATION 1996 ANNUAL REPORT
Page 30
Corporation's consumer finance company. Other fees grew 27.8 percent to
$1,915,000 compared to 1995 other fees of $1,498,000 on the strength of
increased mortgage secondary market fees and non-interest income generated from
an official check outsourcing arrangement.
In addition, securities portfolio restructuring during 1996 resulted in net
gains on security sales of $35,000, compared to a net gain of $268,000 for 1995.
All securities sold were classified as available for sale.
(IN THOUSANDS)
For the years ended
December 31 Change
1996 1995 Amount Percent
--------------------------------------
Trust and investment
advisory fees $ 2,111 $ 1,469 $ 642 43.7
Service charges on
deposit accounts 3,341 3,656 (315) (8.6)
Insurance commissions 1,330 1,281 49 3.8
Gain on sale of securities 35 268 (233) (86.9)
Other fee income 1,915 1,498 417 27.8
- ----------------------------------------------------------------------
Total non-interest
income $ 8,732 $ 8,172 $ 560 6.9
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Non-interest income increased 25.5 percent to $8,172,000 in 1995, compared
with the 1994 total of $6,513,000. Excluding the effects of security sales, non-
interest income grew 20.3 percent in 1995 compared to 1994. This increase was
primarily the result of increases in service charges on deposit accounts and
commissions earned on the sale of credit-related insurance, as well as other fee
income growth.
NON-INTEREST EXPENSE
Consolidated non-interest expense increased 1.7 percent in 1996 to
$30,982,000 compared to $30,475,000 for 1995, primarily due to increased net
occupancy charges, higher depreciation and amortization expense on facilities
and equipment additions, an increase in franchise taxes, and growth in data
processing expenses, offset by lower salary and benefit costs, reductions in
FDIC assessments, reduced supply costs and a decline in consulting and other
professional fees.
Salaries and employee benefits decreased $205,000 or 1.3 percent, as 1995
non-recurring costs associated with the re-engineering process totaling
$1,135,000 were offset in part by merit salary increases and new personnel. The
increase in net occupancy of $206,000 or 17.5 percent over 1995 and the $332,000
or 17.8 percent rise in depreciation and amortization charges relate primarily
to new FCC offices, bank branch remodeling and computer equipment purchases made
during 1995 and 1996.
The $147,000 or 10.2 percent increase in data processing expense for 1996
over 1995 relates primarily to charges for additional services and increased
business volume. The $115,000 or 12.5 percent decrease in 1996 supplies cost
compared to 1995 was due primarily to higher 1995 costs associated with
standardizing product offerings at all bank affiliates. In spite of a one-time
recapitalization charge, 1996 FDIC assessments declined $120,000 or 13.7 percent
compared to 1995. Franchise taxes increased by $128,000 or 12.0 percent over the
1995 expense because of a change in the assessment methodology. Consulting and
other professional fees fell $186,000 or 29.1 percent because of consulting fees
paid in 1995. Other expenses increased $320,000 or 4.8 percent.
(IN THOUSANDS)
For the year ended
December 31 Change
1996 1995 Amount Percent
--------------------------------------
Salaries and benefits $ 15,593 $ 15,798 $ (205) (1.3)
Net occupancy 1,381 1,175 206 17.5
Depreciation and
amortization 2,202 1,870 332 17.8
Data processing 1,588 1,441 147 10.2
Supplies 803 918 (115) (12.5)
FDIC assessment 758 878 (120) (13.7)
Franchise tax 1,198 1,070 128 12.0
Consulting and
professional fees 453 639 (186) (29.1)
Other expense 7,006 6,686 320 4.8
- ----------------------------------------------------------------------
Total non-interest
expense $ 30,982 $ 30,475 $ 507 1.7
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Non-interest expense increased $2,346,000 or 8.3 percent in 1995 over 1994.
This increase resulted primarily from increased salaries and employee benefits,
net occupancy charges, data processing expenses, supplies and other costs,
offset in part by lower FDIC assessments and reduced consulting and other
professional services costs. Salaries and employee benefits grew $1,784,000 or
12.7 percent in 1995 as a result of non-recurring charges related to the 1995
reengineering process, as well as merit increases and staff additions. Net
occupancy increased $191,000 or 19.5 percent
CBT CORPORATION 1996 ANNUAL REPORT
Page 31
because of the increase in FCC offices during 1995 and the opening of the new
United Commonwealth Bank facility. The $314,000 or 27.9 percent increase in data
processing expense was due to technology upgrades and additional volumes.
Supplies expense grew $174,000 or 23.4 percent primarily because of costs
associated with standardizing products at bank affiliates. Other expenses
increased $1,265,000 or 23.3 percent primarily because of expanded marketing and
advertising, increased audit and exam costs, higher telephone and courier
charges, and increased postage. FDIC assessments declined $657,000 or 42.8
percent as prior period assessments were partially refunded and the assessment
rate for future periods was reduced significantly.
The Corporation applies APB Opinion 25 and related Interpretations in
accounting for its two fixed stock option plans. Accordingly, no compensation
cost has been recognized related to those plans. Had compensation cost for the
Corporation's plans been determined based on fair value at grant date for awards
under those plans consistent with the method of SFAS No. 123 "Accounting for
Stock-Based Compensation," the Corporation's non-interest expense would have
increased by $503,000 and $438,000 in 1996 and 1995, respectively. For more
information on common stock options, see Note 14 in the notes to the
consolidated financial statements.
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 1996, the efficiency ratio was 60.3 percent compared to
61.5 percent in 1995. The decrease was primarily due to non-recurring costs
associated with the re-engineering effort incurred in 1995. For 1994, CBT's
efficiency ratio was 60.1 percent.
INCOME TAXES
CBT's income tax planning is based upon the goal of maximizing long-term,
after-tax profitability. Income tax expense is significantly affected by the mix
of taxable versus tax-exempt revenues.
The effective income tax rate was 28.6 percent in 1996, compared with 28.3
percent in 1995 and 26.9 percent in 1994. The increase in the effective tax rate
in 1996 from 1995 and 1994 is attributable to the decline of tax-exempt income
as a percentage of gross revenues. For more information on income taxes, see
Note 14 in the notes to consolidated financial statements.
- - CONSOLIDATED BALANCE SHEET ANALYSIS
EARNING ASSETS
At December 31, 1996, earning assets were $892.7 million, compared with
$850.6 million at December 31, 1995. This increase is due to a $42.5 million
increase in loans and a $.6 million increase in securities reduced by a $1.0
million decline in Federal funds sold. Total earning assets at December 31, 1996
consisted of loans, representing 77.0 percent and securities, representing 23.0
percent. Average earning assets in 1996 were $869.3 million, an increase of 4.1
percent over 1995. This increase was due to a 5.4 percent increase in average
loans and a 5.6 percent increase in average securities. See Table 3 for a
detailed analysis of earning assets.
With an emphasis on retail lending, CBT grew its residential real estate
and consumer loan portfolios each by 10.4 percent comparing year-end 1996 and
1995. Home equity lines of credit fueled the $26.2 million rise in residential
real estate loans to $279.8 million at year-end 1996 while indirect automobile
lending and related loans boosted consumer loans outstanding $18.6 million to
$197.5 million at year-end, net of unearned interest. Commercial loans ended
1996 at $209.9 million, a decline of $2.3 million or 1.1 percent. Increased
competition and $3.6 million in losses taken on two credits served to dampen
commercial loan growth in 1996 compared to 1995.
INVESTMENT RISK MANAGEMENT
CBT has certain investment securities in its available for sale portfolio
that are classified as derivative securities by banking regulators.
At December 31, 1996 and 1995, CBT had $1,003,000 and $11,747,000,
respectively, in derivative securities as defined by banking regulators. These
amounts represent .7 percent and 7.4 percent of the total securities available
for sale at the end of 1996 and 1995, respectively. Derivative securities
comprise a significantly smaller percentage of the total investment securities
available for sale in 1996 compared to 1995 because of sales and maturities or
calls of these investments in 1996 and the growth in the securities portfolio in
CBT CORPORATION 1996 ANNUAL REPORT
Page 32
1996. All are guaranteed by government agencies and none have a maturity of over
2 years. The amount and nature of these securities pose no undue credit or
liquidity 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,
1996, net unrealized losses related to investment securities available for sale
were $288,000, compared to net unrealized gains at December 31, 1995 of
$472,000.
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,
property values, and bankruptcy filings are evaluated. During 1996, CBT's
primary market areas continued to experience an unemployment level below the
national average and stable real estate values, but the Corporation's market
areas have experienced a sharp increase in consumer bankruptcy filings. Based on
this information, management believes that, while generally stable economic
conditions are present in CBT's market areas, there are some signals indicating
that future economic trends will not be as favorable as they have been in the
recent past. The loan underwriting standards and credit controls established by
management leave the Corporation well-positioned in the changed economic
environment, and management has considered expected economic trends in assessing
the adequacy of the allowance for loan losses. Management believes the allowance
for loan losses at December 31, 1996 is adequate in light of expected future
economic trends, among other factors. The Corporation's credit risk is
diversified by loan type. At December 31, 1996, 41 percent of the portfolio
consisted of residential real estate loans, 30 percent of commercial loans and
29 percent of consumer loans. Consumer loans as a percent of total loans did not
change in 1996 compared to 1995, while residential real estate loans increased 2
percent in 1996 from 39 to 41 percent of total loans and commercial loans fell 2
percent in 1996 from 32 to 30 percent of total loans.
