<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(x) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal period ended December 31, 1993
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 0-9630
LIBERTY NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0955936
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
416 West Jefferson Street
Louisville, Kentucky 40202-3244
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 566-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Each Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
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 ( )
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 28, 1994: Common stock - $679,356,415.
The number of shares outstanding of the issuer's common stock as of
February 28, 1994: Common stock - 25,732,575 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders of Liberty National
Bancorp, Inc., for the year ended December 31, 1993 are incorporated by
reference into Parts I and III and portions of the definitive proxy
statement for the 1994 annual meeting of stockholders of Liberty National
Bancorp, Inc., the "Proxy Statement", which will be filed with the
Securities and Exchange Commission by April 30, 1994, are also
incorporated into Part III.
<PAGE>
LIBERTY NATIONAL BANCORP, INC.
FORM 10-K
INDEX
Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
Signatures
<PAGE>
PART I
ITEM 1. BUSINESS
General
Liberty National Bancorp, Inc. ("Liberty") is a Kentucky corporation
incorporated in 1979 for the purpose of acquiring Liberty National Bank and
Trust Company of Kentucky ("Liberty Bank"), which is Liberty's principal
subsidiary. Liberty is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended, and owns directly or indirectly 100%
of ten banks as of December 31, 1993. Liberty ranks third among all bank
holding companies headquartered in Kentucky with $4.9 billion of total
consolidated assets at December 31, 1993.
The following table lists for each of the ten bank subsidiaries that
Liberty owns (the "Banks"), the primary location of its principal offices, the
number of banking offices, and total assets at December 31, 1993.
<TABLE>
<CAPTION>
Total
Banking Assets at
Dollars in millions Location Offices Dec. 31, 1993
-------- ------- -------------
<S> <C> <C> <C>
Liberty National Bank and Louisville, 53 $3,563
Trust Company of Kentucky Kentucky
Liberty National Bank Owensboro, 6 307
of Owensboro Kentucky
Liberty National Bank Erlanger, 13 390
of Northern Kentucky Kentucky
Liberty National Bank Madisonville, 7 172
of Madisonville Kentucky
Liberty National Bank and Charlestown, 13 306
Trust Company of Indiana Indiana
Liberty National Bank Shelbyville, 2 66
of Shelbyville Kentucky
Liberty National Bank and Elizabethtown, 1 87
Trust Company of Hardin County Kentucky
Farmers Deposit Bank Brandenburg, 3 79
of Brandenburg Kentucky
Hardin County Bank and Radcliff, 3 57
Trust, Inc. Kentucky
First Federal Savings Bank Hopkinsville, 2 66
Kentucky
</TABLE>
Hardin County Bank and Trust, Inc., and Farmers Deposit Bank of
Brandenburg were merged with Liberty National Bank and Trust Company of
Hardin County in February 1994 to form Liberty National Bank and Trust
Company of Central Kentucky.
In April 1994, pending regulatory approval, Liberty National Bank
of Madisonville will be merged with First Federal Savings Bank in
Hopkinsville, Kentucky, to form Liberty National Bank and Trust Company of
Western Kentucky.
The Banks engage in a wide range of commercial and personal banking
activities, including accepting demand and time deposits; making secured and
unsecured loans to corporations, individuals and others; issuing letters of
credit; renting safe deposit boxes; and other financial services for
institutions and individuals. The Banks' lending services include making
commercial, industrial, real estate, installment and credit card loans. The
Banks participate in national and regional automated teller machine networks,
which enable customers of participating banks to have access to funds in their
accounts throughout the United States. Liberty Investment Services, Inc., a
wholly-owned subsidiary of Liberty, offers brokerage services. The Banks
provide credit life and accident and health insurance to borrowers through LNB
Life Insurance Company, a wholly-owned subsidiary of Liberty Bank. Liberty
Bank's Mortgage Origination, Sales and Service Group, sells and services
single-family residential loans for other companies' mortgage portfolios and
also services Liberty Bank's mortgage portfolio. Liberty Bank is involved in
direct and leveraged lease financing, including vehicle leasing, through other
wholly-owned subsidiaries. Liberty Bank also maintains a branch facility in
the Cayman Islands.
Liberty Bank acts as correspondent for banks throughout Kentucky and in
Indiana, providing such services as check clearing, transfer of funds, loan
participations, investment advice, data processing, and securities custody and
clearance. The Banks provide a wide range of personal and corporate trust and
trust-related services.
At December 31, 1993, Liberty and its subsidiaries had 2,305 full-time
equivalent employees.
Competition
The Banks actively compete on the local, regional and national levels
with commercial banks, savings institutions, brokerage houses and other
financial institutions for all types of deposits, loans and trust accounts and
other financial services.
Supervision and Regulation
Liberty is subject to regulation under the Bank Holding Company Act of
1956, as amended (the "Act"). Under the Act, Liberty is required to file with
the Federal Reserve Board annual reports and other information regarding its
business operations and the business operations of its subsidiaries. The
Federal Reserve Board may also make examinations of Liberty and its
subsidiaries. The Act also requires the prior approval of the Federal Reserve
Board for a bank holding company to acquire or hold more than 5% voting
interest in any bank, and currently restricts interstate banking activities.
The Act restricts Liberty's nonbanking activities to those which are closely
related to banking. The Act does not place territorial restrictions on the
activities of nonbank subsidiaries of bank holding companies. Liberty's
banking subsidiaries are subject to limitations with respect to intercompany
loans and investments.
The ability of Liberty's affiliate banks to pay dividends is restricted.
See note 10 to Liberty's consolidated financial statements included in
Liberty's annual report to stockholders for the year ended December 31, 1993,
which is incorporated herein by reference.
The subsidiary banks are subject to the provisions of the National
Banking Act, are under the supervision and regulation of, and are subject to
periodic examination by, one or more of the Comptroller of the Currency, the
Federal Reserve Board, the Office of Thrift Supervision or the Federal
Deposit Insurance Corporation ("FDIC").
Under the Act and Regulations of the Federal Reserve Board, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with the extension of credit.
Liberty and its subsidiary banks are also subject to the state banking
laws of each state in which such a bank is located. These state laws may
restrict branching of banks to other counties within the state and acquisition
or merger involving banks and bank holding companies located in other states.
Kentucky permits nationwide reciprocal interstate banking acquisitions.
The Financial Reform, Recovery, and Enforcement Act of 1989 ("FIRREA")
placed the savings and loan insurance fund under the control of the FDIC,
created the Office of Thrift Supervision in the U.S. Treasury Department and
created the Resolution Trust Corporation to act as receiver to liquidate
failed thrift institutions. FIRREA further expanded the power of bank holding
companies to allow for the acquisition of savings associations and to operate
them as separate thrift subsidiaries. FIRREA enhanced the ability of bank
holding companies to expand through thrift acquisitions beyond their present
geographic interstate banking region. The tandem restrictions placed upon
thrift subsidiaries of bank holding companies have been removed allowing
linkage of deposit-taking activities and solicitation of deposits and loans on
behalf of affiliate companies. FIRREA lead to many structural changes in
competition for loans, deposits and other services, affected collateral
valuation methods, and the acquisition of financial institutions.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires bank regulators to take specific prompt actions with
respect to insured depository institutions that do not meet minimum capital
standards. FDICIA establishes five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." An insured depository
institution that is not "well capitalized" or "adequately capitalized" is
prohibited from making capital distributions and may be required to submit a
capital plan, restrict asset growth and limit new lines of business. Holding
companies are also required to guarantee compliance by their insured
depository institutions with any capital plans, subject to certain limits.
Significantly and critically undercapitalized insured depository
institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets, and cessation of receipt of
deposits from correspondent banks. In addition, critically undercapitalized
insured depository institutions are subject to appointment of a receiver or
conservator.
Under FDICIA, an institution that is not well capitalized is generally
prohibited from accepting or offering brokered deposits. In addition, "pass-
through" insurance coverage may not be available for certain employee benefit
accounts. Other provisions included the imposition of specific accounting and
reporting requirements and risk-based assessments for FDIC insurance.
FDICIA contains numerous other provisions, including termination of the
"too big to fail" doctrine except in special cases, limitations on the FDIC's
payment of deposits at foreign branches and revised regulatory standards for,
among other things, real estate lending and capital adequacy. The provisions
of FDICIA are effective on a staggered basis, with some having already taken
effect, while others take effect at various dates over the next few years.
Since all the regulations implementing this Act have not been finalized at
this time, the full effects of FDICIA on the business of Liberty and its
subsidiaries cannot be measured currently. However, this comprehensive
legislation may significantly increase deposit insurance premiums and the
costs of regulatory compliance for the entire banking industry, including
Liberty.
The monetary policies of regulatory authorities, including the Federal
Reserve Board, have a significant effect on the operating results of banks and
bank holding companies. The nature of future monetary policies and the effect
of such policies on the future business and earnings of Liberty and its
subsidiary banks cannot be predicted.
<PAGE>
The following tables set forth selected statistical information with
respect to Liberty and its subsidiaries and should be read together with
the consolidated financial statements of Liberty.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
The schedule captioned "Average Balances and Interest Rates" included
on page 13 of Liberty's annual report to stockholders for the year ended
December 31, 1993, which is incorporated herein by reference, shows, for
each major category of interest earning asset and interest bearing
liability, the average amount outstanding, the interest earned or paid on
such amount and the average rate earned or paid for each of the years in
the three-year period ended December 31, 1993. The schedule also shows
the average rate earned on all interest earning assets and the average
rate paid on all interest bearing liabilities and the net interest margin
(net interest income divided by total average interest earning assets) for
each of the years in the three-year period ended December 31, 1993.
Nonaccrual loans outstanding were included in calculating the rate earned
on loans. Total interest income includes the effects of taxable
equivalent adjustments using a tax rate of 35% for 1993 and 34% for
1992 and 1991.
