SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997 Commission file number 0-16878
CBT CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1030727
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Broadway, Paducah, Kentucky 42001
(Address of principal executive offices)
Registrant's telephone number, including area code (502) 575-5100
Indicate by check mark whether the registrant (a) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1997
Common Stock, No Par Value 7,862,627
Page 1
This filing contains 28 pages.
<PAGE> 2
<TABLE>
<CAPTION>
CBT CORPORATION
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997,
December 31, 1996 and September 30, 1996 3
Consolidated Statements of Income for Three Months and
Nine Months Ended September 30, 1997 and September 30,
1996 4
Consolidated Statements of Changes in Shareholders'
Equity for Nine Months Ended September 30, 1997 and
September 30, 1996 5
Consolidated Statements of Cash Flows for Nine
Months Ended September 30, 1997 and September 30,
1996 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations 12 - 23
Item 3. Quatitative and Qualitative Disclosures About Market
Risk. Not applicable.
PART II. OTHER INFORMATION
Item 1. through Item 6. 24
SIGNATURE PAGE 25
EXHIBIT INDEX 26
FINANCIAL DATA SCHEDULE 27 - 28
</TABLE>
This Quarterly Report on Form 10-Q contains statements relating to future
results of the Corporation that are considered "forward-looking" within the
meaning of the Private Securities Litigation and Reform Act of 1995.
Actual results may differ materially from those expressed or implied as a
result of certain risks and uncertainties, including, but not limited to,
changes in political and economic conditions, interest rate fluctuations,
competitive product and pricing pressures within the Coporation's markets,
equity and fixed income market fluctuations, personal and corporate
customers' bankruptcies, inflation, acquisitions and integrations of
acquired businesses, technological change, changes in law, changes in
fiscal, monetary, regulatory and tax policies, monetary fluctuations,
success in gaining regulatory approvals when required as well as other
risks and uncertainties detailed from time to time in the filings of the
Corporation with the Securities and Exchange Commission.
2
<PAGE> 3
<TABLE>
<CAPTION>
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited) (audited) (unaudited)
($ in thousands) September December September
30 31 30
1997 1996 1996
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 31,456 $ 43,821 $ 34,888
Securities to be held to maturity 61,192 56,241 54,654
Securities available for sale
(at fair market value) 210,418 149,254 155,419
Loans, net of unearned interest 713,314 687,218 674,296
Allowance for loan losses (9,435) (8,243) (8,734)
------------------------------
Loans, net 703,879 678,975 665,562
Premises and equipment, net 18,555 18,198 18,383
Accrued interest receivable 7,232 6,845 6,417
Intangible Assets 5,923 1,313 1,358
Other 6,024 5,905 6,009
------------------------------
TOTAL ASSETS $1,044,679 $960,552 $942,690
==============================
LIABILITIES
Deposits:
Non-interest bearing $ 73,055 $ 78,596 $ 70,190
Interest bearing 668,774 631,535 602,907
------------------------------
Total deposits 741,829 710,131 673,097
Borrowings:
Federal funds purchased 24,115 5,830 19,140
Securities sold under agreements to 44,874 36,036 40,398
repurchase
Notes payable - U.S. Treasury 2,009 1,136 2,010
Revolving lines of credit 6,500 6,500 5,000
Federal Home Loan Bank advances 81,605 69,118 73,169
Term Debt 10,023 10,046 10,046
------------------------------
Total borrowings 169,126 128,666 149,763
Accrued interest payable 6,839 4,715 6,019
Other 9,670 6,824 6,819
------------------------------
TOTAL LIABILITIES 927,464 850,336 835,698
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized
12,000,000 shares; issued and outstanding
7,862,627 shares at September 30, 1997;
7,858,986 shares at December 31, 1996;
7,856,210 shares at September 30, 1996 4,100 4,100 4,100
Capital surplus 16,042 16,160 18,252
Retained earnings 96,598 90,143 86,132
Unrealized gains (losses) on securities
available for sale, net of deferred
taxes 475 (187) (1,492)
------------------------------
TOTAL STOCKHOLDERS' EQUITY 117,215 110,216 106,992
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,044,679 $960,552 $942,690
==============================
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited) Three Months Nine Months Ended
Ended
($ in thousands except per share data) September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees:
Taxable $17,255 $16,064 $50,329 $47,292
Tax-exempt 44 34 115 111
Securities:
Taxable 3,018 2,498 8,370 7,543
Tax-exempt 1,033 953 2,889 2,762
Fed Funds sold and other securities - 4 196 30
---------------------------------
Total interest income 21,350 19,553 61,899 57,738
---------------------------------
INTEREST EXPENSE
Deposits 8,437 7,461 24,249 21,673
Other borrowings 1,986 1,804 5,595 5,127
---------------------------------
Total interest expense 10,423 9,265 29,844 26,800
---------------------------------
NET INTEREST INCOME 10,927 10,288 32,055 30,938
Provision for loan losses 1,014 810 2,961 1,765
---------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,913 9,478 29,094 29,173
---------------------------------
NON-INTEREST INCOME
Trust and investment advisory fees 573 563 1,628 1,562
Service charges on deposit accounts 843 862 2,493 2,492
Credit life commissions 372 334 1,081 975
Gain (loss) on sale of securities (39) 0 17 34
Gain on sale of finance receivables - - 337 -
Other 560 502 1,631 1,289
---------------------------------
Total non-interest income 2,309 2,261 7,187 6,352
---------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 4,155 3,948 12,205 11,826
Net occupancy 362 339 1,073 1,020
Depreciation and amortization 626 548 1,756 1,656
Supplies 191 194 554 650
Data processing 415 390 1,276 1,176
FDIC assessments 34 617 66 731
Franchise tax 298 303 885 909
Other 1,680 2,038 5,049 5,573
---------------------------------
Total non-interest expense 7,761 8,377 22,864 23,541
---------------------------------
INCOME BEFORE INCOME TAXES 4,461 3,362 13,417 11,984
Income taxes 1,270 908 3,893 3,400
---------------------------------
NET INCOME $ 3,191 $ 2,454 $ 9,524 $ 8,584
=================================
NET INCOME PER COMMON SHARE $ 0.41 $ 0.31 $ 1.21 $ 1.09
=================================
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
