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 September 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 November 4, 1998:
1,404,603.
<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
Nine Months Ending September 30, 1998 & 1997 4
Consolidated Statement of Income and Comprehensive Income
Three Months Ending September 30, 1998 & 1997 5
Consolidated Statements of Cash Flows
Nine Months Ending September 30, 1998 & 1997 6
Consolidated Statements of Cash Flows
Three Months Ending September 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) 9/30/98 12/31/97
Assets
Cash & Due From Banks $ 11,707 $ 12,275
Federal Funds Sold 2,950
Total Cash & Cash Equivalents $ 14,657 $ 12,275
Investment Securities:
Securities Held to Maturity 17,167 15,603
Securities Available for Sale 53,085 66,101
Federal Home Loan Bank Stock 3,066 2,905
Loans $199,529 $185,161
Reserve for Loan Losses 2,636 2,322
Net Loans $196,893 $182,839
Premises and Equipment 6,343 5,765
Other Assets 5,627 5,167
Total Assets $296,838 $290,655
Liabilities & Stockholders' Equity
Deposits
Demand $ 36,921 $ 33,481
Savings & Interest Checking 87,526 87,982
Certificates of Deposit 126,671 119,862
Total Deposits $251,118 $241,325
Repurchase Agreements 3,281 6,990
Federal Home Loan Bank Advances 9,776 10,236
Other Borrowed Funds 1,003 2,468
Other Liabilities 2,908 2,920
Total Liabilities $268,086 $263,939
Stockholders' Equity
Common Stock $ 6,474 $ 6,333
Retained Earnings 22,049 20,150
Accumulated Other Comprehensive Income 229 233
Total Stockholders' Equity $ 28,752 $ 26,716
Total Liabilities & Stockholders' Equity $296,838 $290,655
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts) Nine Months Ending
9/30/98 9/30/97
INTEREST INCOME:
Loans, including fees $ 12,876 $ 11,408
Investment Securities 3,449 3,903
Other 201 302
Total Interest Income $ 16,526 $ 15,613
INTEREST EXPENSE:
Deposits $ 7,352 $ 7,020
Other 677 691
Total Interest Expense $ 8,029 $ 7,711
Net Interest Income $ 8,497 $ 7,902
Loan Loss Provision 488 343
Net Interest Income After Provision $ 8,009 $ 7,559
OTHER INCOME:
Service Charges $ 1,589 $ 1,388
Securities Gains (Losses) 35 2
Other 404 303
Total Other Income $ 2,028 $ 1,693
OTHER EXPENSES:
Salaries and Benefits $ 3,371 $ 3,154
Occupancy Expenses 854 773
Other 2,095 1,890
Total Other Expenses $ 6,320 $ 5,817
Income Before Taxes $ 3,717 $ 3,435
Income Taxes 978 862
Net Income $ 2,739 $ 2,573
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on Securities (4) 175
Comprehensive Income $ 2,735 $ 2,748
Earnings per share $ 1.96 $ 1.84
Earnings per share - assuming dilution $ 1.91 $ 1.81
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts)
Three Months Ending
9/30/98 9/30/97
INTEREST INCOME:
Loans, including fees $ 4,398 $ 3,992
Investment Securities 1,229 1,271
Other (60) 99
Total Interest Income $ 5,567 $ 5,362
INTEREST EXPENSE:
Deposits $ 2,482 $ 2,459
Other 218 233
Total Interest Expense $ 2,700 $ 2,692
Net Interest Income $ 2,867 $ 2,670
Loan Loss Provision 163 131
Net Interest Income After Provision $ 2,704 $ 2,539
OTHER INCOME:
Service Charges $ 555 $ 484
Securities Gains (Losses) 7 (6)
Other 162 94
Total Other Income $ 724 $ 572
OTHER EXPENSES:
Salaries and Benefits $ 1,124 $ 1,049
Occupancy Expenses 304 269
Other 742 604
Total Other Expenses $ 2,170 $ 1,922
Income Before Taxes $ 1,258 $ 1,189
Income Taxes 328 308
Net Income $ 930 $ 881
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on Securities 93 122
Comprehensive Income $ 1,023 $ 1,003
Earnings per share $ 0.67 $ 0.63
Earnings per share - assuming dilution $ 0.65 $ 0.62
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands)
Nine Months Ending
9/30/98 9/30/97
Cash Flows From Operating Activities
Net Income $ 2,739 $ 2,573
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 428 383
Amortization 352 313
Investment securities (accretion) amortization, net (22) 48
Provision for loan losses 488 343
Deferred Income Taxes (50) 15
Investment securities losses (gains), net (35) (2)
Originations of loans held for sale (24,272) (14,678)
Proceeds from sale of loans 27,984 14,716
Capitalization of Mortgage Servicing Rights (252) (130)
Losses (gains) on sale of fixed assets 25 -
Losses (gains) on sale of loans (94) (47)
Losses (gains), including write-downs, on real
