UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934. FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM
________TO________
COMMISSION FILE NUMBER 0-16878
CBT CORPORATION
(Exact name of registrant as specified in charter)
KENTUCKY 61-1030727
(State or other jurisdiction of (IRS Employer
of incorporation or organization) Identification No.)
333 BROADWAY, PADUCAH, KY 42001
(Addresses of principal executive offices)
Registrant's telephone number, including area code: (502) 575-5100
Securities registered pursuant to Section 12(b) of the Act:
Name on each exchange
Title of each class on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) 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 NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ____
State the aggregate market value of the voting stock held by non-
affiliates of the registrant - at March 25, 1997, $229,452,035
(assumes, solely for purposes of this computation, that all
shareholders, other than directors and executive officers,, are non-
affiliates). Indicate the number of shares outstanding of each of the
issuer's classes of common stock - as of March 25, 1997, 7,863,626
shares.
<PAGE> 1
[CAPTION]
<TABLE>
This filing contains 102 pages.
TABLE OF CONTENTS
<S> <C>
PART I PAGE
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for the Registrant's Common Stock 13
and Related Stockholder Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 23
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes In and Disagreements with Accountants 46
on Accounting and Financial Disclosure
Item 10. Section 16(a) Benefical Ownership Reporting
Complaince 48
PART III
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and 55
Management
Item 13. Certain Relationships and Related Transactions 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on 58
Form 8-K
SIGNATURES 60
EXHIBIT INDEX 62
</TABLE>
This Annual Report on Form 10-K contains statements relating to future
results of CBT Corporation ("CBT or 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 Corporation'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.
<PAGE> 2
PART I
ITEM 1. BUSINESS
CBT Corporation ("CBT" or the "Corporation"), is a multi-bank holding
corporation, registered under the Bank Holding Company Act of 1956
("the Act"), as amended. It was organized under the laws of the
Commonwealth of Kentucky in March 1983. CBT maintains its principal
headquarters in Paducah, Kentucky. It is the parent company of four
banks, the Bank of Marshall County ("BMC"), Citizens Bank & Trust
Company ("Citizens"), Graves County Bank ("GCB"), and Pennyrile
Citizens Bank and Trust Company ("PCB"), and one federal savings bank,
United Commonwealth Bank, FSB ("UCB"). Fidelity Credit Corporation
("FCC"), a consumer finance company, is a wholly-owned subsidiary of
Citizens. United Commonwealth Service Corporation ("UCSC"), which
provides brokerage services to customers, is a wholly-owned subsidiary
of UCB. CBT provides financial services primarily in western Kentucky
through its 18 bank locations, with the consumer finance company having
27 locations throughout Kentucky. At December 31, 1997, CBT had total
consolidated assets of $1,078.5 billion, total loans net of unearned
interest of $722.0 million and total stockholders' equity of $120.1
million. CBT had 433 full-time equivalent employees at December 31,
1997.
CBT offers its products through direct mail as well as through its 45
locations. To meet the data processing needs of its banks, CBT uses
the services of a third party vendor.
CITIZENS BANK & TRUST COMPANY OF PADUCAH
Citizens was authorized to commence business in 1888 and conducts a
general banking business encompassing most of the services, both
commercial and consumer, which banks may lawfully provide, including
the acceptance of demand, savings, and time deposits; the making of
commercial, consumer, mortgage and credit card loans; personal and
corporate trust services, safe deposit facilities, and correspondent
banking services. Additional services include providing brokerage
services through a strategic alliance with J C Bradford & Co., a
Nashville, Tennessee-based regional brokerage firm. While primarily
serving customers in the Paducah and McCracken County area, Citizens'
market area also includes several other counties in western Kentucky
and nearby southern Illinois. At December 31, 1997 before intercompany
eliminations, Citizens had total assets of approximately $637.5
million.
Citizens conducts business in its principal office at 333 Broadway,
Paducah, Kentucky and in 5 branches located within McCracken County.
Citizens is also the sole shareholder of Fidelity Credit Corporation,
described below.
FIDELITY CREDIT CORPORATION
FCC, a Kentucky corporation, engages in the business of making consumer
loans, both secured and unsecured. FCC operates under the Consumer
Loan Act and Industrial Loan Act of Kentucky. In addition to its
corporate office in Paducah, FCC operates 27 offices throughout
Kentucky.
FCC's operations are primarily financed by short and long-term
borrowings from two regional institutions. In 1996, Citizens provided
a portion of FCC's short term funding. CBT guaranteed a portion of
FCC's borrowings from the regional institutions. At December 31, 1997,
before intercompany eliminations, FCC had total assets of approximately
$34.9 million.
PENNYRILE CITIZENS BANK AND TRUST COMPANY
PCB, organized in 1976, is a full-service commercial bank which
provides services similar to that of Citizens. PCB's principal office
is located at 2800 Fort Campbell Boulevard in Hopkinsville and has
three additional branches located within Christian County. At December
31, 1997, before intercompany eliminations, PCB had total assets of
approximately $88.2 million.
BANK OF MARSHALL COUNTY
BOMC, organized in 1903, is a full service commercial bank which
provides services similar to that of Citizens. BMC's principal office
is located in Benton, Kentucky and it has two branches located in
Draffenville and Gilbertsville, Kentucky. At December 31, 1997, before
intercompany eliminations, BMC had total assets of approximately $166.6
million.
<PAGE> 3
GRAVES COUNTY BANK
GCB, organized in 1898, is a full service commercial bank which
provides services similar to that of Citizens. GCB has four locations
in Graves County, Kentucky and maintains its main office in Mayfield,
Kentucky. At December 31, 1997 GCB had assets, before inter-company
eliminations, of $90.2 million.
UNITED COMMONWEALTH BANK, F.S.B.
UCB, located in Murray, Kentucky, is a federal savings bank chartered
on September 8, 1992 and opened on September 14, 1992. UCB provides
the full range of banking activities typically associated with a
commercial bank. In the fourth quarter of 1995, UCB formed UCSC, a
wholly-owned subsidiary, for the purposes of providing brokerage
services to customers through the J. C. Bradford alliance. At December
31, 1997, UCB had assets, before intercompany eliminations, of $88.3
million.
SUPERVISION AND REGULATION
Bank Holding Companies and Savings and Loan Holding Companies
As a registered bank holding company, CBT is regulated under the Act
and is subject to supervision and regular inspection by the Board of
Governors of the Federal Reserve System ("Federal Reserve Board").
The Act requires, among other things, the prior approval of the Federal
Reserve Board in any case where CBT proposes to (i) acquire all or
substantially all of the assets of any bank, (ii) acquire direct or
indirect ownership or control of more than 5 percent of the voting
shares of any bank or (iii) merge or consolidate with any bank holding
company.
Under the Act, CBT is prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5% of
any class of voting shares of any non-banking corporation. Further,
CBT may not engage in any business other than managing and controlling
banks or furnishing certain specified services to subsidiaries, and may
not acquire voting control of non-banking corporations except those
corporations engaged in businesses or furnishing services which the
Federal Reserve Board deems to be so closely related to banking as "to
be a proper incident thereto." The Federal Reserve Board has
determined that a number of activities meet this standard including
making and servicing loans; performing certain fiduciary functions;
leasing real and personal property; underwriting and dealing in
government obligations and certain money market instruments;
underwriting and dealing, to a limited extent, in corporate debt
obligations and other securities that banks may not deal in; providing
foreign exchange advisory and transactional services; and owning,
controlling or operating a savings association, if the savings
association engages only in deposit-taking activities and lending and
other activities that are permissible for bank holding companies. The
Board, from time to time, may revise the list of permitted activities.
Bank holding companies and their subsidiary banks are also subject to
the provisions of the Community Reinvestment Act of 1977, as amended
("CRA"). Under the CRA, each subsidiary bank's record in meeting the
credit needs of the community served by the bank, including low- and
moderate-income neighborhoods, is annually assessed by that bank's
primary regulatory authority. When a bank holding company applies for
approval to acquire a bank or other bank holding company, the Federal
Reserve Board will review the assessment of each subsidiary bank of the
applicant bank holding company, and such records may be the basis for
denying the application.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") removed state law barriers to interstate
bank acquisitions and, effective June 1, 1997, permits the
consolidation of interstate banking operations. Under the Interstate
Banking Act, adequately capitalized and managed bank holding companies
may now acquire banks in any state, subject to CRA compliance,
compliance with federal and state antitrust laws and deposit
concentration limits, and subject to any state laws restricting the
acquisition of a bank that has not been in existence for a minimum time
period (up to five years). In addition, the Interstate Banking Act
also permits any bank that is controlled by a bank holding company to
act as agent for any affiliated financial institution in deposit and
loan transactions, regardless of whether the institutions are located
in the same or different states. The Interstate Banking Act's
interstate branching provisions became operative on June 1, 1997,
although any state can, prior to that time, adopt legislation to
accelerate interstate branching or prohibit it completely. Effective
June 1, 1997, subject to the receipt of prior regulatory approval, the
interstate branching provisions and implementing Kentucky legislation
permits Kentucky banks to merge across state lines, provided the
acquired bank has been in existence for at least five years and a 15%
deposit concentration limit is not exceeded.
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each of its subsidiary
banks and to commit resources, including capital funds during periods
of financial stress, to support each such bank. Although this "source
of strength" policy has been challenged in litigation, the Federal
Reserve Board continues to take the position that it has the authority
<PAGE> 4
to enforce it. Consistent with its "source of strength" policy for
subsidiary banks, the Federal Reserve Board has stated that, as a
matter of prudent banking, a bank holding company generally should not
maintain a rate of cash dividends unless its net income available to
common shareholders has been sufficient to fund fully the dividends,
and the prospective rate of earnings retention appears to be consistent
with the company's capital needs, asset quality and overall financial
condition.
Subsidiary Banks
CBT's subsidiary banks are subject to supervision and examination by
applicable federal and state banking agencies. UCB is also subject to
supervision and examination by the Office of Thrift Supervision
("OTS"). All of the subsidiary banks are insured by, and therefore
subject to regulations of, the Federal Deposit Insurance Corporation
("FDIC"), and are also subject to requirements and restrictions under
federal and state law, including requirements to maintain reserves
against deposits, restrictions on the types and amounts of loans that
may be granted and the interest that may be charged thereon, and
limitations on the types of investments that may be made and the types
of services that may be offered. Numerous consumer laws and
regulations also affect the operations of the bank subsidiaries
including, among others, disclosure requirements, anti-discrimination
provisions, and substantive contractual limitations with respect to
deposit accounts. The banking agencies, together with the Departments
of Justice and Housing and Urban Development, have announced that they
intend to enforce more rigorously compliance with community
reinvestment, anti-discrimination and other fair lending laws and
regulations. In addition to the impact of regulation, commercial banks
are affected significantly by the actions of the Federal Reserve Board
as it attempts to control money supply and credit availability in order
to influence the economy.
The FDIC, in the case of CBT's commercial bank subsidiaries, and the
FDIC or OTS, in the case of UCB, have the authority to prohibit any
such institution from engaging in an unsafe or unsound practice in
conducting its business. The payment of dividends, depending upon the
financial condition of the institution in question, could be deemed to
constitute such an unsafe or unsound practice, and the regulatory
agencies have indicated their view that it generally would be an unsafe
and unsound practice to pay dividends except out of current operating
earnings. The ability of the institutions to pay dividends in the
future is presently, and could be further influenced, among other
things, by applicable capital guidelines or by bank regulatory and
supervisory policies.
The ability of a banking institution to make funds available to its
parent company is also subject to restrictions imposed by federal law.
Generally, no bank subsidiary may extend credit to the parent company
on terms and under circumstances which are not substantially the same
as comparable extensions of credit to non-affiliates. No extension of
credit may be made to the parent company which is in excess of 10
percent of the capital stock and surplus of such bank subsidiary or in
excess of 20 percent of the capital and surplus of such bank subsidiary
as to aggregate extensions of credit to the parent company and its
subsidiaries. In certain circumstances, federal regulatory authorities
may impose more restrictive limitations. Such extensions of credit,
with limited exceptions, must be fully secured by collateral.
CBT's bank subsidiaries are also subject to the "cross-guarantee"
provisions of federal law which provide that if one depository
institution subsidiary of a multi-bank holding company fails or
requires FDIC assistance, the FDIC may assess a commonly controlled
depository institution for the actual or estimated losses suffered by
the FDIC. Such liability could have a material adverse effect upon the
financial condition of any assessed bank and its parent company. While
the FDIC's claim is junior to the claims of depositors, holders of
secured liabilities, general creditors and subordinated creditors, it
is superior to the claims of shareholders and affiliates.
The federal banking agencies possess broad powers to take corrective
action as deemed appropriate for an insured depository institution and
its holding company. The extent of these powers depends upon whether
the institution in question is considered "well capitalized",
"adequately capitalized", "undercapitalized" or "critically
undercapitalized". At December 31, 1996, all of the subsidiaries
exceeded the required ratios for classification as "well capitalized."
Generally, as an institution is deemed to be less well capitalized, the
scope and severity of the agencies' powers increase. The agencies'
corrective powers can include, among other things, requiring an insured
financial institution to adopt a capital restoration plan which cannot
be approved unless guaranteed by the institution's parent holding
company; placing limits on asset growth and restrictions on activities;
placing restrictions on transactions with affiliates; restricting the
interest rate the institution may pay on deposits; prohibiting the
institution from accepting deposits from correspondent banks; prohibiting
the payment of principal or interest on subordinated debt; prohibiting
the holding company from making capital distributions without prior
regulatory approval; and, ultimately, appointing a receiver for the
institution. Business activities may also be influenced by an
institution's capital classification. For instance, only a "well
capitalized" depository institution may accept brokered deposits
without regulatory approval and an "adequately capitalized" depository
institution may accept brokered deposits only with prior regulatory
approval. For additional information about capital for CBT and its
principal subsidiaries, see Note 9 on page 37 of this document.
<PAGE> 5
Non-bank Subsidiaries
Fidelity Credit Corporation is subject to regulatory restrictions
imposed by federal and state regulatory agencies, with respect to
consumer and other laws.
GOVERNMENTAL POLICIES
The operations of financial institutions may be affected by legislative
changes. For example, Congress is presently considering various
administrative and legislative proposals, including proposals to
consolidate the bank regulatory agencies and to amend various consumer
protection laws. In addition, Congress is considering various issues
relating to the separation of banking and commerce including, for
example, the repeal of the Glass Stegall Act.
Financial institutions' operations also may be affected by the policies
of various regulatory authorities. In particular, bank holding
companies and their subsidiaries are affected by the credit policies of
the Federal Reserve Board. An important function of the Federal
Reserve Board is to regulate the national supply of bank credit. Among
instruments of monetary policy used by the Federal Reserve Board to
implement its objectives are: open market operations in U.S. Government
securities; changes in the discount rate on bank borrowings; and
changes in reserve requirements on bank deposits.
These instruments of monetary policy are used in varying combinations
to influence the overall level of bank loans, investments and deposits,
the interest rates charged on loans and paid for deposits, the price of
the dollar in foreign exchange markets, and the level of inflation.
The monetary policies of the Federal Reserve Board have had a
significant effect on the operating results of banking institutions in
the past and are expected to continue to do so in the future. It is
not possible to predict the nature of future changes in monetary and
fiscal policies, or the effect that they may have on CBT's business and
earnings.
COMPETITION
Bank holding companies and their subsidiaries are subject to intense
competition from various financial institutions and other companies or
firms that engage in similar activities. CBT's banking subsidiaries
compete for deposits with other commercial banks, savings banks,
savings associations, insurance companies, credit unions and issuers of
commercial paper and other securities, such as shares in money market
funds. In making loans, the Banks compete with other commercial banks,
savings banks, savings associations, consumer finance companies, credit
unions, leasing companies and other lenders. In providing trust
services, brokerage services and money management services, CBT
competes with other commercial banks, trust companies, brokerage
houses, mutual fund managers and insurance companies. Many such
competitors have substantial resources and operations which are
national or international in scope.
<PAGE> 6
STATISTICAL INFORMATION
Table 1
SELECTED FINANCIAL DATA SUMMARY, LAST FIVE YEARS
($ in thousands except per common share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income $ 43,368 $ 41,404 $ 40,174 $ 38,696 $ 33,598
Provisions for loan
losses 4,088 2,883 1,106 1,361 1,366
Net interest income
after provision
for loan losses 39,280 38,521 39,068 37,335 32,232
Non-interest income 9,462 8,697 7,904 6,649 6,330
Gain on sale of finance
receivables 337 - - - 553
Gain (loss) on sale of
securities 22 35 268 (136) 134
Non-interest expense 31,054 30,982 30,475 28,129 25,236
Income before income 18,047 16,271 16,765 15,719 14,013
taxes
Income taxes 5,201 4,646 4,741 4,233 3,565
Net income $ 12,846 $11,625 $12,024 $ 11,486 $ 10,448
PER COMMON SHARE DATA:
Net income
Primary $ 1.63 1.48 1.52 1.45 1.32
Diluted 1.62 1.47 1.51 1.44 1.31
Cash dividends 0.52 0.50 0.46 0.43 0.39
Book value per
common share at
year-end (a) 15.27 14.02 13.20 11.52 11.19
AVERAGES:
Asse $1,000,558 $920,592 $881,556 $838,608 $755,936
Deposits and corporate
cash management
repurchase agreements 769,073 706,831 699,213 689,671 634,258
Loans, net 699,220 656,007 631,216 567,182 481,664
Stockholders' equity 115,264 107,847 100,999 92,495 84,914
PERFORMANCE RATIOS
Return on average
assets (b) 1.28% 1.26% 1.36% 1.37% 1.38%
Return on average
stockholders'
equity (b) 11.14 10.78 11.91 12.42 12.30
Average stockholders'
equity to average
assets 11.52 11.71 11.46 11.03 11.23
Dividend pay out ratio 31.83 33.84 30.28 28.63 23.19
Net charge-offs to
average loans 0.43 0.85 0.26 0.15 0.04
Allowance for loan losses
as a percentage of
year-end loans 1.26 1.20 1.71 1.87 2.10
Net interest margin (tax
equivalent) 4.76 4.91 4.96 5.04 4.88
(a) Includes SFAS 115.
(b) Excludes SFAS 115.
</TABLE>
<PAGE> 7
Table 2
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(tax equivalent basis, $ in thousands)
<TABLE>
<CAPTION>
1997 vs 1996 1996 vs 1995
Attributed to Attributed to
Total Total
Dollar Dollar
Volume Rate Change Volume Rate Chang
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans, net $ 4,223 $ 89 $4,312 $2,419 $ (933) $1,486
Taxable investment
securities 1,288 176 1,464 326 (76) 250
Tax-exempt investment
securities 905 197 1,102 529 (254) 275
Federal funds sold and
other 161 7 168 (71) (15) (86)
Total interest income 6,577 469 7,046 3,203 (1,278) 1,925
Interest expense on:
Deposits 2,265 919 3,184 340 (402) (62)
Federal funds purchased
and securities sold
under agreements to
repurchase 257 176 433 168 (187) (19)
Other 586 172 758 1,188 (452) 736
Total interest
expense 3,108 1,267 4,375 1,696 (1,041) (655)
Net interest income $ 3,469 $ (798) $2,671 $1,507 $ (237) $1,270
Note: For purposes of this schedule, changes which are not due solely
to volume or solely to rate have been allocated to rate.
</TABLE>
<PAGE> 8
Table 3
THREE YEAR AVERAGE BALANCE AND NET INTEREST ANALYSIS
(tax equivalent basis, $ in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
Average Interest Yield Average Interest Yield Average Interest Yield
Balance & Fees /Rate Balance & Fees /Rate Balance & Fees /Rate
ASSETS
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets
Loans, net (1)
$ 699,220 $ 68,331 9.77% $656,007 $64,019 9.76% $631,216 $62,533 9.91%
Taxable investment securities
72,294 4,882 6.75 69,017 4,546 6.59 55,481 3,633 6.55
Tax-exempt securities
71,115 6,019 8.46 60,425 4,917 8.14 53,921 4,642 8.61
Mortgage-backed securities
99,463 6,525 6.56 83,203 5,397 6.49 91,925 6,060 6.59
Federal funds sold & other
3,666 201 5.48 721 33 4.58 2,267 119 5.25
Total earning assets
945,758 85,958 9.09 869,373 78,912 9.08% 834,810 76,987 9.22%
Non-earning assets
Cash and due from banks
28,022 30,139 28,614
Premises & equipment net
18,261 12,173 17,584
Other
17,584 12,173 12,106
Allowance for loan losses
(9,067) (9,690) (11,412)
Total assets
$1,000,558 $ 920,592 $ 881,556
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Demand deposits
$ 154,794 $ 4,845 3.13 $ 136,383 $ 3,584 2.63% $ 139,551 $ 4,374 3.13%
Time deposits
446,719 25,964 5.81 418,311 24,048 5.75 411,016 23,545 5.73
Savings
50,819 1,663 3.27 49,649 1,656 3.34 46,769 1,656 3.06
Federal funds purchased
and securities sold
under agreements to
repurchase
53,276 2,389 4.48 47,541 1,956 4.11 43,457 1,975 4.54
Other
92,428 5,756 6.22 83,023 4,998 6.02 63,286 4,262 6.74
Total interest-bearing liabilities
798,03 40,617 5.09 734,9079 36,242 4.93% 704,079 35,588 5.10
Other borrowings
Demand deposits
70,494 67,044 66,554
Other liabilites
16,764 11,285 9,434
Total liabilities
885,294 812,746 780,557
Total stockholders' equity
115,264 107,846 100,999
Total liabilites and
and stockholers' equity
$1,000,558 $920,592 $881,556
Net interest income
$45,341 $42,670 $41,399
Net interest margin
4.79% 4.91% 4.96%
(1) Non-accruing loans are included in the average balances.