($ in thousands)
Total
Stockholders'
Equity
- ------------------------------------------------------------------
<S> <C>
Balance, December 31, 1996 $110,216
Net income 9,524
Dividends on common stock (3,069)
Stock options exercised -
Purchase of common stock (118)
Change in net unrealized gain on securities
available for sale 662
-------
Balance, September 30, 1997 $117,215
=======
Balance, December 31, 1995 $104,371
Net income 8,584
Dividends on common stock (2,914)
Stock options exercised 79
Purchase of common stock (1,329)
Change in net unrealized loss on securities
available for sale (1,799)
-------
Balance, September 30, 1996 $106,992
=======
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
CBT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Nine Months Ended
($ in thousands) September 30
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,524 $ 8,584
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,961 1,765
Depreciation 1,518 1,491
Amortization 238 165
Amortization and accretion of securities 305 32
Net loss (gain) on sale of securities (17) 13
Net loss on sale of premises and equipment - (34)
Net gain on sale of finance receivables (337) -
Changes in assets and liabilities:
Accrued interest receivable (387) 335
Other assets (5,324) (586)
Accrued interest payable 2,124 1,678
Other liabilities 2,846 (18)
----------------------
Net cash provided by operating activities 13,451 13,425
INVESTING ACTIVITIES:
Proceeds from maturities of securities to be held
to maturity 2,320 1,234
Proceeds from sales of securities available for sale 8,917 -
Proceeds from maturities of securities available
for sale 10,408 13,481
Principal collected on mortgage-backed securities,
including those classified as available for sale 17,606 7,554
Payment for purchases of securities (104,635) (30,208)
Net increase in loans (29,425) (33,670)
Proceeds from sales of premises and equipment 6 30
Proceeds from sales of finance receivables 1,897 -
Payment for purchase of premises and equipment (1,881) (1,196)
----------------------
Net cash used in investing activities (94,787) (42,775)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 31,698 (637)
Net increase in short term borrowings 27,996 22,052
Net increase (decrease) in FHLB advances 12,487 11,276
Cash advanced on revolving lines of credit - 1,000
Principal payments on term debt (23) (23)
Cash dividends paid (3,069) (2,842)
Stock options exercised - 79
Purchase of common stock (118) (1,329)
----------------------
Net cash used in financing activities 68,971 29,576
NET DECREASE/INCREASE IN CASH
AND CASH EQUIVALENTS (12,365) 226
----------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $43,821 $34,662
----------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $31,456 $34,888
======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $27,720 $10,943
Federal income taxes $ 2,916 $ 3,757
</TABLE>
6
<PAGE> 7
CBT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1997
NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-1 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
financial statements include the accounts of CBT Corporation (the Parent
Company) and its wholly-owned subsidiaries: Citizens Bank and Trust Company
of Paducah (Citizens), Pennyrile Citizens Bank and Trust Company (PCB),
Bank of Marshall County (BOMC), Graves County Bank, Inc. (GCB), and United
Commonwealth Bank, FSB (UCB). Collectively, these entities constitute the
"Corporation", which provides financial services primarily in western
Kentucky and surrounding communities. Fidelity Credit Corporation (FCC), a
finance company that operates throughout Kentucky, is a wholly-owned
subsidiary of Citizens. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Operating results for the nine month period ended September 30, 1997, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Corporation's annual report on Form 10-K for the year ended December 31,
1996.
Cash and Cash Equivalents
For purpose of reporting cash flows, cash and cash equivalents include cash
and due from banks, Federal funds sold and money market investments.
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 uses the best information available to make
determinations with respect to the Corporation's allowance, 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.
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.
7
<PAGE> 8
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation of premises and equipment is computed using the straight-line
and accelerated methods over the estimated useful lives of the assets, as
follows:
Years
Buildings and improvements 15 - 35
Furniture and fixtures 7
Equipment 5
Repurchase Agreements
Certain securities are sold under agreements to repurchase and are treated
as financings. The obligation to repurchase such securities is reflected as
a liability on the consolidated balance sheets. The dollar amounts of
securities underlying the agreements are included in the respective asset
accounts.
Trust Fees and Assets
Revenues from trust services are reported on the cash basis in accordance
with customary banking practice. Reporting such revenues on the accrual
basis would not materially affect the accompanying consolidated financial
statements. Assets held in a fiduciary or agency capacity for customers and
beneficiaries are not included in the consolidated financial statements as
such items are not assets of the Corporation.
Securities to be Held to Maturity and Securities Available for Sale
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.
Income Taxes
The provision for income taxes in the interim periods has been calculated
using the anticipated effective tax rate for the respective calendar year,
taking into consideration certain tax-exempt loan and investment income.
Per Common Share Data
Net income per common share data for the three months ended September 30,
1997 and 1996 is based on 7,862,267 average shares outstanding and
7,879,471 average shares outstanding, respectively. Net income per common
share for the nine months ended September 30, 1997 and 1996 is based upon
7,862,904 average shares outstanding and 7,892,530 average shares
outstanding, respectively. Common stock options are not included in net
income per common share data since their effect is not material.
8
<PAGE> 9
Reclassifications
Certain reclassifications have been made in the 1996 financial statements
to conform to the presentation of the 1997 financial statements.
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.