estate acquired through foreclosure, net - 23
Changes in:
Interest receivable (417) (568)
Income taxes refundable - 66
Other assets (34) (69)
Interest payable 119 633
Income taxes payable 285 112
Other liabilities (416) 66
Net cash provided by operating activities $ 6,828 $ 3,797
Cash Flows From Investing Activities
Purchases of securities available for sale $ (19,266) $ (17,053)
Proceeds from sales of securities available for sale 5,544 13,336
Proceeds from principal payments, maturities and
calls of securities available for sale 26,606 15,309
Purchase of securities held to maturity (2,375) (785)
Proceeds from sales, principal payments, maturities
and calls of securities held to maturity 833 1,431
Net change in loans (18,217) (20,870)
Purchases of bank premises and equipment (1,136) (1,095)
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 $ (7,906) $ (9,671)
Cash Flows From Financing Activities:
Net change in deposits $ 9,793 $ 4,214
Net change in securities sold under agreements to
repurchase and federal funds purchased (3,709) 417
Advances from Federal Home Loan Bank 4,000 -
Payments on Federal Home Loan Bank advances (4,460) (229)
Net change in other borrowed funds (1,465) 2,578
Proceeds from note payable - 450
Payment on note payable - (450)
Repurchase of common stock - (602)
Proceeds from issuance of common stock 142 32
Dividends paid (841) (754)
Net cash provided by financing activities $ 3,460 $ 5,656
Net increase (decrease) in cash and cash equivalents $ 2,382 $ (218)
Cash and cash equivalents at beginning of period 12,275 9,191
Cash and cash equivalents at end of period $ 14,657 $ 8,973
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands) Three Months Ending
9/30/98 9/30/97
Cash Flows From Operating Activities
Net Income $ 930 $ 881
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 143 131
Amortization 121 106
Investment securities (accretion) amortization, net (10) 8
Provision for loan losses 163 131
Deferred Income Taxes (14) (83)
Investment securities losses (gains), net (7) 5
Originations of loans held for sale (6,195) (7,232)
Proceeds from sale of loans 6,023 7,101
Capitalization of Mortgage Servicing Rights (64) (52)
Losses (gains) on sale of loans (54) (15)
Changes in:
Interest receivable (184) (398)
Income taxes refundable 57 19
Other assets (55) (103)
Interest payable (10) 255
Income taxes payable 285 112
Other liabilities 130 194
Net cash provided by operating activities $ 1,259 $ 1,060
Cash Flows From Investing Activities
Purchases of securities available for sale $ (8,088) $ (5,999)
Proceeds from sales of securities available for sale 2,002 5,833
Proceeds from principal payments, maturities and
calls of securities available for sale 7,662 3,443
Purchase of securities held to maturity (1,385) -
Proceeds from sales, principal payments, maturities
and calls of securities held to maturity 50 540
Net change in loans (7,556) (10,517)
Purchases of bank premises and equipment (345) (452)
Net cash provided by investing activities $ (7,660) $ (7,152)
Cash Flows From Financing Activities:
Net change in deposits $ 15,171 $ 3,219
Net change in securities sold under agreements to
repurchase and federal funds purchased 149 439
Payments on Federal Home Loan Bank advances 1,929 (96)
Net change in other borrowed funds (5,308) 2,141
Payment on note payable - (100)
Proceeds from issuance of common stock 56 4
Dividends paid (281) (251)
Net cash provided by financing activities $ 11,716 $ 5,356
Net increase (decrease) in cash and cash equivalents $ 5,315 $ (736)
Cash and cash equivalents at beginning of period 9,342 9,709
Cash and cash equivalents at end of period $ 14,657 $ 8,973
<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 nine month and three month
periods ended September 30, 1998 and September 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 September 30, 1998 was
$0.20 compared to $0.18 on September 30, 1997. The third quarter
dividends were the same amounts as were paid during the first and
second quarters 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 $2,739 thousand, or
$1.96 per share and $1.91 per share assuming dilution for the first nine
months ended September 30, 1998 compared to $2,573 thousand, or $1.84
per share and $1.81 per share assuming dilution for September 30, 1997.
