UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to
___________________
Commission File Number: 33-96358
BOURBON BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0993464
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 157, Paris, Kentucky 40362-0157
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(606)987-1795
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
Number of shares of Common Stock outstanding as of August 11, 1998: 1,400,003.
<PAGE>
BOURBON BANCSHARES, INC.
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statement of Income and Comprehensive Income
Six Months Ending June 30, 1998 & 1997 4
Consolidated Statement of Income and Comprehensive Income
Three Months Ending June 30, 1998 & 1997 5
Consolidated Statements of Cash Flows
Six Months Ending June 30, 1998 & 1997 6
Consolidated Statements of Cash Flows
Three Months Ending June 30, 1998 & 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Part II - Other Information 19
Signatures 19
<PAGE>
Item 1 - Financial Statements
BOURBON BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET (unaudited)
(thousands) 6/30/98 12/31/97
Assets
Cash & Due From Banks $ 9,342 $ 12,275
Federal Funds Sold -
Total Cash & Cash Equivalents $ 9,342 $ 12,275
Investment Securities:
Securities Held to Maturity 15,830 15,603
Securities Available for Sale 54,559 66,101
Federal Home Loan Bank Stock 3,011 2,905
Loans $191,835 $185,161
Reserve for Loan Losses 2,542 2,322
Net Loans $189,293 $182,839
Premises and Equipment 6,141 5,765
Other Assets 5,517 5,167
Total Assets $283,693 $290,655
Liabilities & Stockholders' Equity
Deposits
Demand $ 32,993 $ 33,481
Savings & Interest Checking 82,706 87,982
Certificates of Deposit 120,248 119,862
Total Deposits $235,947 $241,325
Repurchase Agreements 3,132 6,990
Federal Home Loan Bank Advances 7,847 10,236
Other Borrowed Funds 6,311 2,468
Other Liabilities 2,503 2,920
Total Liabilities $255,740 $263,939
Stockholders' Equity
Common Stock $ 6,419 $ 6,333
Retained Earnings 21,399 20,150
Accumulated Other Comprehensive Income 135 233
Total Stockholders' Equity $ 27,953 $ 26,716
Total Liabilities & Stockholders'
Equity $283,693 $290,655
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts) Six Months Ending
6/30/98 6/30/97
INTEREST INCOME:
Loans, including fees $ 8,478 $ 7,416
Investment Securities 2,220 2,632
Other 261 203
Total Interest Income $ 10,959 $ 10,251
INTEREST EXPENSE:
Deposits $ 4,870 $ 4,561
Other 459 458
Total Interest Expense $ 5,329 $ 5,019
Net Interest Income $ 5,630 $ 5,232
Loan Loss Provision 325 212
Net Interest Income After Provision $ 5,305 $ 5,020
OTHER INCOME:
Service Charges $ 1,034 $ 904
Securities Gains (Losses) 28 8
Other 242 209
Total Other Income $ 1,304 $ 1,121
OTHER EXPENSES:
Salaries and Benefits $ 2,247 $ 2,105
Occupancy Expenses 550 504
Other 1,353 1,286
Total Other Expenses $ 4,150 $ 3,895
Income Before Taxes $ 2,459 $ 2,246
Income Taxes 650 554
Net Income $ 1,809 $ 1,692
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on
Securities (97) 53
Comprehensive Income $ 1,712 $ 1,745
Earnings per share $ 1.29 $ 1.21
Earnings per share - assuming dilution $ 1.26 $ 1.19
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts) Three Months Ending
6/30/98 6/30/97
INTEREST INCOME:
Loans, including fees $ 4,264 $ 3,874
Investment Securities 1,058 1,311
Other 136 91
Total Interest Income $ 5,458 $ 5,276
INTEREST EXPENSE:
Deposits $ 2,434 $ 2,332
Other 217 227
Total Interest Expense $ 2,651 $ 2,559
Net Interest Income $ 2,807 $ 2,717
Loan Loss Provision 162 106
Net Interest Income After Provision $ 2,645 $ 2,611
OTHER INCOME:
Service Charges $ 546 $ 473
Securities Gains (Losses) 20 5
Other 130 87
Total Other Income $ 696 $ 565
OTHER EXPENSES:
Salaries and Benefits $ 1,124 $ 1,062
Occupancy Expenses 280 245
Other 716 653
Total Other Expenses $ 2,120 $ 1,960
Income Before Taxes $ 1,221 $ 1,216
