Item 1. Business
(a) General Development of Business
C B & T, Inc. ("C B & T") was incorporated in October, 1981 to take advantage of the opportunities afforded bank holding companies for expansion of banking operations and diversification into activities closely related to banking. In September, 1982, C B & T commenced operations as a registered bank holding company and The City Bank and Trust Company became a wholly-owned subsidiary of C B & T. C B & T engages and proposes to engage in various business activities permitted bank holding companies, either directly, through newly formed subsidiaries, or through acquisitions. In 1983, the name of The City Bank and Trust Company was changed to City Bank & Trust Company ("the Bank"). The Bank extended its services into DeKalb County, Tennessee, with the July, 1983, acquisition of the assets of The First Central Bank, Smithville, Tennessee, from the Federal Deposit Insurance Corporation (the "FDIC"). The Bank subsequently reopened the offices of The First Central Bank as the Bank's Smithville Branch.
CBT Realty, Inc., a wholly-owned subsidiary of the Corporation, was formed for the purpose of holding and disposing of real estate acquired through foreclosure.
During 1996, the Corporation formed CBT Insurance, Inc., a wholly- owned subsidiary of the Corporation, for the purpose of selling insurance services.
(b) Financial Information About Industry Segments
C B & T is a financial services organization incorporated in Tennessee and registered under the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). The Bank which is a wholly-owned subsidiary of C B & T, services the Warren County and DeKalb County, Tennessee trade area and provides traditional banking services throughout the area.
(c) Narrative Description of Business
Supervision and Regulation
As a registered bank holding company within the meaning of the Bank Holding Company Act, the financial condition and operations of C B & T as well as those of its subsidiary are subject to examination and supervision by the Board of Governors of the Federal Reserve System (the "Board of Governors"). C B & T is required to file with the Board of Governors an annual report and such additional information as may be required. The Bank Holding Company Act generally limits the business in which a bank holding company may engage to banking, managing or controlling banks, and furnishing or performing services for the banks controlled by it. The major exception to this rule is that, pursuant to Section 4(c)(8) of the Bank Holding Company Act, a bank holding company may engage in non-banking activities which, or may acquire shares in any company the activities of which, the Board of Governors has determined, by regulation or order, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The non-banking activities of C B & T and the Bank are so limited.
The Bank Holding Company Act requires that a bank holding company obtain prior approval of the Board of Governors before (1) acquiring directly or indirectly (except in certain limited circumstances) ownership or control of more than 5% of the voting stock of a bank, (2) acquiring substantially all of the assets of
Item 1. Business-Continued
a bank, or (3) merging or consolidated with another bank holding company. The Bank Holding Company Act provides that the Board of Governors shall not approve any such acquisition, merger, or consolidation: (a) which would result in a monopoly, or which would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States; or (b) the effect of which, in any section of the country, may be to substantially lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade, unless the Board of Governors finds that the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. In conducting its review of any application for approval the Board of Governors is required to consider the financial and managerial resources and future prospects of the company or companies and the banks concerned, and the convenience and needs of the community to be served. The Bank Holding Company Act further requires that consummation of approved acquisitions or mergers be delayed for a period of not less than 30 days following the date of such approval during which time company parties may obtain a review of the Board of Governors' order by filing a petition praying that the order be set aside in the United States Court of Appeals for the District of Columbia Circuit, or in the Court of Appeals for the circuit in which the complaining party has his, her, or its principal place of business. If no action based on the antitrust laws is commenced before the termination of the thirty-day period, the acquisition or merger may not thereafter be attacked in any judicial proceeding on the ground that it alone and of itself constituted a violation of any antitrust laws other than Section 2 of the Sherman Antitrust Act.
Except in certain circumstances, the Bank Holding Company Act also prohibits a bank holding company from acquiring a bank outside the state where the bank holding company's banking business is principally conducted, unless the laws of the state where the bank is located specifically, and not merely by implication, authorize such acquisitions by out-of-state bank holding companies. The Tennessee General Assembly enacted a national reciprocal interstate banking act permitting banking combinations with banking institutions located anywhere in the United States, which became effective January 1, 1991.
Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA") amends the Bank Holding Company Act of 1956 to permit a bank holding company to acquire a bank located in any state, provided that the acquisition does not result in the bank holding company controlling more than 10% of the deposits in the United States or 30% of deposits in the state in which the bank to be acquired is located. A state may waive the 30% deposit limitation. IBBEA also permits individual states to restrict the ability of an out- of-state bank holding company or bank to acquire an instate bank that has been in existence for less than five years and to establish a state concentration limit of less than 30% if such reduced limit does not discriminate against out-of-state bank holding companies or banks.
Effective June 1, 1997, an "adequately capitalized" bank, with the approval of the appropriate federal banking agency, may merge with another adequately capitalized bank in any state that has not opted out of interstate branching and operate the target's offices as branches if certain conditions are satisfied. The same national (10%) and state (30%) deposit concentration limits and any applicable state minimum-existence restrictions (up to a maximum of five years) apply to interstate mergers as to interstate acquisitions. The applicant also must comply with any nondiscriminatory host state filing and notice requirements and demonstrate a record of compliance with applicable federal and state community reinvestment laws. A state may opt out of interstate branching by enacting a law before June 1, 1997, expressly prohibiting interstate merger transactions.
Item 1. Business-Continued
Under IBBEA, the resulting bank to an interstate merger may establish or acquire additional branches at any location in a state where any of the banks involved in the merger could have established or acquired a branch. A bank also may acquire one or more branches of an out-of-state bank if the law of the target's home state permits such action. In addition, IBBEA permits a bank to establish a de novo branch in another state if the host state by statute expressly permits de novo interstate branching.
IBBEA also permits a bank subsidiary of a bank holding company to act as agent for other depository institutions owned by the same holding company for purposes of receiving deposits, renewing time deposits, closing or servicing loans, and receiving loan payments effective as of September 29, 1995. Under IBBEA, a savings association may perform similar agency services for affiliated banks to the extent that the savings association was affiliated with a bank on July 1, 1994, and satisfies certain additional requirements.
The Federal Reserve Act imposes strict limitations on investments by subsidiary banks in the stock or other securities of their parent bank holding company or any of its other subsidiaries and on the taking of such stock or securities as collateral for loans to any borrowers. In addition, the Federal Reserve Act imposes strict limitations on extensions of credit and other transactions by and between subsidiary banks and their parent bank holding company or any of its other subsidiaries. The 1974 Amendments to the Federal Reserve Act also granted the Board of Governors discretionary authority to regulate interest rates on debt obligations issued by bank holding company affiliates of banks which are members of the Federal Reserve System. This authority does not extend to commercial paper.
The Bank Holding Company Act, as amended, and regulations of the Board of Governors thereunder prohibit a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit, lease, or sale of property or the furnishing of services. The Bank Holding Company Act requires that a corporation, partnership, trust, or other specified entity obtain prior approval of the Board of Governors before taking any action that causes the corporation to become a bank holding company, which may occur if it acquires ownership, control, or the power to vote 25% or more of any class of voting securities of a bank, or if it otherwise controls the election of a majority of the directors of the bank, or if the Board of Governors determines that it exercises a controlling influence over the management or policies of the bank. Although the Bank Holding Company Act does not apply to the acquisition of a bank by an individual, any individual or group of individuals acting in concert that proposes to acquire control of a bank insured under the Federal Deposit Insurance Act or the control of a bank holding company that has control of any such insured bank, must provide sixty days prior written notice to the appropriate federal banking agency, which may disapprove the proposed action under certain standards specified in the Change in Bank Control Act. For purposes of the Change in Bank Control Act, control means the power to direct the management or policies of the bank or to vote 25% or more of any class of voting securities of the bank. Bank holding company acquisitions of banks and bank holding companies pursuant to certain provisions of the Bank Holding Company Act are exempt from the Change in Bank Control Act.
Tennessee Bank Holding Company Regulation
C B & T is prohibited under Tennessee law from acquiring a bank outside the four major metropolitan areas (Shelby, Davidson, Knox, and Hamilton Counties in which Memphis, Nashville, Knoxville, and Chattanooga are located, respectively) unless the bank has been incorporated more than five years or is in
Item 1. Business-Continued
financial difficulty as determined by the appropriate regulatory agency and the regulatory agency approves the acquisition. A bank holding company is prohibited from acquiring any Tennessee bank if the holding company's banks control as much as 16 1/2% of the total deposits in all federally insured financial institutions in Tennessee. Tennessee banking laws permit a bank to serve as the agent of another bank for the purposes of accepting deposits, loan payments, or other payments of funds on behalf of the bank without regard to the locations of the respective banks. Under Tennessee law, banks may branch state- wide, subject in certain instances to the approval by the Tennessee Commissioner of Financial Institutions.
The Bank
The operations of the Bank are affected by various requirements and restrictions imposed by the laws of the United States and the State of Tennessee, including requirements to maintain reserves against deposits, limitations on the interest rates that may be paid on various types of deposits, and restrictions on the nature and amount of loans that may be granted and on the types of investments that may be made. The operations of the Bank are also affected by various consumer laws and regulations, including those relating to equal credit opportunity and regulation of consumer lending practices. All subsidiary banks of a bank holding company must become and remain insured banks under the Federal Deposit Insurance Act.
The Bank is chartered under the banking laws of Tennessee and, as such is subject to the applicable provisions of such laws. Tennessee banks are required to maintain certain cash reserves either directly or indirectly. As a member of the FDIC, the Bank is subject to the provisions of the Federal Deposit Insurance Act. The bank, as a state bank whose deposits are insured by the FDIC, may not engage as principal in any type of activity that is impermissible for a national bank, unless the FDIC has determined that the activity would not pose a significant risk to the deposit insurance fund and the Bank meets applicable capital standards. The Bank is subject to supervision and regular examination by the FDIC and by the Tennessee Department of Financial Institutions. A Tennessee bank may declare dividends not more than once in each calendar quarter from its undivided profits account.
Community Investment
The Bank is subject to the provisions of the Community Reinvestment Act ("CRA"). Under this Act, the Bank has a continuing and affirmative obligation, consistent with safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examination of the Bank, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the Bank. Information concerning the Bank's CRA rating can be obtained by contacting its main office at 101 East Main Street, McMinnville, TN 37110.
Item 1. Business-Continued
Restrictions on Dividends Paid by Subsidiary Banks
Substantially all of the funds available for the payment of dividends by C B & T are derived from the Bank. Both federal and state laws impose restrictions on the ability of the Bank to pay dividends.
The Tennessee banking statutes provide that the directors of a state bank, after making proper deduction for all expenditures, expenses, taxes, losses, bad debts, and any write-offs or other deductions required by the Department of Finance Institutions, may credit net profits to the bank's undivided profits account, and therefrom may quarterly, semi-annually, or annually declare a dividend in such amount as they shall judge expedient after deducting any net loss from the undivided profits account and transferring to the bank's surplus account (1) the amount (if any) required to raise the surplus to 50% of the capital stock and (2) an amount, not less than 10% of net profits, until the surplus equals the capital stock, provided that the bank has adequately reserved against deposits and such reserve will not be impaired by the declaration of the dividend. A state bank, with the approval of the Department of Financial Institutions, may transfer funds from its surplus account to the undivided profits account or any part of its capital stock account.
The payment of dividends by any bank is, of course, dependent upon its earnings and financial condition and, in addition to the limitations referred to above, is subject to the statutory power of certain federal and state regulatory agencies to act to prevent unsafe or unsound banking practices.
Usury Provisions
The Constitution of the State of Tennessee requires the state legislature to fix interest rates in the State of Tennessee. The Tennessee General Assembly has adopted such statutes. The general interest rate statutes currently in effect establish a maximum rate of interest at 4% above the average prime loan rate (or the average short-term business loan rate, however denominated) for the most recent week for which such average rate has been published by the Board of Governors or 24% per annum, whichever is lower. In the event that the Board of Governors fails to publish the average rate for four consecutive weeks or the maximum rate of interest should be adjudicated or become inapplicable for any reason whatsoever, the maximum rate of interest is denied to be 24% until the Tennessee General Assembly otherwise provides. As of December 31, 1997, the maximum effective rate in the state of Tennessee was 12.5%.
Although the statutory maximum effective rate in the state of Tennessee as of December 31, 1997, was 12.5%, decisions by Federal District Courts have held that notwithstanding the general interest rate statutes described above, the maximum rate of interest that a state bank may charge is 24%, at least with respect to the types of loans that a Tennessee industrial loan and thrift company registered under the provisions of Tennessee law would have been authorized to make. In general, a Tennessee industrial loan and thrift company is authorized to charge interest at a rate of 24% on loans of $100 or more. These Federal District Court decisions have observed that under federal law, a national bank can charge interest at the highest rate allowed by state law in the state where the national bank is located and held that a national bank in Tennessee can charge interest at the same rate as a Tennessee industrial loan and thrift company.
Tennessee banking laws permit a state bank to make loans upon the same terms and at the maximum effective interest rate as authorized on credit extended by national banks in Tennessee. These decisions held that a state bank in Tennessee therefore can charge the same rate of interest as a Tennessee industrial loan and thrift company.
