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, 1999
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 10, 1999: 2,805,176.
<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, 1999 & 1998 4
Consolidated Statement of Income and Comprehensive Income
Three Months Ending June 30, 1999 & 1998 5
Consolidated Statements of Cash Flows
Six Months Ending June 30, 1999 & 1998 6
Consolidated Statements of Cash Flows
Three Months Ending June 30, 1999 & 1998 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 17
Part II - Other Information 21
Signatures 23
Exhibits
27 Financial Data Schedule 24
<PAGE>
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEET (unaudited)
(thousands) 6/30/99 12/31/98
Assets
Cash & Due From Banks $ 11,717 $ 10,756
Investment Securities:
Securities Held to Maturity 16,671 16,934
Securities Available for Sale 54,414 55,420
Federal Home Loan Bank Stock 3,229 3,119
Loans $217,682 $212,843
Reserve for Loan Losses 2,936 2,735
Net Loans $214,746 $210,108
Premises and Equipment 6,798 6,794
Other Assets 6,082 5,574
Total Assets $313,657 $308,705
Liabilities & Stockholders' Equity
Deposits
Demand $ 38,219 $ 40,336
Savings & Interest Checking 90,780 96,579
Certificates of Deposit 123,810 121,825
Total Deposits $252,809 $258,740
Repurchase Agreements 3,779 6,713
Federal Home Loan Bank Advances 11,740 6,954
Other Borrowed Funds 12,634 4,535
Other Liabilities 2,273 2,391
Total Liabilities $283,235 $279,333
Stockholders' Equity
Common Stock $ 6,288 $ 6,474
Retained Earnings 24,410 22,832
Accumulated Other Comprehensive Income (276) 66
Total Stockholders' Equity $ 30,422 $ 29,372
Total Liabilities & Stockholders' Equity $313,657 $308,705
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts) Six Months Ending
6/30/99 6/30/98
INTEREST INCOME:
Loans, including fees $ 9,111 $ 8,301
Investment Securities 1,985 2,220
Other 189 261
Total Interest Income $ 11,285 $ 10,782
INTEREST EXPENSE:
Deposits $ 4,523 $ 4,870
Other 527 459
Total Interest Expense $ 5,050 $ 5,329
Net Interest Income $ 6,235 $ 5,453
Loan Loss Provision 350 325
Net Interest Income After Provision $ 5,885 $ 5,128
OTHER INCOME:
Service Charges $ 1,294 $ 1,186
Securities Gains (Losses) (14) 28
Other 414 242
Total Other Income $ 1,694 $ 1,456
OTHER EXPENSES:
Salaries and Benefits $ 2,416 $ 2,247
Occupancy Expenses 584 550
Other 1,537 1,328
Total Other Expenses $ 4,537 $ 4,125
Income Before Taxes $ 3,042 $ 2,459
Income Taxes 847 650
Net Income $ 2,195 $ 1,809
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on Securities (339) (97)
Comprehensive Income $ 1,856 $ 1,712
Earnings per share $ 1.57 $ 1.29
Earnings per share - assuming dilution $ 1.53 $ 1.26
<PAGE>
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts) Three Months Ending
6/30/99 6/30/98
INTEREST INCOME:
Loans, including fees $ 4,631 $ 4,181
Investment Securities 1,016 1,058
Other 66 136
Total Interest Income $ 5,713 $ 5,375
INTEREST EXPENSE:
Deposits $ 2,234 $ 2,434
Other 295 217
Total Interest Expense $ 2,529 $ 2,651
Net Interest Income $ 3,184 $ 2,724
Loan Loss Provision 175 162
Net Interest Income After Provision $ 3,009 $ 2,562
OTHER INCOME:
Service Charges $ 678 $ 618
Securities Gains (Losses) (21) 20
Other 178 116
Total Other Income $ 835 $ 754
OTHER EXPENSES:
Salaries and Benefits $ 1,221 $ 1,124
Occupancy Expenses 291 280
Other 854 691
Total Other Expenses $ 2,366 $ 2,095
Income Before Taxes $ 1,478 $ 1,221
Income Taxes 402 328
Net Income $ 1,076 $ 893
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on Securities (276) (61)
Comprehensive Income $ 800 $ 832
Earnings per share $ 0.77 $ 0.63
Earnings per share - assuming dilution $ 0.74 $ 0.62
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands) Six Months Ending
6/30/99 6/30/98
Cash Flows From Operating Activities
Net Income $ 2,195 $ 1,809
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 300 285
Amortization 255 231
Investment securities (accretion) amortization, net 20 (12)
Provision for loan losses 350 325
Deferred Income Taxes (32) (36)
Investment securities losses (gains), net 14 (28)
Originations of loans held for sale (15,255) (18,077)