Income Taxes 328 313
Net Income $ 893 $ 903
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on
Securities (61) 205
Comprehensive Income $ 832 $ 1,108
Earnings per share $ 0.63 $ 0.65
Earnings per share - assuming
dilution $ 0.62 $ 0.64
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands) Six Months Ending
6/30/98 6/30/97
Cash Flows From Operating Activities
Net Income 1,809 1,692
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 285 252
Amortization 231 207
Investment securities (accretion) amortization, net (12) 40
Provision for loan losses 325 212
Deferred Income Taxes (36) 98
Investment securities losses (gains), net (28) (7)
Originations of loans held for sale (18,077) (7,446)
Proceeds from sale of loans 21,961 7,615
Capitalization of Mortgage Servicing Rights (188) (78)
Losses (gains) on sale of fixed assets 25 -
Losses (gains) on sale of loans (40) (32)
Losses (gains), including write-downs, on real
estate acquired through foreclosure, net - 23
Changes in:
Interest receivable (233) (170)
Income taxes refundable (57) 47
Other assets 21 34
Interest payable 129 378
Income taxes payable - -
Other liabilities (546) (128)
Net cash provided by operating activities 5,569 2,737
Cash Flows From Investing Activities
Purchases of securities available for sale (11,178) (11,054)
Proceeds from sales of securities
available for sale 3,542 7,503
Proceeds from principal payments, maturities and
calls of securities available for sale 18,944 11,866
Purchase of securities held to maturity (990) (785)
Proceeds from sales, principal payments, maturities
and calls of securities held to maturity 783 891
Net change in loans (10,661) (10,353)
Purchases of bank premises and equipment (791) (643)
Proceeds from the sale of bank premises and equipment 105 -
Proceeds from sales of real estate acquired through
foreclosure - 56
Net cash provided by investing activities $ (246) $ (2,519)
Cash Flows From Financing Activities:
Net change in deposits $ (5,378) 995
Net change in securities sold under agreements
to repurchase and federal funds purchased (3,858) (22)
Advances from Federal Home Loan Bank 4,000 -
Payments on Federal Home Loan Bank advances (6,389) (133)
Net change in other borrowed funds 3,843 437
Proceeds from note payable - 450
Payment on note payable - (350)
Repurchase of common stock - (602)
Proceeds from issuance of common stock 86 28
Dividends paid (560) (503)
Net cash provided by financing activities $ (8,256) 300
Net increase (decrease) in cash and cash equivalents $ (2,933) $ 518
Cash and cash equivalents at beginning of period 12,275 9,191
Cash and cash equivalents at end of period $ 9,342 $ 9,709
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands) Three Months Ending
6/30/98 6/30/97
Cash Flows From Operating Activities
Net Income $ 893 $ 903
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 143 126
Amortization 119 105
Investment securities (accretion) amortization, net - 15
Provision for loan losses 162 106
Deferred Income Taxes 4 87
Investment securities losses (gains), net (20) (4)
Originations of loans held for sale (8,678) (5,520)
Proceeds from sale of loans 9,106 4,014
Capitalization of Mortgage Servicing Rights (80) (41)
Losses (gains) on sale of fixed assets 25 -
Losses (gains) on sale of loans (19) (17)
Losses (gains), including write-downs, on real
estate acquired through foreclosure, net - 23
Changes in:
Interest receivable (560) (458)
Income taxes refundable (57) (19)
Other assets 20 -
Interest payable 160 326
Income taxes payable (364) (166)
Other liabilities 114 50
Net cash provided by operating activities 968 (470)
Cash Flows From Investing Activities
Purchases of securities available for sale (135) (6,019)
Proceeds from sales of securities
available for sale 2,004 3,999
Proceeds from principal payments, maturities and
calls of securities available for sale 4,424 3,292
Purchase of securities held to maturity (990) (535)