Item 1. Business-Continued
The relative importance of the usury laws to the financial operations of C B & T and the Bank varies from time to time, depending on a number of factors, including conditions in the money markets, the cost and the availability of funds, and prevailing interest rates. The management of C B & T is unable to state whether existing usury laws have had or will have a material adverse effect on the business or earnings of C B & T or the Bank.
Competition
The banking business in the areas served by the Bank is highly competitive. Competition exists with other area banks for deposits, loans, and trust accounts, and with larger banks located in some of the principal cities within Tennessee and certain other states for commercial loans and trust services. The Bank also competes for funds with savings and loan associations and certain government agencies and in the open money market. Competition also exists for loans from other financial institutions, such as savings banks, savings and loan associations, insurance companies, small loan companies, credit unions, and certain governmental agencies.
Subsidiary
City Bank & Trust Company
The Bank commenced operations in 1912 as a state chartered bank under the laws of the State of Tennessee. In September, 1982, the Bank, pursuant to a corporate reorganization, became a wholly- owned subsidiary of C B & T, a one-bank holding company.
On July 8, 1983, the Bank acquired certain assets and assumed certain liabilities of The First Central Bank, Smithville, Tennessee, which commenced operations as the City Bank & Trust Company, Smithville Branch, on July 11, 1983, which extended the Banks services into DeKalb County in addition to Warren County.
The Bank conducts a full service banking and trust business in Warren County and DeKalb County, Tennessee. The Bank's main office is located in McMinnville, Warren County, Tennessee, and the Bank operates a full service branch in Smithville, DeKalb County, Tennessee. There are four banks, including the Bank, two federal savings banks and one federal credit union within Warren County, which has a population of approximately 33,000. DeKalb County has a population of approximately 14,400 and is served by four banks, including the Bank's Smithville Branch. Both counties are centers of a diversified commercial, industrial, agricultural, and tourism area.
The Bank offers such customary commercial banking services as checking and savings accounts, certificates of deposit, safe deposit facilities and money transfers. Its principal source of income is from interest earned on personal, commercial, agricultural, real estate, and installment loans.
The Bank's Trust Department acts as trustee, executor, and administrator under wills, and serves in trustee, conservator, VA guardian, and agent capacities for individual and corporate customers. It functions as trustee under bond indentures, as well as trustee and administrator under pension, IRA, SEPP, and other employee benefit plans for corporations and other organizations. The Bank handles approximately 582 individual and corporate trust accounts, and provides investment management and other related services. The Bank's Trust Department had assets of approximately $85,991,000 under management as of December 31, 1997. These assets are not included as assets in the balance sheet of the Bank or C B & T.
Item 1. Business-Continued
Employees
C B & T, including the Bank, has approximately 121 employees, which includes six part-time employees. Four of the Bank's officers are also officers of C B & T. None of the Bank's employees are covered by a collective-bargaining agreement.
Distribution of Assets, Liabilities and Stockholder's Equity; Interest Rate and Interest Differential
This table is incorporated herein by reference as a financial table pages 36-39 which are attached to and made a part of the Annual Report to Shareholders which is attached hereto as Exhibit 13.
Investment Portfolio
The investment portfolio is incorporated herein by reference to Notes to Consolidated Financial Statements pages 20-21 which are attached and made a part of the Annual Report to Shareholders which is attached hereto as Exhibit 13.
Loan Portfolio
The loan portfolio is incorporated herein by reference to Notes to Consolidated Financial Statements pages 22-23 which are attached to and made a part of Annual Report to Shareholders which is attached hereto as Exhibit 13.
Risk Element
The risk element is incorporated herein by reference to Notes to Consolidated Financial Statements page 23 which is attached to and made a part of Annual Report to Shareholders which is attached hereto as Exhibit 13.
Summary of Loan Loss Experience
The summary of loan loss experience is incorporated by reference as a financial table page 40 which is attached to and made a part of Annual Report to Shareholders which is attached hereto as Exhibit 13.
Allocation of the Allowance for Possible Loan Losses
The allocation of the allowance for possible loan losses is incorporated herein by reference to Management's Discussion and Analysis of Financial Condition and Results of Operation pages 8 and 9 which are attached to and made a part of Annual Report to Shareholders which is attached hereto as Exhibit 13.
Item 1. Business-Continued
Deposits
The deposits are incorporated herein by reference to Notes to Consolidated Financial Statements pages 25 and 26 which is attached to and made a part of Annual Report to Shareholders which is attached hereto as Exhibit 13.
Financial Ratios
Financial ratios are incorporated by reference as a financial table page 41 which is attached to and made a part of Annual Report to Shareholders which is attached hereto as Exhibit 13.
Short-Term Borrowings
There were no short-term borrowings with an average balance outstanding during the year as great as 30% of shareholders' equity at December 31, 1997.
Item 2.
Item 2. Properties
A discussion of the properties owned by the Corporation and the Bank is incorporated herein by reference to Notes to Consolidated Financial Statements page 24 which is attached to and made a part of Annual Report to Shareholders which is attached hereto as Exhibit 13.
Item 3.
Item 3. Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business known to the Board of Directors to which C B & T or the Bank is a party or of which any of their property is subject.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the Shareholders during the fourth quarter of the fiscal year ended December 31, 1997.
Item 4(b). Executive Officers of Registrant
The following is a list of March 2, 1998 showing the names and ages of all executive officers of the registrant, the nature of any family relationship between them, and all positions and offices held by each of them:
Name Age Positions and Offices Held
Jeffrey A. Golden* 57 Chairman of the Corporation and the Bank since October 1994. President and Chief Executive Officer of the Corporation since November, 1981 and the Bank since January, 1982.
M. Thomas Mullican* 76 Vice Chairman of Corporation since April, 1983; Board of Directors of Corporation since November, 1981. Farmer and Investor.
Larry E. Brown* 51 Executive Vice President of the Corporation and the Bank since April, 1987; Senior Vice President of the Bank, 1986 - 1987.
Ann Martin 48 Secretary of Corporation since November, 1986; Secretary to the Board since December, 1986.
James H. Hillis 58 Treasurer of the Corporation since October, 1983; Senior Vice President of the Bank since April, 1983.
* Member of C B & T's Executive Committee
All of the officers of C B & T listed above are subject to re- election at the Board of Directors meeting following the Annual Meeting of Shareholders scheduled for May 29, 1998.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters
The market for C B & T's Common Stock and related shareholder matters are incorporated herein by reference to Common Stock Market Price Information on page 42 of the Annual Report to Shareholders which is attached hereto as Exhibit 13.
Item 6.
Item 6. Selected Financial Data
The selected financial data is incorporated herein by reference to Consolidated Selected Financial Data on page 42 of the Annual Report to Shareholders which is attached hereto as Exhibit 13.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference to Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 7-12 of the Annual Report to Shareholders which is attached hereto as Exhibit 13.
Item 8.
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary data are incorporated herein by reference to the Consolidated Financial Statements on pages 12-35 of the Annual Report to Shareholders which is attached hereto as Exhibit 13.
Item 9.
Item 9. Disagreements with Accountants on Accounting and Financial Disclosure
C B & T and its accountants have had no reportable disagreement on any matter of accounting principles or practices or financial statement disclosure.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
FOOTNOTES
1 Unless otherwise indicated, all shares are owned of record.
2 1,900 shares are registered to Robert W. Boyd, Sr. or Eleanor Boyd (Mr. Boyd, Sr.'s wife).
3 1,688 shares are registered to John R. Collier, Jr.
100 shares are registered to Suzanne E. Collier Reynolds (Mr. Collier, Jr.'s daughter).
300 shares are registered to Pleasant Cove Nursery, Inc. (Mr. Collier, Jr. is President of PleasantCove Nursery, Inc.).
4 2,971 shares are registered to James A. Dillon, Jr.
223 shares are registered to James A. Dillon, Jr. and Phyllis M. Dillon (Mr. Dillon, Jr.'s wife).
532 shares are registered to Phyllis M. Dillon (Mr. Dillon, Jr.'s wife).
5 1,404 shares are registered to Jeffrey A. Golden WROS Linda Golden.
605 shares are registered to Linda Golden WROS Jeffrey A. Golden.
6 360 shares are registered to Charles D. Haston.
92 shares are registered to Charles D. Haston, a general partnership.
7 1,000 shares are registered to James H. or Carolyn Hillis (Mr. Hillis's wife).
8 14,386 shares are registered to J. Paul Holder.
36 shares are registered to Steven Thomas Holder, Trust UMGA (Mr. Holder's grandson) and J. Paul Holder, Trustee
9 10,168 shares are registered to M. Thomas Mullican.
270 shares are registered to Connie W. Mullican (Mr. Mullican's wife).
(b) Identification of Executive Officers - Information regarding identification of executive officers may be found in Item 4(b) of Part I of this Form 10-K.
(c) Section 16(a) reporting Delinquencies - Under the Securities Laws of the United States, the Corporation's directors, executive officers and any person who holds more than ten percent (10%) of the Shares of the Corporation are required to report their ownership of the Shares and any changes in that ownership to the Securities and Exchange Commission (the "SEC"). These persons are also required by the SEC's regulations to furnish the Corporation with copies of these reports. Specific due dates for these reports have been established by the SEC, and the corporation is required to report in this Proxy Statement any failure to file by these dates during 1997. Based solely upon a review of the reports furnished to the corporation or written representations from the Corporation's direcors and executive officers, the Corporation believes that, during the 1997 fiscal year, all filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied.
Item 11.
Item 11. Executive Compensation
The following table sets forth the aggregate compensation accrued or paid by the Bank during the fiscal years ended December 31, 1997, 1996, and 1995 to the highest compensated officers whose aggregate compensation exceeds $100,000.00.
SUMMARY COMPENSATION TABLE
Annual Compensation Name of Individual All Other Co and Principal Position Year Salary Bonus Compensation (1)
Jeffrey A. Golden 1997 $138,000.00 $ 10,350.00 $31,718.06 Chairman of the Board, 1996 133,500.00 10,012.50 22,499.35 President and Chief 1995 130,000.00 9,750.00 20,684.04 Executive Officer
Larry E. Brown 1997 $93,000.00 $6,975.00 $28,107.30 Director of Bank and 1996 90,000.00 6,750.00 21,147.71 Executive Vice President 1995 86,500.00 6,487.50 15,518.76
James H. Hillis 1997 $83,500.00 $6,262.50 $23,213.44 Director and Treasurer 1996
(1) All Other Compensation for Mr. Golden, Mr. Brown and Mr. Hillis includes Director fees for the Bank both cash paid and deferred fees, deferred compensation paid pursuant to the Corporation's 401(k) plan, a premium payment for life insurance, use of a bank vehicle and country club dues.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and management may be found in Item 10(a) of Part III of this Form 10-K.
Item 13.
Item 13. Certain Relationships and Related Transactions
Some of the Corporation's directors and officers, businesses with which they are associated, and members of their immediate families are at present, as in the past, customers of the Bank and have had transactions with the Bank, including borrowings. All transactions involving loans to such persons and businesses have been made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other borrowers. In the opinion of the Board, such transactions do not involve more than a normal risk of collectibility nor present any other unfavorable features.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) The response to this portion of Item 14 is submitted as a separate section of this report.
(3) The following exhibits are filed herewith:
(3) February 10, 1998 Amendment to Corporate Bylaws
(13) Annual Report to Security Holders
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 its behalf by the undersigned, thereunto duly authorized.
C B & T, Inc.
By: /s/ Jeffrey A. Golden Jeffrey A. Golden, Chairman, President, Chief Executive Officer
Date: March, 10, 1998
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 and on the dates indicated.
/s/ Jeffrey A. Golden Jeffrey A. Golden, Chairman President, Chief Executive Officer
(Principal Executive and Financial Officer)
Date: March 10, 1998
/s/ Jerry N. Brown Jerry N. Brown, Senior Vice President City Bank & Trust Company
(Chief Financial Officer)
Date: March 10, 1998
SIGNATURES -- Continued
/s/ Robert W. Boyd, Sr. /s/ James H. Hillis Robert W. Boyd, Sr., Director James H. Hillis, Director
Date: March 10, 1998 Date: March 10, 1998
/s/ Larry E. Brown /s/ J. Paul Holder Larry E. Brown, Director J. Paul Holder, Director
Date: March 10, 1998 Date: March 10, 1998
/s/ John R. Collier, Jr. /s/ M. Thomas Mullican John R. Collier, Jr., Director M. Thomas Mullican, Director
Date: March 10, 1998 Date: March 10, 1998
/s/ James A. Dillon, Jr. /s/ James A. Puckett James A. Dillon, Jr., Director James A. Puckett, Director
Date: March 10, 1998 Date: March 10, 1998
/s/ Jeffrey A. Golden /s/ Leon B. Stribling Jeffrey A. Golden, Director Leon B. Stribling, Director
Date: March 10, 1998 Date: March 10, 1998
/s/ Charles D. Haston /s/ James E. Walling Charles D. Haston, Director James E. Walling, Director
Date: March 10, 1998 Date: March 10, 1998
Form 10-K -- Item 14(a)(1) and (2) and Item 14(d)
C B & T, Inc. and Subsidiaries
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of C B & T, Inc. and Subsidiaries, included in the annual report of the registrant to its shareholders for the year ended December 31, 1997, and incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets -- December 31, 1997 and 1996
Consolidated Statements of Income -- Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity -- Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows -- Years ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements -- December 31, 1997, 1996 and 1995
All schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.
