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, 2000
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: (859)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 10, 2000: 2,812,262.
<PAGE>
BOURBON BANCSHARES, INC.
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income and
Comprehensive Income
Nine Months Ending September 30, 2000 & 1999 4
Three Months Ending September 30, 2000 & 1999 5
Consolidated Statements of Changes in
Stockholders' Equity 6
Consolidated Statements of Cash Flows
Nine Months Ending September 30, 2000 & 1999 7
Three Months Ending September 30, 2000 & 1999 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II - Other Information 20
Signatures 20
ExhibitS
11 Earnings Per Share Calculation 21
27 Financial Data Schedule 22
<PAGE>
Item 1 - Financial Statements
BOURBON BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(thousands) 9/30/00 12/31/99
Assets
Cash and due from banks $ 10,015 $ 20,042
Federal funds sold 4,697 675
Cash and cash equivalents 14,712 20,717
Investment securities:
Available for sale 43,336 54,930
Held to maturity 15,895 15,693
Mortgage loans held for sale 1,556 3,494
Loans 265,623 238,607
Allowance for loan losses 3,420 3,103
Net loans 262,203 235,504
Federal home loan bank stock 3,531 3,345
Bank premises and equipment, net 7,567 7,082
Interest receivable 4,339 3,454
Intangible assets 1,836 2,108
Other assets 940 1,152
Total assets $355,915 $347,479
Liabilities and Stockholders' Equity
Deposits
Non-interest bearing $ 43,326 $ 42,931
Time deposits, $100,000 and over 41,367 34,715
Other interest bearing 198,330 196,920
Total deposits 283,023 274,566
Securities sold under agreements to repurchase 10,081 10,331
Federal Funds Purchased - -
Other borrowed funds 1,650 1,528
Federal home loan bank advances 22,648 26,592
Interest payable 3,257 2,142
Other liabilities 476 600
Total liabilities 321,135 315,759
Stockholders' equity
Common stock 6,540 6,491
Retained earnings 28,494 25,778
Accumulated other comprehensive income (254) (549)
Total stockholders' equity 34,780 31,720
Total liabilities & stockholders' equity $355,915 $347,479
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts) Nine Months Ending
9/30/00 9/30/99
INTEREST INCOME:
Loans, including fees $ 17,391 $ 14,002
Investment securities 2,945 2,945
Other 360 260
Total interest income 20,696 17,207
INTEREST EXPENSE:
Deposits 8,520 6,806
Other 1,276 866
Total interest expense 9,796 7,672
Net interest income 10,900 9,535
Loan loss provision 563 525
Net interest income after provision 10,337 9,010
OTHER INCOME:
Service charges 1,897 1,511
Loan service fee income 217 217
Trust department income 326 311
Investment securities gains, net (85) 1
Gain on sale of mortgage loans 74 314
Other 293 191
Total other income 2,722 2,545
OTHER EXPENSES:
Salaries and employee benefits 4,017 3,658
Occupancy expenses 1,170 875
Amortization of intangibles 325 323
Advertising and marketing 272 246
Taxes other than payroll, property and income 252 236
Other 1,562 1,542
Total other expenses 7,598 6,880
Income before taxes 5,461 4,675
Income taxes 1,544 1,304
Net income 3,917 3,371
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on Securities 296 (372)
Comprehensive Income $ 4,213 $ 2,999
Earnings per share
Basic $ 1.39 $ 1.20
Diluted 1.36 1.18
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts) Three Months Ending
9/30/00 9/30/99
INTEREST INCOME:
Loans, including fees $ 6,194 $ 4,891
Investment securities 900 960
Other 135 71
Total interest income 7,229 5,922
INTEREST EXPENSE:
Deposits 3,094 2,283
Other 488 339
Total interest expense 3,582 2,622
Net interest income 3,647 3,300
Loan loss provision 188 175
Net interest income after provision 3,459 3,125
OTHER INCOME:
Service charges 633 544
Loan service fee income 71 73
Trust department income 77 86
Investment securities gains, net (9) 15
Gain on sale of mortgage loans 30 46
Other 116 87
Total other income 918 851
OTHER EXPENSES:
Salaries and employee benefits 1,362 1,242
Occupancy expenses 394 291
Amortization of intangibles 109 106
Advertising and marketing 90 96
Taxes other than payroll, property and income 84 78
Other 505 530
Total other expenses 2,544 2,343
Income before taxes 1,833 1,633
Income taxes 536 457
Net income 1,297 1,176
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on Securities 323 (33)
Comprehensive Income $ 1,620 $ 1,143
Earnings per share
Basic $ 0.46 $ 0.42
Diluted 0.45 0.42
<PAGE>
<TABLE>
<CAPTION>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(thousands, except number of shares)
Accumulated
Other Total
---Common Stock--- Retained Comprehensive Stockholders'
Shares Amount Earnings Income Equity
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1999 2,802,471 $ 6,491 $ 25,778 $ (549) $ 31,720
Common stock issued 17,060 141 - - 141
Common stock purchased (8,417) (92) (103) - (195)
Net change in unrealized gain (loss)
on securities available for sale,
net of tax - - - 295 295
Net income - - 3,917 - 3,917
Dividends declared - $.39 per share - - (1,098) - (1,098)
Balances, September 30, 2000 2,811,114 $ 6,540 $ 28,494 $ (254) $ 34,780
</TABLE>
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands) Nine Months Ending
9/30/00 9/30/99
Cash Flows From Operating Activities
Net Income $ 3,917 $ 3,371
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 605 450
Amortization 325 380
Investment securities amortization (accretion), net (47) 27
Provision for loan losses 562 525
Investment securities gains, net 85 (1)
Originations of loans held for sale (9,385) (19,345)
Proceeds from sale of loans 11,397 22,210
Federal Home Loan Bank Stock Dividends (186) (168)
Gain on sale of mortgage loans (74) (314)
Losses (gains), including write-downs, on real
estate acquired through foreclosure, net 5 25
Changes in:
Interest receivable (885) (286)
Other assets 3 (670)
Interest payable 1,115 229
Other liabilities (124) 143
Net cash from operating activities 7,313 6,576
Cash Flows From Investing Activities
Purchases of securities available for sale (12,793) (32,653)
Proceeds from sales of securities available for sale 14,759 17,996
Proceeds from principal payments, maturities and
calls of securities available for sale 10,031 19,084
Purchases of securities held to maturity (632) -
Proceeds from maturities and calls of securities
held to maturity 435 1,551
Net change in loans (27,261) (20,816)
Purchases of bank premises and equipment, net (1,090) (851)
Net cash from investing activities (16,551) (15,689)
Cash Flows From Financing Activities:
Net change in deposits 8,457 5,356
Net change in securities sold under agreements to
repurchase and other borrowings (128) (2,851)
Advances from Federal Home Loan Bank 6,317 10,000
Payments on Federal Home Loan Bank advances (10,261) (287)
Proceeds from issuance of common stock 141 50
Purchase of common stock (195) (304)
Dividends paid (1,098) (925)
Net cash from financing activities 3,233 11,039
Net change in cash and cash equivalents (6,005) 1,926
Cash and cash equivalents at beginning of period 20,717 10,756
Cash and cash equivalents at end of period $ 14,712 $ 12,682
<PAGE>
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands) Three Months Ending
9/30/00 9/30/99
Cash Flows From Operating Activities
Net Income $ 1,297 $ 1,176
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 210 150
Amortization 109 125
Investment securities amortization (accretion), net 1 7
Provision for loan losses 187 175
Investment securities gains, net 9 (15)
Originations of loans held for sale (3,324) (4,090)
Proceeds from sale of loans 3,547 4,418
Federal Home Loan Bank Stock Dividends (65) (59)
Gain on sale of mortgage loans (30) (46)
Losses (gains), including write-downs on real
estate acquired through foreclosure, net 5 -
Changes in:
Interest receivable (454) (349)
Other assets 98 (194)
Interest payable 853 239
Other liabilities 245 251
Net cash from operating activities 2,688 1,788