Proceeds from sales, principal payments, maturities
and calls of securities held to maturity 783 891
Net change in loans (9,047) (5,813)
Purchases of bank premises and equipment (659) (161)
Proceeds from the sale of bank premises and equipment 105 -
Proceeds from sales of real estate acquired through
foreclosure - 56
Net cash provided by investing activities $ (3,515) $ (4,290)
Cash Flows From Financing Activities:
Net change in deposits $ (5,327) $ 4,509
Net change in securities sold under agreements to
repurchase and federal funds purchased (1,215) (2,082)
Advances from Federal Home Loan Bank 4,000 -
Payments on Federal Home Loan Bank advances (6,320) (67)
Net change in other borrowed funds 5,077 45
Proceeds from note payable - 250
Payment on note payable - (250)
Repurchase of common stock - (312)
Proceeds from issuance of common stock - -
Dividends paid (280) (250)
Net cash provided by financing activities $ (4,065) $ 1,843
Net increase (decrease) in cash and cash equivalents $ (6,612) $ (2,917)
Cash and cash equivalents at beginning of period 15,954 12,626
Cash and cash equivalents at end of period $ 9,342 $ 9,709
<PAGE>
BOURBON BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In Management's opinion, the financial information,
which is unaudited, reflects all adjustments, (consisting
solely of normal recurring adjustments) necessary for a fair
presentation of the financial information as of and for the
six month and three month periods ended June 30, 1998 and
June 30, 1997 in conformity with generally accepted
accounting principles. These financial statements should be
read in conjunction with Bourbon Bancshares, Inc. (Company)
Annual Report on Form 10-K.
2. The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". The requirements are
disclosure related and its implementation will have no
impact on the Company's financial condition or results of
operations. Prior period financial statements have been
restated to meet this reporting format.
3. Recently, the Financial Accounting Standards Board
issued Statement 128, "Earnings Per Share", under which
basic and diluted earnings per share are computed. Prior
amounts have been restated to be comparable. Basic earnings
per share is based on net income divided by the weighted
average number of shares outstanding during the period.
Diluted earnings per share shows the dilutive effect of
additional common shares issuable under stock options.
4. Dividends per share paid for the quarter ended June 30,
1998 was $0.20 compared to $0.18 on June 30, 1997. The
second quarter dividends were the same amounts as were paid
during the first quarter of the respective years.
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Summary
Bourbon Bancshares, Inc. recorded net income of $1,809
thousand, or $1.29 per share and $1.26 per share assuming
dilution for the first six months ended June 30, 1998
compared to $1,692 thousand, or $1.21 per share and $1.19
per share assuming dilution for June 30, 1997. The first
six months' reflects an increase in earnings of 7%. The
second quarter earnings of 1998 were $893 thousand, or $0.63
per share and $0.62 per share assuming dilution compared to
$903 thousand, or $0.65 per share and $0.64 per share
assuming dilution in 1997. This represents a 1% reduction
in earnings.
Return on average assets was 1.29% for the first six months
ended June 30, 1998 compared to 1.21% for the same time
period in 1997. Second quarter numbers were 1.24% and 1.32%
for 1998 and 1997, respectively. Return on average equity
was 13.2% and 13.7% for the six months ended June 30, 1998
and 1997, respectively. Second quarter numbers were 13.0%
in 1998 compared to 14.6% in 1997. The return on assets was
up 2% for the first six months and down 6% for the second
quarter. The return on equity for the first six months was
down 4% and down 11% for the second quarter.