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Table 4
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES HELD TO MATURITY
DECEMBER 31, 1997
($ in thousands)
Estimted
Amortized Cost Fair
Market
Within 1-5 5-10 After
1Year Years Years 10 Years Total Total
Year
<C> <C> <C> <C> <C> <C>
U. S. Government agency
obligations $ 500 $ 153 - - $ 653 $ 662
State and other
political subdivisions 421 3,461 22,485 33,126 59,493 62,561
Total $ 921 $3,614 $22,485 $33,126 $ 60,146 $63,223
Weighted average tax
equivalent yield 7.63% 10.05% 9.31% 8.07% .64% 8.67%
</TABLE>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
Estimated
Amortized Cost Fair
Within 1-5 5-10 After Total Total
1 Year Years Years 10 Years
<S> <C> <C> <C> <C> <C> <C>
U. S. Treasury
securities $ 2,995 $ 1,620 $ - $ - $ 4,615 $ 4,624
U. S. Government
agency obligations 1,301 13,151 23,335 16,000 53,787 53,911
State and other
political subdivisions - 809 1,699 25,819 28,327 28,811
Mortgaged backed 848 3,880 18,752 80,854 104,334 105,316
Structured bonds 200 - - - 200 200
De-leveraged bonds 500 - - - 500 501
FHLB stock and other - - 100 10,460 10,560 10,560
Total $ 5,844 $19,460 $43,886 $133,133 $202,323 $203,923
Weighted average tax
equivalent yield 5.88% 6.74% 6.92% 7.11% 7.00% 7.00%
All mortgage-backed securities met the FFIEC stress test guidelines at
December 31, 1997 and 1996. The average expected maturities of such
securities is approximately 3 years.
</TABLE>
Table 5
LOAN PORTFOLIO AT DECEMBER 31, FIVE YEAR SUMMARY
($ in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial, industrial,
& agricultural loans $243,801 $226,115 $216,528 $230,018 $180,426
Residential real estate
& mobile home loans 294,270 279,803 253,555 240,850 222,867
Installment loans 202,609 190,824 184,775 155,829 130,457
Total loans 740,680 696,742 654,858 626,651 533,750
Less: unearned interest 9,486 9,524 10,197 10,643 9,565
Loans, net $731,194 $687,218 $644,661 $616,00 $524,185
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
Table 6
COMPOSITION OF LOAN PORTFOLIO AT DECEMBER 31, BY TYPE
($ in thousands)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial, industrial, &
agricultural loans 33% 33% 33% 37% 34%
Residential real estate &
mobile home loans 40 40 39 38 42
Installment loans 27 27 28 25 24
Total 100% 100% 100% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
Table 7
NON-PERFORMING ASSETS - DECEMBER 31
($ in thousands)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Non-accrual loans $5,533 $5,158 $4,059 $1,806 $ 759
Ninety days past due 1,643 2,207 785 494 298
Other real estate owned 275 - 30 7 128
Total non-performing
assets $7,451 $7,365 $4,874 $2,307 $1,185
Non-performing assets as
a % of total loans and
other real estate owned 1.02% 1.07% 0.77% 0.37% 0.23%
</TABLE>
<TABLE>
<CAPTION>
Table 8
ALLOWANCE FOR LOAN LOSSES
($ in thousands)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Balance, beginning
of year $ 8,243 $ 11,004 $ 11,533 $ 10,998 $ 10,022
Loans Charged-Off:
Commercial 1,015 3,956 687 488 283
Residential 330 131 159 33 32
Consumer 2,423 2,072 1,150 734 518
Total 3,768 6,159 1,996 1,255 833
Recoveries on Charged-Off
Loans:
Commercial 390 154 122 245 352
Residential 22 2 23 20 61
Consumer 320 359 210 164 207
Total 732 515 355 429 620
Net Charge-Offs 3,036 5,644 1,641 826 213
Provision for Loan Losses 4,088 2,883 1,106 1,361 1,366
Adjustments related to
purchase/sale of
finance receivables (52) 0 6 0 (177)
Balance, end of year $ 9,243 $ 8,243 $ 11,004 $ 11,533 $ 10,998
Average loans for
the year $699,220 $656,007 $631,216 $567,182 $481,664
Allowance/ year-end loans 1.26% 1.20% 1.71% 1.87% 2.10%
Net charge- offs/average
loans 0.43% 0.86% 0.26% 0.15% 0.04%
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
Table 9
MANAGEMENT'S ALLOCATION OF ALLOWANCE FOR LOAN LOSSES -
DECEMBER 31, 1997
($ in thousands)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial $ 3,039 $ 3,003 $ 4,834 $ 3,724 $ 3,359
Residential 1,234 1,260 1,425 1,500 1,488
Consumer 3,487 3,011 2,750 2,559 2,486
Unallocated 1,483 969 1,995 3,750 3,665
Total $ 9,243 $ 8,243 $ 11,004 $ 11,533 $ 10,998
</TABLE>
<TABLE>
<CAPTON>
Table 10
CONTRACTUAL LOAN MATURITIES AND INTEREST SENSITIVITY
($ in thousands)
One Year One Through Over Total
or Less Five Years Five Gross
Years Loans
<S> <C> <C> <C> <C>
Commercial $ 133,417 $ 78,574 $ 31,810 $ 243,801
Residential 53,200 56,886 184,184 294,270
Consumer 79,629 119,429 3,551 202,609
Total $ 266,246 254,889 219,545 740,680
Loans with fixed
rates $ 117,063 155,826 31,300 304,189
Loans with floating
rates 149,183 99,063 188,245 436,491
Total $ 266,246 254,889 219,545 740,680
</TABLE>
<TABLE>
<CAPTION>
Table 11
AVERAGE DEPOSITS AND CORPORATE CASH MANAGEMENT REPURCHASE AGREEMENTS
($ in thousands)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Savings, daily
interest checking $147,887 $146,393 $140,212 $144,408 $132,927
Money market accounts and
corporate cash management
repurchase agreements 103,975 75,573 80,941 90,118 82,814
Certificates of deposit 90,066 75,426 68,664 67,299 62,314
$100,000 and over
Other time deposits 356,651 342,885 342,351 323,847 298,208
Total interest bearing
deposits 698,579 640,277 632,168 625,672 576,263
Demand deposits 70,494 66,554 67,045 63,999 57,995
Total deposits and
corporate cash management
repurchase agreements $769,073 $706,831 $699,213 $689,671 $634,258
</TABLE>
<TABLE>
<CAPTION>
Table 12
CERTIFICATES OF DEPOSIT OF $100,000 OR MORE - DECEMBER 31
($ in thousands)
1997 1996
<S> <C> <C>
3 months or less $ 20,333 $ 15,508
3 - 6 months 12,349 13,435
6 - 12 months 21,941 29,700
Over 12 months 22,221 27,342
Total $ 76,844 $ 85,985
</TABLE>
<PAGE> 12
ITEM 2. PROPERTIES
The executive and administrative offices of CBT and the main office of
Citizens consists of six floors of the ten story building known as
Citizens Bank Building, which is located in downtown Paducah, Kentucky
with a street address of 333 Broadway. Citizens owns the Citizens Bank
Building and properties on which all its branches are located. PCB,
GCB, and BMC own their respective main offices and land. All other
branch locations of Citizens and CBT subsidiaries as well as the main
office of UCB are owned by CBT. BMC owns a building adjacent to its
main office that houses the deposit operations function for CBT.
Because of the nature of FCC's business, it generally maintains offices
with a limited square footage, often in strip shopping centers. For
these reasons and to give it maximum flexibility, FCC leases all of its
locations under short term leases (generally three to five years) with
annual aggregate lease payments of approximately $375,000.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of operations, CBT's subsidiaries are defendants
in various legal proceedings. In the opinion of management, there is
no proceeding pending, or, to the knowledge of management, threatened
in which an adverse decision could result in a material adverse change
in the business or consolidated financial position of CBT or its
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART 11
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
At March 25, 1998, CBT had issued and outstanding 7,863,627 shares of
common stock. The approximate number of record holders as of March 25,1998
was 1,412.
CBT Corporation common stock is traded on the NASDAQ National Market
under the symbol CBTC.
The following table summarized transactions in common stock and cash
dividends declared in 1997 and 1996. The trading price information
reflects the range of actual closing sales prices for CBT Corporation
common stock as reported to NASDAQ.
<TABLE>
<CAPTION>
Market Value Cash
Low High Dividends
<S> <C> <C> <C>
1st Quarter 1997 $ 20.50 $ 26.50 $0.13
2nd Quarter 1997 20.25 24.50 0.13
3rd Quarter 1997 21.00 25.63 0.13
4th Quarter 1997 23.50 32.75 0.13
1st Quarter 1996 $ 21.50 $ 24.50 $0.12
2nd Quarter 1996 21.50 24.25 0.12
3rd Quarter 1996 20.00 23.50 0.13
4th Quarter 1996 20.00 28.00 0.13
</TABLE>
CBT Corporation has not engaged in the purchase or sale of any
unregistered securities during 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears in Part 1. Item 1.
Statistical Information and in Part II. Item 8. Financial Statements
and Supplementary Data and is incorporated herein by reference.
<PAGE> 13
ITEM 7. 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 $12,846,000 in 1997, an increase of 10.5
percent compared to earnings of $11,625,000 in 1996 and a 6.8 percent
increase over earnings of $12,024,000 in 1995. Net income per share was
$1.63 in 1997, compared with $1.48 in 1996 and $1.52 in 1995.
Return on average equity was 11.14 percent in 1997, compared with 10.78
percent for 1996 and 11.91 percent for 1995. Return on average assets
was 1.28 percent for 1997 compared with 1.26 percent for 1996 and 1.36
percent for 1995.
CONSOLIDATED INCOME STATEMENT ANALYSIS
Net Interest Income
Net interest income is the difference between interest earned on assets
and interest incurred on liabilities. It is affected by changes in the
mix and volume of earning assets and interest-bearing liabilities,
their related yields, and overall interest rates. For discussion
purposes herein, net interest income is presented on a tax-equivalent
basis with adjustments made to present yields on tax-exempt assets as
if such income was fully taxable.
In 1997, tax-equivalent net interest income provided 82.2 percent of
CBT's tax-equivalent revenue, compared with 83.0 percent in 1996 and
83.5 percent in 1995. Total tax-equivalent net interest income was
$45,341,000 in 1997, a 6.3 percent increase over the $42,670,000
reported in 1996. Growth in tax-equivalent net interest income over
1996 was due to an 8.8 percent growth in average earning assets, which
was partially offset by a 12 basis point decline in net interest
margin. The growth in average earning assets was caused by a 6.6
percent increase in average loans and a 14.2 percent growth in average
securities in 1997 compared to 1996. Average consumer loans grew 6.7
percent in 1997 over 1996, while average commercial loans increased 3.2
percent and average residential real estate loans increased 9.0 percent
year-over-year. Average taxable securities, exclusive of mortgage-
backed instruments, increased 4.7 percent in 1997 compared to 1996,
while average tax-exempt securities grew 17.7 percent for the same
period. Average mortgage-backed securities increased 19.5 percent in
1997 compared to 1996.
The 1996 increase in tax-equivalent net interest income of 3.0 percent
over the $41,399,000 reported in 1995 was due to a 4.1 percent growth
in average earning assets offset in part by a 5 basis point decrease in
net interest margin.
Net interest margin, the ratio of tax-equivalent net interest income
divided by average earning assets, was 4.79 percent in 1997, compared
with 4.91 percent in 1996 and 4.96 percent in 1995. The following
schedule presents yields and rates on key components of interest income
and interest expense which determine the net interest margin:
<TABLE>
<CAPTION>
For the year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Yields/Costs
Securities 7.17% 6.99% 7.12%
Loans (including fees) 9.77 9.76 9.91
Federal funds sold/other 5.48 4.58 5.25
Earning assets 9.09 9.08 9.22
Interest-bearing 4.98 4.85 4.91
deposits
Borrowings 5.59 5.33 5.84
Interest-bearing 5.09 4.93 5.05
liabilities
Net interest rate spread 3.76 4.15 4.17
Net interest margin
including fees 4.79 4.91 4.96
</TABLE>
<PAGE> 14
The decline in net interest margin between 1997 and 1996 was caused by
higher funding costs. Loan yields were virtually flat comparing 1997
to 1996. Increased competition and non-accrual loans drove interest
related loan yields down 3 basis points while loan related fees
improved the overall yield by 4 basis points. Another mitigating
factor was higher security yields. Also affecting the net interest
margin was the increase in 1997 of the securities 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
was adversely affected. The decrease in net interest margin in 1996
compared to 1995 reflects 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 was a result of increased non-accrual loans in 1996 compared to
1995.
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 $4,088,000 in 1997, a 41.8 percent
increase from the $2,883,000 provision level in 1996 and a 269.6
percent increase from the $1,106,000 provision level in 1995. The
provision for loan losses was 0.58 percent of average loans in 1997,
compared with 0.44 percent in 1996 and 0.18 percent in 1995. The
increase in the amount of provision for loan losses in 1997 and 1996
compared with 1995, reflects the significant increase in loan charge-
offs in 1997 and 1996, principally related to two commercial accounts
and increased consumer loan charge-offs experienced during the period.
Net loan losses were $3,036,000 in 1997, $5,644,000 in 1996, and
$1,641,000 in 1995. Net loan losses as a percent of average loans were
0.43 percent in 1997, compared to 0.85 percent in 1996 and 0.26 percent
in 1995. The decrease in net loan losses in 1997 and 1995 as compared
to 1996 was primarily due to charge-offs on two commercial credits
totaling $3.6 million experienced in 1996. Consumer loan losses have
increased over the last two years.
Non-Interest Income
Non-interest income represented 17.8 percent of CBT's tax-equivalent
revenue in 1997, compared with 17.0 percent in 1996 and 16.5 percent in
1995. Consolidated non-interest income increased 12.5 percent in 1997
to $9,821,000. Non-interest income was enhanced by sales of finance
receivables by FCC that generated $337,000 in gains. Exclusive of
asset sales, non-interest income increased 8.8% in 1997 over 1996.
Trust fees decreased 6.0 percent to $1,067,000 compared to 1996.
Investment advisory fees increased 20.9 percent to $1,180,000 in 1997
compared to $976,000 in 1996. Increased business volume was primarily
responsible for this increase. Service charges on deposit accounts
remained virtually unchanged at $3,338,000 compared to the 1996 total
of $3,341,000. Direct consumer loan growth pushed credit-related
insurance fees up 11.3 percent in 1997 to $1,480,000 over the 1996
total of $1,330,000. Car club revenue (included in Other fee income)
increased $116,000 or 20.0 percent led by the performance at the
consumer finance company. The $266,000 (70.1%) increase in official
check commissions (also included in Other fee income) shows the impact
of a full twelve months of higher volumes for this service. Other fees
grew 10.4 percent to $1,057,000 compared to 1996 other fees of
$957,000.
(in thousands)
<TABLE>
<CAPTION>
For the year ended
December 31 Change
1997 1996 Amount Percent
<S> <C> <C> <C> <C>
Trust fees $ 1,067 $ 1,135 $ (68) (6.0)%
Investment advisory fees 1,180 976 204 20.9
Service charges on
deposit accounts 3,338 3,341 (3) (0.9)
Insurance commissions 1,480 1,330 150 11.3
Gain on sale of securities 22 35 (13) (37.1)
Gain on sale of finance
receivables 337 - 337 100.0
Other fee income 2,397 1,915 482 25.2
Total non-interest
income $ 9,821 $ 8,732 $ 1,089 12.47%
</TABLE>
<PAGE> 15
Non-interest income increased 6.9 percent to $8,732,000 in 1996,
compared with the 1995 total of $8,172,000. Excluding the effects of
security sales, non-interest income grew 10.0 percent in 1996. This
increase was primarily the result of increases in trust and investment
advisory fees, credit insurance commissions in the consumer finance
company, mortgage secondary market fees and income generated from an
offical check outsourcing arrangement.
Non-Interest Expense
Consolidated non-interest expense increased 0.2 percent in 1997 to
$31,054,000 compared to $30,982,000 for 1996, primarily due to
increased salaries and benefits, depreciation and amortization, data
processing, collection, and net occupancy charges offset by lower FDIC
assessments, audit fees, and miscellaneous write-offs.
Salaries and employee benefits increased $842,000 or 5.4 percent
primarily resulting from merit increases in salaries and higher
incentive compensation expense. Depreciation and amortization grew
$186,000 or 8.4 percent. This increase resulted from the acquisition
of the Mayfield, Kentucky branch office of Fifth Third Bank, Kentucky
in May 1997 and of the Murray, Kentucky branch office of Republic Bank
and Trust Company in August 1997 and the resultant amortization of
premiums associated with the acquired deposits. Data processing
increased $124,000 or 7.8 percent due to one-time costs associated with
the branch acquisitions along with increased volume-related charges.
Net occupancy of $1,453,000 or a 5.2 percent increase over 1996 relate
primarily to the branch acquisitions. FDIC assessments declined
because of a $560,000 one-time charge taken in the third quarter of
1996 and lower assessment rates. Other expenses decreased $428,000 or
6.1 percent partially as a result of the implementation of tighter
internal controls and a reduction in associated miscellaneous write-
offs.
(in thousands)
<TABLE>
<CAPTION>
For the year ended
December 31 Change
1997 1996 Amount Percent
<S> <C> <C> <C> <C>
Salaries and benefits $ 16,434 $ 15,593 $ 841 5.4%
Net occupancy 1,453 1,381 72 5.2
Depreciation and
amortization 2,388 2,202 186 8.4
Data processing 1,712 1,588 124 7.8
Supplies 794 803 (9) (1.1)
FDIC assessment 100 758 (658) (86.8)
Franchise tax 1,190 1,198 (8) (0.7)
Consulting and
professional fees 405 453 (48) (10.6)
Other expense 6,578 7,006 (428) (6.1)
Total non-interest
expense $ 31,054 $ 30,982 $ 72 0.2%
</TABLE>
Non-interest expense increased $507,000 or 1.7 percent in 1996 over
1995. This increase resulted primarily from 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. These increases were partially 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 in 1996 from 1995 or
1.3 percent, as 1995 non-recurring costs associated with the re-
engineering program totaling $1,135,000 were offset in part by merit
salary increases and new personnel. The increase in net occupancy of
$206,000 in 1996, or 17.5 percent over 1995, and the $332,000 or 17.8
percent rise in depreciation and amortization charges from 1996 over
1995 related primarily to new consumer finance company offices, bank
branch remodeling and computer equipment purchases made during 1995 and
1996.
<PAGE> 16
The $147,000 or 10.2 percent increase in data processing expense for
1996 over 1995 related 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 in connection with the Corporation's re-
engineering efforts. Other expenses increased $320,000 or 4.8 percent.
<PAGE> 16
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
$616,000, $503,000, and $438,000 in 1997, 1996, and 1995, respectively.
The efficiency ratio, defined as non-interest expense divided by tax-
equivalent revenue, measures the effectiveness of a financial services
company in leveraging its resources to produce revenue. A lower ratio
indicates better performance. For 1997, the efficiency ratio was 56.3
percent compared to 60.3 percent in 1996. The improvement in the
efficiency ratio in 1997 compared to 1996 was the result of a 7.3
percent increase in revenues with virtually no change in non-interest
expense. For 1995, CBT's efficiency ratio was 61.5 percent.
CBT 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 by our
third-party processor as Century Day Compliant ("CDC"), and plans are
in process to address areas that are not CDC. Additionally, the
Corporation has commenced a review of all major customers to assess
their CDC status and quantify any associated Y2K financial impact on
the Corporation.
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 28.8 percent in 1997, compared with
28.6 percent in 1996 and 28.3 percent in 1995. Management expects the
effective tax rate to level off and possibly decline modestly in 1998
because of additional tax-exempt securities purchased during the third
quarter of 1997.
CONSOLIDATED BALANCE SHEET ANALYSIS
Earning Assets
At December 31, 1997, earning assets were $993.7 million, compared with
$892.7 million at December 31, 1996. This increase is due to a $44.0
million increase in loans and a $56.7 million increase in securities.