NOTE 2: SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
SECURITIES HELD TO
MATURITY
($ in thousands) September 30, 1997
AMORTIZED ESTIMATED GROSS UNREALIZED
COST FAIR VALUE GAIN LOSS
<S> <C> <C> <C> <C>
U.S. Government agency
obligations $ 904 $ 914 $ 10 $ -
State and political
subdivisions 60,288 62,911 2,692 69
---------------------------------------
Total securities $ 61,192 $ 63,825 $ 2,702 $ 69
=======================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
AMORTIZED ESTIMATED GROSS UNREALIZED
COST FAIR VALUE GAIN LOSS
<S> <C> <C> <C> <C>
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
---------------------------------------
Total securities $ 56,241 $ 57,949 $ 2,218 $ 510
=======================================
</TABLE>
Certain securities held to maturity were pledged to secure public deposits,
securities sold under agreements to repurchase, and for other purposes as
required or permitted by law. These pledged securities had an amortized
cost and estimated fair value of approximately $24,789,035 and $25,983,136,
respectively, at September 30, 1997
NOTE 3: SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
($ in thousands) September 30, 1997
AMORTIZED ESTIMATED GROSS UNREALIZED
COST FAIR VALUE GAIN LOSS
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,113 $ 5,121 $ 11 $ 3
U.S. Government agency
obligations 56,252 56,236 128 144
State and political
subdivisions 27,846 28,008 280 118
Mortgage-backed securities 109,474 110,050 907 331
Derivative Securities 1,001 1,002 1 -
Federal Home Loan Bank Stock 9,899 9,899 - -
Other 102 102 - -
--------------------------------------
Total $209,687 $210,418 $ 1,327 $ 596
======================================
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
December 31, 1996
AMORTIZED ESTIMATED GROSS UNREALIZED
COST FAIR VALUE GAIN LOSS
<S> <C> <C> <C> <C>
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 87,402 87,109 495 788
securities
Derivative Securities 1,003 997 - 6
Federal Home Loan Bank 8,791 8,791 - -
Other 122 122 - -
--------------------------------------
$149,542 $149,254 $ 808 $ 1,096
======================================
</TABLE>
Certain securities available for sale were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other
purposes as required or permitted by law. These pledged securities had an
amortized cost and estimated fair value of approximately $111,957,524 and
$112,228,676 respectively, at September 30, 1997. Federal Home Loan Bank
stock, which is classified as available for sale, is carried at cost.
NOTE 4: LOANS
<TABLE>
<CAPTION>
($ in thousands) September 30 December 31 September 30
1997 1996 1996
<S>
Commercial, industrial, <C> <C> <C>
and agricultural loans $220,741 $209,941 $202,732
Residential real estate and mobile 291,538 279,803 273,609
home loans
Installment loans 209,963 206,998 206,970
--------------------------------
Total loans 722,242 696,742 683,311
Less: Unearned interest 8,928 9,524 9,015
--------------------------------
Total loans, net of unearned interest $713,314 $687,218 $674,296
================================
NOTE 5: PREMISES AND EQUIPMENT
($ in thousands) September 30 December 31 September 30
1997 1996 1996
Land $ 2,416 $ 1,971 $ 1,971
Buildings and improvements 19,370 18,568 14,000
Furniture and equipment 14,089 13,569 17,626
--------------------------------
Construction in progress 3 - 303
Total premises and equipment 35,878 34,108 33,900
Less: Accumulated depreciation
and amortization 17,323 15,910 15,517
--------------------------------
Net premises and equipment $ 18,555 $ 18,198 $ 18,383
================================
</TABLE>
10
<PAGE> 11
NOTE 6: INTEREST-BEARING DEPOSITS
<TABLE>
<CAPTION>
($ in thousands) September 30 December 31 September 30
1997 1996 1996
<S> <C> <C> <C>
NOW accounts $ 92,292 $106,882 $ 91,966
Money Manager accounts 59,396 39,008 36,646
Individual Retirement accounts 52,660 49,542 47,598
Savings accounts 49,519 51,984 53,699
Certificates of deposit under $100,000 314,869 291,154 289,815
Certificates of deposit $100,000 and above 100,038 92,965 83,183
--------------------------------
Total interest-bearing deposits $668,774 $631,535 $602,907
================================
</TABLE>
11
<PAGE> 12
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
CBT Corporation ("CBT") is a multi-bank holding company consisting 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 Commonwealth. The following discussion and analysis is
presented on a consolidated basis, with all significant intercompany
accounts and transactions eliminated.
For the three month period ended September 30, 1997, CBT earned $3,191,0000
compared to $2,454,000 earned during the third quarter of 1996. Earnings
per share was $.41 for the third quarter 1997 and $.31 per share for the
third quarter 1996.
Return on average equity was 10.90 percent and 8.96 percent for the third
quarter of 1997 and 1996, respectively. Return on average assets for the
three month period ended September 30, 1997 was 1.24 percent, compared with
1.05 percent for the same 1996 period.
For the first nine months of 1997, CBT earned $9,524,000, an increase of
11.00 percent from the first nine months of 1996 which was $8,584,000. Net
income per share was $1.21 for the nine month period ended September 30,
1997 compared with $1.09 for the comparable period in 1996.
Return on average equity was 11.16 percent and 10.70 percent for the first
nine months of 1997 and 1996, respectively. Return on average assets for
the nine month period ended September 30, 1997 was 1.29 percent, compared
with 1.25 percent for the similar 1996 period.
Consolidated Income Statement Analysis
Net Interest Income
Net interest income is the difference between interest earned on assets and
interest incurred on liabilities. It is affected by changes in the mix and
volume of earning assets and interest-bearing liabilities, their related
yields, and overall interest rates. For discussion purposes herein, net
interest income is presented on a tax-equivalent basis with adjustments
made to present yields on tax-exempt assets as if such income was fully
taxable.