Net Interest Income
Net interest income was $5,630 thousand for the six months
ended June 30, 1998 compared to $5,232 thousand in 1997,
resulting in an increase of $398 thousand or 7.6%. For the
second quarter, net interest income was $2,807 thousand in
1998 and $2,717 thousand in 1997, an increase of $90
thousand or 3.3%. Loan volume continues to improve. Year
to date average loans are up nearly $23 million, or nearly
14% from 1997 to 1998 resulting in an improvement in
interest income of $1,062 thousand for the first six months
and $390 thousand for the quarter. Average deposits also
increased from 1997 to 1998, up nearly $12 million, or 5%.
The increased volume resulted in higher interest expense of
$309 thousand for the first six months and $102 thousand for
the quarter.
Non-Interest Income
Non-interest income increased for the six-month period ended
June 30 from $1,121 thousand in 1997 to $1,304 thousand in
1998. The second quarter reflected an increase from $565
thousand in 1997 to $696 thousand in 1998. For the year, an
increase of $130 thousand in service charges from 1997 to
1998 is mainly attributable to an improvement in overdraft
charges of $99 thousand. Service charges increased $73
thousand for the second quarter with overdraft charges
accounting for $53 thousand. Servicing income from loans
sold is up $13 thousand from 1997. Securities gains were up
$20 thousand for the first six months and $15 thousand for
the second quarter. Trust income accounts for $18 thousand
of the $33 thousand increase in other income for the first
six months.
<PAGE>
Non-Interest Expense
The explanations for the increase of $255 thousand in non-
interest expenses from $3,895 thousand for the six months
ended June 30, 1997 to $4,150 thousand for the same period
in 1998 and the increase of $160 thousand for the second
quarter of 1998 compared to 1997 follows. Salaries and
benefits increased $142 thousand for the first six months of
1998 compared to 1997, an increase of 6.7%. The increase
for the second quarter was $62 thousand. In 1998, bonuses
were earned by employees totaling $56 thousand compared to
$39 thousand in 1997. The increase in salaries of 5% is
mainly attributable to salary increases and the adding of
staffing in Georgetown for the new branch and Clark County
for the opportunity existing with two banks in town changing
ownership.
Occupancy expense increased $46 thousand for the first six
months of 1998 compared to 1997 and $35 thousand for the
second quarter. Depreciation was up $33 thousand for the
year and $17 thousand for the second quarter. Building
maintenance was $18 thousand higher for the first six months
of 1998. These changes are mainly attributable to the newly
constructed Versailles location and the leased building no
longer being needed, and the newly constructed Georgetown
Branch.
Other expenses for the first six months of 1998 compared to
1997 increased $67 thousand, from $1,286 thousand to $1,353
thousand. Of this increase $63 thousand occurred during the
second quarter. Telephone expenses are up $12 thousand for
the year. The Company has placed more emphasis on education
and training during 1998 and these expenses are $18 thousand
higher in 1998 than in 1997. With the selling of mortgage
loans, the amortization of mortgage servicing rights
increased $24 thousand from 1997 to 1998. During 1998 the
legal and professional expenses are $19 thousand higher in
1998 as compared to 1997.
Income Taxes
The tax equivalent rate for the six months ended June 30 was
26% for 1998 and 25% for 1997. The quarterly rates were 27%
and 26% for 1998 and 1997, respectively. These rates being
less than the statutory rate is a result of the tax-free
securities and loans held by the Company.
<PAGE>
Liquidity and Funding
The cash flow statements provide a useful analysis of
liquidity. This report reveals an decrease of cash and cash
equivalents for the first six months of 1998 of $2,933
thousand and an increase of $518 thousand for the same
period in 1997. The second quarter reflects a decrease of
cash and cash equivalents of $6,612 thousand in 1998 and a
decrease of $2,917 in 1997. In 1998, proceeds from the sale
of loans were nearly $22 million compared to nearly $8
million in 1997. The second quarter reveals over $9 million
from the sale of loans in 1998 compared to $4 million in
1997. Originations of loans held for sale were also greater
in 1998, amounting to over $18 million compared to $7
million in 1997. The second quarter numbers were $9 million
and $6 million for 1998 and 1997, respectively. The lower
rates have created higher volume of loans originated and
have allowed management to sale lower coupon loans.