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, 1996, that are expected to have a material impact on CBT's future
operating results, liquidity, or capital resources. CBT continues to classify
its loans consistent with current regulatory review results. There are no
material commitments to lend additional funds to customers whose loans are
classified as non-performing assets at December 31,1996.
ALLOWANCE FOR LOAN LOSSES
At December 31, 1996, the allowance for loan losses ("ALLL") was $8.2
million, or 1.20 percent of net loans outstanding, compared with $11.0 million,
or 1.71 percent at December 31, 1995. The $2.8 million reduction was primarily
the result of $3.6 million in charge-offs related to two commercial credits. The
ratio of the ALLL to non-performing assets was 111.92 percent at December 31,
1996, compared with 225.8 percent at December 31, 1995. Non-performing assets
consist of non-accrual loans, loans past due ninety days or more that are still
accruing interest, and other real estate owned. The decline in the ratio from
1995 to 1996 is due to the $2.8 million decline in the ALLL combined with a $2.5
million increase in non-performing assets. The increase in non-performing assets
to $7.4 million at December 31, 1996 from $4.9 million at December 31, 1995
consists of a $1.1 million increase in non-accrual loans and a $1.4 million
increase in loans past due ninety days or more and still accruing.
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
CBT CORPORATION 1996 ANNUAL REPORT
Page 33
on the Allowance for Loan and Lease Losses. CBT management maintains the
allowance available to cover future loan losses within the entire loan portfolio
and believes the ALLL is adequate at December 31, 1996 based on the current
level of non-performing assets and the expected level of future charge-offs.
Table 9 details activity in the ALLL.
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, 1996, non-performing assets totaled $7.4 million, or 1.07
percent of net loans and other real estate owned, compared with $4.9 million, or
0.77 percent of net loans and other real estate owned, at December 31, 1995. The
increase in the ratio reflects a rise in both the amount of non-accrual loans
and the amount of accruing loans which are contractually 90 days or more past
due. The $1.1 million increase in non-accrual loans is attributable to various
commercial and agricultural credits, with approximately $800,000 of these
credits carrying government guarantees for 80 to 90 percent repayment. The $1.4
million increase in loans past due 90 days and still accruing primarily
represents various consumer credits, which collectively pose no significant risk
to CBT's capital or future financial position.
At December 31, 1996, CBT has categorized $3.6 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.
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.
- - FUNDING SOURCES
NON-INTEREST BEARING DEPOSITS
Non-interest bearing deposits, which represent a portion of CBT's core
deposits, were $78.6 million at December 31, 1996, an increase of $9.0 million
from December 31, 1995. Average non-interest bearing deposits were $64.7 million
for 1996, compared with $67.0 million for 1995, a 3.4 percent decrease. Non-
interest bearing deposits represented 9.4 percent of CBT's total funding sources
at December 31, 1996, compared with 8.8 percent at December 31, 1995.
INTEREST-BEARING LIABILITIES
Interest-bearing liabilities for CBT consist of certain core deposits,
purchased deposits, short-term and long-term borrowings. At December 31, 1996,
interest-bearing liabilities totaled $760.2 million, an increase of $40.6
million over December 31, 1995. The increase is due to a $27.4 million increase
in interest-bearing deposits, a $16.7 million increase in short-term borrowings,
and a $3.5 million decrease in long-term borrowings. For 1996 average interest-
bearing liabilities were $734.9 million, compared with $704.1 million in 1995,
an increase of $30.8 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, 1996, these funds accounted for 64.2
percent of CBT's total funding sources, compared with 67.8 percent at December
31, 1995. The 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, increased $23.8 million or 34.5 percent to
$93.0 million at December 31, 1996. The increase was desired because of the
reduction in FDIC assessments on deposits and a favorable interest rate
environment. Approximately $12 million of these funds represent brokered
deposits. Total purchased deposits represented 11.1 percent of CBT's total
funding sources at December 31, 1996, compared with 8.8 percent at
December 31,1994.
CBT CORPORATION 1996 ANNUAL REPORT
Page 34
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, 1996, short-term borrowings
accounted for 12.6 percent of CBT's total funding sources, compared with 11.3
percent at December 31, 1995. The increase reflects growth in Federal Home Loan
Bank advances of $10.8 million, Federal funds purchased and securities sold
under agreements to repurchase growth of $2.8 million, an increase in revolving
lines of credit of $2.5 million, and an increase in U.S. Treasury notes payable
of $.7 million.
The following table reflects the various levels of outstanding short-term
borrowings and related rates for CBT for the three years ended December 31, 1996
($'s in thousands):
1996 1995 1994
---------------------------
Federal funds purchased and
securities sold under
agreements to repurchase:
Balance:
Average $47,541 $43,457 $37,848
Year-end 41,866 39,037 56,976
Maximum month-end 61,805 57,369 58,123
Rate:
Year-to date 4.10% 4.54% 3.31%
Year-end 3.72% 4.02% 4.45%
Other short-term borrowings:
Balance:
Average $52,994 $39,656 $17,847
Year-end 63,959 50,017 27,781
Maximum month-end 66,224 54,702 47,009
Rate:
Year-to date 5.75% 5.86% 6.04%
Year-end 5.95% 5.70% 5.41%
LONG-TERM BORROWINGS
Long-term borrowings, which totaled $22.8 million and $26.4 million at
December 31, 1996 and December 31, 1995, respectively, include Federal Home Loan
Bank advances with maturities in excess of one year and term debt used to fund
FCC. At December 31, 1996, long-term borrowings represented 2.7 percent of CBT's
total funding sources, compared with 3.3 percent at December 31, 1995. The
decrease in long-term borrowings of $3.5 million was the result of reductions in
long-term Federal Home Loan Bank advances.
ASSET AND LIABILITY MANAGEMENT
Banking institutions manage the inherently different maturity and repricing
characteristics of earning assets and interest bearing funding to achieve a
desired interest rate sensitivity position and to limit their exposure to
interest rate risk. The goal of the asset and liability management process is to
manage the structure of the balance sheet to provide the maximum level of net
interest income while maintaining acceptable levels of interest rate risk (as
defined below) and liquidity. The focal point of this process is the Asset and
Liability Management Committee (ALCO) of CBT, an executive level management
committee. ALCO meets monthly to consider CBT's consolidated interest rate risk
and liquidity posture. The committee takes an active role in maintaining and
hedging CBT's profitability under a variety of interest rate scenarios. The
actual management of interest rate risk is governed by an asset and liability
management policy.
INTEREST RATE RISK AND ITS MEASUREMENT
Interest rate risk is the risk that future changes in interest rates will
reduce net interest income or the market value of CBT. Management uses various
measurement tools to monitor CBT's interest rate risk position. One measurement
tool is the GAP report, which classifies assets and liabilities and their
respective yields and costs in terms of maturity or repricing dates. While
considerable judgment is necessary to appropriately classify certain balance
sheet items that do not have contractual maturity or repricing dates, the GAP
report provides management a basic measure of interest rate risk. CBT monitors
the GAP position of each subsidiary individually (FCC is included with
Citizens), as well as on a consolidated basis. The asset and liability
management policy at each subsidiary specifies targets based primarily on the
one year cumulative GAP position in conjunction with a market volatility risk
analysis. At December 31, 1996 the one year cumulative interest rate GAP was .99
and the cumulative interest sensitivity gap as a percent of total assets was 95
per-
Page 35
cent. 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. The above levels were within stated corporate guidelines. A GAP of less
than one indicates that, over the time horizon measured, more liabilities will
reprice than assets. Generally, such a position is favorable in a falling
interest rate environment.
GAP as an interest rate risk measurement tool has some limitations: it is a
static measurement; it requires the establishment of a subjective time horizon;
and it does not capture basis risk or risk that varies non-proportionately 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 the 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 on corporate performance. Based on modeling using December 1996
data, CBT would expect its net interest income to change no more than 2.0
percent under a 200 basis point parallel shift up or down of the yield curve.
LIQUIDITY MANAGEMENT
Liquidity management involves planning to meet funding needs at a
reasonable cost, as well as developing contingency plans to meet unanticipated
funding needs or a loss of funding sources. Liquidity management for CBT is
monitored by ALCO, which takes into account the marketability of assets, the
sources and stability of funding, and the level of unfunded loan commitments.
CBT's consumer deposits provide a certain level of stability with respect
to liquidity. In addition, membership in the Federal Home Loan Bank of
Cincinnati provides a cost-effective alternate source of funding, as does access
to brokered certificates of deposit. CBT's available for sale investment
portfolio, with a December 31, 1996 balance of $149.3 million, also provides an
additional source of liquidity.