Total earning assets at December 31, 1997 consisted of loans,
representing 73.6 percent of the total and securities, representing
26.4 percent of the total earning assets. Average earning assets in
1997 were $945.8 million, an increase of 8.8 percent over 1996. This
increase was due to a 6.6 percent increase in average loans and a 14.2
percent increase in average securities. See Table 3 for a detailed
analysis of earning assets.
CBT grew its commercial loan portfolio by 7.8 percent by year-end 1997
over year-end 1996. Residential real estate and consumer loan
portfolios grew by 5.1 percent and 6.2 percent, respectively, comparing
year-end 1997 and 1996. Business banking loans, a component in
commercial loans, increased 19.5 percent or $6.6 million helping to
bring the commercial loan portfolio to $243.8 million at year end.
Home equity lines of credit, included in the real estate loan
portfolio, added $5.0 million in loans boosting that portfolio to
$294.3 million. Indirect lending and related loans increased $6.5
million bringing consumer loans outstanding to $193.1 million net of
unearned interest at year-end 1997.
Investment Risk Management
CBT has a nominal amount of securities in its available for sale
portfolio classified as derivative securities by banking regulators.
At December 31, 1997 and 1996, CBT had $700,000 and $1,003,000,
respectively, in derivative securities as defined by banking
regulators. These amounts represent .3 percent and .7 percent of the
total securities available for sale at the end of 1997 and 1996,
respectively. All these securities are guaranteed by government
agencies and none have a maturity of over 1 year. 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.
CBT approved the implementation of a security leverage strategy of $25
million in July 1997. The Corporation believes that the current
favorable inflation outlook and expected moderate economic growth will
<PAGE> 17
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 when the strategy was implemented, the Corporation borrowed $25
million of FHLB advances at 5.96 percent (approximately 1.5 years in
duration). These funds were 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.
As required by the Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
investment securities classified as available for sale are reported at
fair value with unrealized gains and losses reported, net of deferred
taxes, as a separate component of stockholders' equity. At December 31,
1997, net unrealized gains related to investment securities available
for sale were $1,040,000, compared to net unrealized losses at December
31, 1996 of $187,000.
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 1997, CBT's primary market areas continued to
experience favorable unemployment levels, stable real estate values and
commercial development. Bankruptcy filings in CBT's markets have
continued to increase during 1997, however. Management has considered
expected economic trends in assessing the adequacy of the allowance for
loan losses and believes that the allowance is adequate in light of
these trends, among other factors. The Corporation's credit risk is
also diversified by loan type. At December 31, 1997, 40 percent of the
portfolio consisted of residential real estate loans, 33 percent of
commercial loans and 27 percent of consumer 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, 1997, 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 31,1997.
Allowance for Loan Losses
At December 31, 1997, the allowance for loan losses ("ALLL") was $9.2
million, or 1.26 percent of net loans outstanding, compared with $8.2
million, or 1.20 percent at December 31, 1996. The $1.0 million
increase was primarily the result of a $1.2 million increase in the
provision for 1997 as compared with 1996. The ratio of the ALLL to non-
performing assets was 124.1 percent at December 31, 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. The increase in non-
performing assets to $7.5 million at December 31, 1997 from $7.4
million at December 31, 1996 consists of a $0.4 million increase in non-
accrual loans, a $0.6 million decrease in loans past due ninety days or
more and still accruing, and a $0.3 million increase in 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. 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, 1997 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, 1997, non-performing assets
totaled $7.5 million, or 1.02 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.
<PAGE> 18
At December 31, 1997, CBT has categorized $3.5 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", (SFAS 114). It was subsequently amended in 1994
with the issuance of SFAS 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosure." SFAS 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 SFAS 114 in 1995. The
adoption of SFAS 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 $79.5 million at December 31, 1997, an increase of $.9
million from December 31, 1996. Average non-interest bearing deposits
were $70.5 million for 1997, compared with $66.6 million for 1996, a
5.9 percent increase. Non-interest bearing deposits represented 8.4
percent of CBT's total funding sources at December 31, 1997, compared
with 9.4 percent at December 31, 1996.
Interest-Bearing Liabilities
Interest-bearing liabilities for CBT consist of certain core deposits,
purchased deposits, short-term and long-term borrowings. At December
31, 1997, interest-bearing liabilities totaled $863.5 million, an
increase of $103.3 million over December 31, 1996. The increase is due
to a $35.4 million increase in interest-bearing deposits, a $41.7
million increase in short-term borrowings, and a $26.1 million decrease
in long-term borrowings. For 1997, average interest-bearing liabilities
increased $63.1 million or 8.6 percent. A portion of these deposits
were purchased as a part of the two branch deposit acquisitions
consummated in 1997.
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. In dollars, these deposits
totaled $581.9 million on December 31, 1997 and $533.7 million December
31, 1996. At December 31, 1997, these funds accounted for 61.7 percent
of CBT's total funding sources, compared with 63.6 percent at December
31, 1996. 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 and brokered deposits, decreased
$12.8 million or 13.1 percent to $85.1 million at December 31, 1997.
Approximately $8.2 million of these funds represent brokered deposits.
Total purchased deposits represented 9.0 percent of CBT's total funding
sources at December 31, 1997, compared with 11.7 percent at December
31, 1996. Management does not plan to offer to renew the brokered
certificates of deposit at maturity.
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 ("FHLB")
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, 1997, short-term borrowings accounted for
15.6 percent of CBT's total funding sources, compared with 12.6 percent
at December 31, 1996. The increase reflects growth in short-term FHLB
advances of $4.2 million, Federal funds purchased and securities sold
under agreements to repurchase growth of $36.1 million, an increase in
revolving lines of credit of $0.5 million, and an increase in U.S.
Treasury notes payable of $0.9 million.
The following table reflects the various levels of outstanding short-
term borrowings and related rates for CBT for the three years ended
December 31, 1997:
<PAGE> 19
<TABLE>
<CAPTION>
($ in thousands): 1997 1996 1995
Federal funds purchased
and securities sold under
agreements to repurchase:
<S> <C> <C> <C>
Balance:
Average $ 53,276 $ 43,451 $ 47,541
Year-end 77,984 41,866 39,037
Maximum month-end 98,423 61,805 57,369
Rate:
Year-to date 5.03% 4.10% 4.54%
Year-end 4.99% 3.72% 4.02%
Other short-term borrowings:
Balance:
Average $ 62,049 $ 52,994 $ 39,656
Year-end 69,523 63,959 50,017
Maximum month-end 71,809 66,224 54,702
Rate:
Year-to-date 5.96% 5.75% 5.86%
Year-end 5.99% 5.95% 5.70%
</TABLE>
Long-Term Borrowings
Long-term borrowings, which totaled $49.0 million and $22.8 million at
December 31, 1997 and December 31, 1996, respectively, include FHLB
advances with maturities in excess of one year and term debt used to
fund the consumer finance company. At December 31, 1997, long-term
borrowings represented 5.2 percent of CBT's total funding sources,
compared with 2.7 percent at December 31, 1996. The increase in long-
term borrowings of $26.1 million was primarily the result of additional
FHLB advances. In July, 1997, CBT Corporation implemented a security
leverage strategy of $25 million. Funding for this strategy was
received through additional FHLB borrowings at a weighted average cost
of 5.96%.
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 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 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, 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, 1997 the one year cumulative interest rate GAP was .87 and
the cumulative interest sensitivity GAP as a percent of total assets
was 13.0 percent. 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 1.0 percent. Management considers the
current interest rate risk posture prudent. A GAP of less than one
indicates that, over the time horizon measured, more liabilities will
<PAGE> 20
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 supplements its use of GAP with a computer model to estimate the
impact of various parallel shifts in the yield curve on net interest
income and the fair value of equity under a variety of interest rate
scenarios. CBT's management believes the two approaches complement each
other in understanding the impact of changes in interest rates on
corporate performance. Based on modeling using December 1997 data, CBT
would expect its net interest income to decline no more than 5.0
percent under a 200 basis point parallel shift of the yield curve, a
level of risk management deems appropriate. Management expects the GAP
as currently measured to generally fall between .80 or .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.
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, 1997
balance of $203.9 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:
<TABLE>
<CAPTION>
Well
Capitalized Actual Excess
<S> <C> <C> <C>
December 31, 1997
Leverage Ratio 5.00% 11.32% 6.32%
Tier 1 Risk-based 6.00 15.35 9.35
Total Risk-based 10.00 16.60 6.60
December 31, 1996
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
</TABLE>
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 and
are accomplished to meet internal needs (e.g., 401(k) plan, stock
option plans). Repurchases in 1997 totaled 8,895 shares at an aggregate
price of $117,000 which included 3,695 shares exchanged in a non-cash
transaction. During 1996, the Corporation repurchased 67,461 shares at
<PAGE> 21
an aggregate price of $1,542,000. All common shares were repurchased
through third-party broker-dealers in the open market at the prevailing
market prices as of the transaction dates.
At December 31, 1997, CBT's shareholders' equity, exclusive of the
unrealized gain on securities available for sale, net of deferred tax,
grew to $119.0 million, an $8.6 million increase from December 31,
1996. CBT's internal capital growth rate (ICGR) in 1997 was 6.9
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 $0.52 per share during 1997,
a 4.0 percent increase over 1996. The dividend payout ratio for 1997
was 31.8 percent which falls within management's payout range of 25 to
35 percent.
Management is currently not aware of any recommendation by regulatory
authorities which, if implemented, would have a material effect on
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.
Recently Issued Accounting Standards
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure,"
(SFAS 129) which codified existing disclosure requirements regarding
capital structure. SFAS 129 was adopted at year-end 1997 and did not
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," (AS 130) and
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS
130 requires disclosures of the components of comprehensive income and
the accumulated balance of other comprehensive income within total
stockholders' equity. SFAS 131 requires disclosure of selected
information about operating segments including segment income, revenues
and asset data. Operating segments, as defined in SFAS 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 SFAS 130 and 131 in 1998. The standards are
not expected to have a material impact on the Corporation's
consolidated financial statements.
Subsequent to December 31, 1997
On January 10, 1998, CBT and Mercantile Bancorporation, Inc.
(Mercantile), a Missouri corporation, entered into an Agreement and
Plan of Merger, pursuant to which CBT will be merged with and into
Ameribanc, Inc., a wholly-owned subsidiary of Mercantile. Ameribanc,
Inc. will be the surviving entity resulting from the merger.
Upon consummation of the merger, each share of the no par value common
stock of CBT issued and outstanding immediately prior to the effective
time of the merger shall cease to be outstanding and shall be converted
into and become the right to receive 0.6513 of a share of the $0.01 par
value common stock of Mercantile, together with associated preferred
share purchase rights.
In addition, at the effective time, all rights with respect to CBT
common stock pursuant to stock options granted by CBT under the
existing stock plans of CBT which are outstanding at the effective
time, whether or not exercisable, shall be converted into and become
rights with respect to Mercantile common stock on a basis that reflects
the exchange ratio.
Consummation of the merger is subject to various conditions, including:
receipt of approval by the shareholders of CBT, receipt of regulatory
approvals, an opinion of counsel as to the tax treatment of certain
aspects of the merger, qualification for pooling-of-interests
accounting treatment, and satisfaction of certain other conditions.
In connection with executing the merger agreement, Mercantile and CBT
entered into a stock option agreement pursuant to which CBT granted to
Mercantile an option to purchase up to 1,564,662 authorized and
unissued shares of CBT common stock (representing 19.9% of the
outstanding shares of CBT common stock without giving effect to the
exercise of the option), at a purchase price of $33.25 per share, upon
<PAGE> 22
certain terms and in accordance with certain conditions. The option
was granted by CBT as a condition and inducement to Mercantile's
willingness to enter into the merger agreement. Under certain
circumstances, CBT may be required to repurchase the option or the
shares acquired pursuant to the exercise of the option.
The Management's Discussion of this Form 10-K contains statements
relating to future results of the Corporation that are considered
"forward-looking" within the meaning of the Private Securities
Litigation and Reform Act of 1995. Actual results may differ
materially from those expressed or implied as a result of certain risks
and uncertainties, including, but not limited to, changes in political
and economic conditions, interest rate fluctuations, competitive
product and pricing pressures within the Corporation's markets, equity
and fixed income market fluctuations, personal and corporate customers'
bankruptcies, inflation, acquisitions and integrations of acquired
businesses, technological change, changes in law, changes in fiscal,
monetary, regulatory and tax policies, monetary fluctuations, success
in gaining regulatory approvals when required as well as other risks
and uncertainties detailed from time to time in the filings of the
Corporation with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table
presents principal cash flows and related weighted average rates by
expected (contractual) maturity dates. The information is presented in
U.S. dollar equivalents, which is the Corporation's reporting currency.
DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
Maturities
Within 1 - 2 2 - 3 3 - 4 4 - 5 Over 5
1 Year Years Years Years Years Years Fair Value
<S> <C> <C> <C> <C> <C> <C> <C>
Securities
held to
maturity $ 921 $ 248 $ 578 $ 871 $ 1,917 $ - $ 52,870
Securities
available
for sale 5,844 8,387 3,186 2,887 5,000 177,019 203,923
Loans 331,532 127,763 92,114 57,122 38,082 84,581 731,194
Other Assets 83,212 - - - - 83,212 -
Total Assets $338,297 $136,398 $95,878 $60,880 $44,999 $402,023
Non-interest
bearing
deposits $ 59,416 $ 10,102 $10,022 $ - $ - $ - $ 78,596
Interest
bearing
deposits 434,500 137,639 47,149 28,615 19,077 - 633,709
Borrowed funds 147,507 6,000 27,000 - 10,000 5,990 128,088
Other
liabilities/
equity - - - - - 135,458 -
Total
Liabilities/
equity $ 614,423 $153,741 $84,171 $ 28,615 $29,077 $141,448
Interest
sensitivity
gap $(303,126)$(17,343) $11,707 $ 32,265 $15,922 $260,575
Cumulative
interest
sensitivity
gap (303,126) (320,469)(308,762)(276,497)(260,575) -
Cumulativ
ratio at
December 31,
1997 71.9% 70.3% 72.3% 74.4% 75.8% 100.0%
<PAGE> 23
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1997 and
1996, 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.
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, 1997 and 1996,
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
Nashville, Tennessee
January 30, 1998
<PAGE> 24
<TABLE>
<CAPTION>
CBT Corporation and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 1997, 1996, and 1995
(in thousands, except for per share amounts)
1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees:
Taxable $ 68,115 $ 63,821 $ 62,303
Tax-exempt 146 147 171
Securities:
Taxable 11,406 9,943 9,692
Tax-exempt 4,116 3,701 3,467
Other 201 34 129
- - ------------------------------------------------------------------------
Total interest income 83,984 77,646 75,762
- - ------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 32,472 29,288 29,351
- - ------------------------------------------------------------------------
Borrowings 8,144 6,954 6,237
- - ------------------------------------------------------------------------
Total interest expense 40,616 36,242 35,588
NET INTEREST INCOME 43,368 41,404 40,174
- - ------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 4,088 2,883 1,106
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 39,280 38,521 39,068
NON-INTEREST INCOME
Trust fees 1,067 1,135 965
Investment advisory fees 1,180 976 504
Service charges on deposit accounts 3,338 3,341 3,656
Insurance commissions 1,480 1,330 1,281
Net realized gain on sales ofsecurities 22 35 268
Net realized gain on sales of finance
receivable 337 - -
Other income 2,397 1,915 1,498
- - ------------------------------------------------------------------------
Total non-interest income 9,821 8,732 8,172
- - ------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 16,434 15,592 15,798
Net occupancy 1,453 1,382 1,175
Depreciation and amortization 2,388 2,202 1,870
Data processing 1,712 1,588 1,441
Supplies 794 803 918
FDIC assessments 100 758 878
Franchise Tax 1,190 1,198 1,070
Consulting and other professional business
services 405 453 639
Other expenses 6,578 7,006 6,686
- - ------------------------------------------------------------------------
Total non-interest expense 31,054 30,982 30,475
- - ------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 18,047 16,271 16,765
INCOME TAXES 5,201 4,646 4,741
- - ------------------------------------------------------------------------
NET INCOME $12,846 $11,625 $12,024
- - ------------------------------------------------------------------------
PER COMMON SHARE:
Basic earnings per common share $ 1.63 $ 1.48 $ 1.52
Diluted earnings per common share $ 1.62 $ 1.47 $ 1.51
- - ------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
CBT Corporation and Subsidiaries
Consolidated Balance Sheets
At December 31, 1997 and 1996
(in thousands except for common share data)
1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 52,870 $ 41,898
Securities to be held to maturity (Fair
values: 1997 - $63,223; 1996 - $57,949) 60,146 56,241
Securities available for sale (Amoritized
cost:1997 - $202,323; 1996 -$149,542) 203,923 149,254
Loans, net of unearned interest 731,194 687,218
Allowance for loan losses (9,243) (8,243)
- - -------------------------------------------------------------------
Loans, net 721,951 678,975
Premises and equipment, net 18,179 18,198
Accrued interest receivable 7,902 6,845
Goodwill and intangible assets 5,802 1,313
Other 7,702 7,828
- - -------------------------------------------------------------------
Total assets $1,078,475 $ 960,552
LIABILITIES
Deposits:
Non-interest bearing $ 79,540 78,596
Interest bearing 666,980 631,535
- - -------------------------------------------------------------------
Total deposits 746,520 710,131
Short-term borrowings:
Federal funds purchased 14,140 5,830
Securities sold under agreements
to repurchase 63,844 36,036
Notes payable - U. S. Treasury 2,000 1,136
Revolving lines of credit and other 7,023 6,523
Federal Home Loan Bank advances 60,500 56,300
- - -------------------------------------------------------------------
Total short-term borrowings 147,507 105,825
Long-term borrowings:
Federal Home Loan Bank advances 38,990 12,818
Term debt 10,000 10,023
- - -------------------------------------------------------------------
Total long-term borrowings 48,990 22,841
Accrued interest payable 4,923 4,715
Other liabilities 10,455 6,824
- - -------------------------------------------------------------------
Total liabilities 958,395 850,336
Commitments and contingent liabilities
(Notes 10 and 15)
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized
12,000,000 shares; issued and outstanding
7,862,627 and 7,858,986 shares at
December 31,1997 and 1996, respectively 4,100 4,100
Capital surplus 16,043 16,160
Retained earnings 98,897 90,143
Net unrealized gains (losses) on
securities available for sale,
net of taxes 1,040 (187)
- - -------------------------------------------------------------------
Total stockholders' equity 120,080 110,216
- - -------------------------------------------------------------------
Total liabilities and stockholders'equity $1,078,475 $ 960,552
- - -------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE> 26
CBT Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1997, 1996, and 1995
(in thousands, except for shares)
<TABLE>
<CAPTION>
Net
Unrealized
Gains
(losses) on
Securities Total
Common Stock Capital Retained Available Stockholders'
Shares Amount Surplus Earnings for Sale Equity
<S> <C> <C> <C> <C> <C> <C>
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 - -
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
Net Income - - - 12,846 - 12,846
Dividends on
common stock - - - (4,092) - (4,092)
Stock options
exercised 12,536 - 103 - - 103
Repurchase of
common stock (8,895) - (220) - - (220)
Change in net
unrealized gains
(losses) on
securities
available for
sale - - - - 1,227 1,227
- - --------------------------------------------------------------------------
BALANCE, DECEMBER
31, 1997
7,862,627 $ 4,100 $16,043 $98,897 $1,040 $120,080
- - ---------------------------------------------------------------------------
</TABLE>
<PAGE> 27
CBT Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $12,846 $11,625 $12,024
Adjustments to reconcile
net income to net cash provided
by operating activities:
Provision for loan losses 4,088 2,883 1,106
Depreciation 2,030 1,993 1,646
Amortization 358 209 224
Deferred income taxes (303) 941 (38)
Amortization and accretion
of securities 517 67 19
Net gain on sale of securities (22) (35) (263)
(Gain) loss on sale of premises
and equipment 36 161 (53)
Gain on sale of finance receivables (337) - -
Changes in assets and liabilities:
Increase in accrued interest
receivable (1,057) (93) (684)
Increase in other assets (5,079) (4,128) (775)
Increase in accrued interest
payable 208 374 460
Increase (decrease) in
dividends payable - (72) (77)
Increase (decrease) in
other liabilities 3,629 (13) 1,965
- - --------------------------------------------------------------------------
Net cash provided by
operating activities 16,914 13,912 15,554
- - --------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of
investment securities 3,343 2,199 3,718
Proceeds from sales of securities
available for sale 17,606 19,761 38,210
Proceeds from maturities of
securities available
for sale 15,851 17,779 8,282
Principal collected on mortgage-
backed securities including
those classified as available
for sale 14,742 9,505 8,315
Payment for purchases of securities (108,723) (50,630) (44,770)
Net increase in loans (48,624) (48,201) (30,287)
Proceeds from sales of finance
receivables 1,897 - -
Proceeds from sale of premises
and equipment 89 35 124
Payment for purchase of premises
and equipment (2,136) (1,515) (4,679)
- - --------------------------------------------------------------------------
Net cash used in investing
activities (105,955) (51,067) (21,087)
- - --------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in deposits 36,389 36,397 4,157
Net increase (decrease) in
other short term borrowings 36,982 3,506 (19,198)
Increase in FHLB advances 30,372 7,225 26,461
Proceeds from term debt - - 5,000
Payments on other term debt (23) (23) (23)
Cash advanced on revolving
lines of credit 500 2,500 4,000
Principal payments on revolving
lines of credit - - (6,000)
Cash dividends paid (4,090) (3,862) (3,565)
Stock options exercised - 190 450
Repurchase of common stock (117) (1,542) (1,491)
- - --------------------------------------------------------------------------
Net cash provided by
investing activities 100,013 44,391 9,791
- - --------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 10,972 7,236 4,258
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 41,898 34,662 30,404
- - --------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END
OF YEAR $ 52,870 $ 41,898 $ 34,662
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 40,408 $ 35,868 $ 35,128
- - --------------------------------------------------------------------------
Income taxes 3,666 4,778 4,013
- - --------------------------------------------------------------------------
Exercise of stock options
through exchange of common
stock 103 - -
- - --------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
<PAGE> 28
CBT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 1997, 1996 and 1995
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 -
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.