In the third quarter of 1997, tax equivalent net interest income provided
82.2 percent of CBT's net revenue, compared with 81.2 percent in the third
quarter of 1996. The change was a result of higher net interest income in
1997 because of earning asset growth. Total tax-equivalent net interest
income for the third quarter of 1997 increased 8.85 percent from the third
quarter a year ago. Growth in tax-equivalent net interest income for the
third quarter of 1997 over 1996 was due to growth in average earning assets
of 10.5 percent partially offset by a 3 basis point decline in net interest
margin.
Through September 30, tax-equivalent net interest income provided 80.9
percent of net revenue for 1997, compared to 82.6 percent for 1996. Total
tax-equivalent net interest income increased 1.22 percent comparing the
first nine months of 1997 to 1996, as the result of an 8.1 percent increase
in average earning assets partially offset by a 15 basis point decrease in
net interest margin.
Net interest margin, the ratio of tax-equivalent net interest income
divided by average earning assets, was 4.80 percent and 4.95 percent for
the nine months ended September 30, 1997 and September 30, 1996,
respectively. The decline was caused by lower loan yields, primarily as a
12
<PAGE> 13
result of non-accrual loans and increased competition, combined with higher
funding costs. A mitigating factor was higher security yields. Also
affecting the net interest margin was the increase in 1977 of the security
portfolio as a percent of total earning assets. While security yields were
improved, they still lagged behind loan yields and as securities have
assumed a more prominent position in CBT's earning asset mix, net interest
margin declined. The following schedule presents yields and costs on key
components of interest income and interest expense for the first nine
months of 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Nine Months Ended
Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Yield on securities 7.31% 7.03% 7.19% 6.99%
Yield on loans (including fees) 9.73% 9.71% 9.76% 9.81%
Yield on federal funds sold and other
money market investments 7.74% 5.36% 5.45% 4.90%
--------------------------------
Yield on earning assets 9.08% 9.04% 9.09% 9.10%
Rate on interest-bearing deposits 5.03% 4.88% 5.00% 4.81%
Rate on borrowings 5.47% 5.34% 5.53% 5.29%
--------------------------------
Rate on interest bearing liabilities 5.11% 4.96% 5.09% 4.90%
Net interest spread 3.97% 4.08% 4.00% 4.20%
Net interest margin 4.80% 4.83% 4.80% 4.95%
</TABLE>
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 $1,014,000 for the third quarter of 1997, a 25.19 percent
increase from the $810,000 provision recorded in the third quarter of 1996.
The third quarter 1997 provision for loan losses was 0.59 percent of
average loans on an annualized basis, compared with 0.48 percent in the
prior year. Provision expense was substantially increased in 1997 in light
of a significant increase in loan charge-offs during 1996, principally
related to one commercial account, increased installment loan charge-offs
experienced in both 1996 and 1997, and the unfavorable trend of increased
non-performing and delinquent loans noted over the past several quarters.
The consolidated provision for loan losses was $2,961,000 for nine months
ended September 30, 1997 a 67.6 percent increase from the $1,765,000 for
the same period in 1996. Year-to-date provision as a percent of average
loans was 0.58 percent and 0.36 percent for 1997 and 1996, respectively.
Net loan losses were $904,000 for the third quarter of 1997 compared to
$1,972,000 for the third quarter of 1996. Net loan losses as a percent of
average loans on an annualized basis were 0.52 percent for the three months
ended September 30, 1997, compared to 1.18 percent for the three months
ended September 30, 1996. Net loan losses were $1,717,000 and $4,035,000
for the nine months ended September 30, 1997 and 1996, respectively. Net
loan losses as a percent of average loans on an annualized basis were 0.33
percent and 0.83 percent for the nine month period ended September 30, 1997
and 1996, respectively.
13
<PAGE> 14
The following is a progression of the allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
($ in thousands) September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Balance, beginning of period $ 9,325 $ 9,896 $ 8,243 $ 11,004
Adjustment, sales of finance
receivables - - (52) -
Provision for loan losses 1,014 810 2,961 1,765
Loans charged off (1,047) (2,114) (2,272) (4,354)
Recoveries 143 142 555 319
----------------------------------------
Net charge-offs (904) (1,972) (1,717) (4,035)
----------------------------------------
Balance, end of period $ 9,435 $ 8,734 $ 9,435 $ 8,734
========================================
Allowance for loan losses to
total
loans, net of unearned 1.32% 1.30% 1.32% 1.30%
interest
Net charge-offs to average .52% 1.18% .33% 0.83%
loans
Non-performing assets to
period-end
loans and other real estate 1.08% 1.39% 1.08% 1.39%
</TABLE>
Non-Interest Income
Non-interest income represented 17.8 percent of CBT's tax-equivalent
revenue in the third quarter of 1997, compared with 18.8 percent in the
same quarter of 1996. Consolidated non-interest income increased 2.1
percent or $ 48,000 in the third quarter of 1997 to $2,309,000 compared to
$2,261,000 in the same period of 1996. Trust fees increased 6.4% during
the third quarter of 1997. Improvements in credit life insurance
commissions (11.4 percent) and car club revenue by FCC (31.4 percent)
offset a 2.2 percent decline in service charges on deposit accounts.
Official check commissions increased 38.8 percent over the third quarter of
1997 due to increased volume. Other non-interest income decreased 14.3
percent from the third quarter of 1996.