EXHIBIT INDEX
C B & T, INC.
Exhibit Number Title or Description
(3) February 10, 1998 Amendment to Corporate Bylaws
(13) Annual Report to Security Holders
EXHIBIT 3
BYLAWS
C B & T, INC.
THIS AMENDMENT TO THE AMENDED AND RESTATED BY-LAWS OF C B & T, INC. (this "Amendment") is made and adopted as of the 10th day of February, 1998, by the board of directors of C B & T, Inc. (the "Board").
WITNESSETH:
WHEREAS, the Board deems it to be in the best interest of the Company to permit greater flexibility in setting the date of its annual meeting, it is therefore
RESOLVED that the Amended and Restated Bylaws for C B & T, Inc., be amended as follows:
Article I- Meetings of Shareholders, Section 1 "Annual Meeting": shall be replaced in its entirety with the following:
"The annual meeting of the shareholders shall be held at such time and place, either within or without the State of Tennessee, as may be designated from time to time by the Directors, consistent with state and federal law. Unless the time and place are otherwise specified by the Directors, the meeting shall be held on the second Tuesday in April of each year, at the main office of the Company."
IN WITNESS WHEREOF, the parties hereto have approved this Amendment as of the day and year first above written to be included in the official minutes of the meeting of the Board.
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
C B & T, INC.
C B & T, INC. AND ITS SUBSIDIARIES CITY BANK & TRUST COMPANY
Financial Review
Forward............................................................... 2
Letter From the President............................................. 6
Financial Discussion.................................................. 9
Report of Independent Certified Public Accountants....................14
Consolidated Balance Sheets...........................................15
Consolidated Statements of Income.....................................16
Consolidated Statements of Shareholder's Equity.......................17
Consolidated Statements of Cash Flows.................................18
Notes to Consolidated Financial Statements............................19
FORWARD
City Bank & Trust Company has completed 85 years of dedicated service to our trade area. We opened our doors for business on April 1, 1912 and received a Charter on October 30, 1912 as a State Bank. Since that first day, the bank has been among those at the forefront of business, agricultural, industrial Picture and technological functions that have helped develop the economy of our trade area. As we celebrate we want to review where we have been and tell you where we are headed.
At the age of 72, having contributed more than 50 years of business and banking leadership to the community, the elder Mr. Jesse Walling began the bank with the help of his three sons, H.R. Walling, E.W. Walling and C.D. Walling. Pa "J" as he was affectionately called was the bank's first President. Huel Walling served as the Cashier and E.W. filled the position of Vice President. The bank has continued to live by the pledge made by the Walling's to serve the customers and the community aggressively and efficiently. Assets on opening day were $42,648.54. One of the town's most aggressive business men and an influential civic and political leader assumed the presidency of City Bank & Trust company with the retirement of the founder. He was James D. Elkins, whose business affiliations also included President of the McMinnville Hardware and Furniture Company.
He hired the first woman, Mrs. Georgia Moore who became the bank's first Assistant Cashier and the first woman officer. In 1932 the bank merged with Peoples National Bank of McMinnville. The bank successfully weathered the bank PICTURE holidays declared in March, 1933 by the President of the United States and emerged from the crucial economic period an even stronger financial institute passing the one- million dollar mark with assets of $1,026,076.44 in 1935.
The bank's founder, Jesse Walling died March 11, 1930, followed by the unexpected death in 1936 of President Elkins. Turning to the official family, the bank's directors elected C. D. Walling as president to succeed Mr. Elkins. The new president brought with him to the office a wealth of knowledge not only of the banking business, but of the area served by the bank and it's people. Being the son of the founder and having "grown up" in the bank, he was eminently qualified to succeed to the presidency until 1966 when Mr. H. B. Roney was named to the presidency. Keeping in mind the founders dedication of the bank to service, management soon found the banking quarters to be inadequate to provide the services needed by the community. The Board of Directors quickly responded by opening the West Main Branch in October, 1964. This provided the first drive-in facility in Warren County.
In January 1962 the Board of Directors named Mr. Joe H. Womack was the bank's first Assistant Vice President. He was known for his wisdom in agricultural lending and progressed to the position of Senior Vice President and member of the Board of Directors.
Mr. Roney was a colorful individual who served this institution for almost two decades in the areas of Cashier, Vice President, Executive Vice President, President and only briefly as President Emeritus. He was a person who had a love for life and a love for helping others. He was a man that appreciated his staff and PICTURE wanted them to do well. He was constantly encouraging them and giving them moral and educational support. Under his leadership Jeffrey A. Golden became the first First Vice President. He progressed quickly through the ranks and currently serves as the banks' Chair- man of the Board, President and Chief Executive Officer, the only person to hold all three titles. Mrs. Glyna F. Lee became the bank's first woman loan officer, she too became a leader in the financial industry, and is currently serving as Senior Vice President and Director of Marketing and Business Development. Early on as President it became clear to Mr. Roney and the Board that we were in need of another location to handle the growth of the bank. Again the Board of Directors quickly initiated plans which resulted in the opening of the Plaza Branch in temporary quarters in April, 1967. The permanent structure was completed and occupied in February, 1968. After opening two modern banking facilities within a four year period, City Bank & Trust Company was still facing another problem in order to provide adequate banking services. The facilities at the Main Office were crowded to capacity, with a need for expansion. After acquiring some adjoining property, plans were formulated to construct a new main office building. In February 1968, City Bank & Trust Company moved into temporary quarters to allow for the renovation of the new building which was occupied in May, 1969. In 1974 the Mt. Leo Branch was opened. Under Mr. Roney's leadership the bank grew to $68,670,000.00 by year end 1978 when Mr. Roney retired and the Board of Directors elected long time employee Jeffrey A. Golden as President.
Mr. Golden became the youngest President in the bank's history, taking over the helm at the age of 38. Under his leadership the bank has experienced the greatest growth in the history of the bank, with assets soaring from $68 to $265 million. In 1980 the Federal Deposit Insurance Corporation and the Tennessee Banking Department approved the opening of our fifth branch on March 1, 1981 at the Three Star Mall. The bank began to offer two new types of accounts The N.O.W account, which stood for "Negotiable Order of Withdrawal," worked like a regular savings account, and the new tax free All Savers Certificate was introduced. As the bank was experiencing great growth Mr. Golden saw the need to restructure the bank and set up division heads so that more time could be devoted to strengthening the different areas of the bank. Today Larry E. Brown, Executive Vice President of the bank oversees the divisions. The following people presently head these divisions. Loan Division, Senior Vice President James H. (Dickie) Hillis; Operations
Division, Senior Vice President and Chief Financial Officer Jerry N. Brown; Marketing/Business Development Division, Senior Vice President Glyna F. Lee; Trust/Investment Divi- sion, Senior Vice President Kenneth W. Smith, and the Data Processing Division, Vice President Edward Wayne Martin. PICTURE
Under the wise leadership of Mr. Golden another historic event occurred in the growth of City Bank & Trust Company when at the annual shareholders meeting, 90.74% of the shareholders concurred with recommendations of Manage- ment and the Board of Directors in approving plan to reorganize The City Bank & Trust Company into a one bank holding company structure to be known as C B & T, Inc. This new structure positioned the bank to compete in the new deregulated market place. Many new deposit accounts were introduced. It also brought about a different form of lending as the need for variable rate loans came into place. Changes in tax laws brought about changes for wage earners in the Individual Retirement Account program (IRA) that allowed the deferment of income, as well as earnings on that income. Deregulation gave use the ability to become more competitive by being a more complete financial planner for our customers and still provide personal service.
City Bank & Trust Company's strength and commitment continued to grow and in July of 1983 the bank was invited by the Federal Deposit Insurance Corporation to bid for the purchase of certain assets and assume certain liabilities of the First Central Bank of Smithville. The bank was successful in this acquisition on July 8, 1983. The bank continued to expand and offer new services which included the direct Federal Reserve Wire Service, expanded leasing programs, MasterCard Gold cards, investment and brokerage services, personal and home equity lines of credit, limited insurance activities and discount brokerage services.
In 1986, Mr. Frank Henegar, the oldest person to serve on the bank's Board of Directors died at the age of 98 after serving this institution for 39 years. He achieved the singular distinction of "Tennessee's Most Senior Bank Board Member" presented by the Tennessee State Senate. During that same year, Mrs. Edith Ann Martin was named Secretary to the Bank's Board Directors. A job she so capably handles to this date.
As the bank faced the 90's there was a concern for many of the nations banks. A recognized beginning of a national recession, and a threat of war in the Middle East. However, C B & T, Inc. grew and prospered during this difficult period. The bank continued to be a leader in extending new products & services with new Automated Clearing Operations, which included new service offerings of direct deposit, payroll services, automatic bill paying, cash concentrations, and corporate trade payments.
In October, 1994, an era of leadership was brought to an end upon the retirement of Mr. Clarence D. Walling, Jr.. The Walling family had served CB &T, Inc., and its subsidiary, City Bank & Trust Company from its beginning. Mr. Jesse Walling, founder of City Bank & Trust Company served as Chairman from 1912 until his death on March 11, 1930. His son, Mr. Clarence D. Walling, Sr. was an original signer of the corporate charter and virtually served his lifetime for this institution and this community. His term as chairman ended withi his untimely death in 1969. Mr. C D. Walling Jr. then served as Chairman from 1970 until 1994 and served as Chairman of C B & T, Inc. from its inception date in 1981 until 1994, at which time his retirement concluded the Walling era.
1996 was a very successful year for the bank. Business customers were offered a Cash Management Investment Account. This program offered business customers an efficient means of managing their daily funds and earning a fair return on excess cash through the use of repurchase agreements of U.S. Government Securities. The Bank rolled out the new 24-Hour Telephone Banking service, that offered voice response information to customers, day or night as well as Loans-by-Phone. The opening to the new SuperCenter Branch in the Wal-Mart Super Store facility offered new extended banking hours with a 24-hour full service ATM in a safe and secure environment.
A full service ATM was installed in the new River Park Hospital and a cash dispenser in the Calsonic Yorozu Corporation plant in Morrison, Tennessee. The H. G. Hill property adjacent to the West Main Branch was purchased in order to expand the West Main facility. The Board of Directors approved the organization of two new companies. CBT Insurance, Inc. was organized to provide the bank new opportunities in the insurance arena. CBT Realty, Inc. was organized for the purpose of holding and disposing of foreclosed properties.
As we celebrated our 85th Anniversary many events were planned for our customers and staff. The bank held customer appreciaion day on the first Friday of each month in McMinnville and Smithville. The staff participated in several in-house contests and promotions, which also involved our customers. There was a pumpkin contest for the kids, fall decorating contest throughout the bank and a drawing was held for $1,000.00 in cash. The employees continued to be involved in local charity, raising thousands of dollars. Also in 1997, there was a focus on training for our entire staff, preparing our people for the twenty-first century. To better serve our customers, a cash machine was installed at our Three Star Mall Branch.
During the last 85 years the bank and its employees have won many awards for community service, exhibiting sustained superior performance through strong leadership, as well as, the hard work, talent and input of our employees on behalf of our customers and community. Among the bank awards are the 5 Star Superior Bank Award by Bauer Financial, Named Employer of the Year by the Tennessee Committee for People with Disabilities, Named the "Best Bank" in a community wide contest sponsored by the Southern Standard Newpaper, received an "Obelisk" from KPMG Peat-Marwick of New York for being a Superior Bank, selected as the "Business of the Year" by the African-American Athletic & Scholarship organization and received an "A" rating by Sheshunoff for many years.
As we look to new horizons, we see the financial market becoming global, the economy is shifting more and more toward services, and toward work knowledge. New technologies -- especially computers and telecommunications -- have already created intense, worldwide competition for business. Considering the scope and speed of change these days, there will be may priceless opportunities for those of us who play by the new rules, position ourselves right, and take personal responsibility for our future. We can't stop the world from changing. The best we can do is adapt. As we move into the twenty- first century we pledge to you our continued leadership, superior service and our efforts to improve the quality of life for all we serve.
TO OUR SHAREHOLDERS AND FRIENDS:
1997 symbolizes 85 years of dedicated service to our trade area. We realize the success of C B & T, Inc. and its subsidiary City Bank & Trust Company could not have been possible without the support and encouragement of our shareholders and friends; the excellent perfor- mance of our current staff and those who have served in the past years; our management for PICTURE their leadership and commitment; and our Board of Directors for their participation and guidance. Thanks to each of you for your part in the many successes that we have enjoyed throughout these 85 years.
We are happy to report that 1997 was a very successful year as indicated by the following highlights:
* Income per share increased by $0.79 to a record high of $16.16 while maintaining a l.60% return on assets
* The percentage of net income to average shareholders' equity at year-end was 13.33%.
* Shareholders' equity to total average assets increased to 11.98% after paying a record high $7.50 cash dividend.
* The percentage of dividends declared per average common share to net income per average common share increased to 46.41%.