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, 1996
Leverage Ratio 5.00% 11.37% 6.37%
Tier 1 Risk-based 6.00% 15.90% 9.90%
Total Risk-based 10.00% 17.10% 7.10%
December 31, 1995
Leverage Ratio 5.00% 11.36% 6.36%
Tier 1 Risk-based 6.00% 16.05% 10.05%
Total Risk-based 10.00% 17.30% 7.30%
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.
The Corporation periodically repurchases common stock to fund various
employee benefit plans. All repurchases are done in non-block sizes (less than
5,000 shares) and are accomplished to meet internal needs (e.g., 401(k) plan,
stock option plans). During 1996, 67,461 shares were repurchased at an aggregate
price of $1,542,000. During 1995, the Corporation repurchased 70,243 shares at
an aggregate price of $1,491,000. All common shares were repurchased through
third-party broker-dealers in the open market at the prevailing market prices as
of the transaction dates.
CBT CORPORATION 1996 ANNUAL REPORT
Page 36
At December 31, 1996, CBT's shareholders' equity, exclusive of the
unrealized loss on securities available for sale, net of deferred tax, grew to
$110.4 million, a 6.1 percent increase from December 31, 1995. CBT's internal
capital growth rate (ICGR) in 1996 was 7.4 percent. The ICGR represents the rate
at which CBT's average stockholders' equity grew as a result of earnings
retained (net income less dividends paid).
CBT declared quarterly dividends totaling $0.50 per share during 1996, an
8.7 percent increase over 1995. The dividend payout ratio for 1996 was 33.84
percent which falls within management's payout range of 25 to 35 percent. In the
third quarter of 1994, CBT declared a two-for-one stock split payable on
October 25, 1994.
Management is currently not aware of any recommendation by regulatory
authorities which, if implemented, would have a material effect on CBT's
liquidity, capital resources or operations. Management is also not aware of any
events or uncertainties that will have or that are reasonably likely to have a
material effect on CBT's liquidity, capital resources or operations.
CBT CORPORATION 1996 ANNUAL REPORT
Page 37
TABLE 1
- - SELECTED FINANCIAL DATA SUMMARY, LAST FIVE YEARS
($ IN THOUSANDS EXCEPT PER COMMON SHARE DATA)
1996 1995 1994 1993 1992
-----------------------------------------------------
RESULTS OF OPERATIONS:
Net interest income $ 41,404 $ 40,174 $ 38,696 $ 33,598 $ 32,804
Provisions for loan losses 2,883 1,106 1,361 1,366 2,441
Net interest income after provision for loan losses 38,521 39,068 37,335 32,232 30,363
Non-interest income 8,697 7,904 6,649 6,330 5,587
Gain on sale of finance receivables - - - 553 3
Gain (loss) on sale of securities 35 268 (136) 134 575
Non-interest expense 30,982 30,475 28,129 25,236 23,165
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 16,271 16,765 15,719 14,013 13,363
- ------------------------------------------------------------------------------------------------------------------
Income taxes 4,646 4,741 4,233 3,565 3,058
- ------------------------------------------------------------------------------------------------------------------
Net income $ 11,625 $ 12,024 $ 11,486 $ 10,448 $ 10,305
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA:
Net income $ 1.48 $ 1.52 $ 1.45 $ 1.32 $ 1.30
Cash dividends 0.50 0.46 0.43 0.39 0.36
Book value per common share at year-end(a) 14.02 13.20 11.52 11.19 10.18
AVERAGES:
Assets $ 920,592 $ 881,556 $ 838,608 $ 755,936 $ 716,915
Deposits and corporate cash management
repurchase agreements 698,594 692,964 689,671 634,258 606,242
Loans, net 656,007 631,216 567,182 481,664 439,492
Stockholders' equity 107,847 100,999 92,495 84,914 77,549
PERFORMANCE RATIOS
Return on average assets(b) 1.26% 1.36% 1.37% 1.38% 1.44%
Return on average stockholders' equity(b) 10.78 11.91 12.42 12.30 13.29
Average stockholders' equity to average assets 11.71 11.46 11.03 11.23 10.82
Dividend payout ratio 33.84 30.28 28.63 23.19 21.11
Net charge-offs to average loans 0.85 0.26 0.15 0.04 0.27
Allowance for loan losses as a percentage of year-end loans 1.20 1.71 1.87 2.10 2.12
Net interest margin (tax equivalent) 4.91 4.96 5.04 4.88 4.99
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
(a)Includes SFAS 115.
(b)Excludes SFAS 115.
CBT CORPORATION 1996 ANNUAL REPORT
Page 38
TABLE 2
- - ANALYSIS OF CHANGES IN NET INTEREST INCOME
(TAX EQUIVALENT BASIS, $ IN THOUSANDS)
1996 vs 1995 1995 vs 1994
Attributed to Attributed to
---------------------------------------------------------------
Total Total
Dollar Dollar
Volume Rate Change Volume Rate Change
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME ON:
Loans, net $ 2,419 $ (934) $ 1,485 $ 5,830 $ 5,065 $ 10,895
Taxable investment securities 315 (64) 251 (1,301) 678 (623)
Tax-exempt investments securities 529 (255) 274 (274) (387) (661)
Federal funds sold and other (83) (13) (96) (154) 55 (99)
- -------------------------------------------------------------------------------------------------------------------
Total interest income 3,180 (1,266) 1,914 4,101 5,411 9,512
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE ON:
Deposits 340 (402) (62) 157 5,626 5,783
Federal funds purchased and securities sold
under agreements to repurchase 168 (187) (19) 186 535 721
Other 1,188 (452) 736 1,095 829 1,924
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 1,696 (1,041) 655 1,438 6990 8,428
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 1,484 $ (225) $ 1,259 $ 2,663 $ (1,579) $ 1,084
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
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 1996 ANNUAL REPORT
Page 39
TABLE 3
- - THREE YEAR AVERAGE BALANCE AND NET INTEREST ANALYSIS
(TAX EQUIVALENT BASIS, $ IN THOUSANDS)
1996 1995 1994
----------------------------- ---------------------------- --------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance & Fees Rate Balance & Fees Rate Balance & Fees Rate
---------------------------------------------------------------------------------------------
ASSETS
EARNING ASSETS
Loans, net(1) $ 656,007 $ 64,019 9.76% $ 631,216 $ 62,533 9.91% $ 567,182 $ 51,638 9.10
Taxable investment securities 69,017 4,546 6.59 55,481 3,633 6.55 58,986 3,521 5.97
Tax-exempt investments securities 60,425 4,917 8.14 53,921 4,642 8.61 56,862 5,302 9.32
Mortgage-backed securities 83,203 5,397 6.49 91,925 6,060 6.59 109,668 6,795 6.20
Federal funds sold 621 33 5.31 2,167 129 5.95 6,713 228 3.40
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 869,273 78,912 9.08% 834,710 76,997 9.22% 799,411 67,484 8.44%
Non-earning assets
Cash and due from banks 30,239 28,714 24,263
Premises and equipment, net 18,597 17,438 14,881
Other 12,173 12,106 11,647
Allowance for loan losses (9,690) (11,412) (11,594)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 920,592 $ 881,556 $ 838,608
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Demand deposits $ 136,383 $ 3,584 2.63% $ 139,551 $ 4,374 3.13% $ 157,599 $ 4,312 2.74%
Time deposits 418,311 24,048 5.75 411,016 23,545 5.73 391,146 18,106 4.63
Savings deposits 49,649 1,656 3.34 46,769 1,432 3.06 44,638 1,151 2.58
Federal funds purchased and
securities sold under agreements
to repurchase 47,541 1,956 4.11 43,457 1,975 4.54 37,848 1,254 3.31
Other borrowings 83,023 4,998 6.02 63,286 4,262 6.74 43,106 2,338 5.42
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 734,907 36,242 4.93% 704,079 35,588 5.10% 674,337 27,161 4.03%
OTHER BORROWINGS
Demand deposits 66,554 67,044 63,999
Other 11,285 9,434 7,777
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 812,746 780,557 746,113
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 107,846 100,999 92,495
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 920,592 $ 881,556 $ 838,608
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 42,670 $ 41,409 $ 40,323
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 4.91% 4.96% 5.04%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
(1)Non-accruing loans are included in the average balances.