The changes in interest income and interest expense resulting from
changes in volume and changes in rates for the years ended December 31,
1993 and 1992 are shown in the schedule captioned "Analysis of Changes
in Net Interest Income" included on page 6 of Liberty's annual report to
stockholders for the year ended December 31, 1993, which is incorporated
herein by reference. The change in interest due to both rate and volume
has been allocated to change due to volume and change due to rate in
proportion to the relationship of the absolute dollar amounts of the
change in each. Total interest income includes the effects of taxable
equivalent adjustments using a tax rate of 35% for 1993 and 34% for 1992.
<PAGE>
INVESTMENT PORTFOLIO
The carrying value of investment securities is summarized as follows:
<TABLE>
<CAPTION>
In thousands at December 31 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
U.S. Treasury and Federal agencies $552,980 $533,137 $470,463
States and political subdivisions 252,391 230,981 198,350
Other 6,547 4,676 6,200
-------- -------- --------
$811,918 $768,794 $675,013
======== ======== ========
</TABLE>
The maturity distribution and weighted average interest rates of
investment securities (exclusive of Federal Reserve Bank, Federal Home
Loan Bank and corporate stock) at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------------
After one but After five but
Within within within After
one year five years ten years ten years
In thousands -------------- -------------- -------------- --------------
except percentages Amount Rate Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Federal agencies $234,143 5.06% $299,736 5.29% $9,761 6.98% $9,340 6.14%
States and political
subdivisions 15,345 9.37 150,446 9.28 84,578 7.68 2,022 11.91
Other - - 54 8.86 200 6.93 25 5.50
-------- -------- ------- -------
$249,488 5.33 $450,236 6.62 $94,539 7.61 $11,387 7.16
======== ======== ======= =======
</TABLE>
The weighted average interest rates for each maturity category is
computed by dividing annualized interest income (net of amortization of
premium or accretion of discount) by the carrying value of the respective
investment securities. The weighted average rates on obligations of
states and political subdivisions are computed on a taxable equivalent
basis using a 35% tax rate.
<PAGE>
LOAN PORTFOLIO
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
In thousands at December 31 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial and financial $817,133 $775,966 $732,709 $706,616 $686,903
Real estate - construction 108,420 93,375 109,385 109,434 103,203
Real estate - mortgage 1,235,215 1,129,536 1,054,607 721,524 682,985
Consumer 1,350,214 1,181,052 1,029,767 998,911 924,863
Lease financing 113,856 69,865 42,811 50,313 32,183
---------- ---------- ---------- ---------- ----------
$3,624,838 $3,249,794 $2,969,279 $2,586,798 $2,430,137
========== ========== ========== ========== ==========
</TABLE>
The following tables show the maturities of loans (excluding real
estate - mortgage, consumer and lease financing categories) outstanding
as of December 31, 1993 and the amounts due after one year, classified
according to the sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
Maturing
----------------------------------------------
After one
Within but within After
In thousands one year five years five years Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial and financial $524,200 $220,097 $72,836 $817,133
Real estate - construction 61,339 25,901 21,180 108,420
-------- -------- ------- --------
$585,539 $245,998 $94,016 $925,553
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Interest sensitivity
----------------------
Fixed Variable
In thousands Rate Rate
---------- ----------
<S> <C> <C>
Due after one but within five years $88,559 $157,439
Due after five years 24,007 70,009
-------- --------
$112,566 $227,448
======== ========
</TABLE>
<PAGE>
The following table summarizes Liberty's nonaccrual, past due and
restructured loans. See note 1 to Liberty's consolidated financial
statements included in Liberty's annual report to stockholders for the
year ended December 31, 1993, which is incorporated herein by reference,
for a description of Liberty's policy for placing loans on nonaccrual
status.
<TABLE>
<CAPTION>
In thousands at December 31 1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $21,633 $22,297 $31,181 $17,808 $16,335
Accruing loans past due
90 days or more 3,843 3,740 8,863 12,362 12,989
Restructured loans 696 579 992 481 193
</TABLE>
Information with respect to nonaccrual and restructured loans
at December 31, 1993 is as follows:
<TABLE>
<CAPTION>
In thousands 1993
------
<S> <C>
Interest income that would have been $1,911
recorded if all such loans were on
a current basis in accordance with
their original terms
Interest income that was recorded 451
</TABLE>
At December 31, 1993, Liberty had $46,983,000 in loans for which
payments were current, but the borrowers are currently experiencing
financial difficulties. These potential problem loans are subject to
continuing management attention and their classification is reviewed
on a monthly basis.
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loans outstanding; changes
in the allowance for loan losses arising from loans charged off and
recoveries on loans previously charged off, by loan category; additions
to the allowance that have been charged to expense; and other changes:
<TABLE>
<CAPTION>
In thousands
except percentages 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average loans, net of
unearned income $3,383,888 $3,045,653 $2,770,146 $2,484,794 $2,272,398
========== ========== ========== ========== ==========
Balance of allowance for
loan losses at beginning
of period $42,278 $38,525 $30,879 $34,933 $32,019
Loans charged off:
Commercial and financial 3,274 5,772 5,135 11,014 3,367
Real estate - construction - 1,368 246 269 24
Real estate - mortgage 2,614 3,499 1,415 1,222 336
Consumer 17,027 18,176 16,184 13,442 9,719
Lease financing 308 274 248 254 121
------- ------- ------- ------- -------
Total loans charged off 23,223 29,089 23,228 26,201 13,567
------- ------- ------- ------- -------
Recoveries of loans
previously charged off:
Commercial and financial 1,409 820 1,155 853 437
Real estate - construction 2 60 148 - 1
Real estate - mortgage 424 543 112 70 95
Consumer 5,602 4,761 1,849 1,434 1,202
Lease financing 89 58 52 31 72
------- ------- ------- ------- -------
Total recoveries 7,526 6,242 3,316 2,388 1,807
------- ------- ------- ------- -------
Net loans charged off 15,697 22,847 19,912 23,813 11,760
Additions to allowance
charged to expense 19,754 26,600 25,612 19,157 13,790
Balance of allowance for
loan losses of acquired
banks at acquisition dates 2,766 - 1,946 602 884
------- ------- ------- ------- -------
Balance at end of period $49,101 $42,278 $38,525 $30,879 $34,933
======= ======= ======= ======= =======
Ratio of net charge-offs
during period to average
loans, net of unearned
income 0.46% 0.75% 0.72% 0.96% 0.52%
==== ==== ==== ==== ====
</TABLE>
<PAGE>
In determining the annual provision for loan losses charged to
expense, senior management considers many factors. Among these are:
(1) the quality of the portfolio, (2) previous loss experience, (3)
the size and composition of the portfolio, and (4) an assessment of
current economic conditions. Also, a quarterly analysis is performed
which considers the above factors. In addition, periodic examinations
and evaluations by bank regulators and external auditors are considered.
An allocation of the allowance for loan losses according to the
amount deemed to be reasonably necessary to provide for the possibility
of losses being incurred within the following categories of loans at the
dates indicated is as follows:
<TABLE>
<CAPTION>
In thousands at December 31 1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial and financial $10,903 $7,570 $9,224 $6,104 $10,107
Real estate - construction 860 501 806 543 572
Real estate - mortgage 6,519 11,001 6,035 3,471 3,903
Consumer 18,107 14,014 15,970 11,407 13,579
Lease financing 746 564 503 414 501
Unallocated 11,966 8,628 5,987 8,940 6,271
------- ------- ------- ------- -------
$49,101 $42,278 $38,525 $30,879 $34,933
======= ======= ======= ======= =======
</TABLE>
The ratio of loans in each category to total outstanding loans is
as follows:
<TABLE>
<CAPTION>
December 31 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial and financial 23% 24% 25% 27% 28%
Real estate - construction 3 3 4 4 4
Real estate - mortgage 34 35 35 28 28
Consumer 37 36 35 39 38
Lease financing 3 2 1 2 2
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
<PAGE>
DEPOSITS
The average balance of deposits and average rates paid on such
deposits for the years indicated is summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------------------ ------------------ ------------------
In thousands Average Average Average Average Average Average
except percentages Balance Rate Balance Rate Balance Rate
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $682,714 $610,824 $540,751
Interest bearing
demand deposits 583,081 2.54% 513,063 3.39% 418,083 5.13%
Savings deposits 1,000,881 2.88 902,097 3.72 606,470 5.44
Time deposits 1,596,247 4.44 1,518,980 5.77 1,606,699 7.10
---------- ---------- ----------
$3,862,923 $3,544,964 $3,172,003
========== ========== ==========
</TABLE>
Maturities of time certificates of deposit of $100,000 or more
outstanding at December 31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
Time Certificates
In thousands of Deposit
----------
<S> <C>
3 months or less $159,961
over 3 through 6 months 36,087
over 6 through 12 months 55,639
over 12 months 82,586
--------
$334,273
========
</TABLE>
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table presents various key financial ratios:
<TABLE>
<CAPTION>
Year ended December 31 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Return on average assets 1.09% 1.06% 1.00%
Return on average stockholders' equity 13.68 13.63 13.41
Dividend payout ratio 39.78 (a) 32.79 31.93
Average stockholders' equity to average assets 7.96 7.75 7.46
</TABLE>
(a) Includes $0.13 per share special dividend declared December 15, 1993
and paid January 1, 1994 in order to align Liberty's current dividend
schedule with the current BANC ONE CORPORATION dividend schedule.
See note 2 to Liberty's consolidated financial statements included
in Liberty's annual report to stockholders for the year ended
December 31, 1993, which is incorporated herein by reference.
SHORT-TERM BORROWING
Federal funds purchased and securities sold under agreements to
repurchase generally mature within one to thirteen days from the date of
the transaction. The following table shows information relating to
federal funds purchased and securities sold under agreements to
repurchase.