Cash Flows From Investing Activities
Purchases of securities available for sale (175) (10,039)
Proceeds from sales of securities available for sale - 9,066
Proceeds from principal payments, maturities and
calls of securities available for sale 3,886 4,949
Proceeds from maturities and calls of securities
held to maturity 320 1,286
Net change in loans (4,817) (13,360)
Purchases of bank premises and equipment, net (505) (547)
Net cash from investing activities (1,291) (8,645)
Cash Flows From Financing Activities:
Net change in deposits 3,872 11,287
Net change in securities sold under agreements to
repurchase and other borrowings (1,286) (8,016)
Advances from Federal Home Loan Bank 1,317 5,000
Payments on Federal Home Loan Bank advances (77) (73)
Proceeds from issuance of common stock 4 -
Purchase of common stock (81) (68)
Dividends paid (365) (308)
Net cash from financing activities 3,384 7,822
Net change in cash and cash equivalents 4,781 965
Cash and cash equivalents at beginning of period 9,931 11,717
Cash and cash equivalents at end of period $ 14,712 $ 12,682
<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 and three month periods ended September 30, 2000 and
September 30, 1999 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. INVESTMENT SECURITIES
Period-end securities are as follows:
(in thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale
September 30, 2000
U.S. Treasury $ 14,957 $ 1 $ (18) $ 14,940
U.S. government agencies 2,000 - (35) 1,965
States and political subdivisions 1,986 37 - 2,023
Mortgage-backed 22,053 41 (325) 21,769
Other 2,727 115 (203) 2,639
Total 43,723 194 (581) 43,336
December 31, 1999
U.S. Treasury 18,013 - (59) 17,954
U.S. government agencies 5,983 - (81) 5,902
States and political subdivisions 3,643 44 (6) 3,681
Mortgage-backed 26,317 6 (551) 25,772
Other 1,807 15 (201) 1,621
Total 55,763 65 (898) 54,930
Held to Maturity
September 30, 2000
States and political subdivisions 15,895 362 (65) 16,192
December 31, 1999
States and political subdivisions 15,693 362 (138) 15,917
3. LOANS
Loans at period-end are as follows:
(in thousands)
9/30/00 12/31/99
Commercial $ 17,393 $ 17,713
Real estate construction 15,654 17,003
Real estate mortgage 155,529 134,810
Agricultural 52,101 46,443
Consumer 24,785 22,358
Other 161 280
Total 265,623 238,607
<PAGE>
4. Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share
includes the dilutive effect of additional potential common
shares issuable under stock options.
The factors used in the earnings per share computation follow:
Nine Months Ended
September 30,
2000 1999
(in thousands)
Basic Earnings Per Share
Net Income $3,917 $3,371
Weighted average common shares outstanding 2,812 2,804
Basic earnings per share $ 1.39 $ 1.20
Diluted Earnings Per Share
Net Income $3,917 $3,371
Weighted average common shares outstanding 2,812 2,804
Add dilutive effects of assumed exercise
of stock options 58 61
Weighted average common and dilutive
Potential common shares outstanding 2,870 2,865
Diluted earnings per share $ 1.36 $ 1.18
Three Months Ended
September 30,
2000 1999
(in thousands)
Basic Earnings Per Share
Net Income $1,297 $1,176
Weighted average common shares outstanding 2,812 2,805
Basic earnings per share $ 0.46 $ 0.42
Diluted Earnings Per Share
Net Income $1,297 $1,176
Weighted average common shares outstanding 2,812 2,805
Add dilutive effects of assumed exercise
of stock options 49 67
Weighted average common and dilutive
Potential common shares outstanding 2,861 2,872
Diluted earnings per share $ 0.45 $ 0.42
Stock options for 600 shares (for the period ended
September 30, 2000) of common stock were not considered
in computing earnings per share because they were
antidilutive.
5. Dividends per share paid for the quarter ended
September 30, 2000 were $0.13 compared to $0.11 for
September 30, 1999. This is the same rate of dividend paid
for the first and second quarters of the respective years.