During 1998, proceeds from security transactions have
exceeded purchases by over $11 million compared to nearly $8
million in 1997. Second quarter proceeds exceeded purchases
by $6 million in 1998 and $2 million in 1997. Of this
change, principal payments on securities have amounted to
over $7 million in 1998 ($3 million in second quarter) and
over $4 million for the same period in 1997 ($2 million in
second quarter). Management has made a concerted effort to
improve loan demand over the past two years. In 1998, net
loans have increased nearly $6 million compared to $10
million in 1997.
Deposits for 1998 have decreased $5 million. However,
during 1997 deposits increased over $1 million during the
first six months. During 1998, other borrowing has dropped
$2 million, while it remained relatively flat in 1997. The
above-mentioned activity in 1998 with deposits, loans and
securities has allowed these borrowed funds to be paid down.
Management believes there is sufficient liquidity to meet
all reasonable borrower, depositor and creditor needs in the
present economic environment.
<PAGE>
Non-Performing Assets
As of June 30, 1998, the Company's non-performing assets
totaled $1,119 thousand or 0.6% of loans compared to $591
thousand or 0.4% of loans in 1997. (See table below) Real
estate loans composed 73% and 64% of the non-performing
loans as of June 30, 1998 and 1997, respectively. Lost
interest income on the non-accrual loans for both 1998 and
1997 is immaterial.
Nonperforming Assets
June 30
(in
thousands)
1998 1997
Non-accrual Loans 270 81
Accruing Loans which are
Contractually past due
90 days or more 695 342
Restructured Loans 154 168
Total Nonperforming and Restructured 1,119 591
Other Real Estate - -
Total Nonperforming and Restructured
Loans and Other Real Estate 1,119 591
Nonperforming and Restructured Loans
as a Percentage of Net Loans 0.58% 0.35%
Nonperforming and Restructured Loans
and Other Real Estate as a Percentage
of Total Assets 0.39% 0.22%
Provision and Reserve for Possible Loan Losses
The 1998 six-month provision for loan losses of $325
thousand is higher than the 1997 number of $212 thousand.
The second quarter provision was $162 thousand for 1998 and
$106 thousand for 1997. Loan growth has required management
to increase the provision in order to maintain a reserve
ratio that is adequate and indicative of the quality of
loans currently in the portfolio. The quality of the loans,
in management's opinion, is still strong as is presented
earlier in non-performing loans. As depicted in the table
below, the loan loss reserve to total loans was 1.33% on
June 30, 1997 and on June 30, 1998. Net charge-offs for the
periods mentioned above have been relatively insignificant.
Management feels the current loan loss reserve is sufficient
to meet future loan problems.