<TABLE>
<CAPTION>
In thousands except percentages 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Amount outstanding at year end $221,189 $326,663 $246,721
Weighted average interest rate at year end 2.66% 3.15% 4.13%
Maximum amount outstanding at any month end $449,695 $384,945 $346,386
Average amount outstanding during year 334,305 316,828 303,927
Weighted average interest rate during the year 2.94% 3.49% 5.59%
</TABLE>
<PAGE>
ITEM 2. PROPERTIES
Liberty's investments in premises and equipment are through its
subsidiaries. The main offices of Liberty and its principal subsidiary,
Liberty Bank, are located at 416 West Jefferson Street, Louisville,
Kentucky. Data processing and certain other operations of Liberty Bank
are located at 1251 South Fourth Street, Louisville, Kentucky. Both
buildings are owned by Investment Realty Company, a wholly-owned
subsidiary of Liberty Bank, and occupied entirely by Liberty Bank. In
addition, Liberty Bank currently occupies under a long-term lease
approximately four floors in a 23-story office building located at One
Riverfront Plaza in Louisville, Kentucky. This space is primarily used
by Liberty Bank's Retail Banking Group. The Banks also lease a total
of approximately 33,000 square feet in five warehouse facilities used to
store records and supplies.
The Banks lease 44 and own, either directly or indirectly through
subsidiaries, 52 of their banking offices. Seven other banking offices
are part of land lease arrangements under which the land is leased, but
the building thereon is owned.
Additionlly, Investment Realty Company has under long-term leases
parcels of land and buildings thereon (of which the eight-story Marion
E. Taylor office building is one) which are adjacent to the property
on which Liberty's main office is located. These leases give Liberty
control of the entire block situated between Jefferson and Liberty
Streets and bounded by the Fourth Avenue Mall and Fifth Street in
Louisville, Kentucky. These leased properties were acquired to fulfill
current and future space requirements. Liberty Bank currently occupies
all but a portion of two floors in the Marion E. Taylor office building.
See note 7 and 12 to Liberty's consolidated financial statements
included in Liberty's annual report to stockholders for the year ended
December 31, 1993 which is incorporated herein by reference, for
additional information relating to amounts in premises and equipment, and
lease commitments.
ITEM 3. LEGAL PROCEEDINGS
In 1989, a jury returned a verdict against Liberty Bank
for compensatory damages based on lender liability claims which totaled
(net of a judgment in Liberty Bank's favor against the borrower of
approximately $2.8 million under a note) approximately $4.2 million.
On September 23, 1991, the trial court granted Liberty Bank's motion for
a judgment notwithstanding the verdict ("JNOV") thereby overturning the
judgment, and conditionally granted Liberty Bank's motion for a new trial
if the JNOV was subsequently vacated or reversed on appeal. On March 19,
1993, the Kentucky Court of Appeals issued an opinion vacating the JNOV
and the conditional grant of a new trial and remanded the matter to the
trial court for proceedings consistent with the opinion.
As previously announced, in September 1993 the Kentucky Supreme Court
denied Liberty Bank's motion for discretionary review of the Kentucky
Court of Appeals decision. In October 1993, Liberty paid the sum of
$4,202,458 in damages and $2,007,542 for interest on that amount to settle
the matter. Liberty accrued and charged to operations the settlement
amount in the third quarter of 1993. All related federal court
proceedings were settled at no additional expense to Liberty.
See note 13 to Liberty's consolidated financial statements included
in Liberty's annual report to stockholders for the year ended December 31,
1993 which is incorporated herein by reference, for additional information
relating to legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following paragraphs set forth, for each executive officer of
Liberty as of March 1, 1994, each person's name, age, position, business
experience during the past five years, and the year the person first
became an officer of Liberty or its predecessor. There are no family
relationships among executive officers.
Kathryn Ross Arterberry, age 37, is Assistant Secretary, Executive
Vice President and General Counsel of Liberty Bank and Assistant Secretary
and, since 1992, General Counsel of Liberty; she first became an officer of
Liberty Bank in 1988, and served as Senior Vice President of Liberty Bank
through 1993.
John F. Barron, age 42, is Assistant Treasurer of Liberty and Senior
Vice President and Assistant Comptroller of Liberty Bank: he first became
an officer of Liberty Bank in 1978.
Paul E. Bleuel, Jr., age 50, is Senior Vice President and Corporate
Planning Officer of Liberty and Executive Vice President of Liberty Bank;
he first became an officer of Liberty Bank in 1971.
Malcolm B. Chancey, Jr., age 62, is Chairman of the Board, President
and Chief Executive Officer of Liberty and Chairman of the Board and
Chief Executive Officer of Liberty Bank; he first became an officer of
Liberty Bank in 1968.
Elisabeth Y. Clark, age 44, is Executive Vice President of Liberty Bank;
she first became an officer of Liberty Bank in 1980, and served as Senior
Vice President from 1984 through 1993.
R. Helm Dobbins, age 42, is Executive Vice President of Liberty Bank;
he first became an officer of Liberty Bank in 1978, and served as Senior
Vice President from 1981 through 1992.
Nathan B. Evans, age 42, is Senior Vice President and Director of
Credit Review of Liberty and Senior Vice President of Liberty Bank; he
first became an officer of Liberty Bank in 1979.
Theodore R. Frith, age 51, is Executive Vice President of Liberty Bank;
he first became an officer of Liberty Bank in 1970.
Richard R. Galaty, age 49, is Executive Vice President of Liberty
Bank; he was Senior Loan Administrator of Union Bank in Los Angeles,
California, from 1981 to 1989; Senior Credit Administrator of First
Interstate Bancorp in Los Angeles from 1989 to 1991; and Chief Credit
Officer of First Interstate Bank in Denver, Colorado, from 1991 to 1993,
when he joined Liberty Bank.
Terry D. Gardner, age 43, is Senior Vice President of Liberty Bank and,
since 1993, Senior Vice President and Auditor of Liberty and Senior Auditor
of Liberty Bank; he first became an officer of Liberty Bank in 1987 and
served as Auditor of Liberty Bank through 1993.
Maria I. Gerwing, age 46, is Executive Vice President of Liberty Bank;
she first became an officer of Liberty Bank in 1974, and served as Senior
Vice President from 1979 through 1991.
R. K. Guillaume, age 50, is Executive Vice President of Liberty and
President of Liberty Bank; he first became an officer of Liberty Bank
in 1968.
Ronald M. Holt, age 46, has served as Executive Vice President of
Liberty Bank since 1990; he served as Director and Executive Vice
President of First American Trust Company in Nashville, Tennessee from
1986 until 1990, when he joined Liberty Bank.
John P. Knight, Jr., age 49, is Executive Vice President of Liberty
Bank; he first became an officer of Liberty Bank in 1969, and served as
Senior Vice President from 1978 through 1991.
James T. McKenzie, age 44, is Executive Vice President of Liberty Bank;
he first became an officer of Liberty Bank in 1972, and served as Senior
Vice President of Liberty Bank through 1993.
Carl R. Page, age 45, is Secretary of Liberty and Liberty Bank and
Executive Vice President of Liberty Bank; he first became an officer of
Liberty Bank in 1976.
Bruce W. Raque, age 41, is Assistant Treasurer and Tax Officer of
Liberty and is Senior Vice President and Assistant Comptroller of
Liberty Bank; he first became an officer of Liberty Bank in 1981.
W. LeGrande Rives, age 53, is Executive Vice President of Liberty
Bank; he first became an officer of Liberty Bank in 1989.
Jack H. Shipman, age 57, is Executive Vice President of Liberty and
Liberty Bank; he first became an officer of Liberty Bank in 1970.
Hugh M. Shwab III, age 56, is Executive Vice President of Liberty
Bank; he first became an officer of Liberty Bank in 1970.
John Y. Van Bibber, age 63, is Executive Vice President of Liberty
Bank; he first became an officer of Liberty Bank in 1964.
Carl E. Weigel, age 62, is Treasurer and Chief Financial Officer of
Liberty, Executive Vice President and Comptroller of Liberty Bank and has
served since 1990 as Cashier of Liberty Bank; he first became an officer
of Liberty Bank in 1974.
Russell B. Zaino, age 45, is Senior Vice President and Chief
Regulations Compliance Officer of Liberty and Senior Vice President of
Liberty Bank; he first became an officer of Liberty Bank in 1976.
Kevin M. Zemanski, age 35, is Credit Policy Adminstration/Consumer
Compliance Officer of Liberty, served from 1988 to 1992 as Consumer
Compliance Officer of Liberty, and is Senior Vice President of Liberty
Bank; he first became an officer of Liberty Bank in 1986.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information captioned "Market Data" included on page 14 of
Liberty's annual report to stockholders for the year ended
December 31, 1993 is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information captioned "Consolidated Selected Financial Data"
included on page 14 of Liberty's annual report to stockholders for the
year ended December 31, 1993 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis included on pages 4 through
13 of Liberty's annual report to stockholders for the year ended
December 31, 1993 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Liberty and report
of independent auditors included on pages 16 through 35 in Liberty's
annual report to stockholders for the year ended December 31, 1993 are
incorporated herein by reference:
Consolidated balance sheet
Consolidated statement of income
Consolidated statement of changes in stockholders' equity
Consolidated statement of cash flows
Notes to consolidated financial statements
Report of independent auditors
The information captioned "Quarterly Results of Operations" included
on page 15 of Liberty's annual report to stockholders for the year ended
December 31, 1993 is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the section entitled "Board of Directors
and Executive Officers" in Liberty's Proxy Statement is incorporated herein
by reference. In addition, information with respect to Liberty's executive
officers is contained in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the section entitled "Executive
Compensation" in Liberty's Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the sections entitled "Principal
Shareholders" and "Board of Directors and Executive Officers" in Liberty's
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the section entitled "Board of Directors
and Executive Officers" in Liberty's Proxy Statement is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) List of Financial Statements filed
The following consolidated financial statements of Liberty and report
of independent auditors included in Liberty's annual report to
stockholders for the year ended December 31, 1993 were incorporated
by reference in Part II, Item 8 of this report:
Consolidated balance sheet
Consolidated statement of income
Consolidated statement of changes in stockholders' equity
Consolidated statement of cash flows
Notes to consolidated financial statements
Report of independent auditors
(a) (2) List of Financial Statement Schedules filed
Schedules to the consolidated financial statements required by
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
(a) (3) List of Exhibits filed
(3.1) Liberty's Amended and Restated Articles of Incorporation
are incorporated herein by reference to Exhibit (3) to Liberty's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993.
(3.2) Liberty's Bylaws are incorporated herein by reference to
Exhibit (3) (b) to Liberty's Annual Report on Form 10-K for the year ended
December 31, 1988.