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.
Derivative financial instruments are included as securities in the
available for sale portfolio. As such, these instruments are reported
at fair value with unrealized holding gains and losses, net of tax
reported as a net amount in a separate component of stockholders'
equity until realized.
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 and is included in other assets in the
accompanying balance sheets. Revenue and expenses from operations and
changes in the valuation allowance are included in the loss on
foreclosed real estate.
<PAGE> 29
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 Statement of
Financial Accounting Standards 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. 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 goodwill and
intangible 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.
<PAGE> 30
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 - During the year the corporation adopted the
provisions of Statement of Financial Accounting standards No. 128
"Earnings per Share. Under the standards established by SFAS No. 128,
per share information is measured at two levels: basic and diluted.
See Note 18 for the Corporation's methods of computing these amounts.
Impairment of Assets - 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.
New Accounting Standards - Effective January 1, 1997, the
Corporation adopted Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," (SFAS 125). This pronouncement
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. The adoption
of this pronouncement did not have a material impact on the
Corporation's consolidated financial statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure,"
(SFAS 129) which codified existing disclosure requirements regarding
capital structure. The adoption of SFAS 129 did not have a material
impact on the Corporation's current capital structure disclosures.
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. 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 $937,000 and $1,268,000 during 1997 and 1996,
respectively.
<PAGE> 31
3. SECURITIES HELD TO MATURITY
(in thousands)
<TABLE>
<CAPTION>
December 31, 1997
Amortized Estimated Gross
Cost Fair Unrealized
Value Gains Losses
<S> <C> <C> <C> <C>
U. S. Government Agency
obligations $ 653 $ 662 $ 9 $ -
State and political
subdivisions 59,493 62,561 3,075 7
Total $60,146 $63,223 $3,084 $ 7
</TABLE>
(in thousands)
<TABLE>
<CAPTION>
December 31, 1996
Amortized Estimated Gross
Cost Fair Unrealized
Value Gains Losses
<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 $56,241 $57,949 $2,218 $ 510
</TABLE>
The maturity distribution of investment securities to be held to
maturity is as follows:
(n thousand)
<TABLE>
<CAPTION>
December 31, 1997
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Within 1 year $ 921 $ 929
1 - 5 years 3,613 3,821
5 - 10 years 22,485 24,004
Over 10 years 33,127 34,469
Total $ 60,146 $ 63,223
</TABLE>
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 1997.
Certain investment 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 estimated amortized cost and estimated fair value of
approximately $27,379,000 and $28,854,000 respectively, as of December
31, 1997.
<PAGE> 32
4. SECURITIES AVAILABLE FOR SALE
(in thousands)
<TABLE>
<CAPTION>
December 31, 1997
Amortized Estimated Gross
Cost Fair Unrealized
Value Gain Loss
<S> <C> <C> <C> <C>
U. S. Treasury
securities $ 4,615 $ 4,624 $ 11 $ 2
U. S. Government agency
obligations 53,787 53,911 138 14
State and political
subdivisions 28,327 28,811 524 40
Mortgage-backed
securities 104,334 105,316 1,132 150
Derivative securities 700 701 1 -
Federal Home Loan Bank
stock - at cost 10,460 10,460 - -
Other 100 100 - -
Total $202,323 $203,923 $1,806 $206
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Amortized Estimated Gross
Cost Fair Value Unrealized
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
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
</TABLE>
The maturity distribution of securities available for sale is as
follows:
<TABLE>
<CAPTION>
(in thousands)
December 31, 1997
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Within 1 year $ 5,844 $ 5,847
1 - 5 years 19,460 19,556
5 - 10 years 43,886 44,159
Over 10 years 133,133 134,361
Total $202,323 $203,923
</TABLE>
Mortgage-backed securities have been allocated in the above table by
contractual maturity date.
Derivative securities available for sale at December 31, 1997 consist
of $200,000 step-up bonds and $500,000 of de-leveraged bonds. At
December 31, 1996, derivative securities available for sale consisted
of $200,000 of step-up bonds, $502,000 of de-leveraged bonds, and
$300,000 in ratchet adjustable rate bonds. 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. 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 $157,000 and $135,000, respectively, in 1997
and $350,000 and $315,000, respectively, in 1996.
<PAGE> 33
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
$133,000,000 and $134,000,000, respectively, as of December 31, 1997.
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
(in thousands)
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Commercial, industrial and
agricultural loans $243,801 $226,115
Residential real estate and
mobile home loans 294,270 279,803
Installment loans 202,609 190,824
Total loans 740,680 696,742
Less: Unearned interest 9,486 9,524
Loans, net of unearned interest $731,194 $687,218
</TABLE>
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, 1997 and 1996, non-accrual loans totaled $5,533,000
and $5,158,000 respectively, and loans contractually past due 90 days
or more totaled $1,643,000 and 2,207,000 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
$540,000 and $700,000 greater in 1997 and 1996, respectively. Interest
income recorded on these loans was approximately $75,000 and $100,000
for 1997 and 1996, respectively.
The activity in the allowance for loan losses follows:
(in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31
1997 1996 1995
<S> <C> <C> <C>
Balance, beginning
of year $ 8,243 $11,004 $11,533
Provision for loan losses 4,088 2,883 1,106
Adjustments related to
purchase/sale of
finance receivables (52) - 6
Charge-offs (3,768) (6,159) (1,996)
Recoveries 732 515 355
Net charge-offs (3,036) (5,644) (1,641)
Balance, end of year $ 9,243 $ 8,243 $11,004
</TABLE>
<PAGE> 34
Impaired loans and related loan loss reserve amounts at December 31,
1997 and 1996 required by SFAS No. 114 are as follows:
(in thousands)
<TABLE>
<CAPTION>
Recorded Loan
Investment Reserve
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Impaired loans
with loan loss
reserves $2,482 $1,961 $790 $711
Impaired loans
with no loan
loss reserves - - - -
Totals $2,482 $1,961 $790 $711
</TABLE>
The average recorded investment in impaired loans during 1997 and
1996 was $2,222,000 and $4,936,000, respectively.
The Corporation did not recognize interest income on impaired loans
during 1997.
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, 1997 and 1996, 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)
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1997 $15,282
New loans 5,709
Repayments (2,799)
Changes in officers,
directors and associates (1,355)
Balance, December 31,1997 $16,837
</TABLE>
6. PREMISES AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Land $ 2,401 $ 1,971
Buildings and improvements 19,285 18,568
Furniture and equipment 14,167 13,569
Construction in progress 24 -
Total premises and equipment $35,877 $34,108
Accumulated depreciation (17,689) (15,910)
Net premises and equipment $18,179 $18,198
</TABLE>
<PAGE> 35
7. INTEREST BEARING DEPOSITS
(in thousands)
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
NOW accounts $109,699 $106,882
Money Manager accounts 67,590 39,008
Individual retirement accounts 53,421 49,542
Savings accounts 46,352 51,984
Certificates of deposit
under $100,000 304,853 286,255
Certificates of deposit
$100,000 and above 76,844 85,985
Brokered certificates 8,221 11,879
Total interest bearing deposits $666,980 $631,535
</TABLE>
At December 31, 1997, the scheduled maturities of CDs are as follows:
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
1998 $ 293,730
1999 77,793
2000 8,527
2001 6,823
2002 and thereafter 3,045
Total $ 389,918
</TABLE>
8. BORROWINGS
( in thousands)
<TABLE>
<CAPTION>
December 31 1997 1996
Max. Max.
1997 1996 Average Mo. Average Mo.
End End
<S> <C> <C> <C> <C> <C> <C>
Short-term:
Federal funds
purchased and
securities sold
under agreements
to repurchase $ 77,984 $41,866 $53,276 $98,243 $47,541 $61,805
Notes payable -
U.S. Treasury 2,000 1,136 1,421 2,263 1,381 3,401
Revolving lines of
credit and other 7,023 6,523 6,549 7,046 4,987 6,523
Federal Home Loan
Bank advances 60,50 56,300 45,352 62,500 46,620 56,300
Total short-term
borrowings $147,507 $105,825 $106,598 $170,232 $100,535 $128,029
Long-term
Term debt $ 10,000 $ 10,023
Federal Home Loan
Bank advances 38,990 12,818
Total long-term
borrowings $ 48,990 $ 22,841
</TABLE>
The weighted average interest rate on Federal funds purchased and
securities sold under agreements to repurchase at December 31, 1997 was
5.03 percent.
The revolving lines of credit obtained from Union Planters National
Bank and Sun Trust Bank-Tennessee mature on July 1, 1998 and provide
for maximum borrowings of $10,000,000. Interest is payable quarterly
at a rate which is the lesser of 25 basis points under Union Planters
National Bank's and Sun Trust Bank-Tennessee's prime rate or 110 basis
points above the 30 day London Interbank Offered Rate. The actual rate
at December 31, 1997 was 7.07 percent. The line is collateralized by
FCC receivables and is fully guaranteed by the Corporation. Management
fully expects to renew the revolving lines upon maturity.
<PAGE> 36
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 5.20 percent to 6.85
percent at December 31, 1997, with a weighted average interest rate of
6.00 percent. According to a funding program of the FHLB, up to
$77,500,000 of these borrowings may be repaid without penalty at
specific intervals in 1998.
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.
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, 1997, the
Corporation was in compliance with all covenants contained in the loan
agreements.
Maturities of long-term borrowings outstanding at December 31, 1997
are as follows:
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
1999 $ 6,000
2000 27,000
2001 -
2002 10,000
2003 276
Thereafter 5,714
Total $ 48,990
</TABLE>
9. 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 had available $29,384,000 for payment of dividends to
the parent as of December 31, 1997.
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.
<PAGE> 37
The Corporation's and significant subsidiaries' actual capital
amounts and ratios are presented in the table below:
<TABLE>
<CAPTION>
As of December 31, 1997
To Be Well
Capitalized
For Capital Under
Actual Adequacy Prompt
Purposes Corrective
Action
Provisions
Amount Ratio Amount Ratio Amount Ratio
Total Capital
(to Risk Weighted
Assets)
<S> <C> <C> <C> <C> <C> <C>
Consolidated $122,461 16.60% $59,039 8.00% $73,787 10.00%
Citizens 80,045 16.54 38,720 8.00 48,400 10.00
BOMC 17,622 17.80 7,919 8.00 9,899 10.00
Tier I Capital
(to Risk Weighted
Assets)
Consolidated $113,238 15.35 $29,515 4.00% $44,272 6.00%
Citizens 74,174 15.33 19,360 4.00 29,040 6.00
BOMC 16,385 16.55 3,959 4.00 5,939 6.00
Tier I Capital
(to Average
Assets)
Consolidated $113,238 11.32 $40,016 4.00% $50,020 5.00
Citizens 74,174 11.38 26,072 4.00 32,591 5.00
BOMC 16,385 10.29 6,368 4.00 7,960 5.00
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996
To Be Well
Capitalized
For Capital Under Prompt
Actual Adequacy Corrective
Purposes Action
Provisions
Amount Ratio Amount Ratio Amount Ratio
Total Capital
(to Risk Weighted
Assets)
<S> <C> <C> <C> <C> <C> <C>
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
BOMC 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
BOMC 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
BOMC 17,034 11.13 6,124 4.00 7,655 5.00
</TABLE>
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 1 capital (as defined
in the regulations) to risk-weighted assets (as defined) and of Tier 1
capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1997, that the banks meet all capital
adequacy requirements to which they are subject.
<PAGE> 38
As of December 31, 1997 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, 1996 all the Corporation's subsidiary banks had Tier
I Risk Based Capital of at least 10.75 percent, total Risk Based
Capital of at least 11.81 percent, and a leverage ratio of at least
7.78 percent.
10. 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 1998 fees under
the agreement are $1,400,000, net of pass-through costs.
In late January 1998, the Corporation gave notice to terminate the
contract which had thirty-six months remaining. If the Corporation
discontinues services during these remaining thirty-six months, then
the Corporation is obligated to pay liquidating damages. The amount of
liquidated damages would be approximately sixty percent of the
remaining contract obligation. Management estimates that such
liquidated damages would not exceed $1,750,000 based upon the earliest
anticipated termination date.
11. 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
1996, 67,461 shares were repurchased at a total cost of $1,542,000.
Repurchases in 1997 totaled 8,895 shares at a total cost of $117,000
which included 3,895 shares exchanged in a non-cash transaction.
12. 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 for the acquisition of common stock over a ten year period.
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 the same as
the 1986 Plan except for 160,000 shares that vest at 100 percent five
years after grant date.
<PAGE> 39
<TABLE>
<CAPTION>
1997 1996 1995
Wtd-Avg Wtd-Avg Wtd-Avg
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 403,654 $20.23 394,250 $19.39 236,065 $13.48
Granted 41,500 24.10 45,250 24.00 221,000 23.36
Exercised (12,536) 8.23 (19,012) 10.00 (50,565) 8.89
Forfeited (4,500) 22.08 (16,834) 22.11 (12,250) 20.58
Outstanding at
end of year 428,118 $20.94 403,654 $20.23 394,250 $19.39
Options
exercisable
at year end 135,525 $15.70 98,985 $12.94 73,664 $10.47
Weighted-average
fair value
of options
granted during
the year $ 1.73 $ 7.85 $ 9.48
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Wtd-Avg.
Number Remaining Wtd-Avg. Number Wtd-Avg.
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise at 12/31/97 Life (yrs) Price at 12/31/97 Price
<S> <C> <C> <C> <C> <C>
$ 9.84 - $10.67 40,118 3.05 $10.12 40,118 $10.12
$13.33 - $14.50 36,500 5.00 14.40 36,500 14.40
$19.13 - $21.25 65,500 6.21 19.49 42,830 19.47
$22.50 - $24.12 286,000 7.56 23.62 16,077 22.50
$ 9.84 - $24.12 428,118 6.71 $20.94 135,525 $15.70
</TABLE>
The Corporation applies APB Opinion 25, "Accounting for Stock Issued
to Employees" 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
methodology 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:
The fair value of each option grant made in 1995, 1996, and 1997
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, 1996, and 1997, respectively: dividend yield of 2.34
percent for 1995 and 1996 and 2.24 percent for 1997; expected
volatility of 23.04 percent for 1995 and 1996 and 48.44 percent for
1997; risk-free rates of 7.46, 6.05, and 6.56 percent; and expected
lives of 10 years for 1995, 1996, and 1997.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income
As reported $12,846 $11,625 $12,024
Pro forma 12,448 11,298 11,739
Earnings per share
Pro Forma - basic 1.58 1.43 1.48
Pro Forma - diluted 1.57 1.42 1.47
As reported - basic 1.63 1.48 1.52
As reported - diluted 1.62 1.47 1.51
</TABLE>
<PAGE> 40
13. INCOME TAXES
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1997 and 1996, are as follows:
(in thousands)
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Deferred tax assets:
Allowance for
credit losses $ 3,285 $ 2,739
Net unrealized
losses on
securities
available for sale - 101
Other 516 585
Total gross deferred tax assets $ 3,801 $ 3,425
Deferred tax liabilities:
Depreciation 1,374 1,418
Net unrealized gain on
securities available for
sale 560 -
Other 823 605
Total gross deferred tax
liabilities 2,757 2,023
Net deferred tax asset
(included in other assets) $ 1,044 $ 1,402
</TABLE>
Income tax expense consisted of:
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
<S> <C> <C> <C>
Current $ 5,504 $ 3,705 $ 4,779
Deferred expense (benefit) (303) 941 (38)
Total $ 5,201 $ 4,646 $ 4,741
</TABLE>
The tax expense relating to gains on sales of securities approximated
$8,000 in 1997, $12,000 in 1996, and $93,000 in 1995.
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:
<PAGE> 41
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Taxes at statutory rate $ 6,316 $ 5,695 $ 5,868
Increase (decrease)
resulting from:
Tax-exempt
interest income (1,286) (1,164) (1,109)
Other, net 171 115 (18)
Total $ 5,201 $ 4,646 $ 4,741
</TABLE>
14. EMPLOYEE BENEFIT PLANS
Employees are covered by two defined contribution employee benefit
plans ("Plans"). All employees are eligible to participate in the
Plans after completing various lengths of employment. Participants are
immediately vested in employee contributions, with 100% 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 1997,
1996, and 1995 were $795,000, $771,000, and $770,000 respectively.
15. 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, 1997 and 1996, commitments
outstanding under standby letters of credit totaled $5,502,000 and
$4,951,000, 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, 1997 and 1996, commitments to extend
credit totaled $106,121,000 and $113,363,000 respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107
"Disclosures about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by the Corporation using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret
market data to develop the estimate of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts the Corporation could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts.
The fair value of investment securities to be held to maturity and
securities available for sale is based on quoted market prices, dealer
quotes, and prices obtained from independent pricing services. The
fair value of loans, deposits, and various types of borrowings and term
debt is estimated based on present values using entry-value interest
rates applicable to each category of such financial instruments. The
<PAGE> 42
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, 1997 and 1996.
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)
<TABLE>
<CAPTION>
December 31
1997 1996
Carrying Estimated Carrying Estimated
Fair Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $ 52,870 $ 52,870 $ 41,898 $ 41,898
Securities held to
maturity 60,146 63,223 56,241 57,949
Securities available
for sales 202,323 203,923 149,542 149,254
Loans, net of unearned
interest 731,194 727,844 687,218 688,847
Liabilities:
Deposits:
Non-interest bearing 79,540 79,540 78,596 78,596
Interest bearing 666,980 669,588 631,535 633,709
Short-term borrowings 147,507 147,199 105,825 105,417
Term debt & FHLB
borrowings 48,990 48,887 22,841 22,671
</TABLE>
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross
interest
income $22,085 $21,350 $20,675 $19,874 $19,908 $19,553 $19,197 $19,006
Net
interest
income 11,313 10,927 10,777 10,351 10,465 10,289 10,431 10,219
Net income 3,322 3,191 3,202 3,131 3,040 2,455 3,198 2,932
Basic
earnings
per share $ 0.42 $ 0.40 $ 0.41 $ 0.40 $ 0.39 $ 0.31 $ 0.41 $ 0.37
Diluted
earnings
per share $ 0.42 $ 0.40 $ 0.41 $ 0.40 $ 0.38 $ 0.31 $ 0.41 $ 0.37
</TABLE>
18. EARNINGS PER SHARE
In February 1997, the FASB issued SFAS 128, "Earnings per Share,"
which establishes new standards for calculating and presenting earnings
per share disclosures. As required, the Corporation has adopted the
provisions of FAS 128 for year-end 1997 and applied them to all prior
period EPS data presented. The Corporation computes basic earnings per
share by dividing net income by the weighted average number of common
shares outstanding during the year. For the calculation of diluted
earnings per share, the Corporation increases the weighted average
number of shares for the potential dilutive effect of outstanding stock
options as follows:
<PAGE> 43
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Weighted average common
shares outstanding 7,862,848 7,873,182 7,928,155
Adjustments for
dilutive securities:
Assumed exercise
of outstanding stock
options 62,825 51,310 52,565
Diluted common shares 7,925,673 7,924,492 7,980,720
Earnings per common share:
Basic $ 1.63 $ 1.48 $ 1.52
Diluted 1.62 1.47 1.51
</TABLE>
19. SUBSEQUENT TO DECEMBER 31, 1997
On January 10, 1998, CBT Corporation and Mercantile Bancorporation
Inc. ("Mercantile"), a Missouri corporation, entered into an Agreement
and Plan of Merger, pursuant to which CBT will be merged with and into
Ameribanc, Inc., a wholly-owned subsidiary of Mercantile. Ameribanc,
Inc. will be the surviving entity resulting from the merger.