The philosophy of our board and management team is to keep pace with changes and opportunities and provide our market area with a high quality, high performing, full service financial institution. Therefore, on January 8, 1998, a public announcement was made as a result of a decision made by our Board of Directors to merge (subject to shareholder and regulatory approval) with Union Planters Corporation, a Memphis, Tennessee based corporation, who like C B &T, Inc. and its subsidiary, City Bank & Trust Company, is a very highly community-oriented company. Personally, I feel this decision will enable us to keep pace with change and technology and provide more resources while maintaining high quality services. Also you will continue to see the same friendly contact staff and management who serve you on a daily basis.
Please review in detail the financial data and the proposed merger information. I encourage you to vote FOR the adoption of the Agreement and the Plan of Merger and return your Proxy to us as soon as possible.
We sincerely appreciate and value your business and ask that you encourage your family and friends to use our services.
Yours truly,
Jeffrey A. Golden Chairman of the Board President and Chief Executive Officer
C B & T, Inc. And Subsidiaries Board of Directors
PICTURE OF BOARD
C B & T, Inc. And subsidiaries officers and advisory committee
C B & T, INC. - Officers
CITY BANK & TRUST COMPANY - OFFICERS
CITY BANK & TRUST COMPANY - SMITHVILLE ADVISORY COMMITTEE H. J. Judkins Vester Parsley H. J. Judkins & Attorney-at-Law Son Nursery, Inc.
Jim Ed Rice Norval Webb, Jr. Picture of Advisory Local Businessman F.Z. Webb & Son Pharmacy Committee
Leon B. Stribling Mark Ashburn Stribling Chevrolet Manager, Smithville Elec. System - -Geo, Inc.
Jeanette France Lena Buck Farming Operation Attorney-at-Law
Financial Discussion
The following discussion is presented to assist in understanding the current financial condition and results of operations of C B & T, Inc. and subsidiaries. This discussion should be read in conjunction with the consolidated financial statements and related disclosures presented in other sections of this annual report.
PERFORMANCE OVERVIEW
Net income for 1997 was $4,271,000 or $16.16 per share, compared to $4,117,000 or $15.37 per share in 1996 and $4,067,000 or $15.00 per share in 1995. Two key measures of performance in the banking industry are return on average equity (ROE) and return on average assets (ROA). ROE is the ratio of income earned to average shareholders' equity. ROE for 1997 was 13.33 percent compared to 13.76 percent in 1996 and and 14.37 percent in 1995. ROA measures how effectively a corporation uses its assets to produce earnings. For 1997, return on average assets was 1.60 percent. ROA was 1.60 percent in 1996 and 1.64 percent in 1995. ROE and ROA have been negatively impacted by an increase in the net loan charge offs in 1997 and 1996 as compared to 1995.
NET INTEREST INCOME
The Corporation's primary source of earnings is net interest income, which is the difference between revenue generated from earning assets and the interest cost of funding those assets. For discussion, net interest income is adjusted to reflect the effect of the tax benefits of certain tax-exempt investments and loans to compare with other sources of interest income. Net interest income on a fully taxable- equivalent basis has increased to $12,142,000 in 1997, from $11,903,000 in 1996 and $11,334,000 in 1995. Net yield on interest earning assets, which is net interest income on a tax equivalent basis divided by average earning assets, was 4.85 percent in 1997, compared with 4.93 percent in 1996 and 4.87 percent for 1995. Average earning assets, as a percentage of total assets, decreased slightly to 93.7 in 1997 compared to 93.8 percent in 1996 and 93.9 percent in 1995.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is an operating expense recorded to maintain the related balance sheet allowance account that is provided to cover losses that may be incurred in the normal course of lending. The total provision for possible loan losses was $413,000 in 1997, $628,000 in 1996, and $376,000 in 1995. Management regularly monitors the allowance for possible loan losses and considers it to be adequate.
NONINTEREST INCOME
Total noninterest income of $2,122,000 in 1997 increased $64,000 or 3.1 percent, when compared to 1996. This follows an increase of 13.3 percent in 1996 and 35.5 percent in 1995. Service charges on deposit accounts increased $12,000 in 1997 due, principally, to growth in transaction and savings deposit accounts. Other service charges decreased $67,000 in 1997, due, principally, to reductions in credit life and accident and health insurance commissions. Gains and losses on the sale of investment securities also impact comparisons. Security transactions resulted in a gain of $36,000 in 1997 and in losses of $22,000 and $14,000 in 1996 and 1995.
NONINTEREST EXPENSES
Noninterest expenses increased 4.2 percent in 1997, a slightly lower rate of growth than the 5.6 percent in 1996 and higher than 3.2 percent in 1995. The smaller increase in 1997 can be attributed to a leveling of salaries and other expenses. Salaries, wages and benefits accounted for 54.9 percent of total noninterest expense in 1997 compared to 56.5 percent of total noninterest expense in 1996 and 56.0 percent in 1995. Federal Deposit Insurance Corporation's insurance assessment increased $25,000 in 1997 after a decrease of $240,000 in 1996 and a decrease of $235,000 in 1995.
Financial Discussion
INCOME TAXES
One element of the Corporation's tax planning is the implementation of various investment and loan strategies to maximize after-tax profits. This planning is an ongoing process which considers the levels of tax- exempt securities and loans, investment securities gains or losses and allowable loan loss deductions. The Corporation's effective income tax rate (income tax expense divided by income before income taxes) is less than the statutory rate primarily due to income on tax-exempt securities and loans. It should be recognized that the yield on these types of assets is considerably less than on other investments of the same maturity and risk.
The income tax provision was $1,754,000 in 1997 compared with $1,856,000 in 1996 and $1,788,000 in 1995. The Corporation's effective tax rate was 29.1 percent in 1997, 31.1 percent in 1996 and 30.5 percent in 1995.
It has been determined that for the year ended December 31, 1997, a valuation allowance is not required on any of the deferred tax assets recorded due, primarily, to the earnings history of the Corporation and the significant amount of federal income taxes paid in prior years.
CREDIT QUALITY AND EXPERIENCE
Impaired Loans
Effective January 1, 1995, the Corporation and the Bank adopted Statement of Financial Accounting Standards No. 114. (as amended by No 118), "Accounting by Creditors for Impairment of a Loan". SFAS 114 established the accounting by creditors for impairment of a loan by specifying how allowances for possible loan losses related to certain loans should be determined. This Statement also addresses the accounting by creditors for certain loans that are restructured in a troubled debt restructuring. A loan is considered impaired when it is probable that an institution will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement. Management evaluates smaller balance homogeneous loans collectively for impairment. Loans collateralized by one-to- four family residential properties, consumer installment loans and credit card loans are considered smaller-balance homogeneous loans.
Loans that are ninety days past-due, loans on non-accrual status, loans that are restructured in a troubled debt restructuring, and loans that are included on the Bank's problem loan list are evaluated for impairment. A loan on non-accrual status is a loan on which interest accruals are discontinued. Interest accruals are discontinued when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that it is not reasonable to expect that such interest will be collected. Interest income is subsequently recognized only to the extent of the excess of cash payments received over the principal balance due.
When a loan is impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. For collateral dependent loans, impairment is measured based on a loan's observable market price or the fair value of the collateral. The entire change in the net carrying amount is reported as an adjustment to the provision for possible loan losses, but in no event are changes in the net present value used to justify having a loan on the Bank's books at a value that exceeds its recorded investment. Estimated losses from impaired loans are included in the Bank's allowance for possible loan losses. Impaired loans are charged-off once management has exhausted all efforts to collect the loan.
Inherent in the business of providing financial services is the risk involved in extending credit. Management believes the objective of a sound credit policy is to extend quality loans to customers while reducing risk affecting shareholders' and depositors' investments. Risk reduction is achieved through diversity of the loan portfolio as to type, borrower, and industry concentration as well as sound credit policy guidelines and procedures.
Total impaired loans at December 31, 1997 were $1,404,000 compared to $1,733,000 and $398,000 at December 31, 1996 and 1995 respectively. The ratio of impaired loans to the allowance for loan losses at December 31, 1997, was 73.4 percent compared to 89.7 percent and 21.4 percent at December 31, 1996 and 1995, respectively. Total impaired loans as a percentage of total loans decreased to 1.0 percent at December 31, 1997, compared to 1.2 percent at December 31, 1996 and 0.3 percent at December 31, 1995.
Financial Discussion
Allowance for Possible Loan Losses and Loan Charge-Offs
The allowance for possible loan losses is maintained to cover losses that may be incurred in the normal course of lending. The allowance for possible loan losses is increased by provisions charged against income and recoveries of loans previously charged off. The allowance is decreased by loans that are determined uncollectible by management and charged against the allowance, net of recoveries.
In determining the adequacy of the allowance for possible loan losses, management on a regular basis evaluates and gives consideration to the following factors: estimated future losses of significant loans including identified problem credits; historical loss experience based on volume and types of loans; trends in portfolio volume, maturity and composition; off-balance sheet credit risk; volume and trends in delinquencies and non-accruals; economic conditions in the market area; and any other relevant factors that may be pertinent.
Potential problem loans are those loans which are on the Corporation's "watch list". These loans exhibit characteristics that could cause the loans to become impaired or require restructuring in the future. Periodically, and at a minimum monthly, this "watch list' is reviewed and adjusted for changing conditions.
FINANCIAL CONDITION
The following discussions address key elements of financial condition, including earning assets, the source of funds supporting earning assets, capital adequacy and asset and liability management.
EARNING ASSETS
Loans
At December 31, 1997, loans were $147.5 million, compared to $144.9 million at December 31, 1996. This represents an increase of 1.8 percent in 1997. In 1996, loans increased 3.1 percent from $140.5 million at December 31, 1995.
Loans comprise the majority of the Corporation's earning assets representing 57.7 percent of average earning assets in 1997 and 57.4 percent in 1996. Average loans outstanding increased 4.4 percent in 1997 and 5.1 percent in 1996.
The largest category in the loan portfolio was real estate mortgage loans, which comprised 66.2 percent of total loans at the end of 1997. Installment loans totaled 22.2 percent of the portfolio and commercial, financial and agricultural loans comprised 9.1 percent of the portfolio. All other loans were 2.5 percent of the portfolio. In 1996, real estate mortgages were 66.5 percent of the portfolio, installment loans were 22.1 percent, commercial, financial and agricultural loans were 9.4 percent and other loans were 2.0 percent.
The mix within the commercial loan portfolio is diverse and represents loans to a broad range of business interests located, primarily, within the Bank's defined market area with agribusiness industry being the only concentration. The installment loan portfolio is composed, principally, of financing to individuals for vehicles and consumer assets. The real estate portfolio is primarily residential mortgages.
Loans that mature within one year totaled $49,514,000, or 33.6 percent of the loan portfolio at December 31, 1997.
Investment Securities
The investment portfolio represented 40.7 percent of average earning assets in 1997 and 40.4 percent in 1996. Average investment securities increased 4.5 percent in 1997 compared to 1996. The tax- equivalent yield on the entire portfolio was 7.07, 6.96 and 7.01 percent in 1997, 1996 and 1995, respectively. These investments provide a stable yet diversified income stream and serve useful roles in liquidity and interest-rate-sensitivity management. In addition, they serve as a source of collateral for low-cost funding. The decision to purchase securities is based upon the assessment of current economic, tax status and financial trends.
Financial Discussion
The investment portfolio is comprised of U.S. Treasury and other U.S. Government agency-backed securities, collateralized mortgage-backed securities, tax-exempt obligations of states and political subdivisions and certain other investments. The quality of obligations of states and political subdivisions will be BAA, A, AA, or AAA, the majority of which is AA or AAA, as rated by a nationally recognized service. As a matter of policy, in support of our service area, we may purchase certain unrated bonds of local municipalities provided they are of reasonable credit risk.
On November 15, 1995, the Financial Accounting Standards Board issued a guide for the implementation of SFAS 115 which allowed a bank to reassess the appropriateness of the classification of all securities held at November 15, 1995 and until December 31, 1995, and account for any resulting changes in classifications as a transfer. Changes in classification from the held-to-maturity category that result from this one-time reassessment did not call into question the intent of a bank to hold other debt securities to maturity in the future. As a result of this one-time reassessment, on November 30, 1995, the Bank transferred securities with a book value of approximately $42.8 million and related unrealized gains and losses of approximately $0.8 million and $0.2 million, respectively (net unrealized gain of approximately $0.6 million), from held-to-maturity to available-for- sale.
As of December 31, 1997, all investment securities were classified as available-for-sale. Management classified all securities as available- for-sale so that securities may be sold prior to their maturity for purposes of bank asset allocations, rate sensitivity or liquidity and, hence, tend to be more liquid.
Federal Funds Sold
Federal funds sold are used to manage interest rate sensitivity and to meet liquidity needs. During 1997, 1996 and 1995, these funds represented approximately 1.5 percent, 2.2 percent and 2.2 percent, respectively, of average earning assets.
SOURCES OF FUNDS
Deposits
The Corporation's major source of investable funds is core deposits from retail and business customers. Core deposits consist of interest- bearing and noninterest-bearing deposits, including certificates of deposit over $100,000. Average interest-bearing core deposits, comprised of interest-bearing checking accounts, savings, certificates of deposit, money market and other time accounts, increased 2.7 percent in 1997, compared to 5.0 percent in 1996 and a 5.3 percent reduction in 1995. Average demand deposits (noninterest-bearing core deposits) increased 2.4 percent in 1997, 0.8 percent in 1996 and 10.3 percent in 1995. These deposits represent approximately 12.6 of average core deposits in 1997 and 1996.