<PAGE>
6. Beginning January 1, 2001, a new accounting standard will
require all derivatives to be recorded at fair value.
Unless designated as hedges, changes in these fair values
will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by
offsetting gains and losses on the hedge and on the
hedged item, even if the fair value of the hedged item is
not otherwise recorded. This is not expected to have a
material effect, but the effect will depend on derivative
holdings when this standard applies.
The Company's only identified derivative activity is the
utilization of mandatory forward contracts to mitigate
the interest rate risks associated with its mortgage
banking transactions. Management expects to designate
these derivatives as hedging instruments and therefore
have a minimal impact on the income statement when the
standard is adopted.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This discussion contains forward-looking statements under
the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties. Words such as "believes,"
"anticipates," "expects," "intends," "plans," "targeted,"
and similar expressions are intended to identify forward-
looking statements but are not the exclusive means of
identifying such statements. 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, including the tobacco market, 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; 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.
Summary
Bourbon Bancshares, Inc. recorded net income of $3.9
million, or $1.39 basic earnings per share and $1.36 diluted
earnings per share for the first nine months ended September
30, 2000 compared to $3.4 million, or $1.20 basic earnings
per share and $1.18 diluted earnings per share for the nine
month period ending September 30, 1999. The first nine
months reflects an increase in net income of 16%. For the
three month period ending September 30, 2000, net income was
$1.3 million ($0.46 basic earnings per share and $0.45
diluted earnings per share) compared to $1.2 million ($0.42
basic earnings per share and $0.42 diluted earnings per
share) for the same time period in 1999. This was an
increase in net income of 10%.
<PAGE>
Return on average assets was 1.49% for the first nine months
ended September 30, 2000 compared to 1.42% for the same time
period in 1999, an increase of 5%. For the three month
period ending September 30, 2000, the return on average
assets was 1.45% compared to 1.47% for the same period in
1999, a decrease of 1%. Return on average equity was 15.8%
and 14.9% for the nine months ended September 30, 2000 and
1999, respectively, an increase of 6%. The return on equity
was 15.2% and 15.3% for three month period ending September
30, 2000 and September 30, 1999, respectively.
Our business continues to grow at a healthy pace. Average
deposits have increased $22 million from September 1999 to
September 2000, up 8%. Our loan demand has been even
greater. September 2000 average loans have increased $43
million from September 1999, up 20%. These changes have
caused the interest margin to increase 8 basis points during
the first nine months of 2000 compared to 1999.
Net Interest Income
Net interest income was $10.9 million for the nine months
ending September 30, 2000 compared to $9.5 million in 1999,
resulting in an increase of $1.4 million or 14%. The
interest margin was 4.42% for the first nine months of 2000
compared to 4.34% in 1999, an increase of 8 basis points.
For the three month period ending September 30, 2000, net
interest income was $3.6 million compared to $3.3 million
for the same period in 1999, up 10%. The interest margin
was 4.32% for the three month period ending September 30,
2000 compared to 4.44% for the same period in 1999.
Typically, banks have experienced declining margins over the
past year with the increase in rates. However, our interest
margins have increased due to the change in the composition
of our balance sheet. Year to date average loans are up $34
million, or 16% from 1999 to 2000 resulting in an increase
in loan interest income of $3.4 million for the first nine
months. Average deposits also increased from 1999 to 2000,
up $19.7 million, or 7%. This increased volume has resulted
in an increase in deposit interest expense of $1.7 million
for the first nine months. The banking industry continues
to battle competition for deposit dollars, and this trend is
expected to continue.
Non-Interest Income
Non-interest income increased $0.2 million for the nine
month period ended September 30 from $2.5 million in 1999 to
$2.7 million in 2000. An increase of $386 thousand in
service charges from 1999 to 2000 is mainly attributable to
an increase in overdraft charges of $252 thousand. Income
from ATM's of $56 thousand also contributed to this
increase. Investment securities net losses were $86
thousand greater for the first nine months of 2000 compared
to the same period in 1999. The increase in rates has
caused the value of the existing portfolio to decline.