CBT CORPORATION 1996 ANNUAL REPORT
Page 40
TABLE 4
- - INTEREST RATE SENSITIVITY ANALYSIS - DECEMBER 31, 1996
($ IN THOUSANDS)
Repricing
-------------------------------------------------------------
Within 6 Mos.- 1-5 After
6 Mos. 1 Year Years 5 Years Total
-------------------------------------------------------------
Securities held to maturity $ 2,547 $ 1,129 $ 15,321 $ 37,244 $ 56,241
Securities available for sale 32,600 8,445 75,580 32,629 149,254
Loans 339,900 138,933 189,606 18,779 687,218
Other Assets - - - 67,839 67,839
TOTAL ASSETS $ 375,047 $ 148,507 $ 280,507 $ 156,491 $ 960,552
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Non-interest bearing deposits(1) $ 51,630 $ 7,216 $ 19,750 $ - $ 78,596
Interest bearing deposits(1) 231,114 136,287 261,825 2,309 631,535
Borrowed funds 88,848 17,000 22,500 318 128,666
Other liabilities/equity - - - 121,755 121,755
TOTAL LIABILITIES/EQUITY $ 371,592 $ 160,503 $ 304,075 $ 124,382 $ 960,552
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ 3,455 $(11,996) $(23,568) $ 32,109
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap 3,455 (8,541) (32,109) -
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Cumulative ratio at December 31, 1996 102% 95% 79% 100%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Cumulative ratio at December 31, 1995 85% 82% 95% 100%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
(1)For purposes of this analysis, non-maturity deposits have been distributed as
follows:
Within 6 Mos. 6 Mos. - 1 Year 1 - 5 Years
---------------------------------------------
Non-interest bearing 67% 7% 26%
NOW 46% 6% 48%
Savings 46% 6% 48%
Money Manager 67% 7% 26%
TABLE 5
- - MATURITY DISTRIBUTION OF INVESTMENT SECURITIES HELD TO MATURITY
DECEMBER 31, 1996
($ 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 $ 1,108 $ - $ - $ - $ 1,108 $ 1,106
U. S. Government agency obligations 252 655 - - 907 921
State and other political subdivisions 1,076 2,281 16,529 34,340 54,226 55,922
Structured Bonds - - - - - -
- -------------------------------------------------------------------------------------------------------
Total $ 2,436 $ 2,936 $ 16,529 $ 34,340 $ 56,241 $ 57,949
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Weighted average tax equivalent yield 6.45% 9.39% 9.92% 8.34% 8.78% 8.84%
- -------------------------------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 41
TABLE 5 (CONTINUED)
- - MATURITY DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR SALE -
DECEMBER 31, 1996
($ 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 $ 2,252 $ 5,463 $ - $ - $ 7,715 $ 7,727
U. S. Government agency obligations - 16,915 5,335 15,000 37,250 37,018
State and other political subdivisions 500 1,964 3,098 1,697 7,259 7,489
Mortgaged backed 1,185 5,522 10,188 70,507 87,402 87,108
Structured bonds 300 200 - - 500 498
De-leveraged bonds - 503 - - 503 500
IAN - - - - - -
Other - - 100 8,813 8,913 8,914
- -------------------------------------------------------------------------------------------------------
Total $ 4,237 $ 30,567 $ 18,721 $ 96,017 $149,542 $149,254
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Weighted average tax equivalent yield 7.99% 9.60% 7.27% 7.13% 7.11% 7.10%
- -------------------------------------------------------------------------------------------------------
All mortgage-backed securities met the FFIEC stress test guidelines at
December 31, 1996 and 1995. The average expected maturities of such securities
is approximately 4 years.
TABLE 6
- - LOAN PORTFOLIO AT DECEMBER 31, FIVE YEAR SUMMARY
($ IN THOUSANDS)
1996 1995 1994 1993 1992
-----------------------------------------------------
Commercial $ 209,941 $ 212,266 $ 191,243 $ 180,426 $ 182,821
Residential 279,803 253,556 268,538 222,867 176,572
Consumer 206,998 189,036 166,871 130,457 113,043
- -------------------------------------------------------------------------------
Total loans 696,742 654,858 626,652 533,750 472,436
Less: unearned interest 9,524 10,197 10,643 9,565 13,348
- -------------------------------------------------------------------------------
Loans, net $ 687,218 $ 644,661 $ 616,009 $ 524,185 $ 459,088
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE 7
- - COMPOSITION OF LOAN PORTFOLIO AT DECEMBER 31, BY TYPE
1996 1995 1994 1993 1992
------------------------------------------------
Commercial 30% 32% 30% 34% 39%
Residential 41% 39% 43% 42% 37%
Consumer 29% 29% 27% 24% 24%
- -------------------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 42
TABLE 8
- - NON-PERFORMING ASSETS - DECEMBER 31
($ IN THOUSANDS)
1996 1995 1994 1993 1992
-----------------------------------------------
Non-accrual loans $ 5,158 $ 4,059 $ 1,806 $ 759 $ 1,173
Ninety days past due 2,207 785 494 298 528
Other real estate owned - 30 7 128 844
- -------------------------------------------------------------------------------------------------
Total non-performing assets $ 7,365 $ 4,874 $ 2,307 $ 1,185 $ 2,545
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Non-performing assets as a % of total loans and
other real estate owned 1.07% 0.77% 0.37% 0.23% 0.54%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
TABLE 9
- - ALLOWANCE FOR LOAN LOSSES
($ IN THOUSANDS)
1996 1995 1994 1993 1992
------------------------------------------------
Balance, beginning of year $ 11,004 $ 11,533 $ 10,998 $ 10,022 $ 8,764
Loans Charged-Off:
Commercial 3,956 687 488 283 725
Residential 131 159 33 32 84
Consumer 2,072 1,150 734 518 807
- --------------------------------------------------------------------------------------------------------------
Total 6,159 1,996 1,255 833 1,616
- --------------------------------------------------------------------------------------------------------------
RECOVERIES ON CHARGED-OFF LOANS:
Commercial 154 122 245 352 180
Residential 2 23 20 61 22
Consumer 359 210 164 207 235
- --------------------------------------------------------------------------------------------------------------
Total 515 355 429 620 437
- --------------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 5,644 1,641 826 213 1,179
PROVISION FOR LOAN LOSSES 2,883 1,106 1,361 1,366 2,441
ADJUSTMENTS RELATED TO PURCHASE/SALE OF FINANCE RECEIVABLES - 6 - (177) (4)
- --------------------------------------------------------------------------------------------------------------
Balance, end of year $ 8,243 $ 11,004 $ 11,533 $ 10,998 $ 10,022
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Average loans for the year $656,007 $631,216 $567,182 $481,664 $439,492
Allowance/year-end loans 1.20% 1.71% 1.87% 2.10% 2.12%
Net charge-offs/average loans 0.86% 0.26% 0.15% 0.04% 0.27%
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
TABLE 10
- - MANAGEMENT'S ALLOCATION OF ALLOWANCE FOR LOAN LOSSES - DECEMBER 31
($ IN THOUSANDS)
1996 1995 1994 1993 1992
------------------------------------------------
Commercial $ 3,003 $ 4,834 $ 3,724 $ 3,359 $ 3,408
Residential 1,260 1,425 1,500 1,488 1,089
Consumer 3,011 2,750 2,559 2,486 2,110
Unallocated 969 1,995 3,750 3,665 3,415
- --------------------------------------------------------------------------------------------------------------
Total $ 8,243 $ 11,004 $ 11,533 $ 10,998 $ 10,022
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 43
TABLE 11
- - CONTRACTUAL LOAN MATURITIES AND INTEREST SENSITIVITY
($ IN THOUSANDS)
December 31, 1996
One Year One Through Over Total
or Less Five Years Five Years Gross Loans
---------------------------------------------------
Commercial $ 101,966 $ 73,263 $ 34,712 $ 209,941
Residential 47,576 59,432 172,795 279,803
Consumer 87,820 115,192 3,986 206,998
- ---------------------------------------------------------------------------------------------------
Total $ 237,362 $ 247,887 $ 211,493 $ 696,742
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Loans with predetermined rate $ 98,759 $ 148,842 $ 32,913 $ 280,514
Loans with floating rate 138,603 99,045 178,580 416,228
- ---------------------------------------------------------------------------------------------------
Total $ 237,362 $ 247,887 $ 211,493 $ 696,742
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
TABLE 12
- - AVERAGE DEPOSITS AND CORPORATE CASH MANAGEMENT REPURCHASE AGREEMENTS
($ IN THOUSANDS)
1996 1995 1994 1993
---------------------------------------------------
Savings, daily interest checking $ 146,393 $ 140,212 $ 144,408 $ 132,927
Money market accounts and corporate cash
management repurchase agreements 75,573 80,941 90,118 82,814
Certificates of deposit $100,000 and over 75,426 68,664 67,299 62,314
Other time deposits 342,885 342,351 323,847 298,208
- ---------------------------------------------------------------------------------------------------
Total interest bearing deposits 640,277 632,168 625,672 576,263
Demand deposits 66,554 67,045 63,999 57,995
- ---------------------------------------------------------------------------------------------------
Total deposits and corporate cash
management repurchase agreements $ 706,831 $ 699,213 $ 689,671 $ 634,258
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
TABLE 13
- - CERTIFICATES OF DEPOSIT OF $100,000 OR MORE - DECEMBER 31
($ IN THOUSANDS)
1996 1995
-----------------------------
3 months or less $ 15,508 $ 12,728
3 - 6 months 13,435 25,333
6 - 12 months 29,700 15,882
Over 12 months 34,322 15,199
- ------------------------------------------------------------
Total $ 92,965 $ 69,142
- ------------------------------------------------------------
- ------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CBT Corporation
Paducah, Kentucky
We have audited the consolidated balance sheets of CBT Corporation (a Kentucky
corporation) and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years 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 year ended
December 31, 1994, 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 audits 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, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Nashville, Tennessee
January 30, 1997
MANAGEMENT'S STATEMENT OF FINANCIAL REPORTING
Responsibility for the financial information presented in the Annual Report
rests with CBT Corporation's management. The Corporation believes that the
consolidated financial statements reflect fairly the substance of transactions
and present fairly the Corporation's financial position and results of
operations in conformity with generally accepted accounting principles
appropriate in the circumstances applying certain estimates and judgments as
required.