Federal Home Loan Bank Borrowings
In 1997 these average borrowings increased slightly to 2.7 percent of average assets compared to 2.6 percent in 1996.
Shareholders' Equity and Capital Adequacy
Shareholders' equity is a stable, noninterest-bearing source of funds which provides support for asset growth and is the primary component of capital. Capital adequacy refers to the level of capital required to sustain growth over time and to absorb unanticipated losses. Shareholders' equity at December 31, 1997, was $34.9 million, or $132.09 per share, compared with $32.2 million, or $121.85 per share at December 31, 1996 and $30.7 million, or $113.92 per share at December 31, 1995. At December 31, 1997, the Corporation's leverage ratio was 12.5 percent. At December 31, 1997, the Corporation's risk- based capital ratios based on Federal Reserve Board guidelines were 22.5 percent for Tier 1, or "core" capital, and 23.8 percent for total qualifying capital. At December 31, 1996, the Corporation's leverage ratio was 12.2 percent. At December 31, 1996, the Corporation's risk- based capital ratios based on Federal Reserve Board guidelines were 21.4 percent for Tier 1 or "core" capital and 22.7 percent for total qualifying capital. These ratios substantially exceed the Federal Reserve Board's capital guidelines for a well-capitalized institution, which are 6.0 percent for Tier 1, 10.0 percent for total qualifying capital, and 5.0 percent for leverage ratio. It is management's intent to maintain a level of capitalization that allows the flexibility to take advantage of opportunities that may arise in the future.
Financial Discussion
INTEREST RATE SENSITIVITY
Balance sheet structure and interest rate changes play important roles in the growth of net interest income. The Bank's Asset/Liability Committee manages the overall rate sensitivity and mix of the balance sheet to anticipate and minimize the effects of interest rate fluctuations and to maintain a consistent net interest margin. Interest rate risk is monitored through gap analysis to ensure proper positioning of the Corporation in various interest rate scenarios.
LIQUIDITY
Liquidity management ensures that the cash flow requirements of borrowers, depositors and the Corporation can be met. The funds for short-term liquidity needs are provided through maturing securities, the Bank's extensive core deposit base, payments received on loans and the acquisition of new deposits. Long-term funding needs can additionally be met, if required, through the issuance of common stock. The Corporation's liquidity is considered by management to be adequate to meet all current and projected levels of need.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS ON THE FINANCIAL STATEMENTS WHEN ADOPTED IN A FUTURE PERIOD
The Financial Accounting Standards Board (FASB) has issued two standards that have not been adopted by C B & T, Inc. but will be required to adopt after December 31, 1997 as follows:
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income a. Effective for fiscal year beginning after December 15, 1997. b. The purpose of reporting comprehensive income is to report a measure of all changes in equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity or owners. c. Management does not believe this statement will have any material effect on future financial statements.
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information a. Effective for fiscal year beginning after December 15, 1997. b. This statement applies to public business enterprises. c. An operating segment is a component of an enterprise: 1. That engages in business activities from which it may earn revenue and incur expense. 2. Whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and 3. For which discrete financial information is available. d. Management does not believe this statement will have any material effect on future financial statements.
The Financial Accounting Standards Board (FASB) has issued two standards that have been adopted by C B & T, Inc. as follows:
Statement of Financial Accounting Standards No. 128, Earnings Per Share a. Effective prospectively for earnings per share computation for both interim and annual periods ending after December 15, 1997. b. The statement requires a reconciliation of the numerators and the denominators of the basic and diluted per- share computation for income and from continuing operations. c. Management does not believe this statement will have any material effect on future financial statements.
Statement of Financial Accounting Standards No. 129, Disclosure of Information about Capital Structure. a. Effective for financial statements for periods ending after December 15, 1997. b. An entity shall explain, in summary form within its financial statements, the pertinent rights and privileges of the various securities outstanding. c. Management does not believe this statement will have any material effect on future financial statements.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors C B & T, Inc. McMinnville, Tennessee
We have audited the accompanying consolidated balance sheets of C B & T, Inc. (the "Corporation") and its wholly-owned subsidiaries, principally City Bank & Trust Company (the "Bank"), as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of C B & T, Inc. and subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
Nashville, Tennessee January 16, 1998
C B & T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Dollars in Thousands, Except Share Data)
1997 1996
ASSETS Cash and due from banks $ 8,456 $ 7,021 Federal funds sold - 1,175 Investment securities - Note 2 105,404 102,070 Loans, net of unearned income and allowance for possible loan losses - Notes 3 and 4 145,335 142,096 Interest receivable 3,160 3,116 Bank premises and equipment, at cost less allowance for depreciation - Note 5 2,061 2,333 Other assets - Notes 6 and 13 4,070 3,648
TOTAL ASSETS $268,486 $261,459
LIABILITIES Deposits: Noninterest-bearing deposits $ 28,207 $ 28,178 Interest-bearing deposits (including certificates of deposit over $100: 1997 - $31,387; 1996 - $28,943) - Note 7 190,936 189,379 219,143 217,557
Securities sold under agreements to repurchase - 2,273 1,362 Note 8 Federal funds purchased - Note 8 2,000 - Accounts payable and accrued liabilities - Note 13 1,839 1,637 Interest payable 1,558 1,460 Federal Home Loan Bank borrowings - Note 9 6,787 7,203
TOTAL LIABILITIES 233,600 229,219
COMMITMENTS AND CONTINGENCIES - Notes 10, 11 and 17
SHAREHOLDERS' EQUITY - Note 14 Common stock, $2.50 par value, authorized 1,000,000 shares; issued 331,814 shares, including 67,701 treasury shares in 1997 and 67,229 treasury shares in 1996 830 830 Additional paid-in capital 5,000 5,000 Retained earnings - Note 15 33,467 31,179 Net unrealized gains (losses) on available-for- sale securities, net of deferred income taxes - Note 2 1,060 647 40,357 37,656
Less cost of treasury shares ( 5,471) ( 5,416)
TOTAL SHAREHOLDERS' EQUITY 34,886 32,240
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $268,486 $261,459
See accompanying notes to consoidated financial statements
C B & T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands, Except Share Data)
1997 1996 1995
INTEREST INCOME Interest and fees on loans $14,043 $13,657 $13,021 Interest on investment securities: Taxable interest 4,632 4,772 4,952 Tax-exempt interest 1,699 1,336 1,180 6,331 6,108 6,132 Other interest income 216 280 301 TOTAL INTEREST INCOME 20,590 20,045 19,454
INTEREST EXPENSE Interest on deposits 8,779 8,372 8,069 Interest on other borrowed funds - Note 8 109 46 56 Interest on long-term debt - Note 9 435 412 593 TOTAL INTEREST EXPENSE 9,323 8,830 8,718
NET INTEREST INCOME 11,267 11,215 10,736 Provision for possible loan losses - Note 4 413 628 376 NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 10,854 10,587 10,360
NONINTEREST INCOME Service charges on deposit accounts 1,223 1,211 1,064 Other service charges, commissions and fees 266 333 310 Net realized gains (losses) on investment securities - Note 2 36 ( 22) ( 14) Other income 597 536 456 TOTAL NONINTEREST INCOME 2,122 2,058 1,816
NONINTEREST EXPENSES Salaries and employee benefits - Notes 12 and 18 3,817 3,772 3,540 Net occupancy expense 352 306 283 Furniture and equipment expense 859 812 764 Deposit insurance premium 27 2 242 Directors deferred compensation expense 213 249 235 Other expenses 1,683 1,531 1,257 TOTAL NONINTEREST EXPENSES 6,951 6,672 6,321
INCOME BEFORE PROVISION FOR INCOME TAXES 6,025 5,973 5,855 Provision for income taxes - Note 6 1,754 1,856 1,788 NET INCOME $ 4,271 $ 4,117 $ 4,067
Weighted average number of shares outstanding 264,288 267,865 271,150 Per share of Common Stock: Net income $ 16.16 $ 15.38 $ 15.00
See accompanying notes to consolidated financial statements.
C B & T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands, Except Share Data)
See accompanying notes to consolidated financial statements.
C B & T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
1997 1996 1995
OPERATING ACTIVITIES Net income for the year $ 4,271 $ 4,117 $ 4,067 Adjustments to reconcile net income to net cash provided by operating activities: Stock dividend ( 90) ( 82) ( 79) Provision for possible loan losses 413 628 376 Provision for depreciation and amortization 563 531 481 Amortization of investment security premiums, net of accretion of discounts 82 ( 3) 11 Net realized (gains) losses on investment securities ( 36) 22 14 Net loss on the disposal of fixed assets 12 - 4 Deferred income taxes ( 88) ( 51) ( 107) Increase in interest receivable ( 44) ( 55) ( 119) Increase in interest payable 98 131 441 Decrease (increase) in other assets ( 167) 102 ( 40) Increase in other liabilities 201 287 203
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,215 5,627 5,252
INVESTING ACTIVITIES Purchases of investment securities (56,440) (54,964) (23,970) Proceeds from sale of investment securities 24,575 17,254 22,537 Proceeds from maturities, calls and principal collections of investment securities 29,151 32,838 16,615 Net increase in loans ( 3,651) ( 6,185) (10,778) Net purchases of premises and equipment ( 304) ( 731) ( 245) Increase in cash value of life insurance ( 330) ( 244) ( 179)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ( 6,999) (12,032) 3,980
FINANCING ACTIVITIES Net increase in noninterest-bearing 1,586 4,300 436 Proceeds from securities sold under agreements to repurchase 912 1,362 - Net increase (decrease) in federal funds purchased 2,000 - ( 5,700) Cash dividends ( 1,983) ( 1,753) ( 1,225) Purchase of outstanding common stock ( 55) ( 580) ( 287) Proceeds from long-term debt 349 993 4,000 Repayments of long-term debt ( 765) ( 3,017) ( 2,594)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,044 1,305 ( 5,370)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 260 ( 5,100) 3,862
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 8,196 13,296 9,434
CASH AND CASH EQUIVALENTS - END OF YEAR $ 8,456 $ 8,196 $13,296
Supplemental disclosures of cash flow information: Cash paid during the year for: Interest expense $ 9,225 $ 8,699 $ 8,281 Income taxes 1,875 2,105 1,753 See accompanying notes to consolidated financial statements.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business C B & T, Inc. (the "Corporation") is a one-bank holding company formed in 1981, with a wholly-owned subsidiary, City Bank & Trust Company, McMinnville, Tennessee (the "Bank"). The Bank, which is regulated by the Federal Deposit Insurance Corporation and Tennessee Department of Financial Institutions, provides deposit services and grants real estate, commercial, agricultural and consumer loans to customers primarily in Warren and DeKalb counties of Tennessee.
CBT Realty, Inc., a wholly-owned subsidiary of the Corporation, was formed for the purpose of holding and disposing of real estate acquired through foreclosure.
During 1996, the Corporation formed CBT Insurance, Inc., a wholly-owned subsidiary of the Corporation, for the purpose of selling insurance services.
The accounting principles followed and the methods of applying those principles conform with generally accepted accounting principles and to general practices in the banking industry. The significant policies are summarized as follows:
Principles of Consolidation The accompanying consolidated financial statements present the accounts and operations of the Corporation and the Bank. Material intercompany accounts and transactions have been eliminated in consolidation.
Cash and Due from Banks Reserve requirements amounted to approximately $1.6 million and $1.4 million at December 31, 1997 and 1996, respectively.
Cash Equivalents Cash equivalents include amounts due from banks, interest- bearing deposits in other banks and federal funds sold. Generally, federal funds are purchased or sold for one-day periods.
Investment Securities The Bank follows the accounting and reporting principles of Statement of Financial Accounting Standards No.115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities," which requires that securities be categorized as held-to-maturity, available-for-sale, and trading securities, as follows:
Trading Securities Debt and equity securities held principally for resale in the near term are classified as trading account securities and recorded at their fair values. Unrealized gains and losses on trading account securities are recognized currently.
Securities Held-to-Maturity Debt securities which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.
Securities Available-for-Sale Securities not classified as trading or held-to-maturity are classified as available-for-sale. Unrealized holding gains and losses, net of deferred income taxes, on available-for-sale securities are netted and reported as a separate component of shareholders' equity until realized. Realized gains and losses on the sale of available-for-sale securities are determined using the specific-identification method.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Securities (Continued) Restricted Equity Securities Federal Home Loan Bank and First Community L.P. stock are classified as restricted equity securities and included in other assets.
On November 15, 1995, the Financial Accounting Standards Board issued a guide for the implementation of SFAS 115 which allowed a bank to reassess the appropriateness of the classification of all securities held at November 15, 1995 and until December 31, 1995, and account for any resulting changes in classifications as a transfer. Changes in classification from the held-to-maturity category that result from this one-time reassessment did not call into question the intent of a bank to hold other debt securities to maturity in the future. As a result of this one-time reassessment, on November 30, 1995, the Bank transferred securities with a book value of approximately $42.8 million and related unrealized gains and losses of approximately $0.8 million and $0.2 million, respectively (net unrealized gain of approximately $0.6 million), from held-to-maturity to available-for-sale.