Therefore, some securities were sold at a loss and replaced
with securities at higher rates which will increase future
interest income. The reduction of loan gains of $240
thousand is attributable to an increase in rates in 2000 as
compared to 1999. The increase in rates resulted in a
reduction of loan originations and refinances. Due to the
volatility of rates, the level of activity and related
income may continue to decline. The increase in other
income of $102 thousand in the first nine months of 2000 as
compared to the same time period in 1999 is a result of an
increase in debit card income of $61 thousand and an
increase in credit card income of $24 thousand. We continue
to promote the use of electronic products and expect these
to be an integral part of our business.
<PAGE>
For the three month period ending September 30, 2000, non-
interest income increased $67 thousand to $918 thousand from
$851 thousand in 1999. Service charges increased $89
thousand from $544 thousand in 1999 to $633 thousand in
2000. Of this, $85 thousand is attributable to overdraft
charges. Net investment security losses increased $24
thousand. The mortgage banking originations continued to
decline. The gain on sale of mortgage loans declined $16
thousand. Other income increased $29 thousand, with the
majority of this being an increase in debit and credit card
income of $19 thousand.
Non-Interest Expense
The increase of $718 thousand in non-interest expenses from
$6.9 million for the nine months ended September 30, 1999 to
$7.6 million for the same period in 2000 was a result of several
factors. Salaries and benefits increased $359
thousand for the first nine months of 2000 compared to 1999,
an increase of 9.8%. Of this, $76 thousand is attributable
to the acquisition of the Wilmore branch, since it was
acquired in August 1999. The remainder of the increase
is primarily due to annual salary
increases. Salaries, excluding bonuses and incentives,
increased 7.7% from 1999 to 2000. Employee benefits
increased $146 thousand for this same period. This increase
is mainly attributable to the increasing cost of health
insurance. For the three month period ending June 30, 2000,
salaries and benefits increased $120 thousand.
Occupancy expense increased $295 thousand to $1.2 million
for the first nine months of 2000 compared to 1999.
Depreciation is up $155 thousand for this period. Building
and equipment maintenance was $114 thousand higher for the
first nine months of 2000 compared to 1999. For the three
month period ending September 30, 2000, occupancy expense
increased $103 thousand. The third quarter's increase is
consistent with the increase in the first and second
quarters. These increases are a result on the Company's
continued emphasis on improving and maintaining its
facilities.
Advertising and Marketing costs increased $26 thousand to
$272 thousand for the first nine months of 2000 as compared to the
same period in 1999. For the three month period ending
September 30, 2000, these costs decreased $6 thousand.
Marketing of the acquisition of the Wilmore branch was $26
thousand in 1999. Continued efforts have been made by the
Company to promote the name and the products of Kentucky
Bank.
Other expenses for the first nine months of 2000 compared to
1999 increased $20 thousand to $1.6 million. For the three
month period ending September 30, 2000, other expenses
decreased $25 thousand to $505 thousand. During the second
quarter of 1999, the processing of electronic products was
changed. Costs of these products and their related usage,
and the related conversion resulted in an increase in
expenses of $70 thousand in 1999. Outside of the electronic
products change, the other changes are normal due to the
growth of the Bank and the general increase in the cost of
doing business.
Income Taxes
The tax equivalent rate for the nine months ended September
30 was 28% for both 2000 and for 1999. For the three month
period ending September 30, 2000 the tax equivalent rate was 29%
compared to 28% for the same period in 1999. These rates
being less than the statutory rate is a result of the tax-
free securities and loans held by the Company.
<PAGE>
Stock Repurchase Program
On October 25, 2000, the Company announced that its Board of
Directors approved a stock repurchase program. The Company is
authorized to purchase up to 100,000 shares of its outstanding
common stock. Shares will be purchased from time to time in the
open market depending on market prices and other considerations.