The first nine months' reflects an increase in earnings of 7%. The
third quarter earnings of 1998 were $931 thousand, or $0.67 per share
and $0.65 per share assuming dilution compared to $881 thousand, or
$0.63 per share and $0.62 per share assuming dilution in 1997. This
represents a 6% increase in earnings.
Return on average assets was 1.27% for the first nine months ended
September 30, 1998 compared to 1.25% for the same time period in 1997.
Third quarter numbers were 1.28% and 1.26% for 1998 and 1997,
respectively. Return on average equity was 13.2% and 13.7% for the nine
months ended September 30, 1998 and 1997, respectively. Third quarter
numbers were 13.2% in 1998 compared to 13.7% in 1997. The return on
assets was up 2% for the first nine months and up 2% for the third
quarter. The return on equity for the first nine months was down 4% and
down 4% for the third quarter.
Net Interest Income
Net interest income was $8,497 thousand for the nine months ended
September 30, 1998 compared to $7,902 thousand in 1997, resulting in an
increase of $595 thousand or 7.5%. For the third quarter, net interest
income was $2,867 thousand in 1998 and $2,670 thousand in 1997, an
increase of $197 thousand or 7.4%. Loan volume continues to improve.
Year to date average loans are up nearly $21 million, or nearly 13% from
1997 to 1998 resulting in an improvement in interest income of $913
thousand for the first nine months and $205 thousand for the quarter.
Average deposits also increased from 1997 to 1998, up nearly $11
million, or 5%. The increased volume resulted in higher interest
expense of $318 thousand for the first nine months and $8 thousand for
the quarter.
Non-Interest Income
Non-interest income increased for the nine-month period ended September
30 from $1,693 thousand in 1997 to $2,028 thousand in 1998. The third
quarter reflected an increase from $572 thousand in 1997 to $724
thousand in 1998. For the year, an increase of $201 thousand in service
charges from 1997 to 1998 is mainly attributable to an improvement in
overdraft charges of $141 thousand. Service charges increased $71
thousand for the third quarter with overdraft charges accounting for $42
thousand. Servicing income from loans sold is up $19 thousand from
1997. Securities gains were up $33 thousand for the first nine months
and $13 thousand for the third quarter. Trust income accounts for $39
thousand of the $101 thousand increase in other income for the first
nine months.
<PAGE>
Non-Interest Expense
The explanations for the increase of $282 thousand in non-interest
expenses from $5,817 thousand for the nine months ended September 30,
1997 to $6,320 thousand for the same period in 1998 and the increase of
$248 thousand for the third quarter of 1998 compared to 1997 follows.
Salaries and benefits increased $217 thousand for the first nine months
of 1998 compared to 1997, an increase of 6.9%. The increase for the
third quarter was $75 thousand. In 1998, bonuses were earned by
employees totaling $70 thousand compared to $54 thousand in 1997. The
increase in salaries of 6% 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 $81 thousand for the first nine months of
1998 compared to 1997 and $35 thousand for the third quarter.