In meeting its responsibilities for the reliability of the financial statements,
the Corporation depends on its system of internal accounting controls. The
system is designed to provide reasonable assurance that assets are safeguarded
and transactions are executed in accordance with the appropriate corporate
authorization and recorded properly to permit the preparation of financial
statements in accordance with generally accepted accounting principles. Although
accounting control procedures are designed to achieve these objectives, it must
be recognized that errors or irregularities may nevertheless occur. Also,
estimates and judgments are required to assess and balance the relative cost and
expected benefits of the controls. The Corporation believes that its accounting
controls provide reasonable assurance that errors or irregularities that could
be material to the financial statements are prevented or would be detected
within a timely period by employees in the normal course of their assigned
functions. An important element of the system is a continuing and extensive
internal audit program. 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 system of internal control. The
system is continually reviewed, evaluated, and where appropriate, modified to
accommodate current conditions.
The Board of Directors of the Corporation have an Audit Committee composed of
six directors who are not officers or employees of the Corporation. The
committee meets periodically and privately with management, the internal
auditors, and the independent public accountants to consider audit results and
to discuss internal accounting control, auditing and financial reporting
matters. The independent internal and external auditors have direct access to
the Audit Committee, with or without management present.
Arthur Andersen LLP, independent public accountants, have been engaged to render
an independent professional opinion on the Corporation's financial statements.
Their audit is conducted in accordance with generally accepted auditing
standards and forms the basis for their report as to the fair presentation, in
the financial statements, of the Corporation's financial position, operating
results and cash flows.
/s/ William J. Jones /s/ John E. Sircy
William J. Jones John E. Sircy
President and Executive Vice President and
Chief Executive Officer Chief Operating Officer
CBT CORPORATION 1996 ANNUAL REPORT
Page 45
CBT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1996 1995 1994
--------------------------------------
INTEREST INCOME
Loans, including fees:
Taxable $ 63,821 $ 62,303 $ 51,266
Tax-exempt 147 171 266
Securities:
Taxable 9,943 9,692 10,315
Tax-exempt 3,701 3,467 3,782
Other 34 129 228
- ------------------------------------------------------------------------------------------------
Total interest income 77,646 75,762 65,857
- ------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 29,288 29,351 23,569
Borrowings 6,954 6,237 3,592
- ------------------------------------------------------------------------------------------------
Total interest expense 36,242 35,588 27,161
- ------------------------------------------------------------------------------------------------
NET INTEREST INCOME 41,404 40,174 38,696
PROVISION FOR LOAN LOSSES 2,883 1,106 1,361
- ------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 38,521 39,068 37,335
- ------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust and investment advisory fees 2,111 1,469 1,413
Service charges on deposit accounts 3,341 3,656 2,821
Insurance commissions 1,330 1,281 1,012
Net realized gain (loss) on sales of securities 35 268 (136)
Other income 1,915 1,498 1,403
- ------------------------------------------------------------------------------------------------
Total non-interest income 8,732 8,172 6,513
- ------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 15,592 15,798 14,014
Net occupancy 1,382 1,175 984
Depreciation and amortization 2,202 1,870 1,702
Data processing 1,588 1,441 1,127
Supplies 803 918 744
FDIC assessments 758 878 1,535
Tax on bank shares 1,198 1,070 1,158
Consulting and other professional business services 453 639 1,444
Other expenses 7,006 6,686 5,421
- ------------------------------------------------------------------------------------------------
Total non-interest expense 30,982 30,475 28,129
- ------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 16,271 16,765 15,719
INCOME TAXES 4,646 4,741 4,233
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
NET INCOME $ 11,625 $ 12,024 $ 11,486
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Net income $ 1.48 $ 1.52 $ 1.45
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Dividends Declared 0.50 0.46 0.43
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,873,182 7,928,155 7,926,168
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
CBT CORPORATION 1996 ANNUAL REPORT
Page 46
CONSOLIDATED BALANCE SHEETS
CBT CORPORATION AND SUBSIDIARIES
AT DECEMBER 31, 1996 AND 1995
(IN THOUSANDS EXCEPT FOR COMMON SHARE DATA)
1996 1995
------------------------
ASSETS
Cash and due from banks $ 43,821 $ 33,662
Federal funds sold - 1,000
- --------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 43,821 34,662
Securities to be held to maturity (Fair values: 1996 - $57,949; 1995 - $48,619) 56,241 46,427
Securities available for sale (Amoritized cost: 1996 - $149,542; 1995 - $158,002) 149,254 158,474
Loans, net of unearned interest 687,218 644,661
Allowance for loan losses (8,243) (11,004)
- --------------------------------------------------------------------------------------------------------------
Loans, net 678,975 633,657
Premises and equipment, net 18,198 18,872
Accrued interest receivable 6,845 6,752
Other 7,218 5,897
- --------------------------------------------------------------------------------------------------------------
Total assets $ 960,552 $ 904,741
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Non-interest bearing $ 78,596 $ 69,628
Interest bearing 631,535 604,106
- --------------------------------------------------------------------------------------------------------------
Total deposits 710,131 673,734
- --------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase 41,866 39,037
Notes payable - U. S. Treasury 1,136 459
Revolving lines of credit and other 6,523 4,023
Federal Home Loan Bank advances 56,300 45,535
- --------------------------------------------------------------------------------------------------------------
Total short-term borrowings 105,825 89,054
- --------------------------------------------------------------------------------------------------------------
Long-term borrowings:
Federal Home Loan Bank advances 12,818 16,358
Term debt 10,023 10,046
- --------------------------------------------------------------------------------------------------------------
Total long-term borrowings 22,841 26,404
- --------------------------------------------------------------------------------------------------------------
Accrued interest payable 4,715 4,341
Other liabilities 6,824 6,837
- --------------------------------------------------------------------------------------------------------------
Total liabilities 850,336 800,370
- --------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 11 and 16)
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized 12,000,000 shares; issued and
outstanding 7,858,986 and 7,907,435 shares at December 31, 1996
and 1995, respectively 4,100 4,100
Capital surplus 16,160 17,512
Retained earnings 90,143 82,452
Net unrealized gains (losses) on securities available for sale, net of taxes (187) 307
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 110,216 104,371
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 960,552 $ 904,741
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
CBT CORPORATION 1996 ANNUAL REPORT
Page 47
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CBT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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, 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
Repurchase of common stock (17,980) - (172) (197) - (369)
Change in net unrealized gains (losses) on
securities available for sale - - - - (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
Repurchase of common stock (70,243) - (1,491) - - (1,491)
Change in net unrealized gains (losses) on
securities available for sale - - - - 5,693 5,693
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 7,907,435 $ 4,100 $ 17,512 $ 82,452 $ 307 $ 104,371
Net income - - - 11,625 - 11,625
Dividends on common stock - - - (3,934) - (3,934)
Stock options exercised 19,012 - 190 - - 190
Repurchase of common stock (67,461) - (1,542) - - (1,542)
Change in net unrealized gains (losses) on
securities available for sale - - - - (494) (494)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 7,858,986 $ 4,100 $ 16,160 $ 90,143 $ (187) $ 110,216
- ------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
CBT CORPORATION 1996 ANNUAL REPORT
Page 48
CONSOLIDATED STATEMENTS OF CASH FLOWS
CBT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995 1994
---------------------------------
OPERATING ACTIVITIES
Net income $ 11,625 $ 12,024 $ 11,486
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 2,883 1,106 1,361
Depreciation 1,993 1,646 1,449
Amortization 209 224 253
Deferred income taxes 941 (38) (327)
Amortization and accretion of premiums and discounts on securities 67 19 842
Net loss (gain) on sale of securities (35) (263) 136
Net (gain) loss on sale of premises and equipment 161 (53) (63)
Changes in assets and liabilities:
Increase in accrued interest receivable (93) (684) (579)
(Increase) decrease in other assets (2,205) (775) 1,648
Increase in accrued interest payable 374 460 1,327
(Decrease) in dividends payable (72) (77) -
Increase (decrease) in other liabilities (13) 1,965 982
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,835 15,554 18,515
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 2,199 3,718 3,411
Proceeds from sales of securities available for sale 19,761 38,210 48,178
Proceeds from maturities of securities available for sale 17,779 8,282 9,383
Principal collected on mortgage-backed securities, including
those classified as available for sale 9,505 8,315 25,017
Payment for purchases of securities (50,630) (44,770) (78,036)
Net increase in loans (48,201) (30,287) (92,650)
Proceeds from sale of premises and equipment 35 124 508
Payment for purchase of premises and equipment (1,515) (4,679) (2,601)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (51,067) (21,087) (86,790)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in deposits $ 36,397 $ 4,157 $ 20,933
Net increase (decrease) in other short term borrowings 3,506 (19,198) 20,248
Increase in FHLB advances 7,225 26,461 18,471
Proceeds from term debt - 5,000 -
Payments on term debt (23) (23) (23)
Cash advanced on revolving lines of credit 2,500 4,000 15,800
Principal payments on revolving lines of credit - (6,000) (11,040)
Cash dividends paid (3,862) (3,565) (2,970)
Stock options exercised 190 450 182
Repurchase of common stock (1,542) (1,491) (369)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 44,391 9,791 61,232
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,159 4,258 (7,043)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 34,662 30,404 37,447
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 43,821 $ 34,662 $ 30,404
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 35,868 $ 35,128 $ 25,834
- -----------------------------------------------------------------------------------------------------------------------
Income taxes 4,778 4,013 4,345
- -----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
CBT CORPORATION 1996 ANNUAL REPORT
Page 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CBT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- - 1. DESCRIPTION OF OPERATIONS AND 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.