Declines in the fair value of individual available-for-sale and held- to-maturity securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses.
Loans Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge- offs or specific valuation accounts and net of any deferred fees or costs on originated loans. Loan origination fees and certain related direct costs are deferred and recognized as an adjustment of the yield on the interest method. Interest on loans is recognized as income based on the daily loan principal amounts outstanding.
Loans are considered impaired when, based on current information, it is probable that all amounts of principal and interest due will not be collected according to the contractual terms of the loan agreement. The amount of impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or for collateral dependent loans, impairment is measured based on a loan's observable market price or the fair value of the collateral. For purposes of applying impairment standards, the bank defines impaired loans as nonaccrual loans, loans contractually past due ninety days or more, loans identified as non-performing on the bank's problem loan list and certain loans restructured in a troubled debt restructuring. Interest accruals on impaired loans are discontinued when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that it is not reasonable to expect such interest will be collected. Interest income is subsequently recognized only to the extent cash payments are received.
Use 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 as of the date of the balance sheet and the revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for possible loan losses.
Allowance for Possible Loan Losses The allowance for possible loan losses is established by charges to operations and is maintained at an amount which management believes adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluations of loan collectibility and on prior loan loss experience. The evaluations consider such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to pay. Uncollectible loans are charged to the allowance account in the period such determination is made. Subsequent recoveries on loans previously charged off are credited to the allowance account in the period received.
While management uses available information to recognize losses on loans, future losses may be accruable based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for possible loan losses. Such agencies may require the Bank to recognize additional losses based on their judgment of information available to them at the time of their examination.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. The provision for depreciation is computed substantially by the straight-line method over the estimated useful lives of the assets, which are as follows: buildings - up to 40 years; equipment - 5 to 10 years. Leasehold improvements are amortized over the lesser of the lease terms or the estimated lives of the improvements. Gains or losses from the disposition of property are reflected in operations, and the asset accounts and related allowance for depreciation are reduced.
Long-Lived Assets On 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." SFAS 121 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 the carrying amount of an asset may not be recoverable. Measurement of an impairment loss for long- lived assets and identifiable intangibles that an entity expects to hold and use is based on the fair market value of the asset. This statement requires that the majority of long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less costs to sell. The adoption of this statement had no effect on the consolidated financial statements.
Trust Department Income Trust department income is recognized on the accrual basis in accordance with generally accepted accounting principles.
Income Taxes The Corporation and its subsidiaries file a consolidated federal income tax return.
Deferred income tax assets and liabilities are computed annually for the differences between the financial statement and tax bases of assets and liabilities. Such differences will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Reclassification Certain amounts have been reclassified in the 1996 and 1995 consolidated financial statements to conform to the 1997 presentation.
Other Real Estate Other real estate, which is included in other assets, represents real estate acquired through foreclosure and is stated at lower of (i) fair value minus estimated costs to sell, or (ii) cost. If, at the time of foreclosure, the fair market value of the real estate is less than the Bank's carrying value of the related loan, a writedown is recognized through a charge to the allowance for possible loan losses, and the fair market value becomes the new cost for subsequent accounting. If the Bank later determines that the cost of the property cannot be recovered through sale or use, a writedown is recognized by a charge to operations. When the property is not in a condition suitable for sale or use at the time of foreclosure, completion and holding costs, including such items as real estate taxes, maintenance and insurance, are capitalized up to the estimated net realizable value of the property. However, when the property is in a condition for sale or use at the time of foreclosure, or the property is already carried at its estimated net realizable value, any subsequent holding costs are expensed. Legal fees and any other direct costs relating to foreclosures are charged to operations when incurred.
Net Income Per Share Net income per share of common stock has been computed based on the weighted average number of shares of common stock outstanding each period.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 2 - INVESTMENT SECURITIES
No investment securities were required to be written down pursuant to any other than temporary declines in fair value in 1997, 1996 or 1995.
The amortized cost, estimated fair value and weighted yields of debt securities at December 31, 1997, by contractual maturities, are presented on the following schedule. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are included in the final stated maturities which are consistent with the remaining portfolio. For tax-exempt obligations, the yields are shown on a fully taxable basis assuming a 34% tax rate.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
Securities carried at $24 million and $22 million at December 31, 1997 and 1996, respectively (fair value: 1997 - $24.1 million; 1996 - $22.7 million), were pledged to secure deposits or for other purposes as required or permitted by law.
At December 31, 1997, the Corporation did not hold securities of any single issuer, other than obligations of the U.S. Treasury and other U.S. Government agencies, whose aggregate book value exceeded ten percent of shareholders' equity.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 3 - LOANS
The following is a summary by category of loans outstanding as of December 31, 1997 and 1996:
1997 1996 (Dollars in Thousands)
Commercial, financial and agricultural $ 13,475 $ 13,574 Real estate - construction 3,597 2,903 Real estate - mortgage 97,653 96,326 Installment 32,758 32,073 Lease financing 52 68 147,535 144,944 Less: Unearned income ( 287) ( 917) Allowance for possible loan losses ( 1,913) ( 1,931)
$145,335 $142,096
A summary of loan maturities as of December 31, 1997 and 1996 follows:
Fixed Rate Loans Due in one year or less $ 28,573 $ 31,155 Due after one year 85,823 81,703 Due after five years 8,098 7,957
$122,494 $120,815 Floating Rate Loans Due in one year or less $ 20,941 $ 19,222 Due after one year 3,343 4,525 Due after five years 757 382
$ 25,041 $ 24,129
Directors, executive officers or principal holders of equity securities (and their associates, including organizations of which such person is a general partner or in which such person holds a ten percent or more ownership) of the Corporation and/or the Bank were customers of, and had loans and other transactions with, the Bank in the ordinary course of business. The following is a summary of the changes in related party loans in 1997 and 1996.
1997 1996 (Dollars in Thousands)
Balance - beginning of year $3,498 $3,524
New loans made or additions to existing loans 1,807 2,365 Repayments (2,161) ( 2,391)
Balance - end of year $3,144 $3,498
These loan transactions were made on substantially the same terms as those prevailing at the time for comparable loans to other persons. They did not involve more than the normal risk of collectibility or present other unfavorable features.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 3 - LOANS (CONTINUED)
Impaired Loans
The following loans have been identified as impaired as of December 31:
1997 1996 (Dollars in Thousands)
Impaired loans with an allowance $1,115 $1,280 Impaired loans without an allowance 289 453
Total impaired loans $1,404 $1,733
Allowance for impaired loans $ 317 $ 370
Average balance of impaired loans during the year $1,568 $1,724
During 1997, the Bank recognized interest income on impaired loans of $119,000 ($123,000 in 1996), which included $113,000 of cash payments received ($104,000 in 1996). Interest income in the amount of $19,000 was recognized for cash payments received in 1995.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses follow:
1997 1996 1995 (Dollars in Thousands)
Balance - beginning of year $ 1,931 $ 1,864 $ 1,733 Provision charged to operating expenses 413 628 376 2,344 2,492 2,109
Amount charged off ( 614) ( 639) ( 339) Recoveries 183 78 94 Net loans charged off ( 431) ( 561) ( 245)
Balance - end of year $ 1,913 $ 1,931 $ 1,864
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES (CONTINUED)
It is management's opinion that the allowance was adequate at December 31, 1997 and 1996, based on conditions reasonably known to management. However, the allowance may be increased or decreased based on loan growth, changes in credit quality, and changes in general economic conditions.
For federal income tax purposes, the allowance for possible loan losses is maintained at the maximum amount allowable by the Internal Revenue Code.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following at December 31:
1997 1996 (Dollars in Thousands)
Land $ 208 $ 208 Buildings 1,732 1,732 Fixtures and equipment 3,888 3,777 5,828 5,717 Less allowances for depreciation ( 3,767) ( 3,384)
$ 2,061 $ 2,333
The provision for depreciation of premises and equipment amounted to $563,000 for 1997, $531,000 for 1996, and $481,000 for 1995.
NOTE 6 - INCOME TAXES
The provisions for income taxes consist of the following: 1997 1996 1995 (Dollars in Thousands) Current: Federal $1,470 $1,536 $1,526 State 372 371 369 Total current 1,842 1,907 1,895
Deferred: Federal ( 74) ( 43) ( 91) State ( 14) ( 8) ( 16) Total deferred ( 88) ( 51) ( 107)
Total provision for income tax $1,754 $1,856 $1,788
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 6 - INCOME TAXES (CONTINUED)
The deferred tax effects of principal temporary differences are shown in the following table:
1997 1996 (Dollars in Thousands)
Deferred tax assets: Deferred benefit plan liability $ 497 $400 Allowance for possible loan losses 328 335 Leases - 2 Premises and equipment 14 - Total deferred tax assets 839 737
Deferred tax liabilities: Leases 1 - Premises and equipment - 21 Stock dividends received 118 84 Net unrealized gain on available-for-sale securities 650 397 Total deferred tax liabilities 769 502
Net deferred tax asset $ 70 $235
A reconciliation of total income taxes reported with the amount of income taxes computed at the federal statutory rate (34% each year) follows:
1997 1996 1995 (Dollars in Thousands)
Tax expense at statutory rates $ 2,049 $2,031 $1,991 Increase (decrease) in taxes resulting from: Nondeductible interest expense 71 57 54 Tax-exempt income ( 587) ( 474) ( 413) Tax effect of state income taxes 236 239 232 Other - net ( 15) 3 ( 76)
$ 1,756 $1,856 $1,788
NOTE 7 - DEPOSITS
The following is a detail of the maturity ranges of certificates of deposit of $100,000 or more as of December 31, 1997 and 1996:
1997 1996 (Dollars in Millions)
Under 3 months $ 7.4 $ 7.4 3 to 6 months 6.4 7.0 6 to 12 months 8.4 10.8 Over 12 months 9.2 3.7
$ 31.4 $28.9
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 7 - DEPOSITS (CONTINUED)
Deposits from related parties amounted to $3.3 million at December 31, 1997 and $3.8 million at December 31, 1996.
NOTE 8 - FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For the year ended December 31, 1997, the average balance of federal funds purchased was $131,000 ($7,000 in 1996), and the average interest rate charged was 5.6% (5.6% in 1996). Unused lines of credit for short-term financing totaled $12 million at December 31, 1997 ($11 million at December 31, 1996).
Securities sold under agreements to repurchase mature one business day following the transaction date. The securities sold represent investments which are registered to and under control of the Bank. For the year ended December 31, 1997, securities sold under agreements to repurchase averaged approximately $2,380,000 ($1,129,000 in 1996). The average interest rate paid on such agreements during the year was 4.00% (4.00% in 1996), and the maximum month-end balance during the year was $3,334,000 ($1,578,000 in 1996).
NOTE 9 - FEDERAL HOME LOAN BANK BORROWINGS
The Bank has a line-of-credit under an agreement with the Federal Home Loan Bank of Cincinnati (FHLB). The purpose of the line is to hedge the interest rate on long-term lending. The Bank applied for and received various commitments under the agreement, with respect to which borrowings outstanding amounted to $6,787,000 at December 31, 1997 ($7,203,000 at December 31, 1996). Such borrowings mature in level monthly installments through 2013. The Bank had no remaining optional takedown commitments under the agreement at December 31, 1997.
The advances accrue interest at a fixed rate which is determined when the advance is made. The weighted average rate on all such borrowings drawn to date is 6.06%.
The FHLB requires the Bank to maintain FHLB stock and obligations of the United States of America, obligations fully guaranteed by the United States of America, or other securities approved by and delivered to the FHLB as collateral for such borrowings. The carrying value of the collateral securing the advances at December 31, 1997 and 1996, was as follows:
1997 1996 (Dollars in Thousands)
FHLB stock $ 1,317 $ 1,227 U.S. Government agency securities 8,318 8,500
$ 9,635 $ 9,727
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 9 - FEDERAL HOME LOAN BANK BORROWINGS (CONTINUED)
During each twelve month period, the Bank has the option of making one partial prepayment of principal without a prepayment fee. The remaining principal balance of all advances outstanding as of December 31, 1997, matures as follows:
Year ending December 31, Amount (Dollars in Thousands)
1998 $ 821 1999 849 2000 879 2001 914 2002 953 Thereafter 2,371
$ 6,787
NOTE 10 - LEASES
The Corporation and the Bank are obligated for rental payments under various operating leases. All building leases have renewal options available. There are no contingent rental clauses in any of the leases.
Total rental expense incurred under all operating leases amounted to $77,000 in 1997 ($70,000 in 1996 and $72,000 in 1995).
Future minimum rental commitments as of December 31, 1997 for all noncancellable operating leases with initial or remaining terms of one year or more are as follows:
Year ending December 31, Amount (Dollars in Thousands)
1998 $ 99 1999 80 2000 65 2001 40 2002 18 Thereafter 43
Total future minimum lease payments $ 345
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loans.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
Unless noted otherwise, the Bank does not require collateral or other security to support financial instruments with credit risk.