(4.1) Rights Agreement dated August 19, 1992, between Liberty
National Bancorp, Inc., and Chemical Bank is incorporated by reference to
Exhibits 4 and 10.1 to Liberty's Current Report on Form 8-K dated
August 19, 1992.
(4.2) First Amendment dated as of November 2, 1993, to the Rights
Agreement dated August 19, 1992, between Liberty National Bancorp, Inc.,
and Chemical Bank is incorporated by reference to Exhibit 4.1 to Liberty's
Current Report on Form 8-K dated November 2, 1993.
(4.3) Instruments defining the rights of holders of long-term
debt of Liberty and its subsidiaries are not filed as Exhibits because the
amount of debt under each instrument is less than 10% of the consolidated
assets of Liberty. Liberty undertakes to file these instruments with the
United States Securities and Exchange Commission (the "Commission") upon
request.
(10.1) Liberty National Bank and Trust Company Compensation
Deferral Plan is incorporated herein by reference to Exhibit (10.1) to
Liberty's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993.
(10.2) Liberty National Bank and Trust Company Excess Benefit
Plan is incorporated herein by reference to Exhibit (10.2) to Liberty's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.
(10.3) Liberty National Bancorp, Inc., Management Incentive
Compensation Plan amended and restated as of January 1992 is incorporated
herein by reference to Exhibit (10) (c) to Liberty's Annual Report on Form
10-K for the year ended December 31, 1991.
(10.4) Amendment No. 1 to Liberty National Bancorp, Inc.,
Management Incentive Compensation Plan, as amended and restated as of
January 1992, as amended as of December 1993 is incorporated herein
by reference to Exhibit 10.5 to Liberty's Form S-8 Registration
Statement No. 33-52275.
(10.5) Form of Officer Compensation Continuation Agreement
between Liberty and certain officers of Liberty and the Banks, as amended,
is incorporated herein by reference to Exhibit (10) (e) to Liberty's
Annual Report on Form 10-K for the year ended December 31, 1989.
(10.6) Credit Agreement dated as of June 18, 1992 among Liberty
National Bancorp, Inc., and The Chase Manhattan Bank (National
Association), as Initial Bank and Agent, is incorporated herein by
reference to Exhibit (10) to Liberty's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1992.
(10.7) Liberty National Bancorp, Inc., 1986 Stock Option Plan
As Amended and Restated as of January 10, 1990, and as further Amended
February 16, 1993, is incorporated herein by reference to Exhibit (10) (f)
to Liberty's Annual Report on Form 10-K for the year ended
December 31, 1992.
(10.8) First Federal Savings Bank 1992 Stock Option Plan is
incorporated herein by reference to Exhibit 10.1 to Liberty's Form S-8
Registration Statement No. 33-52275.
(11) Statement regarding the computation of per share earnings.
(13) Portions of the annual report to stockholders for the year
ended December 31, 1993 which are expressly incorporated by reference in
this filing.
(21) Subsidiaries of Liberty.
(23) Consent of Coopers & Lybrand.
(99.1) Annual report on Form 11-K for The Liberty 1992 Restated
Thrift Plan for the year ended December 31, 1993, as authorized by
Rule 15d-21. Plan financial statements are filed in paper under cover
of Form SE, as allowed by Rule 311 of Regulation S-T.
(99.2) Undertakings.
(b) Reports on Form 8-K
Liberty filed the following report on Form 8-K during the three month
period ended December 31, 1993:
A Form 8-K dated November 2, 1993 was filed with the Commission
relating to the announcement by Liberty and BANC ONE CORPORATION that
they have signed an agreement for the merger of Liberty with an affiliate
of BANC ONE CORPORATION.
(c) Exhibits
The exhibits listed in response to Item 14(a)(3) are filed as part of
this report.
(d) Financial Statement Schedules
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Liberty has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LIBERTY NATIONAL BANCORP, INC.
(Registrant)
March 16, 1994 By: /s/ MALCOLM B. CHANCEY, JR.
---------------------------
MALCOLM B. CHANCEY, JR.
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Liberty and in the capacities and on the dates indicated.
Chairman of the Board,
President and Director
(Principal
/s/ MALCOLM B. CHANCEY, JR. Executive Officer) March 16, 1994
- ---------------------------
Malcolm B. Chancey, Jr.
Executive Vice President
/s/ R. K. GUILLAUME and Director March 16, 1994
- ---------------------------
R. K. Guillaume
Treasurer
(Principal Financial
/s/ CARL E. WEIGEL and Accounting Officer) March 16, 1994
- ---------------------------
Carl E. Weigel
/s/ JOHN F. BARRON Assistant Treasurer March 16, 1994
- ---------------------------
John F. Barron
/s/ STANLEY S. DICKSON Director March 16, 1994
- ---------------------------
Stanley S. Dickson
/s/ C. H. DISHMAN III Director March 16, 1994
- ---------------------------
C. H. Dishman III
/s/ WALLACE H. DUNBAR Director March 16, 1994
- ---------------------------
Wallace H. Dunbar
/s/ OWSLEY BROWN FRAZIER Director March 16, 1994
- ---------------------------
Owsley Brown Frazier
/s/ GEORGE E. GANS III Director March 16, 1994
- ---------------------------
George E. Gans III
Director March , 1994
- ---------------------------
George N. Gill
Director March , 1994
- ---------------------------
Frank B. Hower, Jr.
/s/ NANCY LAMPTON Director March 16, 1994
- ---------------------------
Nancy Lampton
/s/ LEONARD E. LYLES Director March 16, 1994
- ---------------------------
Leonard E. Lyles
/s/ MARTIN S. MARGULIS Director March 16, 1994
- ---------------------------
Martin S. Margulis
/s/ JAMES W. MCDOWELL, JR. Director March 16, 1994
- ---------------------------
James W. McDowell, Jr.
/s/ JOHN C. NICHOLS II Director March 16, 1994
- ---------------------------
John C. Nichols II
/s/ GOUVERNEUR H. NIXON Director March 16, 1994
- ---------------------------
Gouverneur H. Nixon
/s/ JOSEPH W. PHELPS Director March 16, 1994
- ---------------------------
Joseph W. Phelps
/s/ CYRUS S. RADFORD, JR. Director March 16, 1994
- ---------------------------
Cyrus S. Radford, Jr.
/s/ MAX L. SHAPIRA Director March 16, 1994
- ---------------------------
Max L. Shapira
/s/ ROBERT L. TAYLOR Director March 16, 1994
- ---------------------------
Robert L. Taylor
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Paper (P) or
Number Brief Description Electronic (E)
- --------- ----------------- -------------
<C> <S> <C>
(3.1) Liberty's Amended and Restated Articles of Incorporation (P)
are incorporated herein by reference to Exhibit 3 to
Liberty's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993.
(3.2) Liberty's Bylaws are incorporated herein by reference (P)
to Exhibit (3) (b) to Liberty's Annual Report on Form
10-K for the year ended December 31, 1988.
(4.1) Rights Agreement dated August 19, 1992, between Liberty (P)
National Bancorp, Inc., and Chemical Bank is incorporated
by reference to Exhibits 4 and 10.1 to Liberty's Current
Report on Form 8-K dated August 19, 1992.
(4.2) First Amendment dated as of November 2, 1993, to the Rights (E)
Agreement dated August 19, 1992, between Liberty National
Bancorp, Inc., and Chemical Bank is incorporated by
reference to Exhibit 4.1 to Liberty's Current Report on
Form 8-K dated November 2, 1993.
(4.3) Instruments defining the rights of holders of long-term N/A
debt of Liberty and its subsidiaries are not filed as
Exhibits because the amount of debt under each instrument
is less than 10% of the consolidated assets of Liberty.
Liberty undertakes to file these instruments with the
Commission upon request.
(10.1) Liberty National Bank and Trust Company Compensation (P)
Deferral Plan is incorporated herein by reference to
Exhibit (10.1) to Liberty's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993.
(10.2) Liberty National Bank and Trust Company Excess Benefit (P)
Plan is incorporated herein by reference to Exhibit (10.2)
to Liberty's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
(10.3) Liberty National Bancorp, Inc., Management Incentive (P)
Compensation Plan amended and restated as of January 1992
is incorporated herein by reference to Exhibit (10) (c) to
Liberty's Annual Report on Form 10-K for the year ended
December 31, 1991.
(10.4) Amendment No. 1 to Liberty National Bancorp, Inc., (E)
Management Incentive Compensation Plan, as amended and
restated as of January 1992, as amended as of December 1993
is incorporated herein by reference to Exhibit 10.5 to
Liberty's Form S-8 Registration Statement No. 33-52275.
(10.5) Form of Officer Compensation Continuation Agreement (P)
between Liberty and certain officers of Liberty and the
Banks, as amended, is incorporated herein by reference to
Exhibit (10) (e) to Liberty's Annual Report on Form 10-K
for the year ended December 31, 1989.
(10.6) Credit Agreement dated as of June 18, 1992 among Liberty (P)
National Bancorp, Inc., and The Chase Manhattan Bank
(National Association), as Initial Bank and Agent, is
incorporated herein by reference to Exhibit (10) to
Liberty's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992.
(10.7) Liberty National Bancorp, Inc., 1986 Stock Option Plan (P)
As Amended and Restated as of January 10, 1990, and as
further Amended February 16, 1993, is incorporated herein
by reference to Exhibit (10) (f) to Liberty's Annual
Report on Form 10-K for the year ended December 31, 1992.
(10.8) First Federal Savings Bank 1992 Stock Option Plan is (E)
incorporated herein by reference to Exhibit 10.1 to Liberty's
Form S-8 Registration Statement No. 33-52275.
(11) Statement regarding the computation of per share earnings. (E)
(13) Portions of the annual report to stockholders for the year (E)
ended December 31, 1993 which are expressly incorporated
by reference in this filing.
(21) Subsidiaries of Liberty. (E)
(23) Consent of Coopers & Lybrand. (E)
(99.1) Annual report on Form 11-K for The Liberty 1992 Restated (E) & (P)
Thrift Plan for the year ended December 31, 1993, as
authorized by Rule 15d-21. Plan financial statements are
filed in paper under cover of Form SE, as allowed by Rule
311 of Regulation S-T.