Non-interest income represented 19.1 percent of CBT's tax-equivalent
revenue in the first nine months of 1997, compared with 17.4 percent in the
first nine months of 1996. Consolidated non-interest income increased 13.1
percent or $835,000 in the first nine months of 1997 to $7,187,000,
compared with the same period in 1996. Non-interest income was enhanced
during the first nine months of 1997 by sales of finance receivables by FCC
that generated $337,000 in gains. Fees from investment advisory services
increased 8.7 percent for the year although they were flat in the third
quarter. Service charges on deposit accounts remained virtually unchanged
from 1996 to 1997. Direct consumer loan growth pushed credit-related
insurance fees up 10.8 percent from $975,000 to $1,081,000. Car club
revenue increased $104,000 or 29.4 percent as FCC continued to focus sales
efforts on this product. The $258,000 (118.7 percent) increase in official
check commissions shows the impact of a full nine months higher volumes for
this service. All other fee income decreased 2.6 percent to $700,000.
14
<PAGE> 15
The following table shows a breakdown of non-interest income:
<TABLE>
<CAPTION>
Three Months Nine Months Ended
Ended
($ in thousands) September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Trust fees $ 281 $ 264 $ 814 $ 813
Investment advisory fees 292 299 814 749
Service charges on deposit accounts 843 862 2,493 2,492
Credit life insurance commissions 372 334 1,081 975
Car club revenue 184 140 455 352
Official check commissions 171 123 476 218
Net gain (loss) on sale of securities (39) - 17 34
Net gain on sale of finance receivables - - 337 -
Other 205 239 700 719
-----------------------------------
Total non-interest income $ 2,309 $ 2,261 $ 7,187 $ 6,352
===================================
</TABLE>
Non-Interest Expenses
Total non-interest expense decreased $616,000, or 7.35 percent, for the
third quarter of 1997 compared to the third quarter of 1996. Salaries and
benefits increased $207,000 (5.2 percent) primarily as a result of higher
incentive compensation expenses related to better performance in 1997.
Depreciation and amortization grew $78,000 (14.2 percent) because of the
acquisition of the Mayfield, Kentucky branch office of Fifth Third Bank,
Kentucky by GCB in May and of the Murray, Kentucky branch office of
Republic Bank and Trust Company by UCB in August and the resultant
amortization of premiums associated with the acquired deposits. Data
processing costs increased $25,000 or 6.4 percent primarily due to one-time
costs associated with the branch acquisitions. FDIC costs declined because
of the $560,000 one-time charge taken in the third quarter of 1996. Other
expenses decreased $358,000 partially as a result of the implementation of
tighter procedures for reconcilements and the reduction in associated
miscellaneous write-offs.
For the nine month period ended September 30, 1997, total non-interest
expense fell $677,000, or 2.9 percent compared to the first nine months of
1996 as a result of management's continued emphasis on reducing
administrative expenses. Salaries and benefits rose 3.2 percent overall,
and 1.5 percent exclusive of higher incentive compensation expense. Data
processing was up $100,000 (8.5 percent) because of increased volumes and
additional services provided in 1997 including one-time charges associated
with two branch acquisitions. Supplies decreased $96,000 through cost
savings from centralized purchasing. The decrease in FDIC fees was a
result of the $560,000 charge mentioned earlier. Advertising decreased
$87,000 or 11.2 percent as direct marketing campaigns were emphasized over
more costly business acquisition strategies and audit fees decreased
$137,000 or 33.1 percent as a result of an accrual adjustment. All other
non-interest expenses decreased $301,000 (6.9 percent) primarily from
decreases in miscellaneous write-offs.
15
<PAGE> 16
The following table shows a breakdown of non-interest expense:
<TABLE>
<CAPTION>
Three Months Nine Months Ended
Ended
($ in thousands) September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 4,155 $ 3,948 $ 12,205 $ 11,826
Net occupancy 362 339 1,073 1,020
Depreciation and amortization 626 548 1,756 1,656
Supplies 191 194 554 650
Data processing 415 390 1,276 1,176
FDIC assessments 34 617 66 731
Franchise tax 298 303 885 909
Advertising 199 197 685 773
Phone 135 143 403 424
Postage 157 144 463 424
Audit and exam fees 71 117 277 414
Special Services 102 121 334 349
Travel and entertainment 98 102 269 266
Community Development 102 87 274 260
Other 816 1,127 2,344 2,663
-----------------------------------
Total Non-interest expense $ 7,761 $ 8,377 $ 22,864 $ 23,541
===================================
</TABLE>
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. CBT's efficiency ratio was 55.48 percent for
the third quarter of 1997 compared to 65.09 percent for the same period in
1996. For the nine months ending September 30, 1997 and 1996 respectively,
the efficiency ratio was 56.25 percent 61.55 percent. For both the three
and nine month periods, higher revenues and lower operating expenses in
1997 combined to produce the improved efficiency.
CBT Corporation has performed an investigation of the Year 2000 ("Y2K")
automation issue on its processing systems, many of which are provided by
third-party vendors. Most major applications have been certified as
Century Day Compliant ("CDC"), and plans are in process to address areas
that are not CDC. Additionally, a review of all major customers has begun
to assess their CDC status and quantify any associated financial impact on
the Company.
Income Taxes
CBT's income tax planning is based upon the goal of maximizing long-term,
after-tax profitability. Income tax expense is significantly affected by
the mix of taxable versus tax-exempt revenues.
The effective income tax rate for the three months ended September 30, 1997
and 1996 was 28.5 percent and 27.0 percent, respectively. The effective
income tax rate for the nine months ended September 30, 1997 and 1996 was
29.0 percent and 28.4 percent, respectively. The increase is attributable
to the decline of tax-exempt revenue as a percent of total revenue.
Management expects the effective tax rate to level off and possibly decline
modestly because of additional tax-exempt securities purchased during the
third quarter of 1997.
16
<PAGE> 17
Consolidated Balance Sheet Analysis
Earning Assets
At September 30, 1997, earning assets were $984.9 million, compared with
$884.4 million at September 30, 1996. This increase is due to a $39.0
million increase in loans and a $61.5 million increase in securities.