Upon consummation of the merger, each share of the no par value
common stock of CBT issued and outstanding immediately prior to the
effective time of the merger shall cease to be outstanding and shall be
converted into and become the right to receive 0.6513 of a share of the
$0.01 par value common stock of Mercantile, together with associated
preferred share purchase rights.
In addition, at the effective time, all rights with respect to CBT
Common Stock pursuant to stock options granted by CBT under the
existing stock plans of CBT which are outstanding at the effective
time, whether or not exercisable, shall be converted into and become
rights with respect to Mercantile common stock on a basis that reflects
the exchange ratio.
Consummation of the merger is subject to various conditions,
including: receipt of approval by the shareholders of CBT, receipt
of regulatory approvals, receipt of an opinion of counsel as to the tax
treatment of certain aspects of the merger, qualification for pooling-
of-interests accounting treatment, and satisfaction of certain other
conditions.
In connection with executing the merger agreement, Mercantile and CBT
entered into a stock option agreement pursuant to which CBT granted
Mercantile an option to purchase up to 1,564,662 authorized and
unissued shares of CBT common stock (representing 19.9 percent of the
outstanding shares of CBT common stock without giving effect to the
exercise of the option), at a purchase price of $33.25 per share, upon
certain terms and in accordance with certain conditions. The option
was granted by CBT as a condition and inducement for Mercantile's
willingness to enter into the merger agreement. Under certain
circumstances, CBT may be required to repurchase the option or the
shares acquired pursuant to the exercise of the option.
<PAGE> 44
20. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
At December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets:
Cash and cash equivalents * $ 3,939 $ 2,101
Investments in subsidiaries* 115,036 106,349
Other assets 3,627 3,550
Total assets $122,602 $112,000
Liabilities and stockholders' equity:
Accrued liabilities 1,472 518
Other liabilities 1,050 1,266
Stockholders' equity, net of
unrealized gains or losses on
securities available for sale 120,080 110,216
Total liabilities and stockholders' equi $122,602 $112,000
</TABLE>
* Eliminated completely or partially in consolidation.
STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income:
Dividends from subsidiaries* $12,850 $ 6,740 $ 6,680
Interest income 62 40 58
Miscellaneous income 5 6 -
Total income 12,917 6,786 6,738
Expenses 1,530 759 2,972
Income before income taxes 11,387 6,027 3,766
Income taxes (499) (243) (1,108)
Income before equity in
undistributed net income
of subsidiaries 11,886 6,270 4,874
Equity in undistributed net
income of subsidiaries 960 5,355 7,150
Net income $12,846 $11,625 $12,024
</TABLE>
* Eliminated in consolidation.
<PAGE> 45
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income $12,846 $11,625 $12,024
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Equity in undistributed net
income of subsidiaries (960) (5,355) (7,150)
Change in other assets (77) (253) (1,630)
Change in accrued and other
liabilities 736 (182) 943
Change in dividends payable - (71) (77)
Change in dividends receivable
from subsidiaries - - 1,000
Net cash provided by
operating activities 12,545 5,764 5,110
Investing activities:
Contribution of capital to
subsidiaries (6,500) (500) (300)
Net cash used in
investing activities (6,500 (500) (300)
Financing activities:
Cash dividends paid (4,090) (3,862) (3,565)
Stock options exercised 190 450
Purchase of common stock (117) (1,542) (1,491)
Net cash used in
financing activities (4,207) (5,214) (4,606)
Net increase in cash and cash
equivalents 1,838 50 204
Cash and cash equivalents,
beginning of year 2,101 2,051 1,847
Cash and cash equivalents,
end of year $ 3,939 $ 2,101 $ 2,051
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
Information regarding the current executive officers of the
Corporation, including their names, ages, positions with the
Corporation, and a brief description of their business experience
during the past five years, is presented below. Executive officers are
elected annually by the Board of Directors.
William J. Jones, 42, President and Chief Executive Officer and a
director. Mr. Jones also serves as President and Chief Executive
Officer of Citizens. Mr. Jones has been associated with the Corporation
for the past 12 years. Additional information regarding Mr. Jones is
set forth on page 4.
John E. Sircy, 41, Executive Vice President and Chief Operating
Officer. Mr. Sircy also serves as Executive Vice President and Chief
Operating Officer of Citizens and as a director of Graves and United.
Mr. Sircy joined the Corporation in his current role in April 1994.
Prior to that, he served as Vice President and Controller of Norwest
Bank Iowa, N.A. in Des Moines, Iowa, until August 1992, when he was
named Senior Vice President and Chief Financial Officer of that bank, a
position he held until April 1994.
Philip M. Benson, 50, Senior Vice President, Retail Banking and
Marketing. Mr. Benson joined the Corporation as Vice President of
Marketing and Strategic Planning in July 1995. Prior to that, he was
the Executive Vice President and Chief Operating Officer of Oak Tree
Savings Bank, New Orleans, Louisiana until November 1992, when he
became the Chief Operating Officer of Clubhouse Management Company,
L.L.C., Edmond, Oklahoma, a retail golf store franchising company.
Mr. Benson assumed his current position in October 1996.
Lawrence R. Durbin, 53, Senior Vice President - Operations and
Technology. Mr. Durbin joined the Corporation in his current role in
December 1995, after having served for 30 years as a senior executive
of Computer Services, Inc., a Paducah, KY-based bank data processing
concern.
Brian R. Griesbach, 45, Senior Vice President - Credit
Administration. Mr. Griesbach joined the Corporation in 1990 in his
current role.
M. Leon Johnson, 57, President and Chief Executive Officer, FCC.
Mr. Johnson serves as a director of Citizens and FCC and has been
associated with the Corporation for 12 years, serving in his current
role.
C. Thomas Murrell, III, 54, Executive Vice President and Chief
Credit Officer. Mr. Murrell joined the Corporation in November 1991 as
Senior Vice President and Chief Credit Officer of Citizens. Mr. Murrell
assumed the role of Executive Vice President-Commercial and Consumer
Banking, Citizens in March 1994 and his current role in October 1996.
J. Russell Ogden, III, 50, Executive Vice President of
Investments, Citizens. Mr. Ogden served as Senior Vice President of
Trust and Investments until March 1994, when he became the Executive
Vice President of Financial Services at Citizens. In October 1996 he
assumed his current position. He has been associated with the
Corporation for 16 years.
Section 16 (a). BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's executive officers, directors and persons who own more
than ten percent (10%) of the Corporation's common stock to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Such persons are required by SEC
regulation to furnish the Corporation with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by
it during 1997 or representations from such persons that no Form 5s
were required, the Corporation believes that all filing requirements
applicable to its officers, directors and greater than ten percent
(10%) beneficial owners were complied with in 1996 and prior years,
with the following exceptions: Brian R. Griesbach did not timely file a
Form 3, with respect to his election as an executive officer of the
Corporation; Mr. Michelson did not timely file one report covering one
tranaction; Mr. Morgan did not timely file one report covering one
transaction. The exceptions were corrected as soon as they were
discovered.
Set out below is information concerning all of the current
directors of the Corporation, including their positions held with
Citizens, BMC, Pennyrile, Graves, United, and Fidelity.
Irving P. Bright, Jr., 65, business consultant. Until 1994,
Mr. Bright was the President and Chief Executive Officer of Bright's,
Inc.(a retail clothing store). Mr. Bright has been a director of the
Corporation since 1983. He also serves as a director of Citizens.
Christopher J. Black, 42, Executive Vice President and Chief
Operating Officer, Ray Black and Son, Inc. (general contractor). He has
served in this capacity since 1992. Mr. Black has been a director of
the Corporation since 1997. He also serves as a director of Citizens.
John L. Burman, 64, manager of Kentucky Farm Bureau. Mr. Burman
has been a director of the Corporation since 1993. He also serves as a
director of Pennyrile.
Patrick J. Cvengros, 61, retired. Until 1992, Mr. Cvengros served
as the President and Chief Executive Officer of the Corporation.
Mr. Cvengros has been a director of the Corporation since 1983.
Mr. Cvengros also serves as a director of Citizens and FCC, as well as
serving as a director of Computer Services, Inc., Paducah, Kentucky.
William H. Dyer, 62, President and Chief Executive Officer of
Tennessee Valley Towing (a river barge company). Mr. Dyer has been a
director of the Corporation since 1991. Mr. Dyer also serves as a
director of Citizens.
Louis A. Haas, 56, investor. Mr. Haas was formerly the President
and Chief Executive Officer of DuBois Pharmaceutical (a wholesale
pharmaceuticals company). Mr. Haas has been a director of the
Corporation since 1991. Mr. Haas also serves as a director of Citizens.
Joe Tom Haltom, 70, Chairman of BMC. Mr. Haltom previously served
as Chairman of BMC Bankcorp, Inc., which was acquired by the
Corporation on May 31, 1994. Mr. Haltom was named a director of the
Corporation in 1994. Mr. Haltom also serves as a director of BMC,
Graves, and United.
Kerry B. Harvey, 40, a partner in the law firm of Owen, Harvey and
Carter. Mr. Harvey was named a director of the corporation in 1994.
Mr. Harvey also serves as a director of BMC and United.
F. Donald Higdon, 66, retired. Mr. Higdon was formerly the General
Manager of Kraft Food Service, Inc. (a wholesale food distributor).
Mr. Higdon has been a director of the Corporation since 1991.
Mr. Higdon also serves as a director of Citizens.
William J. Jones, 42, President and Chief Executive Officer of the
Corporation. Mr. Jones served as Executive Vice President of the
Corporation until January 1992, when he assumed his current position.
Mr. Jones has been a director of the Corporation since 1991. Mr. Jones
also serves as a director of Citizens, BMC, FCC, and Pennyrile.
Ted S. Kinsey, 52, President and Chief Executive Officer of
Parkway Chrysler, Inc. (an automobile dealership). Mr. Kinsey was named
a director of the Corporation in 1994. Mr. Kinsey also serves as a
director of BMC.
Louis M. Michelson, 53, President and Chief Executive Officer of
Michelson Jewelers, Inc. (a retail jeweler). Mr. Michelson has been a
director of the Corporation since 1991. Mr. Michelson also serves as a
director of Citizens.
Bill B. Morgan, 68, Chairman of Bradshaw & Weil, Inc. (an
insurance agency). Mr. Morgan retired as a Brigadier General in the
United States Air Force in 1995. Mr. Morgan was named a director of the
Corporation in 1994. Mr. Morgan also serves as a director of BMC and
Graves.
David M. Paxton, 41, Corporation Chairman of the Board. Mr. Paxton
is Vice President and Chief Financial Officer of Paxton Media Group (a
television broadcasting and newspaper publishing company). He has been
a director of the Corporation since 1991 and Chairman since 1997.
Mr. Paxton also serves as a director of Citizens.
Robert P. Petter, 62, President and Chief Executive Officer of
Henry A. Petter Supply Company (an industrial supply wholesaler).
Mr. Petter has been a director of the Corporation since 1983.
Mr. Petter also serves as a director of Citizens.
Joseph A. Powell, 65, President and Chief Executive Officer of Old
Hickory Clay Company (a mining company). Mr. Powell has been a
director of the Corporation since 1991 and also serves as a director of
Citizens.
Charles W. Ransler, M.D., 47, Physician. Dr. Ransler has been a
director of the Corporation since 1997. Dr. Ransler also serves as a
director of Citizens.
C. Rex Smith, 41, President and Chief Executive Officer of Jim
Smith Contracting (heavy highway contractor). Mr. Smith has served in
this capacity since 1988. He has been a director of the Corporation
since 1997 and also serves as a director of Citizens.
William A. Usher, 68, Chairman and Chief Executive Officer of
Usher Transportation, Inc. (a trucking and transportation company).
Mr. Usher has been a director of the Corporation since 1991. Mr. Usher
also serves as a director of Citizens.
<PAGE> 47
Item 11. EXECUTIVE COMPENSATION
The following table contains information concerning compensation
paid or accrued by the Corporation and its subsidiaries for the fiscal
years ended December 31, 1995, 1996, and 1997 to, or on behalf of, the
Corporation's Chief Executive Officer and each of the four other most
highly compensated executive officers of the Corporation during 1997
whose compensation exceeded $100,000.
<TABLE>
<CAPTION>
Edgar Only
Table:
(a) (b) (c) (d) (e) (f)
Annual Long-Term
Compensa- Compensa-
tion tion
Name and Year Salary Bonus Securities All Other
Principal Position ($) ($) Underlying Compensation
Options (# (1)
Shares)
<S> <C> <C> <C> <C> <C>
William J.Jones 1997 $208,000 $72,613 0 $26,968
President and 1996 208,000 0 0 25,555
Chief Executive 1995 200,000 0 120,000 26,461
Officer,CBT and
Citizens
John E. Sircy 1997 135,200 37,773 0 19,829
Executive Vice 1997 135,200 0 0 19,477
President and 1995 130,000 0 70,000 19,998
Chief Operating
Officer
CBT and Citizens
M. Leon Johnson 1997 110,000 48,004 3,000 16,548
President and Chief 1996 110,000 33,985 5,000 17,252
Executive Officer, 1995 100,000 38,271 3,000 15,948
Fidelity Credit Corp.
C. Thomas Murrell, III 1997 123,600 24,642 3,000 12,511
Executive Vice 1996 123,600 14,005 5,000 11,976
President and Chief 1995 120,000 18,144 5,000 12,812
Credit Officer, CBT
J. Russell Ogden, III 1997 113,200 22,593 3,000 11,275
Exec. Vice President, 1996 113,200 2,500 0 10,796
Investments, Citizens 1995 106,072 0 2,000 11,605
</TABLE>
Edgar-Only Text:
___________
(1) The amounts shown in column (f) for each named executive officer
are the totals of the Corporation's contributions to the
401(k)/Profit Sharing and Money Purchase (MPP) retirement plans,
subsidiary directors' fees, and term life insurance premiums for
the fiscal year ended December 31, 1997. Such amounts are
summarized in the following schedule:
<TABLE>
<CAPTION>
Edgar Only Table: 401(k)/MPP Subsidiary Term Totals
P Directors' Life
Fees
<S> <C> <C> <C> <C>
Mr. Jones $16,388 $10,200 $380 $26,968
Mr. Sircy 13,586 6,000 243 19,829
Mr. Johnson 10,688 5,600 260 16,548
Mr. Murre 12,252 0 259 12,511
Mr. Ogden 11,067 0 208 11,275
</TABLE>
<PAGE> 49
Edgar-Only Text:
___________
Option Grants in Last Fiscal Year
Shown below is information on grants of stock options during the
fiscal year ended December 31, 1997, to the named executive officers.
<TABLE>
<CAPTION>
Edgar Only Table:
Individual Grants
(a) (b) (c) (d) (e) (f) (g)
Potential Realizable
Value at Assumed
Number Annual Rates
of % of Total of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Option (4)
Name Options Employees In Base Price Term
Granted Fiscal Year Per Share Expiration
1996(3) ($/Sh) Date
<S> <C> <C> <C> <C> <C> <C>
(#)(1)(2) 5% 10%
William
J. Jones 0 0.00% N/A N/A N/A N/A
John
E. Sircy 0 0.00% N/A N/A N/A N/A
M. Leon
Johnson 3,000 7.23% 24.12 01/07 45,506 115,323
C. Thomas
Murrell, 3,000 7.23% 24.12 01/07 45,506 115,323
III
J. Russell
Ogden, 3,000 7.23% 24.12 01/07 45,506 115,323
III
</TABLE>
Edgar-Only Text:
___________
(1) Stock options have no explicit value on the date of grant because
the exercise price per share is equal to the market price per
share of the Corporation's common stock on the day preceding the
date the option is granted. A stock option has value to the
optionee in the future only if the market price of the
Corporation's common stock at the time the option is exercised
exceeds the exercise price.
(2) Options are not exercisable during the first two years after the
date of the grant. Thereafter, options may be exercised on or
after the anniversary date of the grant in three equal
installments so that the full grant may be exercised no sooner
than four years after the date of the grant.
(3) A total of 41,500 options were granted to a total of thirty-four
(34) officers of the Corporation and its subsidiaries during 1997.
(4) The dollar amounts under columns (f) and (g) are the result of
calculations at the 5 percent and 10 percent rates set by the SEC.
The potential realizable value over the option terms of the
options included in the above table are computed using the assumed
rates set by the SEC and should not be viewed as, and are not
intended to be, a forecast of possible future appreciation, if
any, in the Corporation's stock price.
Aggregate Options Exercised in
Last Fiscal Year and Fiscal Year-End Option Values
<PAGE> 50
<TABLE>
<CAPTION>
Edgar Only Table:
(a) (b) (c) (d) (e)
Number Value of Unexercised
of In-The-Money
Securities Options at
Underlying 12/31/97 ($)*
Unexercised
Options
as of
12/31/97
(#)
Name Shares
Acquired Value
on Realized Exer- Unexer- Exer- Unexer-
Exercise ($) cisable cisable cisable cisable
(#)
<S> <C> <C> <C> <C> <C> <C>
William
J. Jones 12,536 $229,001 58,117 120,001 $951,180 $917,475
John
E. Sircy 0 0 9,999 70,001 101,122 528,076
M. Leon
Johnson 0 0 5,000 12,000 55,980 96,380
C. Thomas
Murrell, III 0 0 15,166 13,334 221,900 107,718
J. Russell
Ogden, III 0 0 23,499 6,001 421,328 51,766
</TABLE>
Edgar-Only Text:
___________
* Amounts shown represent the difference between exercise price and
December 31, 1997 market value of $31.00.
Employment Contracts and Termination of Employment
and Change in Control Agreements
The Corporation has entered into Severance Protection Agreements
dated June 28, 1995 ("Severance Agreements") with William J. Jones,
President and Chief Executive Officer, and John E. Sircy, Executive
Vice President and Chief Operating Officer, which provide for the
payment of certain benefits to Mr. Jones and Mr. Sircy upon the
termination of their employment with the Corporation within twenty-four
(24) months following a change in control of the Corporation.
Pursuant to the Severance Agreements, if, following a change in
control of the Corporation, as defined in the Severance Agreements,
Mr. Jones' or Mr. Sircy's employment is terminated by the Corporation
for cause, disability or death, or is voluntarily terminated by
Mr. Jones or Mr. Sircy for other than good reason, as defined in the
Severance Agreements, they would be entitled to all compensation earned
or accrued through the termination date but not paid. If, following a
change in control, Mr. Jones' or Mr. Sircy's employment is terminated
for any other reason (including by Mr. Jones or Mr. Sircy for good
reason), each would be entitled to [i] all accrued compensation earned
or accrued through the termination date, [ii] a payment equal to two
times annual base salary, [iii] immediate vesting of all outstanding
stock options, [iv] benefits under all medical, hospitalization, vision
and dental plans in which each participates for a period of two years
or until comparable coverage began under any plan of a new employer,
[v] an award under the Corporation's incentive compensation plan equal
to the amount which he would have received in the year of termination
prorated to the date of termination, [vi] reimbursement of reasonable
moving expenses, [vii] reasonable attorney fees and other expenses, if
any, incurred to enforce the provisions of the Severance Agreement, and
[viii] all benefits payable under the Corporation's retirement plans.
For purposes of the Severance Agreements, a change in control of
the Corporation generally includes: [i] the acquisition by any person
of 20 percent or more of the combined voting power of the Corporation's
outstanding securities; [ii] the members of the Board of Directors on
June 28, 1995 (or such other newly elected directors whose election was
approved by at least two-thirds of the Board) cease for any reason to
constitute at least a majority of the members of the Board; [iii] the
Corporation's stockholders approve (subject to certain exceptions) a
merger, consolidation, reorganization or share exchange, or approve an
agreement for the sale of all or substantially all of the assets of the
Corporation.
Under the Severance Agreements, good reason is generally defined
to include certain [i] changes in duties, responsibilities, offices,
base salary or employee fringe benefits; [ii] a failure to provide
employee benefits or salary increases which are comparable to those
provided to similarly situated employees; [iii] a relocation of the
executive's offices of more than 50 miles; [iv] the Corporation's
failure to obtain the assumption of the Severance Agreements by any
successor to the Corporation, and [v] any termination of employment
which is not effected pursuant to the notice and other provisions of
the Severance Agreements.
<PAGE> 51
Under the Corporation's 1993 Incentive Stock Option Plan ("1993
Plan"), and 1986 Stock Option Plan ("1986 Plan"), the exercise dates
of all outstanding options under the Corporation's stock option plans
will accelerate so that each option outstanding may be exercised upon
the occurrence of a Change in Control (as defined in the 1993 Plan) or
a takeover or merger of the Corporation (for purposes of the 1986
Plan). In addition, the shares subject to the Corporation's stock
option plans will be converted into (automatically in the 1993 Plan and
at the discretion of the Plan Committee under the 1986 Plan) and
replaced by shares of common stock or other equity securities having
rights and preferences no less favorable than common stock of the
successor and the number of shares subject to the options and the
purchase price per share upon exercise of the options will be
correspondingly adjusted. Change in Control of the Corporation, for
purposes of the 1993 Plan, is generally defined to include (a) a share
exchange or merger or consolidation of the Corporation or a significant
subsidiary of the Corporation (subject to certain exceptions); (b) any
sale, lease, exchange, transfer or other disposition of all or any
substantial part of the assets of the Corporation or a subsidiary of
the Corporation followed by a liquidation of the Corporation; (c) the
commencement of any tender offer, exchange offer or other purchase
offer for, and/or any agreement to purchase, as much as (or more than)
30 percent of the outstanding common stock of the Corporation or a
subsidiary of the Corporation; or (d) the Board or the stockholders of
the Corporation approve, adopt, agree to recommend, or accept any
agreement, contract, offer or other arrangement providing for, or any
series of transactions resulting in, any of the transactions described
above.