(99.2) Undertakings. (E)
</TABLE>
Exhibit (11)
------------
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
December 31
---------------------------
In thousands except per share data 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding............................... 25,372 24,927 23,580
======= ======= =======
Income before cumulative effect of change in
accounting principle...................................$51,514 $45,639 $37,780
Cumulative effect on prior years (to December 31, 1990)
of change in accounting for income taxes............. - - 1,318
------- ------- -------
Net income...............................................$51,514 $45,639 $39,098
======= ======= =======
Per share
Income before cumulative effect of change in
accounting principle................................... $2.03 $1.83 $1.60
Cumulative effect on prior years (to December 31, 1990)
of change in accounting for income taxes............. - - 0.06
------- ------- -------
Net income............................................... $2.03 $1.83 $1.66
======= ======= =======
FULLY DILUTED
Average shares outstanding............................... 25,372 24,927 23,580
Dilutive effect of convertible
subordinated debentures................................ - - 1,267
------- ------- -------
Average shares outstanding applicable
to fully diluted net income per share.................. 25,372 24,927 24,847
======= ======= =======
Income before cumulative effect of change in
accounting principle...................................$51,514 $45,639 $37,780
Interest expense, less income tax
effect, of convertible subordinated
debentures............................................. - - 741
------- ------- -------
Income before cumulative effect of change in
accounting principle applicable to fully
diluted net income per share........................... 51,514 45,639 38,521
Cumulative effect on prior years (to December 31, 1990)
of change in accounting for income taxes............. - - 1,318
------- ------- -------
Net income applicable to fully diluted
net income per share...................................$51,514 $45,639 $39,839
======= ======= =======
Per share
Income before cumulative effect of change in
accounting principle................................... $2.03 $1.83 $1.55
Cumulative effect on prior years (to December 31, 1990)
of change in accounting for income taxes............. - - 0.05
------- ------- -------
Net income............................................... $2.03 $1.83 $1.60
======= ======= =======
</TABLE>
<PAGE> Exhibit 13
----------
Portions of the annual report to stockholders for the year ended
December 31, 1993 which are expressly incorporated by reference in this
filing follow. Such items are proceeded by an index which shows the
location in this Annual Report on Form 10-K where such items are
incorporated by reference and the location of the item in the annual
report to stockholders for the year ended December 31, 1993.
INDEX
Reference Incorporation Page number
letter in location in in annual
this this report to
Exhibit Form 10-K Description of Item stockholders
- ---------- ---------------- ----------------------------- -----------
(A) Part I, item 1 Average Balances and Interest page 13
Rates
(B) Part I, item 1 Analysis of Changes in Net page 6
Interest Income
(C) Part II, item 5 Market Data page 14
(D) Part II, item 6 Consolidated Selected page 14
Financial Data
(E) Part II, item 7 Management's Discussion and pages 4
Analysis thru 13
(F) Part II, item 8 Consolidated Balance Sheet page 16
Part II, item 8 Consolidated Statement of page 17
Income
Part II, item 8 Consolidated Statement of page 18
Changes in Stockholders'
Equity
Part II, item 8 Consolidated Statement of page 19
Cash Flows
Part II, item 8 Notes to Consolidated pages 20
Financial Statements thru 34
Part II, item 8 Report of Independent page 35
Auditors
(G) Part II, item 8 Quarterly Results of page 15
Operations
The items follow:
<PAGE> Exhibit 13 item (A)
AVERAGE BALANCES AND INTEREST RATES -------------------
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
In thousands on a taxable equivalent basis Year 1993 Year 1992 Year 1991
--------------------------- --------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Investment securities
U.S. Treasury and Federal agencies $550,770 $31,556 5.73% $502,962 $35,039 6.97% $502,484 $41,089 8.18%
States and political subdivisions 240,106 21,087 8.78 213,926 19,726 9.22 184,484 18,289 9.91
Other 5,676 336 5.92 6,125 414 6.76 4,692 315 6.71
Trading account securities 1,706 64 3.75 4,801 226 4.71 240 21 8.75
Mortgage loans held for sale 5,206 382 7.34 6,943 501 7.22 1,390 115 8.27
Federal funds sold and securities
purchased under agreements to resell 100,257 3,120 3.11 135,015 4,935 3.66 65,004 3,603 5.54
Interest bearing deposits with banks 117 3 2.56 183 8 4.37 849 56 6.60
Loans, net of unearned income 3,383,888 274,966 8.13 3,045,653 273,118 8.97 2,770,146 286,756 10.35
---------- -------- ---------- -------- ---------- --------
Total earning assets 4,287,726 331,514 7.73 3,915,608 333,967 8.53 3,529,289 350,244 9.92
Less allowance for loan losses 47,045 -------- 40,190 -------- 35,598 --------
---------- ---------- ----------
4,240,681 3,875,418 3,493,691
Non-earning assets
Cash and due from banks 302,822 274,856 259,934
Premises and equipment 66,390 60,808 53,830
Other assets 118,932 109,071 103,909
---------- ---------- ----------
Total assets $4,728,825 $4,320,153 $3,911,364
========== ========== ==========
Interest bearing liabilities
Deposits
Interest bearing demand $583,081 14,782 2.54 $513,063 17,382 3.39 $418,083 21,464 5.13
Savings 1,000,881 28,824 2.88 902,097 33,596 3.72 606,470 32,966 5.44
Negotiable certificates of deposit 163,846 5,921 3.61 144,170 6,550 4.54 234,837 15,833 6.74
Other time 1,432,401 65,019 4.54 1,374,810 81,093 5.90 1,371,862 98,257 7.16
Federal funds purchased and securities
sold under agreements to repurchase 334,305 9,836 2.94 316,828 11,050 3.49 303,927 16,982 5.59
Other short-term borrowings 36,686 1,015 2.77 44,293 1,510 3.41 59,405 3,293 5.54
Long-term debt 78,034 5,306 6.80 38,072 2,541 6.67 43,671 3,176 7.27
---------- -------- ---------- -------- ---------- --------
Total interest bearing liabilities 3,629,234 130,703 3.60 3,333,333 153,722 4.61 3,038,255 191,971 6.32
---------- -------- ---------- -------- ---------- --------
Non-interest bearing liabilities
Non-interest bearing deposits 682,714 610,824 540,751
Other liabilities 40,445 41,225 40,728
---------- ---------- ----------
Total liabilities 4,352,393 3,985,382 3,619,734
Stockholders' equity 376,432 334,771 291,630
---------- ---------- ----------
Total liabilities and
stockholders' equity $4,728,825 $4,320,153 $3,911,364
========== ========== ==========
Net interest income $200,811 $180,245 $158,273
======== ======== ========
Net interest spread 4.13% 3.92% 3.60%
====== ====== ======
Net interest margin 4.68% 4.60% 4.48%
====== ====== ======
</TABLE>
<PAGE> Exhibit 13 item (B)
ANALYSIS OF CHANGES IN NET INTEREST INCOME -------------------
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
In thousands on a
taxable equivalent basis 1993 vs. 1992 1992 vs. 1991
--------------------------- ---------------------------
Increase (decrease) Increase (decrease)
due to change in due to change in
----------------- Net ----------------- Net
Volume Rate Change Volume Rate Change
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $28,762 ($26,914) $1,848 $26,838 ($40,476) ($13,638)
Investment securities 5,291 (7,491) (2,200) 2,621 (7,135) (4,514)
Federal funds sold
and securities purchased (1,146) (669) (1,815) 2,871 (1,539) 1,332
under agreements to resell
Deposits with banks (2) (3) (5) (34) (14) (48)
Mortgage loans held for sale (127) 8 (119) 403 (17) 386
Trading account securities (123) (39) (162) 219 (14) 205
------- ------- -------- ------- ------- --------
Total interest income 32,655 (35,108) (2,453) 32,918 (49,195) (16,277)
------- ------- -------- ------- ------- --------
Interest expense
Deposits
Demand 2,158 (4,758) (2,600) 4,199 (8,281) (4,082)
Savings 3,391 (8,163) (4,772) 13,036 (12,406) 630
Negotiable certificates
of deposit 821 (1,450) (629) (5,030) (4,253) (9,283)
Other time 3,279 (19,353) (16,074) 210 (17,374) (17,164)
Federal funds purchased
and securities sold under 589 (1,803) (1,214) 693 (6,625) (5,932)
agreements to repurchase
Other short-term borrowings (237) (258) (495) (710) (1,073) (1,783)
Long-term debt 2,715 50 2,765 (386) (249) (635)
------- ------- -------- ------- ------- --------
Total interest expense 12,716 (35,735) (23,019) 12,012 (50,261) (38,249)
------- ------- -------- ------- ------- --------
Net interest income $19,939 $627 $20,566 $20,906 $1,066 $21,972
======= ======= ======== ======= ======= ========
</TABLE>
<PAGE> Exhibit 13 item (C)
MARKET DATA -------------------
Liberty National Bancorp, Inc., and Subsidiaries
Liberty's stock is traded in the NASDAQ National Market System under the
NASDAQ symbol LNBC. The approximate number of stockholders at December 31,
1993 was 4,500. The following table sets forth the high, low and last
closing price and cash dividends declared for each quarter in the last two
years. The information has been adjusted to reflect the 4-for-3 stock
split distributed in May 1993.
<TABLE>
<CAPTION>
Quarter 1993 1992
---------------------------------- ----------------------------------
Closing Price Closing Price
------------------------- Cash ------------------------ Cash
Dividends Dividends
High Low Last Declared High Low Last Declared
------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st $26.813 $22.875 $26.063 $0.16875 $24.563 $18.375 $21.750 $0.15
2nd 27.375 24.188 24.750 0.16875 25.875 21.375 21.938 0.15
3rd 28.500 25.000 27.500 0.17000 22.875 20.438 22.125 0.15
4th 30.750 25.250 30.250 0.30000 (a) 26.625 21.188 25.500 0.15
</TABLE>
(a) Includes $0.13 per share special dividend declared December 15, 1993
and paid January 1, 1994 in order to align Liberty's current dividend
schedule with the current BANC ONE CORPORATION dividend schedule. See
note 2 to the consolidated financial statements for information
regarding the pending merger with BANC ONE CORPORATION.