Total earning assets at September 30, 1997 consisted of 72.4 percent loans
and 27.6 percent securities, while the September 30, 1996 earning asset mix
consisted of 76.2 percent loans and 23.8 percent securities. The
significant change in mix was caused by two branch acquisitions during 1997
that involved the purchase of virtually no loans. Average earning assets
for the first nine months of 1997 were $931.1 million, an increase of 8.1
percent over the first nine months of 1996.
Investment Risk Management
CBT has certain securities in its available for sale portfolio that are
classified as derivative securities by banking regulators. At September
30, 1997 and December 31, 1996, respectively, CBT had $1,002,000 and
$1,003,000 in derivative securities. These amounts represent 0.6 percent
and 0.7 percent of the total securities available for sale at September 30,
1997 and December 31, 1996, respectively. All are guaranteed by government
agencies and none have a maturity of over 2 years. Management believes the
amount and nature of these securities pose no undue risk to CBT's financial
position and there are no plans to acquire additional derivative
securities.
CBT board approved the implementation of a security leverage strategy
totaling $25 million in July 1997. The Company believes that the current
favorable inflation outlook and expected moderate economic growth will
result in stable to lower interest rates over the next 3 to 5 years. Given
the Corporation's strong capital position, the $25 million position was
deemed appropriate. With the favorable spread between borrowing costs and
the tax-equivalent yield available during the third quarter, CBT borrowed
$25 million of FHLB advances at 5.96 percent (approximately 1.5 years in
duration) which it used to purchase tax-exempt municipal securities bearing
a tax-equivalent yield of 7.37 percent. Securities purchased mature in
approximately fifteen years, are primarily AAA rated, and generally were
either par bonds or carried premium coupons. The strategy was fully
implemented by September 30, 1997.
Credit Risk Management
CBT manages exposure to credit risk though loan portfolio diversification
by customer, industry, and loan type. As a result, there is no undue
concentration in any single sector. CBT regularly evaluates economic
conditions affecting its lending markets. Economic indicators such as
unemployment levels, real estate activity, and bankruptcy filings are
evaluated. During the third quarter of 1997, CBT's primary market areas
continued to experience favorable unemployment levels while real estate
values have softened somewhat. Bankruptcy filings in CBT's markets have
continued to increase during 1997, extending the trend started in 1996.
Management has considered expected economic trends in assessing the
adequacy of the allowance for loan losses and believes that the allowance
for loan losses is adequate in light of these trends, among other factors.
CBT's credit risk is also diversified by loan type. At September 30, 1997,
30.5 percent of the portfolio consisted of residential real estate and
mobile home loans, 40.4 percent of commercial and agricultural loans and
29.1 percent of consumer loans.
Credit risk management also includes monitoring the performance of existing
portfolios. CBT has in place a comprehensive internal credit review
program to assess the current financial condition and operating performance
of significant commercial borrowers.
17
<PAGE> 18
<TABLE>
<CAPTION>
Loans by type appear below:
($ in thousands) September 30 December 31 Sepember 30
1997 1996 1996
<S> <C> <C> <C>
Commercial, industrial, and
agricultural loans $220,741 $209,941 $202,732
Residential real estate and mobile
home loans 291,538 279,803 273,609
Consumer loans 209,963 206,998 206,970
--------------------------------
Total loans 722,242 696,742 683,311
Less: Unearned interest 8,928 9,524 9,015
--------------------------------
Total loans, net of unearned interest $713,314 $687,218 $674,296
================================
</TABLE>
CBT continues to classify its loans consistent with current regulatory
review results. There are no material commitments to lend additional funds
to customers whose loans were classified as non-accrual at September 30,
1997.
Allowance for Loan Losses
At September 30, 1997, the allowance for loan losses was $9.4 million, or
1.32 percent of net loans outstanding, compared with $8.2 million, or 1.20
percent at December 31, 1996. The ratio of the allowance for loan losses
to non-performing assets was 122.4 percent at September 30, 1997, compared
with 111.9 percent at December 31, 1996. 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.
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 to support this assessment. CBT
management maintains the allowance available to cover future loan losses
within the entire loan portfolio and believes the allowance for loan losses
is adequate at September 30, 1997 based on the current level of non-
performing assets and the expected level of future charge-offs.
Non-Performing Assets
The table below presents data on CBT's non-performing assets. As
previously defined, non-performing assets consist of non-accrual loans,
loans past due ninety days or more that are still accruing interest and
other real estate owned. At September 30, 1997, non-performing assets
totaled $7.7 million, or 1.05 percent of net loans and other real estate
owned, compared with $7.4 million, or 1.07 percent of net loans and other
real estate owned, at December 31, 1996.
<TABLE>
<CAPTION>
($ in thousands) September 30 December 31 September 30
1997 1996 1996
<S> <C> <C> <C>
Non-accrual loans $ 5,631 $ 5,158 $ 5,784
Restructured loans - - 1,805
Accruing loans which are
contractually
past due 90 days or more 1,878 2,207 1,781
--------------------------------
Total non-performing loans 7,509 7,365 9,370
Other real estate owned 199 - 30
--------------------------------
Total non-performing assets $ 7,708 $ 7,365 $ 9,400
</TABLE>
18
<PAGE> 19
Although non-performing assets ("NPA's") were lower at September 30, 1997
than one year earlier, the level of NPA's remains much higher than recent
historical levels. Management expects NPA's to remain at this or modestly
higher levels for the next several quarters until the workout strategies
now underway begin to bear fruit.