Proceeds from sale of loans 17,792 21,961
Capitalization of Mortgage Servicing Rights (168) (188)
Losses (gains) on sale of fixed assets - 25
Losses (gains) on sale of loans (107) (40)
Losses (gains), including write-downs, on real
estate acquired through foreclosure, net 25 -
Changes in:
Interest receivable 63 (233)
Income taxes refundable (227) (57)
Other assets (210) 21
Interest payable (10) 129
Other liabilities (108) (546)
Net cash provided by operating activities $ 4,897 $ 5,569
Cash Flows From Investing Activities
Purchases of securities available for sale (22,614) (11,178)
Proceeds from sales of securities available for sale 8,821 3,542
Proceeds from principal payments, maturities and
calls of securities available for sale 14,135 18,944
Purchase of securities held to maturity - (990)
Proceeds from sales, principal payments, maturities
and calls of securities held to maturity 265 783
Net change in loans (7,456) (10,661)
Purchases of bank premises and equipment, net (304) (686)
Net cash provided by investing activities (7,153) (246)
Cash Flows From Financing Activities:
Net change in deposits $ (5,931)$ (5,378)
Net change in securities sold under agreements to
repurchase and other borrowings 5,165 (15)
Advances from Federal Home Loan Bank 5,000 4,000
Payments on Federal Home Loan Bank advances (214) (6,389)
Purchase of common stock (236) -
Proceeds from issuance of common stock 50 86
Dividends paid (617) (560)
Net cash provided by financing activities $ 3,217 $ (8,256)
Net increase (decrease) in cash and cash equivalents $ 961 $ (2,933)
Cash and cash equivalents at beginning of period 10,756 12,275
Cash and cash equivalents at end of period $ 11,717 $ 9,342
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands) Three Months Ending
6/30/99 6/30/98
Cash Flows From Operating Activities
Net Income $ 1,076 $ 893
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 150 143
Amortization 118 119
Investment securities (accretion) amortization, net 18 -
Provision for loan losses 175 162
Deferred Income Taxes 57 4
Investment securities losses (gains), net 21 (20)
Originations of loans held for sale (6,533) (8,678)
Proceeds from sale of loans 11,486 9,106
Capitalization of Mortgage Servicing Rights (107) (80)
Losses (gains) on sale of fixed assets - 25
Losses (gains) on sale of loans (40) (19)
Losses (gains), including write-downs, on real
estate acquired through foreclosure, net 25 -
Changes in:
Interest receivable (375) (560)
Income taxes refundable (227) (57)
Other assets (209) 20
Interest payable (134) 160
Income taxes payable (476) (364)
Other liabilities 111 114
Net cash provided by operating activities $ 5,136 $ 968
Cash Flows From Investing Activities
Purchases of securities available for sale $ (6,985)$ (135)
Proceeds from sales of securities available for sale 3,974 2,004
Proceeds from principal payments, maturities and
calls of securities available for sale 4,098 4,424
Purchase of securities held to maturity - (990)
Proceeds from sales, principal payments, maturities
and calls of securities held to maturity 265 783
Net change in loans (8,546) (9,047)
Purchases of bank premises and equipment, net (130) (554)
Net cash provided by investing activities $ (7,324)$ (3,515)
Cash Flows From Financing Activities:
Net change in deposits $ (5,697)$ (5,327)
Net change in securities sold under agreements to
Repurchase and other borrowings 9,658 3,862
Advances from Federal Home Loan Bank - 4,000
Payments on Federal Home Loan Bank advances (140) (6,320)
Proceeds from issuance of common stock 39 -
Dividends paid (308) (280)
Net cash provided by financing activities $ 3,552 $ (4,065)
Net increase (decrease) in cash and cash equivalents $ 1,364 $ (6,612)
Cash and cash equivalents at beginning of period 10,353 15,954
Cash and cash equivalents at end of period $ 11,717 $ 9,342
<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 and three month periods ended June 30, 1999 and June 30,
1998 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,
1999 were $0.22 compared to $0.20 on June 30, 1998. This is
the same rate of dividend paid in the first quarter of the
respective years.