Compensation Committee Interlocks
and Participation
All compensation matters, including executive compensation, are
decided by the Executive Committee of the Corporation, except as set
forth below. The following directors served as the Executive Committee
with respect to compensation matters during 1997: Irving P. Bright,
Jr., Patrick J. Cvengros, Louis A. Haas, Joe Tom Haltom, William J.
Jones, David M. Paxton, and William A. Usher. Director Cvengros was,
until 1992, President and Chief Executive Officer of the Corporation.
Mr. Jones, President and Chief Executive Officer, did not participate
in any discussion or decisions regarding his own compensation.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Executive Committee of the Board of Directors (the
"Committee") determines annually the compensation to be paid to the
Corporation's Chief Executive Officer and other executive officers,
including the executive officers named in the Summary Compensation
Table, except that the Stock Option Committee, consisting of all
members of the Committee, except Mr. Jones, made all decisions about
awards under the Corporation's stock option plans. This report
discusses the objectives and procedure used by the Committee to
establish 1996 compensation for the Chief Executive Officer and the
four other officers named in the Summary Compensation Table. As
required by rules of the Securities and Exchange Commission, this
report provides specific information regarding compensation of the
Corporation's President and Chief Executive Officer ("CEO") and general
information regarding compensation of the Corporation's executive
officers as a group. The Corporation's CEO and four other most highly
compensated executive officers are sometimes referred to as the "Named
Executives."
Section 162(m) of the Code limits to $1,000,000 in a taxable year
the deduction publicly held companies may claim for compensation paid
to an executive officer, unless certain requirements are met. The
Corporation has reviewed this provision and has determined that the
Corporation is not affected by Section 162(m) because no compensation
paid to any officer currently approaches or is expected to approach
$1,000,000 in the near term. Accordingly, no change to any of the
compensation plans is contemplated at this time.
<PAGE> 52
Compensation Philosophy and Overall Objectives
of the Executive Compensation Programs
The Corporation seeks to ensure that executive compensation is
directly linked to corporate performance and stockholder value, as well
as comparable pay practices in the industry. Each year, the Committee,
in making compensation decisions and recommendations, and the Board of
Directors, in approving base salaries, review the performance of the
Corporation and compare such performance to specified internal and
external performance standards. The Committee has developed the
following compensation guidelines as the principles upon which
compensation decisions and recommendations are made:
Provide variable compensation opportunities that are
linked to the financial performance of the Corporation and
that align executive compensation with the interest of
stockholders.
Provide incentives to increase corporate performance and
stockholder value.
Establish executive officer base pay levels somewhat
below the competitive market, while providing incentive
awards (from the annual and long-term plans) above the
market, provided that performance objectives are achieved.
Provide a competitive total compensation package that is
"at risk" driven and enables the Corporation to attract and
retain key executives.
The Committee's executive officer compensation policies are
structured to reward contributions to the Corporation's performance and
to enable it to compete favorably with peer institutions in attracting
and retaining highly qualified individuals as executive officers. The
Corporation generally defines its peers as financial institutions of $1
to $2 billion in assets located in non-metropolitan areas in the
southeast and midwest regions of the United States. The primary
objective of the Committee's compensation policies is to pay for
performance. The Corporation's executive compensation strategy is to
set base pay at 90 percent of the competitive market with incentive
opportunities from annual and long term plans providing total direct
compensation (base, annual incentive and long-term incentive) at target
performance higher than the Corporation's peer organizations. As a
result, a significant portion of each executive officer's potential
compensation for 1997 consisted of an incentive component with a
pay-out based on the Corporation's, Banking Franchise's, or Finance
Company's performance for the year and the executive officer's
contribution to that performance.
Compensation Program Components
and Executive Officer Compensation
The compensation program for executive officers primarily consists
of annual compensation (comprised of base salary and annual
performance-related incentives) and long term compensation (consisting
of stock options).
Annual Compensation
Base Salaries: Salary ranges were established by the
Committeebased both on a study of peer data and an assessment of the
relative internal responsibilities of the executive positions.
Generally, the midpoint for each executive officer's salary range was
set at approximately 90% of the median of industry peers. Individual
base salaries for executive officers other than Mr. Jones are
recommended by the Corporation's Chief Executive Officer and approved
by the Committee. Mr. Jones' base salary is determined by the
Committee. Salaries are reviewed annually and adjusted periodically,
typically at 12 months intervals. A salary range for each executive
officer position is established using survey data. Adjustments are
based upon the relationship of the executive officer's current salary
to the range for the position and a subjective evaluation of overall
company and personal performance. Base salaries paid in 1997 to the
Named Executives were below the median of estimated base salaries of
industry peer survey data available. With respect to Mr. Jones, the
Committee considered his current salary compared to the established
range and the performance of the Corporation, as well as his personal
performance.
Annual Incentive Compensation: At the beginning of the fiscal
year the Committee also set potential 1997 incentive award levels,
payable in cash, at threshold, target and maximum performance points
for each executive officer. All executives are classified as Corporate,
Banking or Finance Company officers, with each classification having a
different set of performance measures. Corporate executives, which
<PAGE> 53
would include Mr. Jones and Mr. Sircy, receive payouts based upon the
pre-tax net income and annual revenue growth of the Corporation.
Threshold performance in pre-tax net income must be achieved for any
awards to be made. Banking executives, which would include Mr. Murrell
and Mr. Ogden, receive payouts based upon the pre-tax net income and
annual revenue growth of the Consolidated Banking Unit. Threshold
performance in pre-tax net income must be achieved for any awards to be
made. Payout percentages vary by position, with target payouts ranging
from 35 to 50 percent of base compensation for Named Executives. Mr.
Johnson, as the Finance Company senior executive, receives an annual
payout equal to 1.50 percent to 2.0 percent of Fidelity Credit pre-tax
net income, with a threshold pre-tax net income required to qualify for
an award. All of the Named Executives received incentive awards in
1997.
Long-Term Compensation
Long-term compensation is provided in the form of stock options
granted and is intended to increase management ownership of stock and
to provide an incentive for executive officers to improve long-term
Corporate performance. All options are granted at fair market value and
are exercisable in accordance with the terms of the Corporation's
incentive stock option plans.
In fixing the grants of stock options to the individual executive
officers, other than the President and Chief Executive Officer ("CEO")
and the Executive Vice President and Chief Operating Officer ("COO"),
the Committee reviewed with the CEO his recommended individual awards,
taking into account the respective responsibilities and contributions
of each of the executive officers. No awards were made in 1997 to the
CEO or COO because of the significant number of options (120,000 and
70,000, respectively) granted to them in 1995.
1997 Compensation for the President and Chief Executive Officer
In light of the Committee's stated executive philosophy and
compensation plans, the Committee made the following decisions for 1997
regarding the compensation for Mr. Jones, the Corporation's President
and Chief Executive Officer:
Base Salary Mr. Jones' base salary was maintained at
$208,000. The Committee did not adjust base compensation for
any of the Named Executives. The Committee believes that, as
adjusted, Mr. Jones' base salary remains lower than the
median average salary paid to CEOs by industry peers.
Annual Incentive Mr. Jones received $72,613 annual
incentive compensation for 1997, based upon Corporate pre-tax
net income and revenue growth as discussed above under
"Annual Incentive Compensation."
Long-Term Incentive The number of shares of stock and
other awards granted to the Chief Executive Officer under the
Corporation's Stock Option Plans are based on competitive
practices. Administration is consistent with the provisions
of the plan as described above in "Long-Term Compensation".
In 1997, Mr. Jones received no additional options.
Summary
The Compensation Committee believes that base-pay levels, and
performance-based incentive awards, are reasonable and competitive with
the compensation programs provided to officers and other executives by
financial services organizations of similar size and complexity to the
Corporation. The Committee believes further that the degree of
performance sensitivity in the annual incentive program continues to be
reasonable, yielding awards that are directly linked to the annual
financial and operational results of the Corporation. The Corporation's
Long Term Incentives Stock Option Plans continue to provide, in the
view of the Committee, financial opportunities to participants and
retention features for the Corporation that are consistent with the
relative returns that are generated on behalf of the Corporation's
stockholders.
<PAGE> 54
Members of the Committee:
Irving P. Bright, Jr.
Patrick J. Cvengros
Louis A. Haas
Joe Tom Haltom
William J. Jones
David M. Paxton
William A. Usher
COMPARATIVE STOCK PERFORMANCE
The Performance Graph set forth below compares the cumulative
total stockholder return on the Corporation's common stock for the last
five fiscal years with the cumulative total return of the NASDAQ Market
Value Index ("Broad Market Index"), and a peer group of 19 publicly
traded bank holding companies in non-metropolitan areas with assets
between $1 and $2 billion located in the southeast and midwest regions
of the United States ("Peer Group Index"). The cumulative total
stockholder return computations set forth in the Performance Graph
assume the investment of $100 in the Corporation's common stock, the
Broad Market Index and the Peer Group Index on December 31, 1991 and
the reinvestment of all dividends. The 19 bank holding companies (in
alphabetical order) and their states that constitute the Peer Group
Index are as follows: Brenton Banks Inc., IA; Carolina First Corp., SC;
City Holding Co., WV; Community Trust Bancorp, Inc., KY; F&M National
Corp., VA; First Commerce Bancshares, NE; First Financial Corp., IN;
First Source Corp., IN; First United Bancshares, AR; Firstbank of
Illinois Co., IL; Heritage Financial Services., IL; Irwin Financial
Corp., IN; Mid-America Bancorp, KY; Mississippi Valley Bancshares, MO;
Park National Corp., OH; Peoples First Corp., KY; Trans Financial Inc.,
KY; United Bankshares, Inc., WV; and Wesbanco Inc., WV.
Comparison of Five Year Cumulative Total Return of the Corporation,
Peer Group and Broad Market Index
<TABLE>
<CAPTION>
Edgar Only Table:
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
CBT Corporation 100 138.78 155.71 174.22 213.83 246.41
Peer Group 100 114.86 115.99 142.47 172.43 275.72
Broad Market 100 119.95 125.94 163.35 202.99 248.30
</TABLE>
Edgar-Only Text:
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 30, 1998, information
about the only holder of five percent or more of the Corporation's
common stock:
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Percent of
Nature of Class
Beneficial
Ownership
<S> <C> <C>
Citizens Bank and Trust Company 476,690(a)(b) 6.1
Trust Department
333 Broadway
Paducah, KY 42001
</TABLE>
___________
(a) Shares are held in various fiduciary capacities and, by virtue of
shared voting and shared investment power with respect to such
shares, are deemed to own them beneficially.
(b) Does not include 407,155 shares held in various trust accounts
where there is no beneficial ownership.
<PAGE> 55
Set forth below is information with respect to shares of common
stock of the Corporation beneficially owned as of January 30, 1998 by
the Corporation's directors, the executive officers named in the
Summary Compensation Table included in Item 11 of this report, and all
directors and executive officers of the Corporation as a group. Unless
otherwise noted, the named person has sole voting and investment powers
with respect to the reported shares. Where the holdings of a family
member are noted as being held "individually," the family member has
sole voting and investment power with respect to the shares. Where
joint ownership is noted, the joint owners share voting and investment
power as to the shares.
<TABLE>
<CAPTION>
Edgar Only Table:
Name of Beneficial Owner Amount and Percent of
Beneficial Owner Nature of Class
Beneficial
Ownership
<S> <C> <C> <C>
Chr Christopher J. Black. 9,276 (1) **
Irving P. Bright, Jr. 65,634 (2) **
John Burman 80,292 (3) 1.0
Patrick J. Cvengros 25,197 **
William H. Dyer 54,432 (4) **
Louis A. Haas 177,201 (5) 2.2
Joe Tom Haltom 289,325 3.6
Kerry B. Harvey 28,961 (6) **
F. Donald Higdon 3,443 **
M. Leon Johnson 62,624 (7) **
William J. Jones 88,661 (8) 1.1
Ted S. Kinsey 19,750 (9) **
Louis M. Michelson 7,568 (10) **
Bill B. Morgan 219,970 (11) 2.7
C. Thomas Murrell, III 22,783 (12) **
J. Russell Ogden, III 44,624 (13) **
David M. Paxton 3,300 (14) **
Robert P. Petter 24,570 **
Joseph A. Powell 18,048 (15) **
Charles W. Ransler, M.D...... 12,159 (16) **
John E. Sircy 15,761 (17) **
C. Rex Smith................ 138,100 (18) 1.7
William A. Usher 12,000 **
All directors and executive
officers of the Corporation
as a group (26 persons) 1,439,772 (19) 18.0
</TABLE>
Edgar-Only Text:
___________
** Represents less than 1 percent of total outstanding shares of common
stock.
(1) Shares represented include 5,276 shares held in a profit sharing
account and 3,850 owned individually by Mr. Black's wife.
(2) Shares represented include 6,283 shares owned individually by
Mr. Bright's wife and 12,000 shares in a trust for which she
serves as Trustee.
(3) Shares represented include 22,596 shares individually owned by
Mr. Burman's wife and 32,027 shares owned individually by Mr.
Burman's brother.
(4) Shares represented include 5,278 shares held by a partnership in
which Mr. Dyer is a general partner.
(5) Shares represented include 63,904 shares held in agency accounts
for Mr. Haas' children and 7,841 shares owned jointly by Mr. Haas
and his wife.
(6) Shares represented include 20,509 shares owned jointly by
Mr. Harvey and his wife, 106 shares owned jointly by Mr. Harvey's
wife and daughter and 106 shares owned jointly by Mr. Harvey and
his daughter.
<PAGE> 56
(7) Shares represented include 12,213 vested shares held by the
Corporation's Retirement, Savings, and Profit Sharing Plan and
9,666 shares of vested stock options.
(8) Shares represented include 10,865 vested shares held by the
Corporation's Retirement, Savings, and Profit Sharing Plan and
71,451 shares of vested stock options.
(9) Shares represented include 10,884 shares jointly owned by
Mr. Kinsey and his wife, 300 shares held in his wife's IRA and
2,000 shares owned individually by Mr. Kinsey's children.
(10) Shares represented include 1,596 shares owned by Michelson
Jewelers, Inc., a corporation controlled by Mr. Michelson.
(11) Shares represented include 6,153 shares owned by Mr. Morgan's
wife, 86,139 shares owned by Mr. Morgan's father, 1,465 shares
owned by Mr. Morgan's son, 2,150 shares owned by Mr. Morgan's
daughter, 11,554 shares owned by Mr. Morgan's sister and
brother-in-law, 865 shares owned by Mr. Morgan's sister and
brother-in-law, and 2,192 shares owned by Mr. Morgan's brother and
sister-in-law, as to which mr. Morgan shares voting power.
(12) Shares represented include 2,284 vested shares held by the
Corporation's Retirement, Savings, and Profit Sharing Plan and
20,499 shares of vested stock options.
(13) Shares represented include 90 shares held in custodian accounts
for Mr. Ogden's children, 7,701 vested shares held by the
Corporation's Retirement, Savings, and Profit Sharing Plan and
25,833 shares of vested stock options.
(14) Shares represented include 3,200 shares owned jointly by
Mr. Paxton and his wife.
(15) Shares represented include 3,438 shares owned individually by
Mr. Powell's wife.
(16) Shares represented include 1,500 shares held in custodian
accounts for Dr. Ransler's children, 1,200 shares in his wife's
IRA and 5,378 shares held by a partnership in which Dr. Ransler is
a general partner.
(17) Shares represented include 2,008 vested shares held by the
Corporation's Retirement, Savings, and Profit Sharing Plan and
13,332 shares of vested stock options.
(18) Shares represented are held in a limited partnership in which Mr.
Smith is a general partner.
(17) Includes 154,280 shares of vested stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The executive officers and directors of the Corporation are at
present, as in the past, customers of subsidiaries of the Corporation
and have had and expect to have business and banking transactions with
such in the ordinary course of business. In addition, some of the
executive officers and directors of the Corporation are at present, as
in the past, also officers, directors or principal stockholders of
corporations which are customers of subsidiaries of the Corporation and
which had and expect to have business and banking transactions with the
Corporation in the ordinary course of business. All such banking
transactions were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
persons and, in the opinion of management of the Corporation and its
subsidiaries, did not involve more than normal risk of collectibility
or present other unfavorable or unusual features.
Mr. Harvey, a director of the Corporation, BMC and UCB, is a
partner in the law firm of Owen, Harvey, and Carter, Benton, Kentucky,
which was retained by BMC and UCB in the last fiscal year and is
proposed to be retained in the current fiscal year. In 1997,
Mr. Harvey's law firm received payment of approximately $30,000 for
legal services rendered to BMC and UCB.
<PAGE> 57
Mr. Morgan, a director of the Corporation, BMC and GCB, is the
Chairman of Bradshaw & Weil, Inc., and insurance agency in Paducah,
Kentucky, which provides a variety of insurance coverages for the
Corporation. In 1997, Bradshaw & Weil, Inc. received payment of
approximately $130,000 in premiums for coverages extending one to three
years.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) The following consolidated financial statements of the registrant
and report of independent public accountants are included in Part II.
Item 8 of this Form 10-K for the fiscal year ended December 31, 1997, on
the following pages:
<TABLE>
<CAPTION>
(1) Financial Statements:
Description Page
<S> <C>
Report of Independent Public Accountants 23-24
Consolidated Statements of Income for the
Years Ended December 31, 1997, 1996,
and 1995 25
Consolidated Balance Sheets at December 31,
1997 and 1996 26
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31, 1997,
1996, and 1995 27
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1997, 1996,
and 1995 28
Notes to Consolidated Financial Statements
for the Years Ended December 31, 1997, 1996,
and 1995 29-46
</TABLE>
As permitted by Rule 15d-21 of the Exchange Act, the financial
statements of the Retirement Plan and money Purchase Plan and report
of the independent auditors of the Retirement Plan and money Purchase Plan
are included on the following pages:
<TABLE>
<S> <C>
(1) Financial Statements of the Retirement Plan:
Description Page
Report of Independent Auditors 75-16
Statements of Net Assets Available for
Plan Benefits at December 31, 1997 and 1996 77
Statements of Changes in Net Assets
Available for Plan Benefits for the Years
Ended December 31, 1997, 1996, and 1995 78
Notes to Financial Statements 79-83
Schedule of Assets Held for Investment Purposes
for the Year Ended December 31, 1997 86
Schedule of Reportable Transactions for
the Year Ended December 31, 1997
Independent Auditor's Report on Supplemental
Information 85
(2) Financial Statements of the Money Purchase Plan
Report of Independent Auditors 90-91
Statements of Net Assets Available for Plan
Benefits at December 31, 1997 and 1996. 92
Statements of Changes in Net Assets Available
for Plan Benefits for the years ended
December 31, 1997, 1996, and 1995. 93
Notes to Financial Statements 94-97
Independent Auditor's Report on Supplemental
Information 98
Schedule of Assets Held for Investment Purposes
for Investment Purposes for the year ended
December 31, 1997. 99
Schedule of Reportable Transactions for the year
ended December 31, 1997. 100
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of
1997.
(c) Exhibits. The exhibits listed on the Exhibit Index included on page
- - --- of this Report are incorporated herein by reference.
(d) Financial statement schedules.
None
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on behalf by the undersigned, thereunto duly authorized on March
25, 1998.
CBT CORPORATION
/s/ William J. Jones
William J. Jones
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 26, 1998.
________________________________ Chairman of the Board
/s/ David M. Paxton
_________________________________ President
/s/ William J. Jones (Principal Executive Officer)
_________________________________ Executive Vice President and
/s/ John E. Sircy Chief Operating Officer
(Principal Financial and
Accounting Officer)
__________________________________
/s/ Chris Black Director
__________________________________
/s/ Irving P. Bright, Jr. Director
___________________________________
/s/ John L. Burman Director
___________________________________
/s/ Patrick J. Cvengros Director
___________________________________
/s/ William H. Dyer Director
___________________________________
/s/ Louis A. Haas Director
___________________________________
/s/ Joe Tom Haltom Director
<PAGE> 60
___________________________________
/s/ Kerry B. Harvey Director
___________________________________
/s/ F. Donald Higdon Director
___________________________________
/s/ Ted S. Kinsey Director
___________________________________
/s/ Louis M. Michelson Director
___________________________________
/s/ Bill B. Morgan Director
___________________________________
/s/ Robert P. Petter Director
___________________________________
Joseph A. Powell Director
___________________________________
/s/ Charles W. Ransler Director
___________________________________
Calvin Rex Smith Director
___________________________________
/s/ William A. Usher Director
<PAGE> 61
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
3(a), 4(b) 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), 4(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), 4(c) By-Laws of CBT Corporation are incorporated
by reference to Exhibit 3 to the Registration
Statement of Form S-14 of CBT Corporation
(Registration No. 2-83583).