Depreciation was up $44 thousand for the year and $11 thousand for the
third quarter. Building maintenance was $16 thousand higher for the
first nine 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 nine months of 1998 compared to 1997
increased $205 thousand, from $1,890 thousand to $2,095 thousand. Of
this increase $138 thousand occurred during the third quarter.
Telephone expenses are up $18 thousand for the year. The Company has
placed more emphasis on education and training during 1998 and these
expenses are $34 thousand higher in 1998 than in 1997. With the selling
of mortgage loans, the amortization of mortgage servicing rights
increased $39 thousand from 1997 to 1998. During 1998 the legal and
professional expenses are $23 thousand higher in 1998 as compared to
1997.
Income Taxes
The tax equivalent rate for the nine months ended September 30 was 26%
for 1998 and 25% for 1997. The quarterly rates were 26% 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 increase of cash and cash equivalents for the first
nine months of 1998 of $2,382 thousand and a decrease of $218 thousand
for the same period in 1997. The third quarter reflects an increase of
cash and cash equivalents of $5,315 thousand in 1998 and a decrease of
$736 in 1997. In 1998, proceeds from the sale of loans were nearly $28
million compared to nearly $15 million in 1997. The third quarter
reveals over $6 million from the sale of loans in 1998 compared to $7
million in 1997. Originations of loans held for sale were also greater
in 1998, amounting to over $24 million compared to $15 million in 1997.
The third quarter numbers were $6 million and $7 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 $12 million in 1997. Third
quarter proceeds exceeded purchases by $0.2 million in 1998 and $4
million in 1997. Of this change, principal payments on securities have
amounted to over $10 million in 1998 ($3 million in third quarter) and
over $7 million for the same period in 1997 ($3 million in third
quarter). Management has made a concerted effort to improve loan demand
over the past two years. In 1998, net loans have increased $18 million
compared to $21 million in 1997.
Deposits for 1998 have increased $10 million. However, during 1997
deposits increased over $4 million during the first nine months. During
1998, other borrowing has dropped $6 million however it increased $3
million 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 September 30, 1998, the Company's non-performing assets totaled
$931 thousand or 0.5% of loans compared to $679 thousand or 0.4% of
loans in 1997. (See table below) Real estate loans composed 65% and
68% of the non-performing loans as of September 30, 1998 and 1997,
respectively. Lost interest income on the non-accrual loans for both
1998 and 1997 is immaterial.
Nonperforming Assets
September 30
(in thousands) 1998 1997
Non-accrual Loans 227 225
Accruing Loans which are
Contractually past due
90 days or more 555 291
Restructured Loans 149 163
Total Nonperforming and Restructured 931 679
Other Real Estate - -
Total Nonperforming and Restructured
Loans and Other Real Estate 931 679
Nonperforming and Restructured Loans
as a Percentage of Net Loans 0.47% 0.38%
Nonperforming and Restructured Loans
and Other Real Estate as a Percentage
of Total Assets 0.31% 0.24%
Provision and Reserve for Possible Loan Losses
The 1998 nine-month provision for loan losses of $488 thousand is higher
than the 1997 number of $343 thousand. The third quarter provision was