Funding Sources
Non-Interest Bearing Deposits
Non-interest bearing deposits, which represent a portion of CBT's core
deposits, were $73.1 million at September 30, 1997, a $5.5 million decline
from December 31, 1996. Average non-interest bearing deposits were $69.5
million for the first nine months of 1997 compared with $65.6 million for
first nine months of 1996. Non-interest bearing deposits represented 8.0
percent of CBT's total funding sources at September 30, 1997, compared with
8.5 percent at December 31, 1996. A portion of these deposits were
purchased as a part of two branch deposit acquisitions consummated in 1997.
Interest-Bearing Liabilities
Interest-bearing liabilities for CBT consist of certain core deposits,
purchased deposits, and other borrowings. At September 30, 1997, interest-
bearing liabilities totaled $837.9 million, an increase of $77.7 million
over December 31, 1996. The increase is due primarily to a $37.2 million
increase in interest-bearing deposits, an $27.1 million increase in Federal
funds purchased and securities sold under agreements to repurchase and a
$12.5 million increase in Federal Home Loan Bank advances. During May 1997
$30.5 million in interest-bearing deposits were added to GCB through the
acquisition of the Fifth Third branch of Mayfield, Kentucky. During August
1997 $14.7 in interest-bearing deposits were added to UCB through the
acquisition of the Republic Bank branch of Murray, Kentucky.
Interest-bearing Core Deposits - In CBT's banking subsidiaries, NOW, Money
Manager, Individual Retirement and savings accounts, and certificates of
deposit under $100,000 are considered core interest-bearing deposits. At
September 30, 1997 these deposits accounted for 62.1 percent of CBT's
total funding sources compared with 63.9 percent at December 31, 1996.
Purchased Deposits - Purchased deposits, which CBT defines as certificates
of deposit with denominations of $100,000 or more and brokered certificates
of deposit, decreased $2.1 million or 2.2 percent to $93.5 million from
$95.6 million at December 31, 1996. Purchased deposits represented 10.3
percent of CBT's total funding sources at September 30, 1997, compared with
11.39 percent at December 31, 1996. At September 30, 1997, CBT held $11.4
million of brokered certificates of deposit. Management does not plan to
offer to renew the brokered certificates of deposit at maturity.
Borrowings - Borrowings include Federal funds purchased, securities sold
under agreements to repurchase, US Treasury notes payable, revolving lines
of credit, and Federal Home Loan Bank advances. Management views
borrowings as a cost-effective alternative to purchased deposits and
actively manages CBT's borrowing position to maintain acceptable net
interest margins and liquidity. At September 30, 1997, borrowings
accounted for 18.6 percent of CBT's total funding sources, compared with
15.3 percent at December 31, 1996. A portion of this position was
established to fund the $25 million security leverage strategy noted
earlier.
In July 1997, CBT Corporation implemented an arbitrage strategy of $25
million. Funding for this strategy was received through additional FHLB
borrowings at a weighted average cost of 5.96%
19
<PAGE> 20
Asset and Liability Management
Financial 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 optimal 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 a financial institution.
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 have no 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
September 30, 1997 the one year cumulative interest rate GAP, defined as
the ratio of rate sensitive assets to rate sensitive liabilities, was .80,
while at December 31, 1996, the one year cumulative interest rate GAP was
.99. The change was primarily the result of an investment strategy
implemented as a result of two branch deposit acquisitions and the security
leverage strategy. Exclusive of that, the GAP is within corporate
guidelines. A GAP of less than one indicates that, over the time horizon
measured, more liabilities will reprice than assets.
GAP as an interest rate risk measurement tool has several limitations: it
is a static measurement; it requires the establishment of an subjective
time horizon; and it does not capture basis risk or risk that varies non-
proportionally with rate movements. Because of such limitations, CBT
supplements its use of GAP with a computer model to estimate the impact of
various parallel shifts in the yield curve on net interest income 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 the financial performance and condition of CBT. Based on
modeling using September 30, 1997 data, CBT would expect its net interest
income to change no more than 6.0 percent under a 200 basis point parallel
shift up or down of the yield curve, a level of risk management deems
appropriate. Management expects the GAP as currently measured to generally
fall between .80 and .90 and thinks that this level of interest rate risk
exposure is warranted given its current balance sheet mix, capital position
and interest rate outlook.
Liquidity Management
Liquidity management involves planning to meet funding needs at a
reasonable cost, as well as developing contingency plans to meet
unanticipated funding needs or a loss of funding sources. Liquidity
management for CBT is monitored by ALCO, which takes into account the
marketability of assets, the sources and stability of funding, and the
level of unfunded loan commitments.
20
<PAGE> 21
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 also provides an additional source of liquidity.
Capital Management
CBT management believes that a strong capital position is vital to
continued profitability and promotes depositor and investor confidence.
CBT bank subsidiaries are required to maintain capital levels sufficient to
qualify for "well capitalized" status with banking regulators and to meet
anticipated growth needs. Retained earnings and capital infusions from the
parent are the primary sources 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 and
to infuse other subsidiaries with capital, as required.
The following analysis shows comparisons between the regulatory
requirements for "well capitalized" institutions and the actual capital
position of CBT:
<TABLE>
<CAPTION>
Well
Capitalized Actual Excess
<S>
September 30, 1997 <C> <C> <C>
Leverage Ratio (Equity to 5.00% 11.13% 6.13%
Assets)
Tier 1 Risk-Based 6.00% 16.07% 10.07%
Total Risk-Based 10.00% 17.32% 7.32%
December 31, 1996
Leverage Ratio (Equity to 5.00% 11.36% 6.36%
Assets)
Tier 1 Risk-Based 6.00% 16.05% 10.05%
Total Risk-Based 10.00% 17.30% 7.30%
</TABLE>
Because of solid performance and conservative capital management, CBT has
consistently maintained a strong capital position. These ratios compare
favorably with industry standards and CBT's peers.