Liquidity and Funding
Cash and cash equivalents were $14.7 million as of September
30, 2000 compared to $20.7 million at December 31, 1999. At
December 31, 1999, the Bank had excess cash on hand
as a precautionary measure related to "Y2K",
which was common in the financial industry. The cash flow
statement indicates the funds provided and their uses from
the operations of the Bank.
Therefore, the cash flow statements provide a useful
analysis of liquidity. This report reveals a decrease of
cash and cash equivalents for the first nine months of 2000
of $6.0 million compared to an increase of $1.9 million for
the same period in 1999. In 2000, net cash from operating
activities was $7.3 million compared to $6.6 million in
1999. For the three months ending September 2000, net cash
from operating activities increased $2.7 million compared to
$1.8 million in 1999.
For the first nine months, securities had a net decline of
$11.8 million in 2000 and by $6.0 million in 1999. Much of
this change in 2000 has been used to offset the net change
in loans of $27 million in 2000. For the first nine months
of 1999, the net change in loans was $21 million.
Similarly, for the three months ending September 30, 2000,
net loans have increased $5 million compared to $13 million
for the same period in 1999.
During the first nine months of 2000, $10 million has been
repaid to the Federal Home Loan Bank (FHLB). In 2000 $6
million and in 1999, $10 million in advances were received
from the FHLB. Other borrowings decreased $0.1 million in
2000 and $2.9 million in 1999. Deposits increased $8
million in 2000 and increased $5 million in 1999 during this
same time period. During the three months ending September
30, 2000, deposits have increased $4 million, while during
this period in 1999, deposits increased $11 million. For
the three months ending September 30, other borrowings
decreased $1 million in 2000 compared to a decrease of $8
million in 1999. Federal Home Loan Bank advances were $1
million for the three month period ending September 30, 2000
compared to $5 million for the same period in 1999.
Management is aware of the potential problem of funding
sustained loan growth. Therefore, in addition to deposits,
other sources of funds, such as FHLB Advances may be used.
Borrowing available through FHLB is over $6 million. In
addition, over $45 million is available in overnight
borrowing through various correspondent banks. In light of
this, 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, 2000, the Company's non-performing
assets totaled $2.3 million or 0.9% of loans compared to
$0.8 million or 0.4% of loans in 1999. The increase in
accruing loans which are past due 90 days or more is due
principally to one line of credit totaling $788 thousand. This
is a nonrecurring item and the Company does not expect to
incur any loss related to this borrower. (See table below)
Real estate loans composed 79% and 69% of the non-performing
loans as of September 30, 2000 and 1999, respectively.
Forgone interest income on the non-accrual loans for both
2000 and 1999 is immaterial.
Nonperforming Assets
September 30
(in thousands)
2000 1999
Non-accrual Loans $ 240 $ 155
Accruing Loans which are
Contractually past due
90 days or more 1,975 505
Restructured Loans 130 135
Total Nonperforming and Restructured 2,345 795
Other Real Estate 178 312
Total Nonperforming and Restructured
Loans and Other Real Estate $ 2,523 $ 1,107
Nonperforming and Restructured Loans
as a Percentage of Loans 0.88% 0.35%
Nonperforming and Restructured Loans
and Other Real Estate as a Percentage
of Total Assets 0.71% 0.34%
<PAGE>
Provision and Reserve for Possible Loan Losses
The 2000 nine month provision for loan losses of $563
thousand is higher than the 1999 number of $525 thousand.
The three month provision was $188 thousand in 2000 and $175
thousand in 1999. Loan growth has required management to
increase the provision in order to maintain a reserve for
loan losses that is representative of the risk of loss based
on the quality of loans currently in the portfolio. As
depicted in the table below, the loan loss reserve to total
loans was 1.29% on September 30, 2000 and 1.34% on September
30, 1999. Net charge-offs for the nine month period ending
September 30, 2000 were $246 thousand compared to $207
thousand for the same period in 1999. Management feels the
current loan loss reserve is sufficient to meet expected
loan losses.