$163 thousand for 1998 and $131 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 1.31% on September 30, 1997 and 1.32% on September 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
Nine Months Ended September 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 15 14
Consumer 205 116
Total Charged-off Loans 234 130
Recoveries on Amounts
Previously Charged-off:
Commercial 3 2
Real Estate Construction - -
Real Estate Mortgage 8 1
Agricultural 1 11
Consumer 48 32
Total Recoveries 60 46
Net Charge-offs 174 84
Provision for Loan Losses 488 343
Balance at End of Period 2,636 2,360
Total Loans, Net of Unearned Income
Average 188,707 167,169
At September 30 199,529 180,402
As a Percentage of Average Loans:
Net Charge-offs 0.09% 0.05%
Provision for Loan Losses 0.26% 0.21%
Allowance as a Percentage of
Period-end Net Loans 1.32% 1.31%
Allowance as a Multiple of
Net Charge-offs 15.1 28.1
<PAGE>
Loan Losses
Quarter Ended September 30
(in thousands) 1998 1997
Balance at Beginning of Period 2,542 2,261
Amounts Charged-off:
Commercial - -
Real Estate Construction - -
Real Estate Mortgage - -
Agricultural 15 -
Consumer 83 43
Total Charged-off Loans 98 43
Recoveries on Amounts
Previously Charged-off:
Commercial 1 -
Real Estate Construction - -
Real Estate Mortgage 7 -
Agricultural - 1
Consumer 21 10
Total Recoveries 29 11
Net Charge-offs 69 32
Provision for Loan Losses 163 131
Balance at End of Period 2,636 2,360
Total Loans, Net of Unearned Income
Average 187,368 165,277
At September 30 199,529 180,402
As a Percentage of Average Loans:
Net Charge-offs 0.04% 0.02%
Provision for Loan Losses 0.09% 0.08%
Allowance as a Percentage of
Period-end Net Loans 1.32% 1.31%
Allowance as a Multiple of
Net Charge-offs 38.2 73.8
Year 2000
Management has completed its assessment phase for the Year 2000 and
continues its renovation phase (replacing equipment and upgrading
software) and testing phase as needed to be compliant. Current
estimates for this project are under $150 thousand, with the majority of
this being for equipment and software. Management believes the effect
of the Year 2000 issues will not have a material effect on the Company's
business, results of operation or financial condition.
<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 September 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
September 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 (10/1/98 - 9/30/99)
Interest Income 19,810 20,835 21,867 22,904 23,941 24,978 26,016
Interest Expense 7,680 8,638 9,596 10,553 11,511 12,468 13,426
Net Interest Income 12,130 12,197 12,271 12,351 12,430 12,510 12,590
Year Two (10/1/99 - 9/30/2000)
Interest Income 18,444 20,328 22,228 24,141 26,055 27,968 29,881
Interest Expense 5,687 7,433 9,180 10,926 12,672 14,419 16,165
Net Interest Income 12,757 12,895 13,048 13,215 13,383 13,549 13,716
PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (10/1/98 9/30/99)
Interest Income (3,094) (2,069) (1,037) N/A 1,037 2,074 3,112
Interest Expense (2,873) (1,915) (958) N/A 958 1,915 2,873
Net Interest Income (221) (154) (79) N/A 79 159 239
Year Two (10/1/99 - 9/30/2000)
Interest Income (5,698) (3,814) (1,913) N/A 1,913 3,827 5,740
Interest Expense (5,239) (3,493) (1,746) N/A 1,746 3,493 5,239
Net Interest Income (459) (321) (167) N/A 167 334 501
PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (10/1/98 - 9/30/99)
Interest Income -13.5% -9.0% -4.5% N/A 4.5% 9.1% 13.6%
Interest Expense -27.2% -18.1% -9.1% N/A 9.1% 18.1% 27.2%
Net Interest Income -1.8% -1.2% -0.6% N/A 0.6% 1.3% 1.9%
Limitation on % Change >-10.0% >-7.0% >-4.0% N/A >-4.0% >-7.0% >-10.0%
Year Two (10/1/99 - 9/30/2000)
Interest Income -23.6% -15.8% -7.9% N/A 7.9% 15.9% 23.8%