5. As of July 15, 1999, the Company issued a two for one
stock split. Each shareholder will receive one additional
share for each share they held.
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Summary
Bourbon Bancshares, Inc. recorded net income of $2.2
million, or $1.57 per share and $1.53 per share assuming
dilution for the first six months ended June 30, 1999
compared to $1.8 million, or $1.29 per share and $1.26 per
share assuming dilution for June 30, 1998. The first six
months reflects an increase in earnings of 21%. The net
income for second quarter of 1999 was $1.1 million, or $0.77
per share and $0.74 per share assuming dilution compared to
$900 thousand, or $0.63 per share and $0.62 per share
assuming dilution for the same period in 1998. The second
quarter's net income resulted in a 20% increase from 1998 to
1999.
Return on average assets was 1.40% for the first six months
ended June 30, 1999 compared to 1.26% for the same time
period in 1998, an increase of 11%. For the second quarter
of 1999, the return on average assets was 1.35% compared to
1.25% in 1998, an increase of 8%. Return on average equity
was 14.6% and 13.2% for the six months ended June 30, 1999
and 1998, respectively, an increase of 11%. The second
quarter of 1999 resulted in an increase in return on equity
of 8% from 13.0% to 14.1% in 1999.
Net Interest Income
Net interest income was $6.2 million for the six months
ended June 30, 1999 compared to $5.5 million in 1998,
resulting in an increase of $782 thousand or 12.9%. Net
interest income for the three months ended June 30, 1999 was
$3.2 million compared to $2.7 million for the same period in
1998. Loan volume continues to improve. Year to date
average loans are up nearly $27 million, or nearly 15% from
1998 to 1999 resulting in an increase in loan interest
income of $810 thousand for the first six months and $450
thousand for the second quarter. Average deposits also
increased from 1998 to 1999, up $19 million, or 8%. This
increased volume within the recent declining rate
environment resulted in lower interest expense of $347
thousand for the first six months and $200 thousand for the
second quarter.
Non-Interest Income
Non-interest income increased for the six-month period ended
June 30 from $1.5 million in 1998 to $1.7 million in 1999.
Second quarter's non-interest income increased from $754
thousand in 1998 to $835 thousand in 1999. For the year, an
increase of $108 thousand in service charges from 1998 to
1999 is mainly attributable to an improvement in overdraft
charges of $44 thousand ($23 thousand for the second
quarter). The second quarter of 1999 reflects an increase
in service charges of $60 thousand when compared to 1998.
Trust income accounts for $76 thousand and gains on loans
sold accounts for $67 thousand of the $172 thousand increase
in other income for the first six months. Other income
increased $62 thousand for the three months ending June 30,
1999 compared to 1998. Trust commissions increased $16
thousand during the second quarter of 1999 compared to 1998.
Gains on loans sold increased $21 thousand for the second
quarter of 1999 compared to 1998. The increase in trust
fees is mainly due to non-recurring estate fees and trust
termination fees.
<PAGE>
Non-Interest Expense
The explanations for the increase of $412 thousand in non-
interest expenses from $4.1 million for the six months ended
June 30, 1998 to $4.5 million for the same period in 1999
follows. The second quarter increase was $271 thousand from
$2.1 million in 1998 to $2.4 million in 1999. Salaries and
benefits increased $169 thousand for the first six months of
1999 compared to 1998, an increase of 7.5%, and increased
$97 thousand during the second quarter of 1999 compared to
1998. In 1999, the Company implemented a compensation plan
with additional incentive compensation. Incentives for the
first six months were $71 thousand greater in 1999 compared
to 1998 due to this change. Other compensation and benefits
increased 4%.
Occupancy expense increased $34 thousand to $584 thousand
for the first six months of 1999 compared to 1998. The
increase for the second quarter was $11 thousand.
Depreciation was up $15 thousand for the year. Equipment
maintenance was $14 thousand higher for the first six months
of 1999.