Loan Losses
Nine Months Ended September 30
(in thousands)
2000 1999
Balance at Beginning of Period $ 3,103 $ 2,735
Amounts Charged-off:
Commercial 10 -
Real Estate Mortgage 45 38
Agricultural 29 54
Consumer 246 152
Total Charged-off Loans 330 244
Recoveries on Amounts
Previously Charged-off:
Commercial 12 3
Real Estate Mortgage 7 1
Agricultural 6 2
Consumer 59 31
Total Recoveries 84 37
Net Charge-offs 246 207
Provision for Loan Losses 563 525
Balance at End of Period 3,420 3,053
Loans
Average 250,949 211,801
At September 30 265,623 227,486
As a Percentage of Average Loans:
Net Charge-offs 0.10% 0.10%
Provision for Loan Losses 0.22% 0.25%
Allowance as a Percentage of
Period-end Loans 1.29% 1.34%
Allowance as a Multiple of
Net Charge-offs 13.8 14.7
Allowance as a Percentage of
Non-performing and Restructured Loans 1.46 3.84
<PAGE>
Loan Losses
Quarter Ended September 30
(in thousands)
2000 1999
Balance at Beginning of Period $ 3,333 $ 2,935
Amounts Charged-off:
Commercial 10 -
Real Estate Mortgage 21 10
Agricultural 23 11
Consumer 86 44
Total Charged-off Loans 140 65
Recoveries on Amounts
Previously Charged-off:
Commercial 9 -
Real Estate Mortgage 6 -
Agricultural 5 1
Consumer 19 7
Total Recoveries 39 8
Net Charge-offs 101 57
Provision for Loan Losses 188 175
Balance at End of Period 3,420 3,053
Loans
Average 258,052 210,245
At September 30 265,623 227,486
As a Percentage of Average Loans:
Net Charge-offs 0.04% 0.03%
Provision for Loan Losses 0.07% 0.08%
Allowance as a Percentage of
Period-end Loans 1.29% 1.34%
Allowance as a Multiple of
Net Charge-offs 33.9 53.6
<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. The
primary tool used by management is 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 September 30, 2000 the projected
percentage changes are within the Board approved limits and
the Company's interest rate risk is also within Board
approved limits. The projected net interest income report
summarizing the Company's interest rate sensitivity as of
September 30, 2000 is as follows:
(in thousands)
PROJECTED NET INTEREST INCOME
Level
Rate Change: - 300 - 100 Rates + 100 + 300
Year One (10/1/00 - 9/30/01)
Interest Income $26,333 $28,603 $29,737 $30,872 $33,142
Interest Expense 11,571 13,786 14,893 16,000 18,214
Net Interest Income 14,762 14,817 14,844 14,872 14,928
PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (10/1/00 - 9/30/01)
Interest Income $(3,404) $(1,135) N/A 1,135 3,404
Interest Expense (3,321) (1,107) N/A 1,107 3,321
Net Interest Income (83) (28) N/A 28 83
PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (10/1/00 - 9/30/01)
Interest Income -11.4% -3.8% N/A 3.8% 11.4%
Interest Expense -22.3% -7.4% N/A 7.4% 22.3%
Net Interest Income -0.6% -0.2% N/A 0.2% 0.6%
Board approved limit >-10.0% >-4.0% N/A >-4.0% >-10.0%
<PAGE>
These numbers are comparable to 1999. In 2000, year one
reflected a decline in net interest income of 0.6% with a
300 basis point decline compared to the 0.4% decline in
1999. The 300 basis point increase in rates reflected a
0.6% increase in net interest income in 2000 compared to
0.1% in 1999. Percentage changes in 2000 are comparable to
1999.
<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.
11 Earnings Per Share Calculation
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 __11/14/00_________ __/s/Buckner Woodford____________
Buckner Woodford, President and C.E.O.
Date __11/14/00_________ __/s/Gregory J. Dawson___________
Gregory J. Dawson, Chief Financial Officer
<PAGE>
Exhibit 11
Earnings Per Share
See Note 4 in Notes to Consolidated Financial Statements for
computation of per share earnings.