<PAGE>
Loan Losses
Six Months Ended June 30
(in thousands)
1998 1997
Balance at Beginning of Period 2,322 2,101
Amounts Charged-off:
Commercial 3 -
Real Estate Construction - -
Real Estate Mortgage 11 -
Agricultural - 14
Consumer 122 73
Total Charged-off Loans 136 87
Recoveries on Amounts
Previously Charged-off:
Commercial 2 2
Real Estate Construction - -
Real Estate Mortgage 1 1
Agricultural 1 10
Consumer 27 22
Total Recoveries 31 35
Net Charge-offs 105 52
Provision for Loan Losses 325 212
Balance at End of Period 2,542 2,261
Total Loans, Net of Unearned Income
Average 186,029 163,385
At June 30 191,835 169,790
As a Percentage of Average Loans:
Net Charge-offs 0.06% 0.03%
Provision for Loan Losses 0.17% 0.13%
Allowance as a Percentage of
Period-end Net Loans 1.33% 1.33%
Allowance as a Multiple of
Net Charge-offs 24.2 43.5
<PAGE>
Loan Losses
Quarter Ended June 30
(in thousands)
1998 1997
Balance at Beginning of Period
2,437 2,194
Amounts Charged-off:
Commercial 1 -
Real Estate Construction - -
Real Estate Mortgage 11 -
Agricultural - 14
Consumer 69 46
Total Charged-off Loans 81 60
Recoveries on Amounts
Previously Charged-off:
Commercial 1 1
Real Estate Construction - -
Real Estate Mortgage 1 1
Agricultural 1 10
Consumer 21 9
Total Recoveries 24 21
Net Charge-offs 57 39
Provision for Loan Losses 162 106
Balance at End of Period 2,542 2,261
Total Loans, Net of Unearned Income
Average 184,822 161,571
At June 30 191,835 169,790
As a Percentage of Average Loans:
Net Charge-offs 0.03% 0.02%
Provision for Loan Losses 0.09% 0.07%
Allowance as a Percentage of
Period-end Net Loans 1.33% 1.33%
Allowance as a Multiple of
Net Charge-offs 44.6 58.0
Year 2000
Management has completed its assessment phase for the Year
2000 and continues its renovation phase (replacing equipment
and upgrading software) as needed to be compliant. Some
testing has been completed and other testing will be
performed during 1998. Current estimates for this project
are under $150 thousand, with the majority of this being for
equipment and software.
<PAGE>
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Asset/Liability management control is designed to ensure
safety and soundness, maintain liquidity and regulatory
capital standards, and achieve acceptable net interest
income. Management considers interest rate risk to be the
most significant market risk. The Company's exposure to
market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the
potential of economic losses due to future interest rate
changes. These economic losses can be reflected as a loss
of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on
net interest income and to adjust the balance sheet to
minimize the inherent risk while at the same time maximize
income. Management realizes certain risks are inherent and
that the goal is to identify and minimize the risks. Tools
used by management include the standard GAP report and an
interest rate shock simulation report. The Bank has no
market risk sensitive instruments held for trading purposes.
The following table depicts the change in net interest
income resulting from 100 to 300 basis point changes in
rates. The projections are based on balance sheet growth
assumptions and repricing opportunities for new, maturing
and adjustable rate amounts. In addition, the projected
percentage changes from level rates are outlined below with
the Board of Directors specified limits. As of June 30,
1998 the projected percentage changes are within the Board
limits and the Company's interest rate risk appears
reasonable. The projected net interest income report
summarizing the Bank's interest rate sensitivity as of June
30, 1998 is as follows:
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
PROJECTED NET INTEREST INCOME
Level
Rate Change: - 300 - 200 - 100 Rates + 100 + 200 + 300
<S> <C> <C> <C> <C> <C> <C> <C>