Other expenses for the first six months of 1999 compared to
1998 increased $209 thousand, from $1.3 million to $1.5
million. The second quarter increase compared to 1998 was
$163 thousand. During the second quarter of 1999, the
processing of electronic products was changed. Costs of
these products and their increased usage, and the related
conversion have resulted in an increase in expenses of $70
thousand for 1999 compared to 1998. Other taxes are $18
thousand greater in 1999 compared to 1998. The overall
growth of the Company has caused this item to increase.
With the selling of mortgage loans, the amortization of
mortgage servicing rights increased $19 thousand from 1998
to 1999.
Income Taxes
The tax equivalent rate for the six months ended June 30 was
28% for 1999 and 26% for 1998. The rates for the second
quarter for 1999 and 1998 were 27%. These rates being less
than the statutory rate is a result of the tax-free
securities and loans held by the Company.
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 six months of 1999 of $961
thousand and a decrease of $2.9 million for the same period
in 1998. The three months ending June 30, 1999 shows an
increase in cash and cash equivalents of $1.4 million and a
decrease of $6.6 million for the same period in 1998. In
1999, proceeds from the sale of loans were nearly $18
million compared to $22 million in 1998. Four million
dollars of 1998 sales and five million dollars of 1999 loan
securitizations were of a nonrecurring nature. The decline
in rates allowed the Company to sell some lower coupon
loans. Originations of loans held for sale were $15 million
and $18 million for the six months ending June 30, 1999 and
1998, respectively. Second quarter originations were $7
million in 1999 and 9 million in 1998. The loans sold
during the second quarter were $11 million in 1999 and $9
million in 1998.
<PAGE>
For the first six-month, proceeds from security transactions
have exceeded purchases by $1 million in 1999 and $11
million in 1998. For the second quarter, proceeds from
security transactions have exceeded purchases by $1 million
in 1999 and $6 million in 1998. Of these changes, principal
payments on securities have amounted to over $4 million in
1999 and over $7 million for the same period in 1998.
During 1999, $5 million has been borrowed from the Federal
Home Loan Bank (FHLB). In 1998, $4 million in advances were
received from the FHLB and $6 million repaid on FHLB
advances. Short-term borrowings increased $5 million in
1999 and were virtually the same in 1998. The decline in
deposits of $6 million in 1999 created the need for this
other short-term borrowing.
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, 1999, the Company's non-performing assets
totaled $1.1 million or 0.5% of loans compared to $1.1
million or 0.6% of loans in 1998. (See table below) Real
estate loans composed 55% and 73% of the non-performing
loans as of June 30, 1999 and 1998, respectively. Lost
interest income on the non-accrual loans for both 1999 and
1998 is immaterial.
June 30
(in thousands)
1999 1998
Non-accrual Loans 131 270
Accruing Loans which are
Contractually past due
90 days or more 803 695
Restructured Loans 139 154
Total Nonperforming and Restructured 1,073 1,119
Other Real Estate 240 -
Total Nonperforming and Restructured
Loans and Other Real Estate 1,313 1,119
Nonperforming and Restructured Loans
as a Percentage of Net Loans 0.49% 0.58%
Nonperforming and Restructured Loans
and Other Real Estate as a Percentage
of Total Assets 0.42% 0.39%
Provision and Reserve for Possible Loan Losses
The 1999 six-month provision for loan losses of $350
thousand is higher than the 1998 number of $325 thousand.