The payment of dividends is subject to the restrictions described in note
10 to the consolidated financial statements.
<PAGE> Exhibit 13 item (D)
CONSOLIDATED SELECTED FINANCIAL DATA -------------------
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
In thousands except per share data
Year ended December 31 1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net interest income $190,792 $170,743 $148,677 $126,102 $114,787
Provision for loan losses 19,754 26,600 25,612 19,157 13,790
Net income 51,514 45,639 39,098 32,790 33,171
Per share data (a)
Primary net income $2.03 $1.83 $1.66 $1.42 $1.54
Fully diluted net income 2.03 1.83 1.60 1.36 1.46
Cash dividends declared 0.8075 (b) 0.60 0.53 0.47 0.41
Average long-term debt $78,034 $38,072 $43,671 $39,134 $43,135
Average stockholders' equity 376,432 334,771 291,630 262,288 228,564
Average assets 4,728,825 4,320,153 3,911,364 3,560,842 3,232,733
Ratios
Average stockholders'
equity to average assets 7.96% 7.75% 7.46% 7.37% 7.07%
Return on average
stockholders' equity 13.68 13.63 13.41 12.50 14.51
Return on average assets 1.09 1.06 1.00 0.92 1.03
</TABLE>
(a) Per share amounts have been adjusted to reflect the 4-for-3 stock
split distributed in May 1993.
(b) Includes $0.13 per share special dividend declared December 15, 1993
and paid January 1, 1994 in order to align Liberty's current dividend
schedule with the current BANC ONE CORPORATION dividend schedule. See
note 2 to the consolidated financial statements for information
regarding the pending merger with BANC ONE CORPORATION.
<PAGE> Exhibit 13 item (E)
Management's Discussion and Analysis -------------------
The purpose of this discussion is to provide insight into the
results of operations and financial condition of Liberty National
Bancorp, Inc. ("Liberty"). This discussion should be read in
conjunction with the consolidated financial statements and accompanying
notes presented elsewhere in this report.
Acquisitions
During the three-year period ended in 1993, Liberty completed the
acquisition of three Kentucky banking entities. The acquisitions
included Bank of Lexington & Trust Company, Inc., in Lexington
("Lexington"); Financial Dominion of Kentucky Corporation ("Financial
Dominion"), holding company for Hardin County Bank and Trust, Inc., in
Radcliff and Farmers Deposit Bank of Brandenburg; and First Federal
Savings Bank located in Hopkinsville ("Hopkinsville"). The Lexington
and Financial Dominion acquisitions were accounted for using the
purchase method of accounting and, accordingly, the results of
operations of those acquired banking entities prior to their respective
acquisition dates have not been included in the accompanying
consolidated statement of income. The Hopkinsville acquisition was
accounted for using the pooling-of-interests method of accounting,
except that prior periods have not been restated since the effect was
not material. Due to these acquisitions, any ratios or analyses
comparing years before or after to the year of the individual
acquisition will not be comparable. The acquired banking entities
described above had combined total assets of approximately $388,000,000
at their acquisition dates.
Pending Merger
On November 3, 1993, Liberty and BANC ONE CORPORATION ("BANC ONE")
announced they had signed an agreement for the merger of Liberty with a
subsidiary of BANC ONE.
Terms of the agreement call for Liberty shareholders to receive
$35.00 in value of BANC ONE stock if BANC ONE shares are trading
between $37.79 and $40.00 a share. If BANC ONE shares are trading at
or below $37.79 per share, Liberty shareholders will receive 0.9262
shares of BANC ONE stock for each share of Liberty. If BANC ONE is
trading at or above $40.00, Liberty shareholders will receive 0.8750
shares of BANC ONE stock for each Liberty share.
Under the terms of the agreement, Liberty has the right to
terminate the transaction if BANC ONE shares are trading below $34.55
per share and at or above $31.82 per share, unless BANC ONE agrees to
issue additional shares to Liberty shareholders so that the value of
BANC ONE shares received by Liberty shareholders is not less than
$32.00 per Liberty share. Under further terms of the agreement,
Liberty may terminate the transaction if the BANC ONE shares are
trading at less than $31.82 per BANC ONE share. Liberty's right to
terminate the transaction in these circumstances occurs shortly prior
to the anticipated closing of the transaction when BANC ONE stock is
valued for purposes of the transaction. The value of BANC ONE stock
will be determined by averaging trading prices during a 15-day trading
period ending eight trading days prior to the closing.
The BANC ONE share prices and the exchange ratio discussed in the
previous paragraphs have been adjusted to reflect a 10% stock dividend
payable on March 4, 1994, to BANC ONE shareholders of record as of
February 16, 1994, which BANC ONE declared on January 25, 1994.
In connection with this agreement, Liberty has granted BANC ONE an
option to purchase up to 19.9% of its common stock under certain
circumstances. The transaction is subject to Liberty shareholder and
regulatory approval and is anticipated to be completed in mid-1994.
Stock Split
On April 14, 1993, Liberty's Board of Directors declared a 4-for-3
common stock split in the form of a 33 1/3% stock dividend. The shares
were distributed May 17, 1993 to stockholders of record on May 3, 1993.
All average share and per share information in this report has been
restated to reflect the stock split.
Results of Operations
Net income was $51,514,000 in 1993, compared with $45,639,000 for
the prior year and $39,098,000 in 1991. Primary net income per share
was $2.03 in 1993, compared with $1.83 in 1992 and $1.66 in 1991.
Fully diluted net income per share was $2.03 in 1993, compared with
$1.83 in 1992 and $1.60 in 1991.
As previously announced, in September 1993 the Kentucky Supreme
Court denied Liberty National Bank and Trust Company of Kentucky's
("Liberty Bank") motion to review a decision that resulted in a verdict
against Liberty Bank on lender liability claims. As a result of this
decision and subsequent settlement, Liberty accrued and charged to
operations in the third quarter of 1993 approximately $6.2 million (see
Non-interest Income and Expense). Had this not occurred, net income
per share for 1993 would have been $2.19 per share, or a 19.7% increase
over the $1.83 reported for 1992.
The lower increase in primary net income per share between 1992
and 1991 compared to the increase in fully diluted net income per share
for the same periods reflects the additional shares of Liberty common
stock issued due to Liberty's call for redemption of its 8 1/4%
convertible subordinated debentures during the latter part of 1991.
Return on average assets was 1.09% in 1993, compared to 1.06% in
1992 and 1.00% in 1991. Return on average stockholders' equity was
13.68% in 1993, 13.63% in 1992 and 13.41% in 1991.
Net income for 1991 includes the effects of Liberty's adoption in
the first quarter of 1991, effective as of January 1, 1991, of the
provisions of Statement of Financial Accounting Standards No. 96,
"Accounting for Income Taxes" ("SFAS No. 96"). The cumulative effect
of adopting SFAS No. 96 on periods prior to December 31, 1990 was to
increase net income for 1991 by $1,318,000, or $0.06 for primary net
income per share and $0.05 for fully diluted net income per share. The
effect of the accounting change on income before the cumulative effect
of the change was not material.
In addition, effective January 1, 1992, Liberty adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109") which superseded SFAS No. 96. The effect
of adopting SFAS No. 109 was not material (see Income Taxes).
Net Interest Income
Taxable equivalent net interest income for 1993 was $200,811,000,
compared with $180,245,000 in 1992 and $158,273,000 in 1991. The tax
equivalent adjustment (which is net of the effect of the nondeductible
portion of interest expense) reflected in the following schedules is
based on a federal income tax rate of 35% for 1993 and 34% for 1992 and
1991. The discussion of factors influencing net interest income which
follows is based on taxable equivalent income data.
<TABLE>
<CAPTION>
Summary of Net Interest Income
In thousands on a taxable equivalent basis 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Interest income $321,495 $324,465 $340,648
Tax equivalent adjustment 10,019 9,502 9,596
-------- -------- --------
Interest income 331,514 333,967 350,244
Interest expense 130,703 153,722 191,971
-------- -------- --------
Net interest income $200,811 $180,245 $158,273
======== ======== ========
</TABLE>
In 1993, net interest income increased $20,566,000, or 11.4%,
over 1992. The increase in 1992 over 1991 was $21,972,000, or 13.9%.
The accompanying analysis of changes in net interest income shows the
relationships of the volume and rate portions of these increases for
1993 and 1992.
The 1993 increase in net interest income was primarily due to
earning asset volume increases resulting from normal operations and the
acquisitions completed at the end of the first quarter and during the
fourth quarter of 1993. Liberty's net interest spread for the year
ended December 31, 1993 was 4.13%, compared to 3.92% for the year 1992.
Net interest margin increased 8 basis points to 4.68% for the year
1993, compared to 4.60% for the prior year. Average earning assets
increased $372 million, or 9.5%, for the year 1993 compared to 1992.
Interest bearing liabilities averaged $3.629 billion for the year 1993,
an increase of $296 million, or 8.9%, over 1992. A portion of these
increases was attributable to the 1993 acquisitions. Average earning
assets and average interest bearing liabilities would have increased
7.2% and 6.7%, respectively, if those assets and liabilities
attributable to the 1993 acquisitions were not considered.
During 1993, the average national prime rate was 21 basis points
lower than the same period in 1992. The reduction in the average
national prime rate was one of the primary reasons for a reduction of
80 basis points in Liberty's yields during the year ended 1993 compared
to the year 1992. The cost of funds decreased faster (101 basis
points) than Liberty's yields on earning assets because Liberty's
interest bearing liabilities were more interest sensitive than its
earning assets during 1993.