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 and Trust Company (Citizens), Pennyrile Citizens Bank and Trust Company
(Pennyrile), Bank of Marshall County (BOMC), Graves County Bank (GCB) and United
Commonwealth Bank, FSB (UCB). Collectively these entities constitute the
"Corporation." 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, when the interest is collectible.
FORECLOSED REAL ESTATE - Real estate properties acquired through, or in
lieu of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value less cost to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in the loss on foreclosed real estate.
CBT CORPORATION 1996 ANNUAL REPORT
Page 50
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is maintained at
a level considered adequate to provide for potential losses based on
management's evaluation of the loan portfolio, including the financial strength
of guarantors, valuation of collateral, and the likelihood of further collection
based upon the borrower's financial condition, as well as on prevailing and
anticipated economic conditions.
Although management believes it uses the best information available to make
determinations with respect to the Corporation's allowances, future adjustments
may be necessary if economic or other conditions differ substantially from the
economic and other conditions considered 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 consumer loans are divided into various groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
and, thus, not subject to the provisions of SFAS Nos. 114 and 118. Substantially
all other loans of the Corporation are evaluated for impairment under the
provisions of SFAS Nos. 114 and 118. A loan is impaired when it is probable that
the Corporation will be unable to collect the scheduled payments of principal
and interest due under the contractual terms of the loan agreement.
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
GOODWILL AND OTHER INTANGIBLES - For acquisitions accounted for as
purchases, the net assets have been adjusted to their fair values as of the
respective acquisition dates. The value of core deposit rights and the excess of
the purchase price of the subsidiaries over net assets acquired (goodwill) are
being amortized on a straight-line basis over periods ranging from ten to twenty
years. Core deposit rights and the excess of the purchase price of the
subsidiaries over net assets acquired, net of amounts amortized, are included in
other assets in the consolidated balance sheets.
The carrying value of the excess of the purchase price of the subsidiaries
over net assets acquired will be reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Corporation's carrying
value of the goodwill will be reduced by the estimated shortfall of cash flows.
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 - 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. As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
CBT CORPORATION 1996 ANNUAL REPORT
Page 51
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
7,873,182, 7,928,155, and 7,926,168 average shares outstanding for the years
ended December 31, 1996, 1995 and 1994, respectively. All share and per share
data have 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 have also been restated to reflect the May 31, 1994
acquisition of BMC Bankcorp, Inc. and its subsidiaries, which was accounted for
under the pooling of interests method. The dilutive effect of common stock
options is not included in net income per common share data since the effect is
not material.
NEW ACCOUNTING STANDARD - Effective January 1, 1996, the Corporation
adopted SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of". This pronouncement requires that long-
lived assets and certain identifiable intangibles to be held and used by the
Corporation be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. In performing the review for recoverability, the Corporation would
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Otherwise, an impairment loss is
not recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that the Corporation expects to hold and use is based
on the fair value of the asset. The adoption of this pronouncement did not have
a material impact on the Corporation's consolidated financial statements.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with current year presentation.
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
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
- - 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.
BMC's interest income and net income totaled $6,202,000 and $938,000,
respectively, for the five months ended May 31, 1994 (unaudited).
- - 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 $1,268,000 and $2,581,000
during 1996 and 1995, respectively.
CBT CORPORATION 1996 ANNUAL REPORT
Page 52
- - 4. SECURITIES HELD TO MATURITY
(IN THOUSANDS)
December 31, 1996
---------------------------------------------
Gross Unrealized
Amortized Estimated --------------------
Cost Fair Value Gain Loss
U. S. Treasury securities $ 1,108 $ 1,106 $ - $ 2
U. S. Government
agency obligations 907 921 14 -
State and political
subdivisions 54,226 55,922 2,204 508
Other - - - -
- -------------------------------------------------------------------------------
Total $ 56,241 $ 57,949 $ 2,218 $ 510
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(IN THOUSANDS)
December 31, 1996
---------------------------------------------
Gross Unrealized
Amortized Estimated --------------------
Cost Fair Value Gain Loss
U. S. Treasury securities $ 1,422 $ 1,415 $ - $ 7
U. S. Government
agency obligations 911 937 27 1
State and political
subdivisions 43,894 46,068 2,435 261
Other 200 199 - 1
- -------------------------------------------------------------------------------
Total $ 46,427 $ 48,619 $ 2,462 $ 270
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The maturity distribution of investment securities to be held to maturity
is as follows:
(IN THOUSANDS)
December 31, 1996
---------------------
Estimated
Amortized Fair
Cost Value
Within 1 year $ 2,436 $ 2,441
1 - 5 years 2,936 3,041
5 - 10 years 16,529 17,644
Over 10 years 34,340 34,823
- -------------------------------------------------------------------
Total $ 56,241 $ 57,949
- -------------------------------------------------------------------
- -------------------------------------------------------------------
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. There were
no sales of investment securities classified as held to maturity during 1996.
Certain investment securities were pledged to secure public deposits,
securities sold under agreements to repurchase, and for other purposes as
required or permitted by law. These pledged securities had an estimated
amortized cost and estimated fair value of approximately $24,459,000 and
$25,072,000 respectively, as of December 31, 1996.
- - 5. SECURITIES AVAILABLE FOR SALE
(IN THOUSANDS)
December 31, 1996
---------------------------------------------
Gross Unrealized
Amortized Estimated --------------------
Cost Fair Value Gain Loss
U. S. Treasury securities $ 7,715 $ 7,728 $ 17 $ 4
U. S. Government
agency obligations 37,250 37,018 26 258
State and political
subdivisions 7,259 7,489 270 40
Mortgage-backed
securities 87,402 87,109 495 788
Derivative securities 1,003 997 - 6
Federal Home Loan
Bank Stock - at cost 8,791 8,791 - -
Other 122 122 - -
- -------------------------------------------------------------------------------
Total $ 149,542 $ 149,254 $ 808 $ 1,096
- -------------------------------------------------------------------------------
(IN THOUSANDS)
December 31, 1996
---------------------------------------------
Gross Unrealized
Amortized Estimated --------------------
Cost Fair Value Gain Loss
U. S. Treasury securities $ 12,306 $ 12,481 $ 182 $ 7
U. S. Government
agency obligations 32,515 32,755 297 57
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 53
The maturity distribution of securities available for sale is as follows:
(IN THOUSANDS)
December 31, 1996
---------------------
Estimated
Amortized Fair
Cost Value
Within 1 year $ 4,237 $ 4,273
1 - 5 years 30,567 30,590
5 - 10 years 18,721 18,781
Over 10 years 96,017 95,610
- -------------------------------------------------------------------
Total $ 149,542 $ 149,254
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Mortgage-backed securities have been allocated in the above table by
contractual maturity date.
Derivative securities available for sale at December 31, 1996 consist of
$200,000 of step-up bonds, $502,000 of de-leveraged bonds, and $300,000 in
ratchet adjustable rate bonds. At December 31, 1995, derivative securities
available for sale consisted 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. A substantial portion of all derivative securities
matured or were called in 1996. 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
two years or less.
Gross realized gains and gross realized losses on sales of securities
available for sale were $350,000 and $315,000, respectively, in 1996 and
$583,000 and $315,000, respectively, in 1995.
Certain securities available for sale were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other purposes
as required or permitted by law. These pledged securities had an estimated
amortized cost and estimated fair value of approximately $104,110,000 and
$103,576,000, respectively, as of December 31, 1996.