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. As depicted in the table below, the loan
loss reserve to total loans was 1.35% on June 30, 1999 and
1.33% 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)
1999 1998
Balance at Beginning of Period 2,735 2,322
Amounts Charged-off:
Commercial - 3
Real Estate Mortgage 28 11
Agricultural 43 -
Consumer 108 122
Total Charged-off Loans 179 136
Recoveries on Amounts
Previously Charged-off:
Commercial 3 2
Real Estate Mortgage 1 1
Agricultural 1 1
Consumer 24 27
Total Recoveries 29 31
Net Charge-offs 150 105
Provision for Loan Losses 350 325
Balance at End of Period 2,935 2,542
Total Loans, Net of Unearned Income
Average 213,357 186,029
At June 30 217,682 191,835
As a Percentage of Average Loans:
Net Charge-offs 0.07% 0.06%
Provision for Loan Losses 0.16% 0.17%
Allowance as a Percentage of
Period-end Net Loans 1.35% 1.33%
Allowance as a Multiple of
Net Charge-offs 19.6 24.2
<PAGE>
Loan Losses
Quarter Ended June 30
(in thousands)
1999 1998
Balance at Beginning of Period 2,885 2,437
Amounts Charged-off:
Commercial - 1
Real Estate Mortgage 28 11
Agricultural 41 -
Consumer 67 69
Total Charged-off Loans 136 81
Recoveries on Amounts
Previously Charged-off:
Commercial 1 1
Real Estate Mortgage 1 1
Agricultural 1 1
Consumer 8 21
Total Recoveries 11 24
Net Charge-offs 125 57
Provision for Loan Losses 175 162
Balance at End of Period 2,935 2,542
Total Loans, Net of Unearned Income
Average 212,180 184,822
At June 30 217,682 191,835
As a Percentage of Average Loans:
Net Charge-offs 0.06% 0.03%
Provision for Loan Losses 0.08% 0.09%
Allowance as a Percentage of
Period-end Net Loans 1.35% 1.33%
Allowance as a Multiple of
Net Charge-offs 23.5 44.6
<PAGE>
Year 2000
Management has assessed the operational and financial
implications of its Year 2000 needs and developed a plan to
address its data processing systems and their ability to
handle the change. Management has determined that if a
business interruption as a result of the Year 2000 issue
occurred, such an interruption could be material. The
primary effort required to prevent a potential business
interruption is the installation of the most current
software release from the Company's third party provider and
replacement of certain system hardware. The third party
software provider has warranted that Year 2000 remediation
and testing efforts to become compliant have been
successfully completed. Testing of mission critical systems
was completed at the end of the first quarter. Non-mission
critical systems have been evaluated and the final follow-up
is expected to be completed during the third quarter.
Current cost estimates for this project are under $150
thousand, with the majority of this expenditure being for
equipment and software to be capitalized over 3-5 years. In
addition, over $400 thousand was spent on a new mainframe
computer system to enhance our overall computer technology.
Year 2000 expenses are subject to change and could vary from
current estimates if the final requirements for Year 2000
readiness exceed management's expectations.
The Company must also rely to some extent on the Year 2000
readiness of other third party entities such as public
utilities and governmental units. These and other like
entities provide important ongoing services to the Company.
Management has therefore developed and implemented
contingency plans that were put in place in the second
quarter, 1999.
The Company's credit customers are also subject to potential
losses as a result of Year 2000 exposure in their own
computer systems as well as the computer systems of their
suppliers and customers. The Company is working with those
customers that the Company believes may be significantly
affected to assess each customer's Year 2000 exposure and
the extent to which the customer has addressed the problem.
Any exposure which, in the opinion of management, is not
adequately addressed will be taken into account in assessing
the loss potential, if any, associated with that credit
relationship.
<PAGE>
Forward-Looking Statements
This discussion contains forward-looking statements under
the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties. Although the Company
believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be
no assurance that the forward-looking statements included
herein will prove to be accurate. Factors that could cause
actual results to differ from the results discussed in the
forward-looking statements include, but are not limited to:
economic conditions (both generally and more specifically in
the markets in which the Company and its bank operate);
competition for the Company's customers from other providers
of financial and mortgage services; government legislation
and regulation (which changes from time to time and over
which the Company has no control); changes in interest rates
(both generally and more specifically mortgage interest
rates); material unforeseen changes in the liquidity,
results of operations, or financial condition of the
Company's customers; material unforeseen complications
related to addressing the Year 2000 problem experienced by
the Company, its suppliers, customers and governmental
agencies; and other risks detailed in the Company's filings
with the Securities and Exchange Commission, all of which
are difficult to predict and many of which are beyond the
control of the Company. The Company undertakes no
obligation to republish revised forward-looking statements
to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
<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 model and an
interest rate shock simulation model. 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 and 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
within the Board of Directors specified limits. As of June
30, 1999 the projected percentage changes are within the
Board limits and the Company's interest rate risk is also
with Board limits. The projected net interest income report
summarizing the Company's interest rate sensitivity as of
June 30, 1999 is as follows:
<PAGE>
(in thousands)
PROJECTED NET INTEREST INCOME
Level
Rate Change: - 300 - 100 Rates + 100 + 300
Year One (7/1/99 - 6/30/2000)
Interest Income 20,901 22,904 23,915 24,926 26,949
Interest Expense 7,739 9,691 10,668 11,644 13,596
Net Interest Income 13,162 13,213 13,247 13,282 13,353
PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (7/1/99 - 6/30/2000)
Interest Income (3,014) (1,011) N/A 1,011 3,034
Interest Expense (2,928) (976) N/A 976 2,928
Net Interest Income (86) (35) N/A 35 106
PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (7/1/99 - 6/30/2000)
Interest Income -12.6% -4.2% N/A 4.2% 12.7%
Interest Expense -27.5% -9.2% N/A 9.2% 27.5%
Net Interest Income -0.6% -0.3% N/A 0.3% 0.8%
Limitation on % Change >-10.0% >-4.0% N/A >-4.0% >-10.0%
These numbers are comparable to 1998. In 1999, year one
reflected a decline in net interest income of 0.6% with a
300 basis point decline compared to the 0.8% decline in
1998. The 300 basis point increase in rates reflected a
0.8% increase in net interest income in 1999 compared to
0.9% in 1998. Percentage changes in 1999 are less than 1998
reflecting less vulnerability to drastic shifts in interest
rates.