Contract or Notional Amount (Dollars in Thousands)
Financial instruments whose contract amounts represent credit risk at December 31, 1997: Commitments to extend credit $ 31,089 Standby letters of credit 105
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses 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. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management's credit assessment of the customer. Collateral held varies but consists primarily of real estate.
Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Both arrangements have credit risks essentially the same as that involved in extending loans to customers and are subject to the Bank's normal credit policies.
Income from fees on lines of credit and letters of credit is recognized as collected.
NOTE 12 - DEFINED CONTRIBUTION PLAN
The Bank sponsors an employees' Thrift Plan (the "Plan"), which encourages employees (Participants) to set aside a percentage of their earnings in an account to provide a source of income for their retirement. The Plan has been amended and restated since its initial adoption to comply with tax law changes, add a 401(k) provision, clarify the definition of compensation and reflect participants' ability to direct investments.
The Plan, a defined contribution plan, meets the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA") which, among other things, prohibits discriminating in favor of officers, shareholders or highly compensated employees with respect to eligibility, contributions or benefits. To participate in the Plan, Participants must be 21 years of age and have completed one year of service in which they are credited with at least 1,000 hours of service. Vesting of Bank contributions to the Plan is as follows:
Years of Employment Percentage of Account at Termination Vested
Less than 3 0% 3 20% 4 40% 5 60% 6 80% 7 years or more 100%
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 12 - DEFINED CONTRIBUTION PLAN (CONTINUED)
The Bank contributes to the Plan a minimum of 1% of each Participant's compensation (compensation excludes bonuses and gifts). In addition, the Bank matches Participants' before-tax contributions up to 3% of each Participant's compensation whenever Bank profits are deemed adequate by the Board of Directors. Plan Participants may contribute before-tax dollars, up to 15% of their annual compensation, to the 401(k) Plan (to a maximum contribution of $9,500, indexed by the rate of change in inflation, per calendar year subject to overall IRS limitations). These contributions will be tax-deferred, within limits prescribed by the Plan. Plan Participants may also make voluntary after-tax contributions of up to 10% of their compensation to the Plan. The fund earnings to their Individual Account are also tax-deferred.
The contributions are invested in a Trust fund managed by the Bank's Trust Department and from which benefits are distributed. As of December 31, 1997, 100 persons (98 in 1996 and 95 in 1995) were participating in the Plan, and the Bank's annual contribution amounted to $105,000 ($103,000 in 1996 and $98,000 in 1995). Total salaries of Participants during 1997 were $2,901,000 ($2,664,000 in 1996 and $2,521,000 in 1995). The Bank contributed approximately 3.62% of Participants' salaries in 1997 (3.87% in 1996 and 3.89% in 1995).
NOTE 13 - DEFERRED COMPENSATION PLAN
In 1988, the Bank entered into nonqualified deferred compensation agreements with certain of its directors. There are presently eleven directors and two former directors included in the group which, when certain conditions are met, will be paid monthly benefits of varying amounts for up to 180 months. Upon retirement on or after normal retirement age, benefits will be paid to the covered person or his beneficiary, in case of the director's death, for the maximum term of 180 months. If the director retires for any other reason, the benefits will be reduced pro rata based on the length of time the director was included in the plan.
In accordance with generally accepted accounting principles, the Bank has recorded a liability in the amount of the present value of an investment necessary to amortize the future liability over the years the services are rendered. The amount charged to expense for 1997 was $268,000 ($226,000 in 1996 and $201,000 in 1995).
The Bank has chosen to fund the obligation by purchasing and owning life insurance contracts, naming the Bank as beneficiary, on each participating director. The value of the contracts is carried as an asset of the Bank as follows:
1997 1996 (Dollars in Thousands)
Value of contracts - beginning of year $1,485 $1,241 Increase in surrender value 330 244
Value of contracts - end of year $1,815 $1,485
Liabilities for contracts - beginning of year $1,054 $ 831 Increase in liabilities recognized as expense for the year 268 235 Payment of benefits ( 12) ( 12)
Liabilities for contracts - end of year $1,310 $1,054
The Board of Directors elected to terminate the plan effective January 7, 1998. Under the provisions of this resolution, no additional fees may be deferred after January 7, 1998. The Bank further elected to pay monthly benefits to all current and past directors in the same manner and amount that would have occurred had the participant terminated service as a director on January 7, 1998.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 14 - REGULATORY MATTERS
The Corporation and the Bank are subject to various federal and state regulatory capital requirements. Failure to meet capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that could have a direct material effect on the Corporation and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank are required to meet specific capital adequacy guidelines that involve quantitative measures of the Corporation's and the Bank's assets, liabilities and certain off- balance-sheet items as calculated under regulatory accounting practices. The capital classification is also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of Total Capital and Tier I Capital to risk-weighted assets and of Tier I Capital to average assets. Management believes, as of December 31, 1997 and 1996, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1997 and 1996, the Corporation and the Bank both had ratios which exceeded the regulatory requirement to be classified as " well capitalized" under the regulatory framework for prompt corrective action. As of March 3, 1997, the most recent notification from the Federal Deposit Insurance Corporation categorized the bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Corporation and the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.
The Corporation's and the Bank's risk-based capital and related ratios as of December 31, 1997 and 1996 are as follow:
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 15 - DIVIDEND AND NET ASSET RESTRICTIONS
Dividends paid by the Bank are the primary source of funds available to the Corporation for payment of dividends to its shareholders and for other working capital needs. Applicable Tennessee statutes and regulations impose restrictions on the amount of dividends that may be declared by the subsidiary Bank.
NOTE 16 - SELF-INSURED PLANS
On October 1, 1996, the Bank began self-insuring its employees' medical and short-term disability claims. A liability and a provision for claims is recorded monthly by the Bank to recognize estimated claims under this plan. A portion of these costs is recovered through employee contributions, which amounted to $101,800 in 1997 and $20,700 in 1996. Those eligible under the plan include full-time employees who have met certain length-of-service requirements.
The Bank's maximum liability for covered claims under the plan for the year ended September 30, 1998 is estimated to be approximately $350,000 (less employee contributions), with a maximum of $10,000 for any individual employee claim. The Bank's expense under the plan amounted to $158,000 in 1997 ($50,470 in 1996).
NOTE 17 - SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Bank grants agribusiness, commercial and residential loans to customers primarily in Warren and DeKalb Counties, Tennessee. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent on the agribusiness industry.
NOTE 18 - INCENTIVE BONUS PLAN
The Bank has an incentive bonus plan pursuant to which officers of the Bank receive, subject to an annual review and modification by the Bank's Board of Directors, a bonus determined by the Bank's performance as measured by its return on assets. For the year 1997, the bonus was $133,000 ($136,000 in 1996 and $126,000 in 1995).
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 19 - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED BALANCE SHEETS
1997 1996 (Dollars in Thousands)
ASSETS Cash $ 1 $ - Investment in bank subsidiary 34,811 32,169 Investment in non-bank subsidiaries 9 6 Other investments 69 69
$34,890 $32,244 LIABILITIES Taxes payable $ 4 $ 4
SHAREHOLDERS' EQUITY Common stock, par value $2.50 per share, authorized 1,000,000 shares; issued 331,814 shares, including 67,701 treasury shares in 1997 (67,229 treasury shares in 1996) 830 830 Additional paid-in capital 5,000 5,000 Retained earnings 33,467 31,179 Net unrealized gains (losses) on available-for-sale securities 1,060 647 40,357 37,656
Less cost of treasury shares ( 5,471) ( 5,416)
34,886 32,240
$34,890 $32,244
CONDENSED STATEMENTS OF INCOME
1997 1996 1995 (Dollars in Thousands)
INCOME: Dividends received - bank $1,999 $2,306 $1,481 Other income 46 33 56 2,045 2,339 1,537 EXPENSES: Professional fees - - -
Income before income tax allocation and equity in undistributed net income of subsidiary 2,045 2,339 1,528
Allocation of income taxes 7 4 5
INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARY 2,038 2,335 1,523
Net income of subsidiaries less distributions: Subsidiary bank 2,230 1,778 2,544 Non-bank subsidiaries 3 4 -
2,233 1,782 2,544
NET INCOME $ 4,271 $4,117 $4,067
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 19 - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
1997 1996 1995 (Dollars in Thousands)
OPERATING ACTIVITIES Net income $4,271 $4,117 $4,067 Adjustments to reconcile net income to net cash provided by operating activities: Net income of subsidiaries less distributions: Subsidiary bank ( 2,229) ( 1,778) ( 2,544) Non-bank subsidiaries ( 3) ( 4) - Increase (decrease) in taxes payable - - ( 11)
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,039 2,335 1,512
INVESTING ACTIVITIES Investment in non-bank subsidiaries - ( 2) -
NET CASH USED IN INVESTING ACTIVITIES - ( 2) -
FINANCING ACTIVITIES Purchase of outstanding common stock ( 55) ( 580) ( 287) Cash dividends ( 1,983) ( 1,753) ( 1,225)
NET CASH USED IN FINANCING ACTIVITIES ( 2,038) ( 2,333) ( 1,512)
INCREASE IN CASH 1 - -
CASH - BEGINNING OF YEAR - - -
CASH - END OF YEAR $ 1 $ - $ -
NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates made as of December 31, 1997 and 1996 are based on relevant market information about the financial instruments. These estimates do not reflect any premiums or discounts that could result from offering for sale at one time the Corporation's or the Bank's entire holding of a particular financial instrument. In cases where quoted market prices are not available, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used in estimating the fair value disclosures for financial instruments:
Cash and Cash Equivalents -- The carrying amounts reported in the balance sheets for cash and short-term instruments approximate those assets' fair values.
Securities Available-for-Sale -- Fair values were based on quoted market prices available. If quoted market prices were not available, fair values were based on quoted market prices of comparable instruments.
Loans -- The carrying values, reduced by estimated inherent credit losses, of variable-rate loans and other loans with short-term characteristics were considered fair values. For other loans, the fair market values were calculated by discounting scheduled future cash flows using current interest rates offered on loans with similar terms adjusted to reflect the estimated credit losses inherent in the portfolio.
Accrued Interest Receivable and Accrued Interest Payable -- The carrying amounts reported in the balance sheets for accrued interest receivable and accrued interest payable approximate their fair values.
Deposit Liabilities -- The fair value of deposits with no stated maturity, was, by definition, equal to the amount payable on demand as of December 31, 1997 and 1996. The fair value of certificates of deposit was based on the discounted value of contractual cash flows, calculated using discount rates equal to interest rates offered at the valuation date for deposits of similar remaining maturities.
Short-Term Borrowings -- The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short- term borrowings, if any, are considered to approximate their fair values.
The estimated fair values of financial instruments are as follows:
December 31, 1997 December 31, 1996 Carrying Fair Carrying Fair Amounts Values Amounts Values (Dollars in Thousands) Financial Assets Cash and cash equivalents $ 8,456 $ 8,456 $ 8,196 $ 8,196 Securities available- for-sale 105,404 105,404 102,070 102,070 Loans, net of allowance for possible loan losses 145,335 142,345 142,096 141,754 Accruedinterest receivable 3,160 3,160 3,116 3,116
Financial Liabilities Deposits 219,143 219,306 217,557 217,701 Long-term debt 6,787 6,759 7,203 6,755 Short-term borrowings 4,273 4,273 1,362 1,362 Accrued interest payable 1,558 1,558 1,460 1,460
At December 31, 1997 and 1996, the Bank had commitments to extend credit and outstanding standby letters of credit. These off- balance-sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed and, therefore, are deemed to have no current fair market value.
Fair value estimates are based on existing on-balance sheet and off- balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include the value of deferred tax assets, premises and equipment.
C B & T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 21 - QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the unaudited consolidated quarterly results of operations:
First Second Third Fourth Quarter Quarter Quarter Quarter Total (Dollars in Thousands Except Share Data)
Interest income $ 5,012 $ 5,201 $ 5,225 $ 5,152 $20,590 Interest expense 2,245 2,345 2,376 2,357 9,323 Net interest income 2,767 2,856 2,849 2,795 11,267 Provision for possible loan losses 140 82 91 100 413 Noninterest expenses, net of noninterest income 1,062 1,219 1,107 1,441 4,829 Income before income taxes 1,565 1,555 1,651 1,254 6,025 Income taxes 486 442 487 339 1,754
Net income $ 1,079 $ 1,113 $ 1,164 $ 915 $ 4,271
Earnings per share $ 4.08 $ 4.21 $ 4.41 $ 3.46 $ 16.16
First Second Third Fourth Quarter Quarter Quarter Quarter Total
Interest income $ 4,929 $ 5,026 $ 5,049 $ 5,041 $20,045 Interest expense 2,205 2,174 2,206 2,245 8,830 Net interest income 2,724 2,852 2,843 2,796 11,215 Provision for possible loan losses 93 85 123 327 628 Noninterest expenses, net of noninterest income 992 1,136 1,037 1,449 4,614 Income before income taxes 1,639 1,631 1,683 1,020 5,973 Income taxes 519 512 533 292 1,856
Net income $ 1,120 $ 1,119 $ 1,150 $ 728 $ 4,117
Earnings per share $ 4.15 $ 4.15 $ 4.35 $ 2.72 $ 15.37
NOTE 22 - MERGER AGREEMENT
Effective January 6, 1998, the Bank's Board of Directors approved a preliminary merger agreement pursuant to which, if consummated, the Bank will become a subsidiary of Union Planters National Bank, a registered bank holding company with its principal office in Memphis, Tennessee. The Board is scheduled to meet on May 29, 1998 to finalize the agreement. The agreement is subject to the approval of the Bank's shareholders and appropriate regulatory authorities and includes certain other conditions precedent.