Year One (7/1/98 - 6/30/99)
Interest Income 19,691 20,648 21,618 22,593 23,568 24,543 25,518
Interest Expense 8,021 8,959 9,897 10,835 11,773 12,711 13,649
Net Interest Income 11,670 11,689 11,721 11,758 11,795 11,832 11,869
Year Two (7/1/99 - 6/30/2000)
Interest Income 18,571 20,440 22,335 24,237 26,139 28,041 29,943
Interest Expense 6,622 8,272 9,921 11,571 13,220 14,870 16,519
Net Interest Income 11,949 12,168 12,414 12,666 12,919 13,171 13,424
PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (7/1/98 - 6/30/99)
Interest Income (2,902) (1,945) (975) N/A 975 1,950 2,925
Interest Expense (2,814) (1,876) (938) N/A 938 1,876 2,814
Net Interest Income (88) (69) (37) N/A 37 74 111
Year Two (7/1/99 - 6/30/2000)
Interest Income (5,666) (3,796) (1,902) N/A 1,902 3,804 5,706
Interest Expense (4,949) (3,299) (1,650) N/A 1,650 3,299 4,949
Net Interest Income (717) (497) (252) N/A 252 505 757
PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (7/1/98 - 6/30/99)
Interest Income -12.8% -8.6% -4.3% N/A 4.3% 8.6% 12.9%
Interest Expense -26.0% -17.3% -8.7% N/A 8.7% 17.3% 26.0%
Net Interest Income -0.8% -0.6% -0.3% N/A 0.3% 0.6% 0.9%
Limitation on % Change >-10.0% >-7.0% >-4.0% N/A >-4.0% >-7.0% >-10.0%
Year Two (7/1/99 - 6/30/2000)
Interest Income -23.4% -15.7% -7.8% N/A 7.8% 15.7% 23.5%
Interest Expense -42.8% -28.5% -14.3% N/A 14.3% 28.5% 42.8%
Net Interest Income -5.7% -3.9% -2.0% N/A 2.0% 4.0% 6.0%
Limitation on % Change >-20.0% >-14.0% >-8.0% N/A >-8.0% >-14.0% >-20.0%
</TABLE>
<PAGE>
Management measures the Bank's interest rate risk by
computing estimated changes in net interest income in the
event of a range of assumed changes in market interest
rates. The Company's exposure to interest rates is reviewed
on a monthly basis by senior management and quarterly with
the Board of Directors. Exposure to interest rate risk is
measured with the use of interest rate sensitivity analysis
to determine the change in net interest income in the event
of hypothetical changes in interest rates, while interest
rate sensitivity gap analysis is used to determine the
repricing characteristics of the Bank's assets and
liabilities. If estimated changes to net interest income
are not within the limits established by the Board, the
Board may direct management to adjust the Bank's asset and
liability mix to bring interest rate risk within Board
approved limits.
In addition, the Bank uses interest rate sensitivity gap
analysis to monitor the relationship between the maturity
and repricing of its interest-earning assets and interest-
bearing liabilities, while maintaining an acceptable
interest rate spread. Interest rate sensitivity gap is
defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities
maturing or repricing within that time period. A gap is
considered positive when the amount of interest-rate-
sensitive assets exceeds the amount of interest-sensitive-
liabilities, and is considered negative when the amount of
interest-rate-sensitive liabilities exceeds the amount of
interest-rate-sensitive assets. Generally, during a period
of rising interest rates, a negative gap would adversely
affect net interest income, while a positive gap would
result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap
would result in an increase in net interest income, while a
positive gap would negatively affect net interest income.
The Bank's goal is to maintain a reasonable balance between
exposure to interest rate fluctuations and earnings.
The interest rate sensitivity analysis as of June 30, 1998
shown below depicts amounts based on the earliest period in
which they can normally be expected to reprice. The chart
reveals that assets and liabilities are fairly well matched
for the early periods specified below. The decay rates used
for Demand deposits, NOW's, Savings and Money Market Savings
are 5%, 30%, 20% and 30%, respectively.