- - 6. LOANS AND ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
December 31
------------------------
1996 1995
Commercial, industrial
and agricultural loans $ 209,941 $ 212,266
Residential real estate loans 279,803 253,556
Installment loans 206,998 189,036
- ---------------------------------------------------------------------------
Total loans 696,742 654,858
Less: Unearned interest 9,524 10,197
- ---------------------------------------------------------------------------
Loans, net of unearned interest $ 687,218 $ 644,661
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
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, 1996 and 1995, non-accrual loans totaled $5,158,000 and
$4,059,000 respectively, and loans contractually past due 90 days or more
totaled $2,207,000 and $785,000 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 $700,000 and $390,000 greater in
1996 and 1995, respectively. Interest income recorded on these loans was
approximately $100,000 and $75,000 for 1996 and 1995, respectively.
CBT CORPORATION 1996 ANNUAL REPORT
Page 54
The activity in the allowance for loan losses follows:
(IN THOUSANDS)
Years Ended December 31
------------------------------
1996 1995 1994
Balance, beginning of year $ 11,004 $ 11,533 $ 10,998
Provision for loan losses 2,883 1,106 1,361
Adjustments related to
purchase/sale of finance
receivables - 6 -
Charge-offs (6,159) (1,996) (1,255)
Recoveries 515 355 429
- -------------------------------------------------------------------------------
Net charge-offs (5,644) (1,641) (826)
- -------------------------------------------------------------------------------
Balance, end of year $ 8,243 $ 11,004 $ 11,533
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Impaired loans and related loan loss reserve amounts at December 31, 1996
and 1995 required by SFAS No. 114 are as follows:
(IN THOUSANDS)
Recorded Loan
Investment Reserve
-----------------------------------------
1996 1995 1996 1995
Impaired loans with
loan loss reserves $ 1,961 $ 3,576 $ 711 $ 1,066
Impaired loans with
no loan loss reserves - 335 - -
- -------------------------------------------------------------------------------
Totals $ 1,961 $ 3,911 $ 711 $ 1,066
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The average recorded investment in impaired loans during 1996 and 1995 was
$4,936,000 and $2,738,000, respectively.
The Corporation did not recognize interest income on impaired loans during
1996.
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, 1996 and 1995, 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 collectibility or present other unfavorable
features.
Total loans to officers, directors and associates of such persons, follows:
(IN THOUSANDS)
Balance, January 1, 1996 $ 20,693
New loans 11,545
Repayments (7,259)
Changes in officers, directors and associates (9,697)
- -------------------------------------------------------------------------------
Balance, December 31, 1996 $ 15,282
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- - 7. PREMISES AND EQUIPMENT
(IN THOUSANDS)
December 31
----------------------
1996 1995
Land $ 1,971 $ 1,971
Buildings and improvements 18,568 17,715
Furniture and equipment 13,569 13,537
Construction in progress - 20
- -------------------------------------------------------------------------------
Total premises and equipment 34,108 33,243
Accumulated depreciation and
amortization 15,910 14,371
- -------------------------------------------------------------------------------
Net premises and equipment $ 18,198 $ 18,872
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- - 8. INTEREST BEARING DEPOSITS
(IN THOUSANDS)
December 31
-----------------------
1996 1995
NOW accounts $ 106,882 $ 101,448
Money Manager accounts 39,008 45,581
Individual retirement accounts 49,542 50,601
Savings accounts 51,984 44,845
Certificates of deposit
under $100,000 291,154 292,489
Certificates of deposit $100,000
and above 92,965 69,142
- -------------------------------------------------------------------------------
Total interest bearing deposits $ 631,535 $ 604,106
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 55
At December 31, 1996, the scheduled maturities of CDs are as follows:
(IN THOUSANDS)
1997 $ 225,361
1998 137,436
1999 11,619
2000 7,976
2001 and thereafter 1,727
- -----------------------------------------------------------------
Total $ 384,119
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- - 9. BORROWINGS
- -------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
December 31 1996 1995
----------------------------------------------------------------
Max. Mo. Max. Mo.
1996 1995 Average End Average End
----------------------------------------------------------------
Short-term:
Federal funds purchased and securities sold
under agreements to repurchase $ 41,866 $ 39,037 $ 47,541 $ 61,805 $ 43,457 $ 57,369
Notes payable - U. S. Treasury 1,136 459 1,381 3,401 1,556 2,642
Revolving lines of credit and other 6,523 4,023 4,987 6,523 4,731 7,023
Federal Home Loan Bank advances 56,300 45,535 46,626 56,300 33,369 45,037
- -------------------------------------------------------------------------------------------------------------------
Total short-term borrowings $ 105,825 $ 89,054 $ 100,535 $ 128,029 $ 83,113 $ 112,071
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Long-term:
Term debt $ 10,023 $ 10,046
Federal Home Loan Bank advances 12,818 16,358
- -----------------------------------------------------------------------
Total long-term borrowings $ 22,841 $ 26,404
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
The weighted average interest rate on Federal funds purchased and
securities sold under agreements to repurchase at December 31, 1996 was 4.24
percent.
The revolving lines of credit obtained from Union Planters National Bank
and Sun Trust Bank-Tennessee mature on July 1, 1997 and provide for maximum
borrowings of $10,000,000. Interest is payable quarterly at a rate which is the
lesser of (1) 25 basis points under Union Planters National Bank's and Sun Trust
Bank-Tennessee's prime rate or (2) 110 basis points above the 30 day London
Interbank Offered Rate. The actual rate at December 31, 1996 was 6.60 percent.
The line is collateralized by FCC accounts receivable and is fully guaranteed by
the Corporation. Management fully expects to renew the revolving lines upon
maturity.
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 4.80 percent to 6.35 percent at December
31, 1996, with a weighted average interest rate of 5.87 percent. According to a
funding program of the FHLB, up to $30,300,000 of these borrowings may be repaid
without penalty at specific intervals in 1997.
The term note is for $10,000,000 and matures July 1, 2000. It bears a fixed
rate of 7.75 percent, which is payable quarterly, and is collateralized by FCC
accounts receivable. The note, which is payable to Union Planters National Bank,
carries a 100 percent guarantee from the Corporation.
CBT CORPORATION 1996 ANNUAL REPORT
Page 56
The loan agreements for the revolving lines of credit and term note
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, 1996, the Corporation was in compliance with or had
obtained waivers on all covenants contained in the loan agreements.
Maturities of long-term borrowings outstanding at December 31, 1996 are as
follows:
(IN THOUSANDS)
1998 $ 12,523
1999 -
2000 10,000
2001 -
2002 -
Thereafter 318
- ----------------------------------------------------------------------
Total $ 22,841
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- - 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 $26,465,000 for payment of dividends to the parent as of December 31,
1996.
The Corporation's banks are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the banks
must meet specific capital guidelines that involve quantitative measures of the
banks' assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
The Corporation's and significant subsidiaries' actual capital amounts and
ratios are presented in the table below:
As of December 31, 1996
-------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------
Total Capital (TO RISK WEIGHTED ASSETS)
Consolidated $ 117,333 17.10% $ 54,892 8.00% $ 68,616 10.00%
Citizens 79,168 16.75% 37,804 8.00% 47,255 10.00%
BMC 18,269 18.61% 7,851 8.00% 9,814 10.00%
Tier I Capital (TO RISK WEIGHTED ASSETS)
Consolidated $ 109,090 15.90% $ 27,446 4.00% $ 41,169 6.00%
Citizens 73,985 15.66% 18,902 4.00% 28,353 6.00%
BMC 17,034 17.36% 3,926 4.00% 5,888 6.00%
Tier I Capital (TO AVERAGE ASSETS)
Consolidated $ 109,090 11.86% $ 36,779 4.00% $ 45,974 5.00%
Citizens 73,985 11.93% 24,805 4.00% 31,007 5.00%
BMC 17,034 11.13% 6,124 4.00% 7,655 5.00%
- --------------------------------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 57
Quantitative measures established by regulations to ensure capital adequacy
require the banks to maintain minimum amounts and ratios (set forth in the
preceding table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31 , 1996, that the
banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the FDIC (for
the commercial banks) and OTS (for the Federal Savings Bank) categorized the
banks as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the banks must maintain minimum
total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the preceding table. There are no conditions or events since that notification
that management believes have changed the institutions' category.
At December 31, 1995, all the Corporation's subsidiary banks had Tier I
Risk Based Capital of at least 11.51 percent, total Risk Based Capital of at
least 12.76 percent, and a leverage ratio of at least 8.61 percent.
- - 11. COMMITMENTS AND CONTINGENCIES
Through 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 agreement will remain in effect for a three 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. Estimated 1997 fees
under the agreement are $1,400,000, net of pass-through costs.
- - 12. COMMON STOCK
The Corporation periodically repurchases common stock to fund various
employee benefit plans. Such repurchases are accomplished through third-party
broker-dealers in amounts of less than 5,000 shares per transaction in the open
market at prevailing market prices. During 1995, 70,243 shares were repurchased
at a total cost of $1,491,000. Repurchases in 1996 totaled 67,461 shares at a
total cost of $1,542,000.
- - 13. COMMON STOCK OPTIONS
The Corporation has two fixed option plans. Under the 1986 Incentive Stock
Option Plan, the Corporation granted 210,000 options to employees over a ten
year period for the acquisition of common stock. Under the 1993 Incentive Stock
Option Plan, the Corporation may grant options to its employees for up to
400,000 shares of common stock. In both plans, the exercise price of each option
equals the market price of the Corporation's common stock at the grant date.