C B & T, INC. AND SUBSIDIARIES
Table 1 -- Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential
Average Interest Interest Balance Income/Expense Rate (Dollars in Thousands)
ASSETS Bank interest-bearing deposits $ 65 $ 4 6.15% U.S. Treasury securities 8,295 579 6.98 U.S. Government agencies and corporations 49,397 3,265 6.61 Securities of States and political subdivisions 31,638 2,574 * 8.14 Other investments 12,603 788 6.25 Federal funds sold 3,869 212 5.48 Loans, net 144,592 14,043 9.71 TOTAL EARNING ASSETS 250,459 $21,465 8.57 Cash and due from banks 7,033 Other assets 9,859 TOTAL ASSETS $267,351
LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits: NOW accounts $ 23,826 $ 578 2.43% Money market deposit accounts 19,694 761 3.86 Savings 29,415 875 2.97 Time of $100M or more 30,381 1,747 5.75 Time--other 90,487 4,818 5.32 TOTAL INTEREST-BEARING DEPOSITS 193,803 8,779 4.53 Federal funds purchased 2,505 109 4.35 Long-term debt 7,134 435 6.10 TOTAL INTEREST-BEARING LIABILITIES 203,442 $9,323 4.58 Demand deposits 27,864 Other liabilities 4,006 TOTAL LIABILITIES 235,312 Shareholders' equity 32,039 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $267,351
Spread between combined rates earned and combined rates paid* 3.99%
Net yield on interest earning assets* 4.85%
*Taxable equivalent basis
Year Ended December 31, 1996 1995 Average Interest Interest Average Interest Interest Balance Income/Expense Rate Balance Income/Expense Rate (Dollars in Thousands) (Dollars in Thousands)
$ 62 $ 5 8.06% $ 60 $ 3 5.00% 18,221 1,284 7.05 20,465 1,451 7.09 43,377 2,797 6.45 49,820 3,227 6.48 24,765 2,024 * 8.17 21,454 1,788 * 8.33 11,212 691 6.16 4,466 274 6.14 5,199 275 5.29 5,070 297 5.86 138,511 13,657 9.86 131,761 13,021 9.88 241,347 $20,733 8.59 233,096 $20,061 8.61 6,855 6,353 9,148 8,880 $257,350 $248,329
$ 24,158 $ 588 2.43% $ 23,758 $ 660 2.78% 18,333 574 3.13 18,990 593 3.12 30,530 904 2.96 30,733 1,003 3.26 27,186 1,543 5.68 23,622 1,348 5.71 88,563 4,763 5.38 82,632 4,466 5.40 188,770 8,372 4.44 179,735 8,070 4.49 1,136 46 4.05 825 54 6.55 6,802 412 6.06 9,907 593 5.99 196,708 $8,830 4.49 190,467 $8,717 4.58 27,217 27,013 3,498 2,538 227,423 220,018 29,927 28,311
$257,350 $248,329
4.10% 4.03%
4.93% 4.87%
C B & T, INC. AND SUBSIDIARIES
Table 2 --Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential -- (Continued)
The following table sets forth for the periods indicated a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:
1997 Compared to 1996 Increase (Decrease) Volume Rate Net (Dollars in Thousands) Interest Income Bank interest-bearing deposits $ 0 ($ 1) ($ 1) Net Loans 600 ( 214) 386 Taxable investment securities ( 311) 74 ( 237) Nontaxable investment securities* 562 ( 12) 550 Other securities 86 11 97 Federal funds sold ( 70) 7 ( 63) TOTAL INTEREST INCOME* $867 ($135) $732
Interest Expense NOW accounts ($ 10) ($ 0) ($ 10) Money market deposit accounts 43 144 187 Savings ( 33) 4 ( 29) Time deposits 288 ( 29) 259 Federal funds purchased 55 8 63 Long-term debt 20 3 23 TOTAL INTEREST EXPENSE $363 $130 $493
* Tax equivalent basis
The rate/volume variances are allocated between rate and volume variances in proportion to the relationship of the absolute dollar amounts of the change in each.
1996 Compared to 1995 1995 Compared to 1994 Increase (Decrease) Increase (Decrease) Volume Rate Net Volume Rate Net (Dollars in Thousands) (Dollars in Thousands)
$ 0 $ 2 $ 2 ($ 1) $ 1 $ 0 667 ( 31) 636 1,395 430 1,825 ( 576) ( 21) ( 597) ( 1,379) 297 (1,082) 276 ( 40) 236 ( 340) ( 84) ( 424) 414 3 417 136 41 177 8 ( 30) ( 22) 119 122 241 $789 ($117) $672 ($ 70) $807 $ 737
$ 11 ($ 83) ($ 72) ($ 13) $ 22 $ 9 ( 21) 2 ( 19) ( 286) 38 ( 248) ( 7) ( 92) ( 99) ( 175) 76 ( 99) 524 ( 32) 492 235 1,461 1,696 20 ( 28) ( 8) ( 25) 15 ( 10) ( 186) 5 ( 181) 116 2 118 $341 ($228) $113 ($148) $1,614 $1,466
C B & T, INC. AND SUBSIDIARIES
Table 3 --Summary of Loan Loss Experience
Year Ended December 31, 1997 1996 1995 1994 1993 (Dollars in Thousands)
Balance at beginning of period $1,931 $1,864 $1,733 $1,601 $1,453 Loans charged off: Commercial, financial, and agricultural 206 170 128 129 143 Real estate-mortgage 105 241 39 90 49 Installment 303 228 172 124 179 TOTAL LOANS CHARGED OFF 614 639 339 343 371
Recoveries of loans previously charged off: Commercial, financial, and agricultural 8 21 25 65 9 Real estate--mortgage 109 17 5 3 9 Installment 66 40 64 77 70 TOTAL RECOVERIES 183 78 94 145 88 NET LOANS CHARGED OFF 431 561 245 198 283
Additions to the allowance charged to operating expenses 413 628 376 330 431 BALANCE AT END OF PERIOD $1,913 $1,931 $1,864 $1,733 $1,601
1997 1996 1995 1994 1993 Ratio of net charge-offs (recoveries) during the periods to average loans outstanding .30% .41% .19% .17% .26%
C B & T, INC. AND SUBSIDIARIES
Table 4 -- Financial Ratios
The ratio of net income to average shareholders' equity and average total assets, and certain other ratios, are presented below:
Year Ended December 31, 1997 1996 1995 Percentage of net income to: Total average assets 1.60 1.60 1.64 Average shareholders' equity 13.33 13.76 14.37
Percentage of dividends declared per average Common share to net income per average Common Share 46.41 42.29 30.00
Percentage of average shareholders' equity to total average assets 11.98 11.63 11.40
C B & T, INC. AND SUBSIDIARIES
SUMMARY OF CONSOLIDATED SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993 (Dollars in Thousands - Except Per Share)
Interest Income $ 20,590 $ 20,045 $ 19,454 $ 18,572 $ 18,730 Net interest income 11,267 11,215 10,736 11,321 11,578 Provision for possible loan losses 413 628 376 330 431 Income from continuing operations (net income) 4,271 4,117 4,067 4,260 4,966 Total assets 268,486 261,459 255,882 254,973 247,524 Long-term debt 6,787 7,203 9,226 7,821 7,729 Per share data of Common Stock: Income from continuing operations (net income) 16.16 15.37 15.00 14.37 15.58 Dividends 7.50 6.50 4.50 4.10 3.95
COMMON STOCK MARKET PRICE INFORMATION
There is no established public trading market for the Corporation's common Stock and the stock is not traded on any securities exchange. There were approximately 625 shareholders of record of the Common Stock of the Corporation at December 31, 1997.
The price range of the known sales of the Common Stock of the corporation for 1997 and 1996 was a minimum of $115.40 to a maximum of $120.20 and a minimum of $76.00 to a maximum of $115.40 respectively.
The Corporation paid dividends of $7.50 per share in 1997 and $6.50 per share in 1996. The dividends were paid semiannually.
The Corporation expects to continue to pay regular semiannual cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial condition.
Our Commitment/Our Staff
Our staff is committed to providing quality professional service to all our customers in a very, friendly way...We enjoy and take serious our job of serving our trade area well.
Shannon R. Adamson Ronald D. Goodwin Amanda J. Odom Donna L. Argo Amy L. Green Barbara L. Orrick Judith E. Baker Dana M. Green J. Allan Parker Angela K. Bigley N. Sue Grissom M. Lynn Parker Teresa F. Black Linda C. Hamilton Christopher J. Patterson Joe N. Blanton Shannon C. Hamilton Betty B. Prater Jean Bonner Lynne R. Hamrick C. Tim Prater Correen K. Boren Lisa C. Hash Sheryl L. Prater Demple L. Boyd Shannon L. Haston Jane Ann Pryor Dean Brewer C. Renee Hawkins Amy C. Rains Barbara J. Broussard Nancy C. Hendrix Rita M. Ramsey Carole Ann Brown Teresa A. Hennessee Tammy R. Reynolds Jerry N. Brown James H. Hillis Nina J. Rhody Larry E. Brown Lisa A. Hillis Ella J. Rickmond Donna Bryant Melissa A. Holland V. Sue Roberts Nelda S. Burklow M. Preston Huckeby Nancy A. Rogers Terri L. Burnett Judy A. Huddleston Marlene A. Sauer Edmond D. Busic Vivian T. Johnson Andrea R. Searcy Cheryl R. Byford Elaine C. Jones Tammy L. Sharpe Shelia D. Caldwell Janice E. Jones Elizabeth P. Smith Rhonda A. Carr J. Gail Jones Kenneth W. Smith E. LeAnn Cartwright Debra T. Kell Sue J. Stewart Lois B. Cates Judye C. Killian Shirley A. Stout Dawn C. Christian Denise A. King Starla A. Strickland Sherry A. Clendenon Regina L. Kirby Tracie J. Travis Larry C. Couch Cindy R. Lann Johnny T. Taylor S. Lynn Daugherty Glyna F. Lee Patricia A. Taylor Barbara D. Davis V. Lorrie Lee Rayola M. Teal Pam S. England Rosa Lee Madewell Randall G. Tramel Donna D. Evans Emogene R. Magness Sandra A. Turner Lisa G. Garrison Danny L. Martin Jewell Walker Candace A. Gentry E. Wayne Martin Kathy C. Ward Diana L. George Kenneth D. Martin Sharon E. West Doris A. Giles James A. McBee Tarron G. Williams Linda S. Gilley Patty L. Mikes Dan T. Wolfe Deborah E. Glenn Robert L. Miller K. Dwayne Woods Eric A. Golden Lonnie D. Milstead Heather B. Young Jeffrey A. Golden Vicki L. Mitchell S. Todd Young
COMMUNITY INVOLVEMENT PICTURES
COMMUNITY INVOLVEMENT PICTURES
COMMUNITY INVOLVEMENT PICTURES
COMMUNITY INVOLVEMENT PICTURES
COMMUNITY INVOLVEMENT PICTURES
THE CORPORATION
C B & T, Inc. is a one-bank holding company incorporated in Tennessee and registered under the Bank Holding Company Act of 1956, offering a full line of traditional banking services through its wholly-owned subsidiaries, City Bank & Trust Company.
Chartered in 1912, City Bank & Trust Company provides the Warren and Dekalb County trade area with financial services including general, commercial and retail banking, personal and corporate trusts and financial management services. A total of six offices are located in mcMinnville and one in Smithville. A cash machine is located at CYC, Inc. and a full service Automated Teller Machine provides service at River Park Hospital.
C B & T, INC. is subject to the regulatory authority of the Federal Reserve Board and the Securities and Exchange Commission. City Bank & Trust Company is subject to the regulating authority of the State of Tennessee Department of Financial Institutions and the Federal Deposit Insurance Corporation.
CORPORATE INFORMATION
Corporate Headquarters: 101 East Main Street, McMinnville, Tennessee 37110 1-888-473-2147 or (931)473-2147
Annual Meeting: May 29, 1998, 2:30 p.m. Director's Room, 2nd Floor, City Bank & Trust Company Bldg. 101 East Main Street, McMinnville, Tennessee 37110
Transfer Agent and Registrar: City Bank & Trust Company Stock Transfer Department P. O. Box 100, McMinnville, Tennessee 37111
Legal Counsel: B. Timothy Pirtle 3rd Floor, City Bank & Trust Company Bldg. 101 East Main Street, McMinnville, Tennessee 37110
Auditors/Tax Accountants: Kraft Bros., Esstman, Patton & Harrell, PLLC Certified Public Accountants Nashville, Tennessee 37219
FORM 10-K A copy of the Corporation's 19097 annual report filed with the Securities and Exchange Commission on Form 10-K is available without charg. To obtain a 10-K report or any additional financial information, write or call Ann Martin, Secretary, C B & T, Inc.