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
Total 1 Year 2 Years 3 Years 4 Years 5 Years >5 Years
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Cash 9,111 - - - - - 9,111
Fed Funds & Int-Earning Due from Banks 231 231 - - - - -
Variable Rate Investment 21,574 21,574 - - - - -
Fixed Rate Investment 51,826 21,974 12,224 2,788 3,598 3,960 7,282
Variable Rate Loans 68,793 61,469 2,581 1,307 1,810 1,472 154
Fixed Rate Loans 123,042 40,010 19,635 16,352 20,992 22,842 3,211
Others Assets 9,116 - - - - - 9,116
Total Assets / Repricing Assets 283,693 145,258 34,440 20,447 26,400 28,274 28,874
Repricing Assets - Accumulated 145,258 179,698 200,145 226,545 254,819 283,693
% of Current Balance 51.2% 12.1% 7.2% 9.3% 10.0% 10.2%
% of Current Balance - Accumulated 51.2% 63.3% 70.5% 79.9% 89.8% 100.0%
LIABILITIES
Demand Deposit Accounts 32,993 1,650 1,567 1,489 1,414 1,344 25,529
NOW Accounts 49,943 14,983 10,488 7,341 5,139 3,598 8,394
Savings Accounts 12,805 2,561 2,049 1,639 1,311 1,049 4,196
Money Market Savings 8,604 2,581 1,807 1,265 885 620 1,446
Subtotal Deposit Accounts 104,345 21,775 15,911 11,734 8,749 6,611 39,565
Other Variable Deposits 6,139 6,122 4 - - - 13
Fixed Rate Deposits 125,463 101,470 19,771 1,702 685 1,258 577
Variable Rate Other Liabilities 8,692 8,442 250 - - - -
Fixed Rate Other Liabilities 8,598 5,041 307 1,197 241 255 1,557
Other Liabilities 2,503 - - - - - 2,503
Total Captial 27,953 - - - - - 27,953
Total Liabilities / Repricing Liab 283,693 142,850 36,243 14,633 9,675 8,124 72,168
Repricing Liabilities - Accumulated 142,850 179,093 193,726 203,401 211,525 283,693
% of Current Balance 50.4% 12.8% 5.2% 3.4% 2.9% 25.4%
% of Current Balance - Accumulated 50.4% 63.1% 68.3% 71.7% 74.6% 100.0%
SUMMARY
Total Repricing Assets 145,258 34,440 20,447 26,400 28,274 28,874
Total Repricing Liabilities 142,850 36,243 14,633 9,675 8,124 72,168
Total Repricing Gap (by Bucket) 2,408 (1,803) 5,814 16,725 20,150 (43,294)
Total Repricing Assets - Cumulative 264,925 145,258 179,698 200,145 226,545 254,819 283,693
Total Repricing Liabilities - Cumulat 254,096 142,850 179,093 193,726 203,401 211,525 283,693
Repricing Gap - Cumulative 10,829 2,408 605 6,419 23,144 43,294 -
Gap/Total Assets (by Bucket) 0.85% -0.64% 2.05% 5.90% 7.10% -15.26%
Cumulative Gap/Total Assets 0.85% 0.21% 2.26% 8.16% 15.26% 0.00%
</TABLE>
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits as required by Item 601 of Regulation S-
B.
27 Financial Data Schedule
2. No reports on Form 8-K have been filed during the
quarter for which this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused the report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Bourbon Bancshares, Inc.
Date __________________ _________________________________
Buckner Woodford, President and C.E.O.
Date __________________ _________________________________
Gregory J. Dawson, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9111
<INT-BEARING-DEPOSITS> 231
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54559
<INVESTMENTS-CARRYING> 15830
<INVESTMENTS-MARKET> 16565
<LOANS> 191835
<ALLOWANCE> 2542
<TOTAL-ASSETS> 283693
<DEPOSITS> 235947
<SHORT-TERM> 8692
<LIABILITIES-OTHER> 2503
<LONG-TERM> 8598
0
0
<COMMON> 6419
<OTHER-SE> 21534
<TOTAL-LIABILITIES-AND-EQUITY> 283693
<INTEREST-LOAN> 8478
<INTEREST-INVEST> 2220
<INTEREST-OTHER> 261
<INTEREST-TOTAL> 10959
<INTEREST-DEPOSIT> 4870
<INTEREST-EXPENSE> 5329
<INTEREST-INCOME-NET> 5630
<LOAN-LOSSES> 325
<SECURITIES-GAINS> 28
<EXPENSE-OTHER> 4150
<INCOME-PRETAX> 2459
<INCOME-PRE-EXTRAORDINARY> 2459
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1809
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.26
<YIELD-ACTUAL> 4.20
<LOANS-NON> 270
<LOANS-PAST> 695
<LOANS-TROUBLED> 154
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2322
<CHARGE-OFFS> 136
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 2542
<ALLOWANCE-DOMESTIC> 2542
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