Interest Expense -48.0% -32.0% -16.0% N/A 16.0% 32.0% 48.0%
Net Interest Income -3.5% -2.4% -1.3% N/A 1.3% 2.5% 3.8%
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 September 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 & Due From Banks 11,575 - - - - - 11,575
Fed Funds & Int-Earning Due from Banks 3,082 3,082 - - - - -
Variable Rate Investment 21,250 21,250 - - - - -
Fixed Rate Investment 52,068 25,522 4,112 2,155 3,625 4,327 12,327
Variable Rate Loans 68,475 61,489 2,817 1,141 1,571 1,457 -
Fixed Rate Loans 131,054 37,889 19,323 19,123 24,553 27,154 3,012
Others Assets 9,334 - - - - - 9,334
Total Assets / Repricing Asset 296,838 149,232 26,252 22,419 29,749 32,938 36,248
Repricing Assets - Accumulated 149,232 175,484 197,903 227,652 260,590 296,838
% of Current Balance 50.3% 8.8% 7.6% 10.0% 11.1% 12.2%
% of Current Balance - Accumulated 50.3% 59.1% 66.7% 76.7% 87.8% 100.0%
LIABILITIES
Demand Deposit Accounts 36,921 1,846 1,754 1,666 1,583 1,504 28,569
NOW Accounts 53,792 16,137 11,296 7,908 5,536 3,875 9,040
Savings Accounts 12,644 2,568 2,015 1,612 1,290 1,032 4,127
Money Market Savings 9,776 2,933 2,053 1,437 1,006 704 1,643
Subtotal Deposit Accounts 113,133 23,484 17,118 12,623 9,415 7,115 43,379
Other Variable Deposits 6,105 6,084 - - - - 21
Fixed Rate Deposits 131,880 113,037 13,986 2,598 636 1,071 552
Variable Rate Other Liabilities 3,534 3,284 250 - - - -
Fixed Rate Other Liabilities 10,526 3,036 311 1,177 244 4,237 1,521
Other Liabilities 2,908 - - - - - 2,908
Total Captial 28,752 - - - - - 28,752
Total Liabilities / Repricing Liab 296,838 148,925 31,665 16,398 10,295 12,423 77,133
Repricing Liabilities - Accumulated 148,925 180,590 196,988 207,283 219,705 296,838
% of Current Balance 50.2% 10.7% 5.5% 3.5% 4.2% 26.0%
% of Current Balance - Accum 50.2% 60.8% 66.4% 69.8% 74.0% 100.0%
SUMMARY
Total Repricing Assets 149,232 26,252 22,419 29,749 32,938 36,248
Total Repricing Liabilities 148,925 31,665 16,398 10,295 12,423 77,133
Total Repricing Gap (by Bucket) 307 (5,413) 6,021 19,454 20,515 (40,885)
Total Repricing Assets - Cumulative 274,555 149,232 175,484 197,903 227,652 260,590 296,838
Total Repricing Liabilities -
Cumulative 265,464 148,925 180,590 196,988 207,283 219,705 296,838
Repricing Gap - Cumulative 9,091 307 (5,106) 915 20,369 40,885 -
Gap/Total Assets (by Bucket) 0.10% -1.82% 2.03% 6.55% 6.91% -13.77%
Cumulative Gap/Total Assets 0.10% -1.72% 0.31% 6.86% 13.77% 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 Office
20
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 11575
<INT-BEARING-DEPOSITS> 132
<FED-FUNDS-SOLD> 2950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53085
<INVESTMENTS-CARRYING> 17167
<INVESTMENTS-MARKET> 18066
<LOANS> 199529
<ALLOWANCE> 2636
<TOTAL-ASSETS> 296838
<DEPOSITS> 251118
<SHORT-TERM> 3533
<LIABILITIES-OTHER> 2908
<LONG-TERM> 10527
0
0
<COMMON> 6474
<OTHER-SE> 22278
<TOTAL-LIABILITIES-AND-EQUITY> 296838
<INTEREST-LOAN> 12876
<INTEREST-INVEST> 3449
<INTEREST-OTHER> 201
<INTEREST-TOTAL> 16526
<INTEREST-DEPOSIT> 7352
<INTEREST-EXPENSE> 8029
<INTEREST-INCOME-NET> 8497
<LOAN-LOSSES> 488
<SECURITIES-GAINS> 35
<EXPENSE-OTHER> 6320
<INCOME-PRETAX> 3717
<INCOME-PRE-EXTRAORDINARY> 3717
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2739
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.91
<YIELD-ACTUAL> 4.21
<LOANS-NON> 227
<LOANS-PAST> 555
<LOANS-TROUBLED> 149
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2322
<CHARGE-OFFS> 234
<RECOVERIES> 60
<ALLOWANCE-CLOSE> 2636
<ALLOWANCE-DOMESTIC> 2636
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>