Management measures the Company'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 Company'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 Company's asset
and liability mix to bring interest rate risk within Board
approved limits.
<PAGE>
In addition, the Company 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 Company'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, 1999
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 1999's numbers
reflect a more negative position due to the amount of 5 year
loans originated and deposits being generated, mainly with
repricing opportunities of less than 2 years. 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 11,695 - - - - - 11,695
Fed Funds & Int-
Earning Due from Banks 150 150 - - - - -
Variable Rate Investment 16,695 16,695 - - - - -
Fixed Rate Investment 53,170 21,508 6,917 4,013 4,118 2,234 14,380
Variable Rate Loans 67,566 61,516 1,630 1,706 1,284 1,345 85
Fixed Rate Loans 151,690 38,977 20,455 30,682 31,345 28,269 1,962
Others Assets 12,691 - - - - - 12,691
Total Assets/Repricing Assets 313,657 138,846 29,002 36,401 36,747 31,848 40,813
Repricing Assets - Accumulated 138,846 167,848 204,249 240,996 272,844 313,657
% of Current Balance 44.3% 9.2% 11.6% 11.7% 10.2% 13.0%
% of Current Balance - Accumulated 44.3% 53.5% 65.1% 76.8% 87.0% 100.0%
LIABILITIES
Demand Deposit Accounts 38,219 1,911 1,815 1,725 1,638 1,556 29,573
NOW Accounts 55,748 16,724 11,707 8,195 5,737 4,016 9,369
Savings Accounts 13,563 2,713 2,170 1,736 1,389 1,111 4,444
Money Market Savings 9,427 2,828 1,980 1,386 970 679 1,584
Subtotal Deposit Accounts 116,957 24,176 17,672 13,042 9,734 7,362 44,970
Other Variable Deposits 7,270 7,270 - - - - -
Fixed Rate Deposits 128,582 109,453 16,061 1,435 982 528 123
Variable Rate Other Liabilities 15,663 15,663 - - - - -
Fixed Rate Other Liabilities 12,490 300 1,190 233 246 10,454 67
Other Liabilities 2,273 - - - - - 2,273
Total Capital 30,422 - - - - - 30,422
Total Liabilities/Repricing Liab 313,657 156,862 34,923 14,710 10,962 18,344 77,855
Repricing Liabilities - Accumulated 156,862 191,785 206,495 217,457 235,802 313,657
% of Current Balance 50.0% 11.1% 4.7% 3.5% 5.8% 24.8%
% of Current Balance - Accum 50.0% 61.1% 65.8% 69.3% 75.2% 100.0%
SUMMARY
Total Repricing Assets 138,846 29,002 36,401 36,747 31,848 40,813
Total Repricing Liabilities 156,862 34,923 14,710 10,962 18,344 77,855
Total Repricing Gap (by Bucket) (18,016) (5,921) 21,691 25,785 13,504 (37,042)
Total Repricing Assets - Ac 291,056 138,846 167,848 204,249 240,996 272,844 313,657
Total Repricing Liabilities -
Cumulative 280,888 156,862 191,785 206,495 217,457 235,802 313,675
Repricing Gap - Cumulative 10,169 (18,016) (23,937) (2,246) 23,539 37,042 -
Gap/Total Assets (by Bucket) -5.74% -1.89% 6.92% 8.22% 4.31% -11.81%
Cumulative Gap/Total Assets -5.74% -7.63% -0.72% 7.50% 11.81% 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
<PAGE>
Item 4. Submission of Matters to a Vote of Security
Holders
The registrant's 1999 Annual Meeting of Shareholders
was held May 3, 1999. Proxies were solicited by the
registrant's board of directors. There was no solicitation
in opposition to the board's nominees as listed in the proxy
statement, and all of the nominees were elected by vote of
the shareholders. Voting results for each nominee were as
follows:
Votes For Votes Withheld
Henry Hinkle 1,154,445 2,500
Theodore Kuster 1,149,345 7,600
Robert G. 1,154,445 2,500
Thompson
The following directors have a term of office that will
continue following the Annual Meeting: William R. Stamler,
Buckner Woodford, William Arvin, James L. Ferrell, and
Joseph B. McClain.