10(a) Agreement and Plan of Merger, dated as of January 10,
1998 among CBT Corporation, Mercantile Bancorporation,
Inc, and Ameribanc, Inc. is incorporated by reference
to Exhibit 2.1 of Form 8-K of CBT Corporation dated
January 14, 1998.
10(b) Stock Option Agreement, dated as of January 10, 1998,
issued by CBT Corporation to Mercantile Bancorporation
Inc. is incorporated by reference to Exhibit 2.2 of
Form 8-K of CBT Corporation dated January 14, 1998
10(c) **Form of Severance Protection Agreement
between CBT Corporation and certain executive
officers is incorporated by reference to Exhibit 10 of
Form 10-Q of CBT Corporation dated September 30, 1996.
10(d) **CBT Corporation 1986 Stock Option Plan is
incorporated by reference to Exhibit 4 of
Registration Statement on Form S-8 of CBT
Corporation (Registration No. 33-28512).
10(e) **CBT Corporation 1993 Stock Option Plan
is incorporated by reference to Form 10-Q
of CBT Corporation dated March 31, 1993.
10(f) **Salary Continuance Agreement between Citizens Bank
& Trust Company and Patrick J. Cvengross dated
December 21, 1988.
10(g) **Description of Incentive Compensation Plan
(omitted under request for confidential treatment).
21 Subsidiaries of the Registrant
23(a) Consent of Arthur Andersen, LLP, Independent Public Accountants
23(b) Consent of Allen & Company, PSC Independent Public Accountants
27 Financial Data Schedule
** Denotes management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Form 10-K.
<PAGE> 62
EXHIBIT NO. 10 (d)
SALARY CONTINUANCE AGREEMENT
<PAGE> 63
SALARY CONTINUANCE AGREEMENT
THIS AGREEMENT made and entered into this the 21st day of
December 1988, by and between CITIZENS BANK AND TRUST COMPANY of
PADUCAH, KENTUCKY, banking corporation having its principal place of
business at 333 Broadway, Paducah, Kentucky, hereinafter referred to as
"Bank" and PATRICK J. CVENGROS, hereinafter referred to as "Executive';
WITNESSETH:
WHEREAS, Executive was initially employed by the Bank in 1967 as
vice-president of the Bank and in 1974, Executive was named President
and Chief Executive Officer of the Bank, and by reason thereof has
acquired experience and knowledge of considerable value to the Bank;
and,
WHEREAS, Bank wished to offer an inducement to Executive to remain
in its employ by compensating him beyond his regular salary for
services which he has rendered and will hereafter render; and,
WHEREAS, Executive is presently 52 years of age, having been born
March 16, 1936; and,
WHEREAS, The parties hereto entered into a Salary Continuation
Agreement February 20, 1985, and now wish to amend and restate the
agreement;
NOW, THEREFORE, it is mutually agreed as follows:
1. The Bank has and does hereby employ Executive in the capacity
of President and Chief Executive Officer at the will of Bank's Board of
Directors, and the Executive hereby accepts such employment, the
conditions of which are hereinafter set forth in this agreement.
2. As compensation for his services, the Bank hereby agrees to
pay Executive and Executive hereby agrees to accept from the Bank a
salary to be determined from time to time by the Board of Directors of
the Bank.
3. Executive shall retire from Executive employment of the Bank
on the 1st day following the calendar year of which he reaches the age
of 65, unless by action of the Board of Directors his period of
employment should be shortened or extended. However, Executive may
retire at any time prior to reaching the age of 65, and in all events
upon his retirement or 50 percent change of control of the bank or CBT
Corporation by another bank or holding company, Executive shall have a
vested retirement income (over and above all other plans the Bank may
have) of $100,000.00 per year for a period of ten (10) years.
4. In the event the Executive should die prior to his retirement
as set forth in Paragraph 3 above, the Bank agrees to pay Executive's
wife and/or such other person as Executive may have designated, the sum
of $100,000.00 per year for a period of 10 years in 120 equal monthly
payments.
5. Payments of the retirement sums provided for in this
agreement shall commence immediately upon retirement or death and shall
be made in 120 equal monthly payments. The payments shall be payable
to the Executive or in case of death during retirement, to his estate
or designated beneficiary.
6. Except in case of merger or 50 percent change of control of
the Bank or CBT Corporation by another bank or holding company,
Executive expressly agrees, as a condition to the performance by the
Bank of its obligations hereunder, that during the period for which
monthly payments to Executive are provided for herein, Executive will
not within a radius of 50 miles of any of the Bank's offices, its
Holding company's offices, or the offices of its Holding Company's
subsidiaries, directly or indirectly, render any services of an
advisory nature or otherwise to become employed by or participate or
engage in any Bank related business competitive with any of the
businesses of the Bank without the prior written consent of the Bank
evidenced by resolution of Bank's Board of Directors. Nothing herein
shall prohibit Executive from owning stock or other securities of a
competitor which are relatively insubstantial to the total outstanding
stock of such competitor, and so long as he in fact does not have the
power to control or direct the management or policies of such
competitor and does not serve as a director or officer of, and is not
otherwise associated with, any competitor except as consented to by the
Corporation.
<PAGE> 64
7. The benefits provided hereunder shall be in addition to
Executive's annual salary as determined by the Board of Directors of
the Bank and shall not affect the right of Executive to participate in
any current or future Bank Retirement Plan or in any supplemental
compensation arrangement which is properly authorized by the Board of
Directors.
8. It is agreed that neither Executive, nor his wife, nor any
other designee, shall have any right to commute, sell, assign,
transfer, or otherwise convey the right to receive any payments
hereunder which payments and the right hereto are expressly declared to
be nonassignable and nontransferable; and in the event of any
attempted assignment or transfer, the Bank shall have no further
liability hereunder.
9. If the Bank has acquired, or in the future does, an insurance
policy or annuity contract or any other asset in connection with the
liabilities assumed by it hereunder it is expressly understood and
agreed that neither Executive nor any beneficiary of Executive shall
have any right with respect to, or claim against, such policy or other
asset except as provided by the terms of such policy or in the title to
such other asset. Such policy or asset shall not be deemed to be held
under any trust for the benefit of Executive or his beneficiaries or to
be held in any way as collateral security for the fulfillment of the
obligations of the Bank under this agreement except as may be expressly
provided by the terms of such policy or title to such other assets. It
shall be and remain, a general, unpledged, unrestricted asset of the
Bank.
10. The Bank agrees that it will not merge or consolidate with
any other Bank or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing bank or other organization shall expressly assume all
obligations and liabilities herein set forth.
11. This agreement may be revoked or amended in whole or in part
by a writing signed by both of the parties hereto.
IN WITNESS WHEREOF, the Bank has caused this agreement to be
signed in its corporate name by its duly authorized officer, and
impressed with its corporate seal, attested by its Secretary, and
Executive has hereunto set his hand and seal, all on the day and year
first above written.
BY: /s/ David W. Newell
Secretary
ATTEST:
/s/ William J. Jones
Chief Financial Officer
EXECUTIVE:
/s/ Patrick J. Cvengros
/s/ Carol S. Sloan
WITNESS
<PAGE> 65
EXHIBIT NO. 21
SUBSIDIARIES OF THE REGISTRANT
for the
Fiscal Year Ended
DECEMBER 31, 1997
<PAGE> 66
SUBSIDIARIES STATE OPERATING NAME
OF
INCORPORATION
Citizens Bank & Trust Kentucky Citizens Bank & Trust
Company of Paducah, Inc. Company
Fidelity Credit Corporation Kentucky Fidelity Credit
Corporation
Pennyrile Citizens Bank and Kentucky Pennyrile Citizens
Trust Company Bank and Trust
Company
Bank of Marshall County Kentucky Bank of Marshall
County
Graves County Bank, Inc. Kentucky Graves County Bank
United Commonwealth, FSB Kentucky United Commonwealth
Bank, FSB
United Commonwealth Service Kentucky United Commonwealth
Corporation Service Corporation
<PAGE> 67
EXHIBIT NO. 23 (a)
CONSENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 68
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to incorporate by
reference of our report dated January 30, 1998, included in CBT
Corporation's annual report to shareholders in this Form 10-K as of
December 31, 1997 into CBT Corporation's previously filed registration
statements No. 33-28512 (1986 Stock Option Plan), No. 33-34459
(Retirement, Savings and Profit Sharing Plan), No. 33-68334 (Dividend
Reinvestment and Stock Purchase Plan), No. 33-57647 (1993 Incentive
Stock Option Plan) and No. 33-56305 (Retirement, Savings and Profit
Sharing Plan).
ARTHUR ANDERSEN LLP
Nashville, Tennessee
January 30, 1998
<PAGE> 69
EXHIBIT NO. 23(b)
CONSENT TO ALLEN & CO.,
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 70
EXHIBIT NO. 27
CBT CORPORATION'S
FINANCIAL DATA SCHEDULE
for the
Fiscal Year Ended
DECEMBER 31, 1997
<PAGE> 71
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to incorporate
our report dated March 16, 1998, in this Form 10-K as of
December 31, 1997 and into CBT Corporation's previously filed
registration statements No. 33-28512 (1986 Stock Option Plan),
No. 33-34459 (Retirement, Savings and Profit Sharing Plan), No.
33-68334 (Dividend Reinvestment and Stock Purchase Plan),
No. 33-57647 (1993 Incentive Stock Option Plan) and No. 33-56305
(Retirement, Savings and Profit Sharing Plan).
ALLEN & COMPANY, PSC
March 27, 1998
<PAGE> 72
CBT CORPORATION
RETIREMENT, SAVINGS, AND PROFIT SHARING PLAN
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 76
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits 78
Statements of Changes in Net Assets Available for Benefits 79
Notes to Financial Statements 80
SUPPLEMENTAL INFORMATION
Independent Auditors' Report on Supplemental Information 86
Schedule of Assets Held for Investment Purposes,
Year Ended December 31, 1997 87
Schedule of Reportable Transactions,
Year Ended December 31, 1997 88
</TABLE>
<PAGE> 75
Independent Auditors' Report
To the Administrative Committee of
CBT Corporation Retirement, Savings, and
Profit Sharing Plan
We were engaged to audit the accompanying statements of net
assets available for benefits of CBT Corporation Retirement,
Savings, and Profit Sharing Plan as of December 31, 1997 and
1996, and the related statements of changes in net assets
available for benefits for the years then ended and the
supplemental schedules of (1) assets held for investment purposes
and (2) reportable transactions as of December 31, 1997 and for
the year then ended. These financial statements are the
responsibility of the Plan's management.
As permitted by 29 CFR 2520.103-8 of the Department of Labor's
Rules and Regulations for Reporting and Disclosures under the
Employee Retirement Income Security Act of 1974, the Plan
Administrator instructed us not to perform, and we did not
perform, any auditing procedures with respect to the information
summarized in Note F, which was certified by Aetna Life Insurance
and Annuity Company, except for comparing the information with
the related information included in the financial statements and
supplemental schedules. We have been informed by the
administrator that Aetna Life Insurance and Annuity Company holds
the Plan's investment assets and executes investment
transactions. The Plan Administrator has obtained a
certification report from Aetna Life Insurance and Annuity
Company as of and for the years ended December 31, 1997 and 1996
that the information provided by them to the Plan Administrator
is complete and accurate.
As described in Note A, these financial statements were prepared
on a modified cash basis of accounting, which is a comprehensive
basis of accounting other than generally accepted accounting
principles.
<PAGE> 76
Administrative Committee of
CBT Corporation Retirement, Savings,
and Profit Sharing Plan
Because of the significance of the information in the Plan's
financial statements that we did not audit, we are unable to, and
do not, express an opinion on the accompanying financial
statements and supplemental schedules taken as a whole. The form
and content of the information included in the financial
statements and supplemental schedules, other than that derived
from the information certified by Aetna Life Insurance and
Annuity Company, have been audited by us in accordance with
generally accepted auditing standards and, in our opinion, are
presented in compliance with the Department of Labor's Rules and
Regulations for Reporting and Disclosures under the Employee
Retirement Income Security Act of 1974.
Allen & Company, PSC
Paducah, Kentucky
March 16, 1998
<PAGE> 77
CBT CORPORATION RETIREMENT, SAVINGS, AND PROFIT SHARING PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
Investments, at market (cost $2,931,917
in 1997 and $2,585,555 in 1996) $ 4,467,968 $ 3,570,628
RECEIVABLES
Employer contributions 313,924 230,255
Employee Deferral Receivable 7,299 0
Dividend Receivable 18,737 0
339,960 230,255
CASH AND CASH EQUIVALENTS 1,331 22,845
OTHER - UNALLOCATED INSURANCE CONTRACTS
Aetna Variable Fund 4,648,976 3,396,916
Aetna Fixed Fund 1,483,922 1,773,559
6,132,898 5,170,475
10,942,156 8,994,203
NET ASSETS AVAILABLE FOR BENEFITS $10,942,156 $8,994,203
</TABLE>
The notes to financial statements are an integral part of this
statement.
<PAGE> 78
CBT CORPORATION RETIREMENT, SAVINGS AND PROFIT SHARING PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ADDITIONS
Contributions:
Employer $ 503,069 $ 398,295
Employees 616,715 548,682
Rollovers 146,119 118,037
Stock dividend receivable 18,737 0
Investment Income:
Net unrealized appreciation in
fair value of investments 1,288,888 866,615
Dividends 72,388 67,825
Realized gains 13,454 144,714
Total Additions 2,659,370 2,144,168
DEDUCTIONS
Benefits to participants 711,417 897,982
NET ADDITIONS 1,947,953 1,246,186
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of Year 8,994,203 7,748,017
End of Year $10,942,156 $8,994,203
</TABLE>
The notes to financial statements are an integral part of this
statement.
<PAGE> 79
CBT CORPORATION RETIREMENT, SAVINGS, AND PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared on the
modified cash basis which is a comprehensive basis of accounting
other than GAAP and presents the assets available for Plan
benefits and related changes in such assets. The difference
between GAAP and modified cash basis is the method of determining
investment values. Modified cash basis presents investments at
market value rather than cost.
NOTE B - DESCRIPTION OF PLAN
Effective February 1, 1984, CBT Corporation (the Company) adopted
the CBT Corporation Retirement, Savings, and Profit Sharing Plan
(the Plan) for eligible employees of CBT Corporation and its
subsidiary companies. During 1994 the eligible employees of
Citizens Bank and Trust Company and Fidelity Credit Corporation
participated with CBT Corporation in the Plan. During 1994, the
eligible employees of Pennyrile Citizens Bank and Trust Co.
became participants in the Plan when $170,856 was transferred to
the Plan upon the merger of the Pennyrile Citizens Thrift Plan.
Also during 1994, the eligible employees of the Bank of Marshall
County, Graves County Bank, and United Commonwealth Bank became
participants in the Plan when $23,969 was transferred to the Plan
upon the merger of the BMC Bancorp, Inc. and Affiliated Companies
401(k) Plan.
The following description of the Plan is provided for general
information purposes only. Participants should refer to the Plan
Agreement for more complete information.
General
The Plan is a defined contribution plan (profit sharing/thrift)
covering those persons employed on the date the Plan was or
generally adopted, and subsequent employees who complete six
months of employment. It is subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA).
Plan Amendments
Effective March 26, 1997 the plan was amended to change the
proportionate compensation match. For purposes of this Employer
Contribution exclusively, only those participants who defer at
least 1% of Compensation, have completed a Year of Service as
defined for Allocation Purposes and who have not terminated
employment for reasons other than Retirement, Disability or Death
shall be eligible to receive an allocation. The Employer shall
set such discretionary contribution prior to the end of the Plan
Year.
Contributions
Each participant may enter into a salary reduction agreement
whereby the Company redirects to the participant's account in the
Plan an amount not to exceed the lesser of (a) 11 percent of the
participant's base salary or (b) the maximum amount allowable
pursuant to Section 402(g) of the Internal Revenue Code, as
amended. A matching contribution equal to one-half of the amount
redirected to the participant's account, not to exceed 6 percent
of the participant's base salary, is made by the Company for
qualifying participants or participants who have died, become
disabled or retired during the immediately preceding six month
period. An additional discretionary contribution is determined
by the Board of Directors may be made by the Company and is
allocated to qualifying participants in the ratio that each
qualifying participant's base salary for the year bears to the
total base salary of all qualifying participants for the year.
Forfeited Accounts
At December, 31, 1997, forfeited nonvested accounts totaled
$37,434. Forfeitures shall be allocated to Participants in the
ratio that each Participants' compensation for the plan year
bears to the compensation of all such Participants.
<PAGE> 80
Investment Accounts
Each valuation date, the participant may elect for his account to
be invested in either of twelve investment funds or the CBT Stock
Fund under the Plan. At December 31, 1997, the investment funds
are Federated Money Market, Aetna Growth & Income, Aetna Money
Market, Aetna Investment Advisors, Alger American Small Cap
Portfolio/Partners MFS Emerging Equities, Scudder
International/Partners Scudder Int'l. Growth, Aetna Bond, TCI
Growth/Portfolio Partners MFS Research Growth, Aetna Fixed, VIP
Equity-Income, VIP Overseas, MFS Emerging Equities, and the CBT
Stock Fund. The participant may elect to invest his account
balance in any one or all of the thirteen investment options in
whole increments of 5 percent.
Vesting
The participant is vested immediately in rollover contributions
and deferred compensation contributions. Matching and
discretionary Company contributions will become vested based on
years of service. Vesting for participants of the Pennyrile and
BMC Plans is based on the total years of service with their
previous employer plus their service with CBT Corporation.
Company contributions are vested in accordance with the following
schedule:
<TABLE>
<CAPTION>
Years of Service Percentage
<C> <C>
Less than 2 0%
2, but less than 3 25%
3, but less than 4 50%
4, but less than 5 75%
5 or more 100%
</TABLE>
Participant Accounts
Each participant's account is credited with the participant's
contributions and an allocation of (a) the Company's
contribution; (b) plan earnings; and (c) forfeitures of
terminated participants' nonvested accounts. Allocations are
based on participant earnings or account balances, as defined.
The benefit to which a participant is entitled is the benefit
that can be provided from the participant's account.
Payment of Benefits
On termination of service, a participant may elect to receive
either a lump-sum distribution equal to the value of his or her
account, installments over a ten-year period, or a combination of
the lump-sum and installment distribution.
Administrative Expenses
All administrative expenses related to the Plan were paid by the
Company during the years ended December 31, 1997 and 1996.
Reclassification
Due to the significant amount of rollovers into the Plan during
the prior year, rollovers have been made a separate line item in
the Statements of Changes in Net Assets Available for Benefits.
NOTE C - INVESTMENTS
Investments are stated at their quoted market price, if
available. Investments that have no quoted market price are
stated at their estimated fair value. Gains and losses on the
sale of investments are computed on the specific identification
method.
<PAGE> 81
The following table presents the cost and market value of
investments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
----------------1997---- ----------------1996----
Description Cost Market Cost Market
<S> <C> <C> <C> <C>
Common stock $ 2,931,917 $ 4,467,968 $ 2,585,555 $ 3,570,628
</TABLE>
<TABLE>
<CAPTION>
Individual investments that represent 5 percent or more of the
Plan's net assets at December 31, 1997 and 1996 were:
----------------1997---- ----------------1996----
Cost Market Cost Market
<C> <C> <C> <C>
CBT
Corporation: $ 2,931,917 $ 4,467,968
144,128
CBT
Corporation: $ 2,585,555 $ 3,570,628
129,841
</TABLE>
NOTE D - DETERMINATION LETTER
The Plan obtained its latest determination letter on October 20,
1995, in which the Internal Revenue Service stated that the Plan,
as then designed, was in compliance with the applicable
requirements of the Internal Revenue Code.
NOTE E - PLAN TERMINATION
Although it has not expressed any intent to do so, the Company
has the right under the Plan to discontinue its contributions at
any time and to terminate the Plan subject to the provisions of
ERISA. In the event of Plan termination, participants will
become 100 percent vested in their accounts.