The 1992 increase in net interest income was due to earning asset
volume increases resulting from normal operations and the bank
acquisition completed during the second quarter of 1991 and due to an
increase in the net interest spread. Liberty's net interest spread
increased 32 basis points in 1992 to 3.92%. Net interest margin was
4.60% in 1992, an increase of 12 basis points over 1991. Average
earning assets increased $386 million, or 10.9%, for the year of 1992
compared to 1991. Interest bearing liabilities averaged $3.333 billion
for the year 1992, an increase of $295 million, or 9.7%, over 1991. A
portion of these increases was attributable to the second quarter 1991
bank acquisition. Average earning assets and average interest bearing
liabilities would have increased 8.9% and 7.8%, respectively, if those
assets and liabilities attributable to the second quarter 1991
acquisition were not considered.
<TABLE>
<CAPTION>
Analysis of Changes in Net Interest Income
In thousands on a
taxable equivalent basis 1993 vs. 1992 1992 vs. 1991
-------------------------- ---------------------------
Increase (decrease) Increase (decrease)
due to change in due to change in
----------------- Net ----------------- Net
Volume Rate Change Volume Rate Change
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans $28,762 ($26,914) $1,848 $26,838 ($40,476) ($13,638)
Investment securities 5,291 (7,491) (2,200) 2,621 (7,135) (4,514)
Federal funds sold
and securities purchased (1,146) (669) (1,815) 2,871 (1,539) 1,332
under agreements to resell
Deposits with banks (2) (3) (5) (34) (14) (48)
Mortgage loans held for sale (127) 8 (119) 403 (17) 386
Trading account securities (123) (39) (162) 219 (14) 205
------- ------- ------- ------- -------- --------
Total interest income 32,655 (35,108) (2,453) 32,918 (49,195) (16,277)
------- ------- ------- ------- -------- --------
Interest expense
Deposits
Demand 2,158 (4,758) (2,600) 4,199 (8,281) (4,082)
Savings 3,391 (8,163) (4,772) 13,036 (12,406) 630
Negotiable certificates
of deposit 821 (1,450) (629) (5,030) (4,253) (9,283)
Other time 3,279 (19,353) (16,074) 210 (17,374) (17,164)
Federal funds purchased
and securities sold under 589 (1,803) (1,214) 693 (6,625) (5,932)
agreements to repurchase
Other short-term borrowings (237) (258) (495) (710) (1,073) (1,783)
Long-term debt 2,715 50 2,765 (386) (249) (635)
------- ------- ------- ------- -------- --------
Total interest expense 12,716 (35,735) (23,019) 12,012 (50,261) (38,249)
------- ------- ------- ------- -------- --------
Net interest income $19,939 $627 $20,566 $20,906 $1,066 $21,972
======= ======= ======= ======= ======== ========
</TABLE>
Provision for Loan Losses
The provision for loan losses for 1993 was $19,754,000, compared
to $26,600,000 for 1992, a decrease of $6,846,000. During 1993 net
charge-offs were $15,697,000 compared to $22,847,000 in 1992, a
decrease of $7,150,000.
The decrease in net charge-offs is primarily attributable to a
reduction in charge-offs in Liberty Bank's commercial and retail areas
and two of Liberty's other affiliate banks. Net charge-offs to average
loans was 0.46% for the year 1993, compared to 0.75% for the year 1992.
Liberty's allowance for loan losses totaled $49.1 million at
December 31, 1993, representing an increase of $6.8 million over the
amount reported at December 31, 1992. Approximately $2.8 million of
this increase can be attributed to the 1993 acquisitions. The
allowance for loan losses was 220% of nonperforming loans on December
31, 1993. Nonperforming loans represented 0.62% of outstanding loans
on December 31, 1993.
The provision for loan losses for 1992 was $26,600,000, compared
to $25,612,000 for 1991. During 1992, net charge-offs were $22,847,000
compared to $19,912,000 in 1991, an increase of $2,935,000.
The increase in net charge-offs during 1992 was primarily due to
the bank acquired during the second quarter of 1991. Net charge-offs
for 1991 related to the acquired bank only include net charge-offs for
the period in 1991 after the date of the acquisition whereas 1992 net
charge-offs include a full year of charge-off activity.
In evaluating the allowance for loan losses, management considers
the composition of the loan portfolio, historical loan loss experience,
the overall quality of the loans, and an assessment of current economic
conditions. At December 31, 1993, Liberty's allowance for loan losses
was 1.45% of average loans outstanding and 1.37% of period-end loans.
This compares to 1.39% and 1.31%, respectively, for these ratios in
1992. Following is a summary of Liberty's loan loss experience for
each of the past five years:
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
In thousands except percentage 1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Balance January 1 $42,278 $38,525 $30,879 $34,933 $32,019
Balance of allowance for
loan losses of acquired
banks at acquisition dates 2,766 - 1,946 602 884
Provision for loan losses 19,754 26,600 25,612 19,157 13,790
Less net charge-offs 15,697 22,847 19,912 23,813 11,760
------- ------- ------- ------- -------
Balance December 31 $49,101 $42,278 $38,525 $30,879 $34,933
======= ======= ======= ======= =======
Average loans, net of
unearned income $3,383,888 $3,045,653 $2,770,146 $2,484,794 $2,272,398
Loans outstanding at year
end, net of unearned income 3,588,824 3,220,563 2,942,623 2,547,582 2,374,934
Nonperforming loans
at year end 22,329 22,876 32,173 18,289 16,528
Ratios
Provision for loan losses
to average loans 0.58% 0.87% 0.92% 0.77% 0.61%
Net charge-offs to
average loans 0.46 0.75 0.72 0.96 0.52
Allowance for loan losses
to average loans 1.45 1.39 1.39 1.24 1.54
Allowance for loan losses
to year-end loans 1.37 1.31 1.31 1.21 1.47
Loan loss coverage 5.82 x 3.79 x 3.76 x 2.50 x 4.71 x
</TABLE>
Non-interest Income and Expense
Non-interest income was $60,684,000 in 1993, an increase of
$4,045,000, or 7.1% over 1992. The increase in non-interest income
would have been 6.2% if non-interest income for the year 1993 which is
attributable to the banks acquired at the end of the first quarter and
during the fourth quarter of 1993 but is not comparable to the year
1992 ("Non-comparable Income") and investment securities gains were not
considered. Investment securities gains were $1,098,000 in 1993 versus
$2,322,000 the year before.
Limiting the increase in non-interest income was a decrease in
insurance premium income as a result of reduced activity levels due to
the loss of a dealer reinsurance program in the third quarter of 1992.
Liberty was able to reinstate the program during the first quarter of
1993, however, the activity levels are still below the levels
experienced in the past. Another factor which limited the amount of
the increase was an $818,000 gain recorded in the third quarter of 1992
on the sale of equipment under an expired leveraged lease. Factors
which contributed to the increase in non-interest income were operating
revenues totaling approximately $2 million which relate to revenue
producing assets acquired in satisfaction of loans at the end of 1992
and during the second quarter of 1993 and a $455,000 gain on the sale
of a property no longer utilized for banking purposes. Excluding the
above items, the Non-comparable Income, and the investment securities
gains, the increase in non-interest income would have been 7.6%.
All components of non-interest income increased in 1993 over 1992
except for insurance premium income, commissions and trading account
profits, and investment securities gains. The decreases in insurance
premium income and investment securities gains were discussed in the
previous two paragraphs. The decrease in commissions and trading
account profits was due to decreased activity levels. Non-comparable
Income had no effect on commissions and trading account profits.
The increases in the other components were primarily due to the
development of new business, a growth in volumes of existing business
and increased fees in certain areas. Trust income increased $736,000
to $13,701,000, or 5.7%, over 1992. Service charges on deposit
accounts were up $1,440,000 to $18,395,000, or 8.5%. Excluding the
amounts of Non-comparable Income for each category, the increases would
have been 5.6% and 5.1%, respectively. Bankcard income was $6,139,000
in 1993, up $504,000, or 8.9%. Non-comparable Income had no effect on
bankcard income.
Other non-interest income, which includes fees and income for
other services, increased $4,580,000 to $15,968,000, or 40.2%.
Excluding the Non-comparable Income, the operating revenues relating to
revenue producing assets acquired in satisfaction of loans, the gain
recorded in 1992 on the sale of equipment under an expired leveraged
lease and the gain recorded in 1993 on the sale of a property no longer
utilized for banking purposes, all of which were noted previously, the
increase in other non-interest income would have been 15.3%. This
category was favorably impacted by continued strong mortgage
origination activity and the growth of additional fee services.
Non-interest expense increased $19,374,000 to $160,129,000 in
1993, or 13.8%. The increase in non-interest expense would have been
6.0% if non-interest expense for the year 1993 which is attributable to
the banks acquired at the end of the first quarter and during the
fourth quarter of 1993 but is not comparable to the year 1992
("Non-comparable Expense"), other costs related to the acquisitions,
and a $6,210,000 litigation settlement on lender liability claims
accrued and charged to operations in the third quarter of 1993, were
not considered. Limiting the increase in non-interest expense was a
decrease in expenses in Liberty's insurance subsidiary due to reduced
activity levels mentioned previously and a decrease in writedowns on
assets acquired in satisfaction of loans. Factors contributing to the
increase in non-interest expense were operating expenses of
approximately $1.8 million relating to assets acquired in satisfaction
of loans at the end of 1992 and during the second quarter of 1993 which
were mentioned in a previous paragraph, additional writedowns on
certain intangible assets, and an increase in legal expenses.
Excluding all of the above items, the Non-comparable Expense, the other
costs related to the acquisitions, and the litigation settlement, the
increase in non-interest expense would have been 5.3%.
The largest category of non-interest expense is salaries and
employee benefits, which represents approximately 43% of total
non-interest expense in 1993. Salaries and employee benefits were
$69,512,000 in 1993, an increase of $2,707,000, or 4.1%, compared to
1992. Excluding the Non-comparable Expense, the increase would have
been 1.2%. The increase was primarily due to merit and promotional
salary adjustments and higher retirement plan expense partially offset
by the effects of deferred loan costs and favorable experience
adjustments in employee insurance costs.
Net occupancy expense increased $1,283,000 to $10,985,000 in 1993,
or 13.2%. Equipment expense increased $2,088,000 to $13,958,000, up
17.6% over 1992. Excluding the Non-comparable Expense for each
category, the increases would have been 8.7% and 15.8%, respectively.