A proposal to approve an amendment to Registrant's
Articles of Incorporation to increase the number of
authorized Common Shares from 3,000,000 to 10,000,000 was
approved by a majority of the outstanding shares of the
registrant's common stock. A total of 1,116,814 shares were
voted in favor of the proposal; 36,101 shares were voted
against; and 4,030 shares abstained (including broker non-
votes).
A proposal to approve an amendment to Registrant's
Articles of Incorporation to change the number of members of
the Board of Directors from a minimum of nine to a minimum
of five was approved by a majority of the outstanding shares
of the registrant's common stock. A total of 1,112,535
shares were voted in favor of the proposal; 27,747 shares
were voted against; and 16,663 shares abstained (including
broker non-votes).
A proposal to approve the 1999 Employee Stock Option
Plan was approved by a majority of the outstanding shares of
the registrant's common stock. A total of 1,125,040 shares
were voted in favor of the proposal; 17,955 shares were
voted against; and 13,950 shares abstained (including broker
non-votes).
A proposal to approve the appointment of the firm of
Crowe Chizek and Co. LLP as the independent accountants for
the Corporation to audit the Corporation's financial
statements for its year ending December 31, 1999 was
approved by a majority of the outstanding shares of the
registrant's common stock. A total of 1,129,170 shares were
voted in favor of the proposal; 5,480 shares were voted
against; and 22,295 shares abstained (including broker non-
votes).
The total number of Common Shares outstanding as of
March 22, 1999, the record date for the Annual Meeting of
Shareholders was 1,399,628.
Item 5. Other Information
None
<PAGE>
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 ___8/11/99________ __/s/Buckner Woodford ___________
Buckner Woodford, President and C.E.O.
Date ___8/11/99________ __/s/Gregory J. Dawson___________
Gregory J. Dawson, Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 11567
<INT-BEARING-DEPOSITS> 150
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54414
<INVESTMENTS-CARRYING> 16671
<INVESTMENTS-MARKET> 17102
<LOANS> 217682
<ALLOWANCE> 2936
<TOTAL-ASSETS> 313657
<DEPOSITS> 252809
<SHORT-TERM> 15663
<LIABILITIES-OTHER> 2273
<LONG-TERM> 12490
0
0
<COMMON> 6288
<OTHER-SE> 24134
<TOTAL-LIABILITIES-AND-EQUITY> 313657
<INTEREST-LOAN> 9111
<INTEREST-INVEST> 1985
<INTEREST-OTHER> 189
<INTEREST-TOTAL> 11285
<INTEREST-DEPOSIT> 4523
<INTEREST-EXPENSE> 5050
<INTEREST-INCOME-NET> 6235
<LOAN-LOSSES> 350
<SECURITIES-GAINS> (14)
<EXPENSE-OTHER> 4537
<INCOME-PRETAX> 3042
<INCOME-PRE-EXTRAORDINARY> 3042
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2195
<EPS-BASIC> 1.57
<EPS-DILUTED> 1.53
<YIELD-ACTUAL> 4.29
<LOANS-NON> 131
<LOANS-PAST> 803
<LOANS-TROUBLED> 139
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2735
<CHARGE-OFFS> 179
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 2935
<ALLOWANCE-DOMESTIC> 2935
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