<PAGE> 82
NOTE F - INVESTMENT ACTIVITY
The following is a summary of the net assets and changes in net assets for
each investment fund as of and for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Net Benefits
Balance Investment Fund to Balance
1/1/97 Contri Income Transfers Partic 12/31/97
butions ipants
<S> <C> <C> <C> <C> <C> <C>
Federated Money
Market $ 22,845 $ 356,934 $ 1,357 $(378,262) $(1,544) $ 1,330
Aetna Growth &
Income Fund 368,161 139,442 176,106 286,780 (96,915) 873,574
Aetna Money Market
Fund 690,899 44,279 37,536 (204,908) (21,938) 545,868
Alger American Small
Cap/Partners MFS 248,930 76,578 24,558 73,301 (13,260) 410,107
Emerging Equities/
Fidelity VIP Growth436,262 134,909 115,751 41,403 (18,321) 710,004
Scudder Int'l/Partners
Scudder Int'l
Growth 215,790 49,331 19,135 (11,711) (11,169) 261,376
Aetna Bond Fund 198,155 24,091 16,707 2,626 (8,484) 233,092
Aetna Managed Acct. 663,310 68,931 146,128 (21,191) (57,025) 800,153
Aetna Fixed Acct. 1,773,559 112,160 84,548 (144,065) (342,280) 1,483,922
Fidelity VIP
Equity-Income 282,532 107,610 102,028 81,168 (29,159) 544,179
Fidelity VIP
Overseas Portfolio 129,268 24,632 13,555 19,366 (13,947) 172,874
Growth/Portfolio
Partners MFS
Research Growth 66,785 17,291 2,283 14,620 (3,230) 97,749
CBT Stock 3,570,628 0 653,775 337,710 (94,145) 4,467,968
- - -------------------------------------------------------------------------------
TOTALS 8,667,121 1,156,188 1,393,467 96,837 (711,417)10,602,196
97 Contribution
Receivable 339,960 339,960
96 Contribution
Receivable 230,255 (230,255) 0
96 Transfer
Receivable 96,829 (96,827) 0
Immaterial outage 10 (10) 0
- - -------------------------------------------------------------------------------
TOTALS $8,994,203 $1,265,903$1,393,467 $ 0 $(711,417)$10,942,156
- - -------------------------------------------------------------------------------
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
NOTE F - INVESTMENT ACTIVITY
The following is a summary of the net assets and changes in net
assets for each investment fund as of and for the year ended
December 31, 1996:
Net Benefits
Balance Investment Fundts to Balance
1/1/96 Contri Income Transfers Partic 12/31/96
butions ipants
<C> <C> <C> <C> <C> <C> <C>
Federated Money
Market $ 14,342 $511,303 $ 59,708 $(560,471) $ (2,037) $ 22,845
Aetna Growth &
Income Fund 270,647 59,994 62,456 15,527 (40,463) 368,161
Aetna Money
Market Fund 318,966 29,465 15,566 360,164 (33,259) 690,899
Alger Amer.
Small Cap/
Partners MFS
Emerg.
Equities 115,789 74,618 11,560 63,505 (16,542) 248,930
Fidelity VIP
Growth Scudder 248,049 68,683 45,679 138,726 (64,875) 436,262
International/
Partners Scudder
Int'l Growth 138,934 34,876 27,249 25,455 (10,724) 215,790
Aetna Bond Fnd 254,510 26,402 7,197 (79,666) (10,291) 198,152
Aetna Managed
Acct. 810,486 72,524 95,903 (285,955) (29,648) 663,310
Aetna Fixed
Account 1,933,172 146,323 97,188 (61,315) (341,809) 1,773,559
Fidelity VIP
Equity-Income 309,884 69,186 51,957 (35,505) (112,990) 282,532
Fidelity VIP
Overseas TCI
Growth Portfolio
Partner 108,542 19,410 15,008 19,890 (33,582) 129,268
MFS Research
Growth 69,197 18,357 (2,279) 8,803 (27,293) 66,785
CBT Stock 2,859,120 0 591,962 294,015 (174,469) 3,570,628
- - --------------------------------------------------------------------------------
TOTALS 7,451,635 1,131,141 1,079,154 (96,827) (897,982) 8,667,121
Contribution
Receivable 296,745 (66,490) 230,255
Transfer
Receivable 96,827 96,827
Other
Adjustment (363) 363
- - --------------------------------------------------------------------------------
TOTAL $7,748,017 $1,065,014 $1,079,154 $ 0 $(897,982) $8,994,203
- - --------------------------------------------------------------------------------
</TABLE>
<PAGE> 84
SUPPLEMENTAL INFORMATION
<PAGE> 85
Independent Auditors' Report on Supplemental Information
To the Administrative Committee of
CBT Corporation Retirement, Savings, and
Profit Sharing Plan
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental
schedules of assets held for investment purposes and reportable
transactions are presented for the purpose of additional analysis
and are not a required part of the basic financial statements but
are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting Disclosures under the
Employee Retirement Income Security Act of 1974. The
supplemental schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, are fairly stated in all material respects
in relation to the basic financial statements taken as a whole.
Allen & Company, PSC
Paducah, Kentucky
March 16, 1998
<PAGE> 86
CBT CORPORATION RETIREMENT, SAVINGS, AND PROFIT SHARING PLAN
SCHEDULE G - ITEM 27a -
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
For the Year Ended December 31, 1997
<TABLE>
<CAPTON>
(b) (c) (d) (e)
(a) Identity of Description of Cost Current
Issue Investment Value
<S> <C> <C> <C> <C>
Aetna Life & Variable Annuity
Annuity Fixed Account $1,483,922 $1,483,922
Aetna Life & Variable Annuity
Annuity Pooled Sep. Acct. $4,648,976 $4,648,976
CBT Corp. of Common Stock
Kentucky $2,931,917 $4,467,968
</TABLE>
See Independent Auditors' Report.
<PAGE> 87
CBT CORPORATION RETIREMENT, SAVINGS, AND PROFIT SHARING PLAN
SCHEDULE G - ITEM 27d -
SERIES OF REPORTABLE TRANSACTIONS OR
SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE
CURRENT VALUE OF PLAN ASSETS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(a) (b) (c) (d) (g) (h)
Current
Value of
Assets on
Identity Descripti Transacti
of Party on of Purchase Selling Cost of on Date
Involved Assets Price Price Asset
<S> <S> <S> <S> <S> <S>
Aetna Variable
Life Annuity
Fixed $104,749 $104,749 $215,811
Aetna Variable
Life Annuity
Fixed $449,710 $449,710 $449,710
</TABLE>
See Independent Auditors' Report.
<PAGE> 88
CBT CORPORATION
MONEY PURCHASE PENSION PLAN
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 91
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits 93
Statements of Changes in Net Assets Available for Benefits 97
Notes to Financial Statements 95
SUPPLEMENTAL INFORMATION
Independent Auditors' Report on Supplemental Information 100
Schedule of Assets Held for Investment Purposes,
Year Ended December 31, 1997 101
Schedule of Reportable Transactions,
Year Ended December 31, 1997 102
</TABLE>
<PAGE> 90
Independent Auditors' Report
To the Administrative Committee of
CBT Corporation Money Purchase Pension Plan
We were engaged to audit the accompanying statements of net
assets available for benefits of CBT Corporation Money Purchase
Pension Plan as of December 31, 1997 and 1996, and the related
statements of changes in net assets available for benefits for
the years then ended and the supplemental schedules of (1) assets
held for investment purposes and (2) reportable transactions as
of December 31, 1997 and for the year then ended. These
financial statements are the responsibility of the Plan's
management.
As permitted by 29 CFR 2520.103-8 of the Department of Labor's
Rules and Regulations for Reporting and Disclosures under the
Employee Retirement Income Security Act of 1974, the Plan
Administrator instructed us not to perform, and we did not
perform, any auditing procedures with respect to the information
summarized in Note E, which was certified by Aetna Life Insurance
and Annuity Company, except for comparing the information with
the related information included in the financial statements and
supplemental schedules. We have been informed by the
administrator that Aetna Life Insurance and Annuity Company holds
the Plan's investment assets and executes investment
transactions. The Plan Administrator has obtained a
certification from Aetna Life Insurance and Annuity Company as of
and for the years ended December 31, 1997 and 1996 that the
information provided by them to the Plan Administrator is
complete and accurate.
As described in Note A, these financial statements were prepared
on a modified cash basis of accounting, which is a comprehensive
basis of accounting other than generally accepted accounting
principles.
<PAGE> 91
Administrative Committee of
CBT Corporation Money Purchase Pension Plan
Because of the significance of the information in the Plan's
financial statements that we did not audit, we are unable to, and
do not, express an opinion on the accompanying financial
statements and supplemental schedules taken as a whole. The form
and content of the information included in the financial
statements and supplemental schedules, other than that derived
from the information certified by Aetna Life Insurance and
Annuity Company, have been audited by us in accordance with
generally accepted auditing standards and, in our opinion, are
presented in compliance with the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974.
Allen & Company, PSC
Paducah, Kentucky
March 16, 1998
<PAGE> 92
CBT CORPORATION MONEY PURCHASE PENSION PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
RECEIVABLES
Accrued interest and dividends $ 0 $ 3,650
Accrued contributions 322,041 274,257
322,041 277,907
OTHER - UNALLOCATED INSURANCE CONTRACTS
Aetna Variable Fund 1,161,860 771,285
Aetna Fixed Fund 342,378 348,617
1,504,238 1,119,902
NET ASSETS AVAILABLE FOR BENEFITS $1,826,279 $1,397,809
</TABLE>
The notes to financial statements are an integral part of this statement.
<PAGE> 93
CBT CORPORATION MONEY PURCHASE PENSION PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ADDITIONS
Investment income:
Investment earnings $ 186,555 $ 113,329
Employer contributions 322,041 274,257
Total Additions 508,596 387,586
DEDUCTIONS
Benefits to participants 80,126 118,149
Total Deductions 80,126 118,149
NET ADDITIONS 428,470 269,437
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of Period $ 1,397,809 $1,128,372
End of Period $ 1,826,279 $1,397,809
</TABLE>
The notes to financial statements are an integral part of this
statement.
<PAGE> 94
CBT CORPORATION MONEY PURCHASE PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared on the
modified cash basis which is a comprehensive basis of accounting
other than GAAP and presents the assets available for Plan
benefits and related changes in such assets. The difference
between GAAP and modified cash basis is the method of determining
investment values. Modified cash basis presents investments at
market value rather than cost.
Effective January 1, 1988, CBT Corporation (the Company) adopted
the CBT Corporation Money Purchase Pension Plan (the Plan) for
eligible employees of CBT Corporation and its subsidiary
companies.
The following brief description of the Plan is provided for
general information purposes only. Participants should refer to
the Plan Agreement for more complete information.
General
The Plan is a defined contribution plan covering those persons
employed on the date the Plan was adopted, and subsequent
employees who complete six months of service. It is subject to
the provisions of the Employee Retirement Income Security Act of
1974 (ERISA).
Contributions
The Company contributes 3 percent of base salary to the Plan plus
an amount equal to 3 percent of compensation in excess of the
Social Security maximum taxable wage base in effect for the year
for each eligible participant. A participant must be employed on
the last day of the Plan year (December 31) to receive a
contribution allocation. The Company has met the minimum funding
requirements of ERISA for the years ended December 31, 1997 and
1996.
Investment Accounts
The Plan, effective January 1, 1995, was modified to a daily
valuation system. The participant may elect for his account to
be invested in either of eleven investment funds daily under the
Plan. At December 31, 1997, the investment funds are Aetna
Growth & Income, Aetna Money Market Fund, Aetna Bond Fund, Aetna
Investment Advisors Funds, Aetna Fixed Fund, Scudder
International/Partners Scudder International Growth, TCI
Growth/Portfolio Partners MFS Research Growth, Alger American
Small Cap Portfolio/Partners MFS Emerging Equities, Fidelity VIP
Overseas Portfolio, Fidelity VIP Equity Income Portfolio, and
Fidelity VIP Growth Portfolio.
Vesting
The participant is vested in the Company's contributions based on
years of service in accordance with the following schedule.
Vesting for participating employees of acquired companies is
based on the total years of service with their previous employer
plus their service with CBT Corporation.
[CAPTION]
<TABLE>
<S> <C>
Years of Service Percentage
Less than 2 0%
2, but less than 3 25%
3, but less than 4 50%
4, but less than 5 75%
5 or more 100%
</TABLE>
<PAGE> 95
Participant Accounts
Each participant's account is credited with an allocation of (a)
the Company's contribution; (b) plan earnings; and (c)
forfeitures of terminated participants' nonvested accounts.
Allocations are based on participant earnings or account
balances, as defined. The benefit to which a participant is
entitled is the benefit that can be provided from the
participant's account.
Payment of Benefits
On termination of service, a participant may elect to receive
either a lump-sum distribution equal to the value of his or her
account or an annuity payment. If the participant is married,
the annuity will be paid in the form of a qualified joint and 50
percent survivor annuity unless the spouse signed a written
waiver.
Administration Expenses
All administrative expenses related to the Plan were paid by the
Company during the years ended December 31, 1997 and 1996.
Forfeited Accounts
At December 31, 1997, forfeited nonvested accounts totaled
$22,079. Forfeitures shall be allocated to Participants in the
ratio that each Participants' compensation for the plan year
bears to the compensation of all such Participants.
NOTE B - ACCOUNTING POLICIES
Investments are stated at their quoted market price, if
available. Investments that have no quoted market price are
stated at their estimated fair value.
NOTE C - DETERMINATION LETTER
The Plan obtained its latest determination letter on May 30,
1996, in which the Internal Revenue Service stated that the Plan,
as then designed, was in compliance with the applicable
requirements of the Internal Revenue Code. The Plan has been
amended since receiving the determination letter. However, the
Plan Administrator and the Plan's tax counsel believe that the
Plan is currently designed and operated in compliance with the
applicable requirements of the Internal Revenue Code. Therefore,
they believe that the Plan was qualified and the related trust
was tax-exempt as of December 31, 1997 and 1996.
NOTE D - PLAN TERMINATION
Although it has not expressed any intent to do so, the Company
has the right under the Plan to discontinue its contributions at
any time and to terminate the Plan subject to the provisions of
ERISA. In the event of Plan termination, participants will
become 100 percent vested in their accounts.
<PAGE> 96
NOTE E - INVESTMENTS
The following is a summary of the net assets and changes in net assets for
each investment fund as of and for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Balance, Net Balance,
January Employer Investment Fund Benefits December
1, 1997 Contribu- Income Transfers to 31,1997
tions Particip-
ants
<S> <C> <C> <C> <C> <C> <C>
Aetna Growth &
Income Fund $106,813 $ 31,140 $ 40,582 $ 43,093 $ (11,549) $210,079
Aetna Money
Market Fund 102,445 18,823 6,326 1,841 (4,852) 124,583
Alger American
Small Cap Partners
MFS Emerging
Equities 71,873 30,528 9,755 10,750 (3,032) 119,874
Fidelity VIP
Growth 175,377 41,014 44,563 (11,362) (5,639) 243,953
Scudder
Int'l/Partners
Scudder Int'l
Growth 42,549 13,794 4,925 4,416 (1,283) 64,401
Aetna Bond Fund 27,879 6,576 2,446 (7,628) (1,413) 27,860
Aetna
Managed Fund 123,643 31,201 32,011 (475) (7,622) 178,758
Aetna
Fixed Account 348,617 62,506 20,847 (51,278) (38,313) 342,379
Fidelity VIP
Equity-Income 73,284 22,679 24,491 6,480 (3,885) 123,049
Fidelity VIP
Overseas 35,645 10,129 4,792 572 (2,180) 48,958
TCI
Growth/Portfolio
Partners MFS
Research Growth 11,777 5,867 (533) 3,591 (358) 20,344
- - -------------------------------------------------------------------------------
TOTALS $1,119,902 $274,257 $190,205 $ 0 $(80,126) $1,504,238
Daily Valuation
Adjustment 3,650 (3,650) 0
Contribution
Receivable 96 274,257
Contribution (274,257) 0
Contribution
Receuvable 97 322,041 322,041
- - --------------------------------------------------------------------------------
Net Assets
Available for
Benefits $1,397,809 $322,041 $186,555 $ 0 $(80,126) $1,826,279
- - --------------------------------------------------------------------------------
</TABLE>
CBT CORPORATION MONEY PURCHASE PENSION PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE E - INVESTMENTS
The following is a summary of the net assets and changes in net
assets for each investment fund as of and for the years ended
December 31, 1996:
<TABLE>
<CAPTION>
Balance Net Benefits Balance,
January Employer Investme Fund to December
1, Contribu nt Transfers Particip 31,
1996 tions Income ants 1996
<S> <C> <C> <C> <C> <C> <C>
Aetna Growth &
Income Fund $ 75,029 $ 30,040 $ 22,381 $ (6,462) $ (14,175) $ 106,813
Aetna Money
Market Fund 85,508 12,951 4,269 10,075 (10,358) 102,445
Alger American
Small
Cap/Partners MSF
Emerging
Equities 38,652 23,722 4,597 8,239 (3,337) 71,873
Fidelity VIP
Growth 114,166 30,975 21,427 12,212 (3,403) 175,377
Scudder
International/
Partners
Int'l Growth 38,536 12,118 6,034 (8,306) (5,833) 42,549
Aetna Bond Fund 41,239 8,107 670 (19,170) (2,967) 27,879
Aetna Managed
Fund 108,396 30,737 17,997 (19,894) (13,593) 123,643
Aetna Fixed Acct. 303,581 66,154 19,258 11,701 (52,077) 348,617
Fidelity VIP
Equity-Income 52,980 18,119 8,961 (1,523) (5,253) 73,284
Fidelity VIP
Overseas 16,583 9,780 4,252 10,443 (5,413) 35,645
TCI
Growth/Portfolio
Partners MFS
Research Growth 7,103 3,935 (206) 2,685 (1,740) 11,777
TOTALS $881,773 $246,638 $109,640 $ 0 $(118,149)$1,119,902
Daily Valuation 3,650
Adjustment
Contribution 274,257
Receivable
Net Assets
Available for $1,397,809
Benefits
</TABLE>
<PAGE> 98
SUPPLEMENTAL INFORMATION
<PAGE> 99
Independent Auditors' Report on Supplemental Information
To the Administrative Committee of
CBT Corporation Money Purchase Pension Plan
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental
schedules of assets held for investment purposes and reportable
transactions are presented for the purpose of additional analysis
and are not a required part of the basic financial statements but
are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting Disclosures under the
Employee Retirement Income Security Act of 1974. The
supplemental schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, are fairly stated in all material respects
in relation to the basic financial statements taken as a whole.
Allen & Company, PSC
Paducah, Kentucky
March 16, 1998
<PAGE> 100
CBT CORPORATION MONEY PURCHASE PENSION PLAN
SCHEDULE G - ITEM 27a -
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
CURRENT VALUE OF PLAN ASSETS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Identity of Issue Description of Cost Current Value
Investment
<S> <C> <C> <C> <C>
Aetna Life & Variable Annuity
Annuity Fixed Acct. $ 342,378 $ 342,378
Aetna Life & Variable Annuity
Annuity Pooled
Separate Account $1,161,861 $1,161,861
</TABLE>
See Independent Auditors' Report
<PAGE> 101
CBT CORPORATION MONEY PURCHASE PENSION PLAN
SCHEDULE G - ITEM 27d -
SERIES OF REPORTABLE TRANSACTIONS OR
SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE
CURRENT VALUE OF PLAN ASSETS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(a) (b) (c) (d) (g) (h) (i)
Current
Value Net
Identity Descripti Purchase of Assets Gain
of Party on of Price Selling Cost of on (Loss)
Involved Assets Price Asset Transacti
on
Date
<S> <C> <C> <C> <C> <C>
Aetna Variable
Life Annuity/
Fixed $ 274,487 $ 274,487 $ 274,487
Aetna Variable
Life Annuity/
Fixed $ 89,817 $ 89,817 $ 89,817
ixed
</TABLE>
See Independent Auditors' Report.
<PAGE> 102
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 52,870
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 203,923
<INVESTMENTS-CARRYING> 60,146
<INVESTMENTS-MARKET> 63,223
<LOANS> 731,194
<ALLOWANCE> 9,243
<TOTAL-ASSETS> 1,078,475
<DEPOSITS> 746,520
<SHORT-TERM> 147,507
<LIABILITIES-OTHER> 15,378
<LONG-TERM> 48,990
0
0
<COMMON> 4,100
<OTHER-SE> 115,980
<TOTAL-LIABILITIES-AND-EQUITY> 1,078,475
<INTEREST-LOAN> 68,261
<INTEREST-INVEST> 15,522
<INTEREST-OTHER> 201
<INTEREST-TOTAL> 83,984
<INTEREST-DEPOSIT> 32,472
<INTEREST-EXPENSE> 40,616
<INTEREST-INCOME-NET> 43,368
<LOAN-LOSSES> 4,088
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 31,054
<INCOME-PRETAX> 18,047
<INCOME-PRE-EXTRAORDINARY> 18,047
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,846
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.62
<YIELD-ACTUAL> 4.79
<LOANS-NON> 5,533
<LOANS-PAST> 1,643
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,482
<ALLOWANCE-OPEN> 8,243
<CHARGE-OFFS> 3,768
<RECOVERIES> 732
<ALLOWANCE-CLOSE> 9,243
<ALLOWANCE-DOMESTIC> 9,243
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