Options granted under both plans expire after ten years. The options granted
under the 1986 Plan vest over a four year period, with one-third vesting after
two years, an additional one-third after three years and the final one-third
after four years. Under the 1993 Plan, options vest as the 1986 Plan except for
160,000 shares that vest at 100 percent five years after grant date.
The fair value of each option grant made in 1995 and 1996 is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1995 and 1996,
respectively: dividend yield of 2.34 percent for both years; expected volatility
of 23.04 percent for both years; risk-free rates of 7.46 and 6.05 percent; and
expected lives of 10 years for both 1995 and 1996.
CBT CORPORATION 1996 ANNUAL REPORT
Page 58
- ---------------------------------------------------------------------------------------------------------
1994 1995 1996
--------------------------------------------------------------
Wtd-Avg Exercise Wtd-Avg Exercise Wtd-Avg Exercise
--------------------------------------------------------------
Shares Price Shares Price Shares Price
--------------------------------------------------------------
Fixed Options
Outstanding at beginning of year 202,000 $ 10.85 236,065 $ 13.48 394,250 $ 19.39
Granted 84,000 19.54 221,000 23.36 45,250 24.00
Exercised (18,935) 9.61 (50,565) 8.89 (19,012) 10.02
Forfeited (31,000) 15.13 (12,250) 20.58 (16,834) 22.11
- ---------------------------------------------------------------------------------------------------------
Outstanding at end of year 236,065 $ 13.48 394,250 $ 19.39 403,654 $ 20.23
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Options exercisable at year-end 98,565 $ 9.08 73,664 $ 10.47 98,982 $ 12.94
Weighted-average fair value of options
granted during the year $9.48 $7.85
- ---------------------------------------------------------------------------------------------------------
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
- ---------------------------------------------- ----------------------
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------
Wtd-Avg.
Number Remaining Wtd-Avg. Number Wtd-Avg.
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life (yrs) Price at 12/31/96 Price
- -------------------------------------------------------------------------------
$7.09 - $10.67 52,654 3.29 $ 9.67 52,654 $ 9.67
$13.33 - $14.50 36,500 6.00 14.40 25,332 14.36
$19.13 - $21.25 68,000 7.27 19.53 20,996 19.44
$22.50 - $24.00 246,500 8.31 23.54 - N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$7.09 - $24.00 403,654 7.27 $ 20.23 98,982 $ 12.94
- -------------------------------------------------------------------------------
The Corporation applies APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the Corporation's
two stock-based compensation plans been determined based on fair value at the
grant dates for awards under those plans consistent with the method of SFAS No.
123 "Accounting for Stock-Based Compensation," the Corporation's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1996
------------------------
Net income
As reported $ 12,024 $ 11,625
Pro forma 11,739 11,298
Earnings per share
As reported $ 1.52 $ 1.48
Pro forma 1.48 1.43
- - 14. 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,
1996 and 1995, are as follows:
(IN THOUSANDS)
December 31
----------------------
1996 1995
----------------------
Deferred tax assets:
Allowance for credit losses $ 2,739 $ 3,381
Net unrealized losses on
securities available for sale 101 -
Other 585 563
- -------------------------------------------------------------------------------
Total gross deferred tax assets 3,425 3,944
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 1,418 1,296
Net unrealized gain on
securities available for sale - 58
Other 605 406
- -------------------------------------------------------------------------------
Total gross deferred tax liabilities 2,023 1,760
- -------------------------------------------------------------------------------
Net deferred tax asset (included
in other assets) $ 1,402 $ 2,184
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 59
Income tax expense consisted of:
(IN THOUSANDS)
Years Ended December 31,
------------------------------------
1996 1995 1994
------------------------------------
Current $ 3,705 $ 4,779 $ 4,560
Deferred expense (benefit) 941 (38) (327)
- -------------------------------------------------------------------------------
Total $ 4,646 $ 4,741 $ 4,233
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The tax expense (benefit) relating to gains on sales of securities
approximated $12,000 in 1996, $93,000 in 1995, and $(46,000) in 1994.
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,
------------------------------------
1996 1995 1994
------------------------------------
Taxes at statutory rate $ 5,695 $ 5,868 $ 5,502
Increase (decrease)
resulting from:
Tax-exempt interest income (1,164) (1,109) (1,263)
Other, net 115 (18) (6)
- -------------------------------------------------------------------------------
Total $ 4,646 $ 4,741 $ 4,233
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- - 15. 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% 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
Corporation's Board of Directors. Total costs charged to operations for the
Plans in 1996, 1995, and 1994 were $771,000, $770,000, and $836,000,
respectively.
- - 16. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS AND COMMITMENTS
The Corporation has financial instruments which are not reflected in the
consolidated financial statements. These include commitments to extend credit
and 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, 1996 and 1995, commitments outstanding under standby letters of
credit totaled $4,951,000 and $4,682,000, respectively.
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, 1996 and 1995, commitments to extend credit totaled $113,363,000
and $102,136,000, respectively.
CBT CORPORATION 1996 ANNUAL REPORT
Page 60
- - 17. 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 values of investment securities to be held to maturity and
securities available for sale are 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 and
standby letters of 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, 1996 and 1995. 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
------------------------------------------
1996 1995
------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------------------------
Assets:
Cash and cash equivalents $ 43,821 $ 43,821 $ 34,662 $ 34,662
Securities held to maturity 56,241 57,949 46,427 48,619
Securities available for sale 149,254 149,254 158,474 158,474
Loans, net of unearned interest 687,218 688,847 644,661 641,815
Liabilities:
Deposits:
Non-interest bearing 78,596 78,596 69,628 69,628
Interest bearing 631,535 633,709 604,106 607,447
Short-term borrowings 105,825 105,417 89,054 89,648
Term debt & FHLB borrowings 22,841 22,671 26,404 26,438
- --------------------------------------------------------------------------------
- - 18. QUARTERLY STATISTICAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995
------------------------------------------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------
Gross interest income $ 19,908 $ 19,553 $ 19,179 $ 19,006 $ 19,820 $ 19,263 $ 18,548 $ 18,131
Net interest income 10,465 10,289 10,431 10,219 10,348 10,217 9,840 9,769
Net income 3,040 2,455 3,198 2,932 3,423 2,907 2,927 2,767
Earnings per share $ 0.39 $ 0.31 $ 0.41 $ 0.37 $ 0.43 $ 0.37 $ 0.37 $ 0.35
- ---------------------------------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 61
- - 19. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
AT DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
1996 1995
-----------------------
Assets:
Cash and cash equivalents* $ 2,101 $ 2,051
Investment in subsidiaries* 106,349 100,989
Other assets 3,550 3,297
- -------------------------------------------------------------------------------
Total assets $ 112,000 $ 106,337
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Accrued liabilities $ 518 $ 829
Other liabilities 1,266 1,137
Stockholders' equity, net of unrealized gains and
losses on securities available for sale 110,216 104,371
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 112,000 $ 106,337
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Eliminated completely or partially in consolidation.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995 1994
--------------------------------
Income:
Dividends from subsidiaries* $ 6,740 $ 6,680 $ 6,139
Interest income 40 58 48
Miscellaneous income 6 - -
Rental income - - 55
- -------------------------------------------------------------------------------
Total income 6,786 6,738 6,242
Expenses 759 2,972 910
- -------------------------------------------------------------------------------
Income before income taxes 6,027 3,766 5,332
Income taxes (benefit) (243) (1,108) (162)
- -------------------------------------------------------------------------------
Income before equity in undistributed net
income of subsidiaries 6,270 4,874 5,494
Equity in undistributed net income of
subsidiaries* 5,355 7,150 5,992
- -------------------------------------------------------------------------------
Net income $ 11,625 $ 12,024 $ 11,486
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Eliminated in consolidation
CBT CORPORATION 1996 ANNUAL REPORT
Page 62
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995 1994
------------------------------
Operating activities: $ 11,625 $ 12,024 $ 11,486
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net of income of subsidiaries (5,355) (7,150) (5,992)
Change in other assets (253) (1,630) (1,067)
Change in accrued and other liabilities (182) 943 168
Change in dividends payable (71) (77) (318)
Change in dividends receivable from subsidiaries - 1,000 (376)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,764 5,110 3,901
- ---------------------------------------------------------------------------------------------------------------------
Investing activities:
Contributions of capital to subsidiaries (500) (300) (1,000)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (500) (300) (1,000)
- ---------------------------------------------------------------------------------------------------------------------
Financing activities:
Cash dividends paid (3,862) (3,565) (2,970)
Stock options exercised 190 450 182
Purchase of common stock (1,542) (1,491) (369)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (5,214) (4,606) (3,157)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 50 204 (256)
Cash and cash equivalents, beginning of year 2,051 1,847 2,103
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,101 $ 2,051 $ 1,847
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
CBT CORPORATION 1996 ANNUAL REPORT
Page 63