The Corporation occasionally repurchases and retires common stock. All
repurchases are done in non-block sizes (less than 5,000 shares) and are
accomplished to meet internal needs (e.g. 401(k), stock generally options).
For the nine month period ended September 30, 1997, 5,000 shares had been
repurchased at an aggregate price of $118,000.
For the nine month period ended September 30, 1997, CBT's shareholders'
equity, exclusive of the unrealized loss on securities available for sale
(net of deferred tax) and stock repurchases, grew $6.4 million. CBT's
internal capital growth rate (ICGR) for the nine months ended September 30,
1997 was 6.4 percent. The ICGR represents the rate at which CBT's
shareholders' equity grew as a result of earnings retained (net income less
dividends paid).
CBT declared a $0.13 per share dividend in the third quarter of 1997
identical to the amount declared one year ago. This brings the total
dividends per share to $0.39 through 9/30/97. The dividend payout ratio
for the first nine months of 1997 was 32.2 percent of net income, which was
within management's general payout guideline of 25 to 35 percent.
Management is currently not aware of any recommendation by regulatory
authorities which, if implemented, would have a material effect on the
Corporation's liquidity, capital resources, or operations. Management is
also not aware of any events or uncertainties that will have or that are
21
<PAGE> 22
reasonably likely to have a material impact on CBT's liquidity, capital
resources or operations.
Market Data
At September 30, 1997, CBT had issued and outstanding 7,862,627 shares of
common stock held by approximately 1,455 shareholders of record.
Shareholders received cash dividends for each share of common stock on a
quarterly basis in 1996 and 1997.
CBT Corporation common stock is traded on the NASDAQ National Stock Market
under the symbol CBTC.
The following table summarizes common stock prices and cash dividends
declared in 1997 and 1996. The price information reflects the range of
prices for CBT Corporation common stock as reported by NASDAQ.
<TABLE>
<CAPTION>
Price
Quarter High Low Dividends
<S> <C> <C> <C>
September 30, 1997 25.63 21.00 0.13
June 30, 1997 24.50 20.25 0.13
March 31, 1997 26.50 20.50 0.13
December 31, 1996 28.00 21.00 0.13
September 30, 1996 23.50 20.00 0.13
June 30, 1996 24.25 21.50 0.12
March 31, 1996 24.50 21.50 0.12
</TABLE>
Recently Issued Accounting Standards
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share," (FAS 128) which establishes new
standards for calculating and presenting earnings per share disclosures.
The Corporation will be required to adopt the provisions of FAS 128 at year-
end 1997. Under FAS, basic and diluted earnings per share for the third
quarter and nine months ended September 30, 1997 and 1996 respectively were
as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
(in thousands) September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Income $ 3,191 $ 2,454 $ 9,525 $ 8,584
Weighted average common
shares outstanding 7,862.6 7,866.5 7,859.0 7,907.4
Adjustments for dilutive
securities:
Assumed exercise of
outstanding stock options 44.2 55.4 56.4 64.6
-----------------------------------
Diluted common shares 7,906.8 7,921.9 7,915.4 7,972.0
Earnings per common share:
Basic $ 0.41 $ 0.31 $ 1.21 $ 1.09
Diluted $ 0.40 $ 0.31 $ 1.20 $ 1.08
</TABLE>
22
<PAGE> 23
Also in February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure,"
(FAS 129) which codifies existing disclosure requirements regarding capital
structure. FAS 129 will be required to be adopted at year-end 1997 and is
not expected to have a material impact on the Corporation's current capital
structure disclosures.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," (FAS 130) and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 130 requires
disclosures of the components of comprehensive income and the accumulated
balance of other comprehensive income within total stockholders' equity.
FAS 131 requires disclosure of selected information about operating
segments including segment income, revenues and asset data. Operating
segments, as defined in FAS 131, would include those components for which
financial information is available and evaluated regularly by the chief
operating decision makers in assessing performance and making resource
allocation determinations for operating components such as those which
exceed 10 percent or more of combined revenue, income or assets. The
Corporation will be required to adopt the provisions of FAS 130 and FAS 131
in 1998. The standards are not expected to have a material impact on the
Corporation's consolidated financial statements.
23
<PAGE> 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) No matters were submitted to a vote by Security Holders
during the three months ended September 30, 1997.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits set out on the Exhibit Index included as page
24 of this report are furnished as a part of this report.
(b) No Form 8-K has been filed during the first six months of 1997.
24
<PAGE> 25
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBT CORPORATION
DATE: Nov. 14, 1997 SIGNED: /s/ Paula J. Laird
Paula J. Laird
Vice President and Controller
25
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
<S> <C> <C>
3(a) Articles of Incorporation of CBT Corporation,
as amended are incorporated by reference to
Exhibit 4(a), of Amended Form 10-Q of CBT
Corporation dated September 6, 1994.
3(b) Articles of Amendment to the Articles of Incorporation
of CBT Corporation are incorporated by reference to
Exhibit 4(b) of Form 10-Q of CBT Corporation
dated June 30, 1995.
3(c) By-Laws of CBT Corporation are incorporated
by reference to Exhibit 3, to the Registration
Statement of Form S-14 of CBT Corporation
(Registration No. 2-83583).
27 Financial Data Schedule 25 - 26
** Denotes management contracts or compensatory plans or arrangements
required to be
filed as exhibits to this Form 10-Q.
26
<PAGE> 27
EXHIBIT 27
FINANCIAL DATA SCHEDULE
(filed in electronic format)
FOR
CBT CORPORATION
For the Period Ended
September 30, 1997
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000719227
<NAME> CBT CORP /KY/
<MULTIPLIER> 1000
<CURRENCY> U.S. CURRENCY
<S> <C>
<PERIOD-TYPE> 9-MOS
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