The increase in net occupancy expense is primarily the result of
additional depreciation and amortization relating to the expansion and
renovation of facilities. The increase in equipment expense is due
primarily to expenses relating to Liberty's project to migrate to
different mainframe hardware and software systems. Liberty's lead bank
was converted to the new systems in December 1992 and all of Liberty's
other affiliate banks, with the exception of the three affiliate banks
acquired in 1993, were converted during the second quarter of 1993.
The remaining three affiliate banks are scheduled to be converted to
the new systems during the first and second quarters of 1994. This
investment in system technology and equipment enhances Liberty's
ability to efficiently deliver quality products and services to its
customers.
Other non-interest expense, which is the second largest category
of non-interest expense, includes delivery and communication, supplies,
taxes and insurance, professional services and miscellaneous expenses.
Other non-interest expense, which totaled $65,674,000 in 1993,
increased 25.4% over 1992. A factor noted previously which contributed
to the increase was the $6,210,000 litigation settlement on lender
liability claims accrued and charged to operations in the third quarter
of 1993. Several other factors also noted previously which contributed
to the increase in other non-interest expense were operating expenses
relating to assets acquired in satisfaction of loans at the end of 1992
and during the second quarter of 1993 additional writedowns on certain
intangible assets, and an increase in legal expenses. Additional
factors noted previously which limited the increase in other non-
interest expense were a decrease in expenses in Liberty's insurance
subsidiary due to reduced activity levels and a decrease in writedowns
on assets acquired in satisfaction of loans. Excluding all of the
above items, the Non-comparable Expense and the other costs related to
the acquisitions, the increase in other non-interest expense would have
been 8.0%.
Liberty is committed to continue efforts to develop fees and other
income for services provided while holding operating expense to the
minimum amount necessary to provide quality service.
A summary of non-interest income and expense for the three-year
period is included in the accompanying schedule.
<TABLE>
<CAPTION>
Non-interest Income and Expense
In thousands 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Non-interest income
Trust income $13,701 $12,965 $13,960
Service charges on deposit accounts 18,395 16,955 15,662
Bankcard income 6,139 5,635 4,923
Insurance premium income 3,291 5,228 6,066
Commissions and trading
account profits 2,092 2,146 2,094
Investment securities gains 1,098 2,322 2,872
Other 15,968 11,388 9,337
------- ------- -------
Total non-interest income $60,684 $56,639 $54,914
======= ======= =======
Non-interest expense
Salaries and employee benefits $69,512 $66,805 $60,676
Net occupancy expense 10,985 9,702 8,889
Equipment expense 13,958 11,870 9,686
Other 65,674 52,378 49,556
-------- -------- --------
Total non-interest expense $160,129 $140,755 $128,807
======== ======== ========
</TABLE>
Income Taxes
Liberty had an income tax expense of $20,079,000 in 1993 compared
to an income tax expense of $14,388,000 in 1992, an increase of
$5,691,000. This represents an effective income tax rate of 28.0% for
1993, compared to 24.0% for 1992. The increase is due primarily to a
greater portion of Liberty's net income coming from taxable sources in
1993 and to the increase in the federal income tax rate to 35% from
34%.
Income tax expense for the year ended December 31, 1993, was
increased by approximately $334,000 (which is net of a $210,000
decrease due to the tax rate adjustment on net deferred tax assets) as
the result of the increase in the federal income tax rate as provided
by the Omnibus Budget Reconciliation Act of 1993 (the "Act") which was
signed into law in August 1993. Certain portions of the Act, including
the increase in the federal income tax rate, are to be applied
retroactively to January 1, 1993.
As previously mentioned, Liberty elected to adopt in the first
quarter of 1991, effective as of January 1, 1991, the provisions of
SFAS No. 96 on accounting for income taxes. The cumulative effect of
adopting SFAS No. 96 on periods prior to December 31, 1990 was to
increase net income for 1991 by $1,318,000. The effect of the adoption
on income before the cumulative effect of the change was not material.
Also previously mentioned, effective January 1, 1992, Liberty
adopted the provisions of SFAS No. 109 which superseded SFAS No. 96.
The effect of adopting SFAS No. 109 was not material.
Financial Condition
Paramount to a bank's financial condition is a strong liquidity
and interest sensitivity position and a sound capital base.
Liquidity and Interest Sensitivity
To maintain a desired level of liquidity, Liberty has several
sources of funds available. One is the cash flow generated daily from
its various loan portfolios in the form of principal and interest
payments. Another source is its deposit base, both consumer deposits,
which tend to be relatively stable, and large dollar denomination
($100,000 and over) certificates of deposit, which are primarily sold
in the local market and can vary materially. In addition to these
sources, Liberty uses borrowings from its correspondent bank customers
to fund some of its day-to-day operations. These funds, referred to as
federal funds, are unsecured obligations with maturities generally of
one to seven days. Other sources of funds available to meet daily
liquidity needs include the sale of securities under agreements to
repurchase, commercial paper, issuance of medium-term bank notes,
borrowings from the Federal Reserve Bank and funds made available under
a Treasury Tax and Loan Note Agreement with the Federal government.
Over the longer term, the liquidity position is managed through
balancing the maturity structure of the balance sheet. This process
allows for an orderly flow of funds over an extended period of time.
In addition, this analysis allows management to determine Liberty's
interest sensitivity as it relates to given time periods. The interest
rate sensitivity analysis at December 31, 1993, which accompanies this
discussion, illustrates in summary form the information which is
developed. Amounts are classified based on the earliest period in
which they can normally be expected to be repriced. Based on a
historical analysis of account activity, we have classified interest
bearing demand deposits, savings deposits and a portion of non-interest
bearing deposits in the one year and over classifications.
As shown by the interest rate sensitivity analysis, Liberty's
interest earning liabilities exceed its interest earning assets during
the first year. This position, which is normally termed a negative
interest sensitivity gap, generally allows for enhanced net interest
income during periods of declining interest rates. However, because
the negative interest-sensitivity gap, which is within Liberty's
internal policy guidelines, is not significant, Liberty has the ability
to manage its interest sensitivity during periods of rising interest
rates.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
Non-interest
0-90 91-180 181-365 1-5 Over 5 Sensitive
In millions Days Days Days Years Years Amounts Total
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans, net of unearned
income $1,554 $70 $108 $1,105 $752 $ - $3,589
Investment securities 42 99 108 450 113 - 812
Other interest earning
assets 124 - - - - - 124
Other assets - - - - - 391 391
------ ----- ----- ------ ---- ----- ------
Total assets 1,720 169 216 1,555 865 391 $4,916
------ ----- ----- ------ ---- ----- ======
Sources of funds
Interest bearing
deposits 1,533 313 192 843 379 - $3,260
Short-term borrowings 293 - - - - - 293
Long-term debt - - 1 4 99 - 104
Non-interest bearing
deposits - - - 403 237 179 819
Other liabilities - - - - - 41 41
Stockholders' equity - - - - - 399 399
------ ----- ----- ------ ---- ----- ------
Total sources of funds 1,826 313 193 1,250 715 619 $4,916
------ ----- ----- ------ ---- ----- ======
Interest sensitivity
gap before interest
rate swaps (106) (144) 23 305 150 (228)
Interest rate swaps (55) - - 55 - -
------ ----- ----- ------ ---- -----
Interest sensitivity
gap after interest
rate swaps (161) (144) 23 360 150 (228)
------ ----- ----- ------ ---- -----
Cumulative adjusted
interest
sensitivity gap ($161) ($305) ($282) $78 $228 $ -
====== ===== ===== ====== ==== =====
Cumulative adjusted
interest sensitivity gap
as a percent of total
assets at period end (3.28)% (6.20)% (5.74)% 1.59 % 4.64 %
</TABLE>
A number of other techniques are used to measure the liquidity
position, including the utilization of several ratios which are
presented below. These ratios are calculated based on annual averages
for each year.
<TABLE>
<CAPTION>
Liquidity Ratios 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Total loans/total deposits 87.60% 85.91% 87.33%
Total loans/total deposits less float 92.79 90.87 92.65
Net short-term borrowings/total assets 5.73 5.23 7.63
</TABLE>
This analysis shows that Liberty's loan to deposit ratios
increased in 1993 compared to 1992 due to an increase in loan demand
which exceeded the increase in deposit activity. During the second
quarter of 1993, Liberty, through its lead bank, issued $55,000,000 of
subordinated notes due 2003. Simultaneous with the receipt of the net
proceeds from the sale of the subordinated notes, Liberty's lead bank
dividended to Liberty an amount sufficient to retire a $21,000,000
outstanding balance on an unsecured line of credit. The remaining
portion of the net proceeds from the sale of the subordinated notes
provided additional funding for general banking purposes. The net
short-term borrowing ratio reflects an increase in Liberty's leverage
position compared to the previous year.
Another factor affecting Liberty's long-term liquidity position is
the ability of Liberty's affiliate banks to pay dividends to Liberty.
Certain regulatory restrictions limit the amount available for this
purpose. None of these restrictions has had any adverse effect on
Liberty. For a further description of these restrictions, see note 10
to the consolidated financial statements.
Nonperforming Assets
Liberty discontinues the accrual of interest on loans, except
consumer loans, which become 90 days past due as to principal or
interest unless they are adequately secured and in the process of
collection. A loan remains in a nonaccrual status until factors
indicating doubtful collection no longer exist. Consumer loans, when
120 days past due, are charged off against the allowance for loan
losses unless they are adequately secured and in the process of
collection. A loan is classified as a restructured loan when the
interest rate is materially reduced or the term is extended beyond the
original maturity date because of the inability of the borrower to
service the interest payments at market rates. Other real estate is
recorded at the lower of cost or fair value less estimated costs to
sell. A summary of the components of nonperforming assets including
several ratios using period-end data is shown below:
<TABLE>
<CAPTION>
Nonperforming Assets
In thousands at December 31 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Nonaccrual loans $21,633 $22,297 $31,181
Restructured loans 696 579 992
Other real estate 15,715 18,982 9,224
------- ------- -------
Total nonperforming assets $38,044 $41,858 $41,397
======= ======= =======
Nonperforming assets to total
loans (net of unearned income)
and other real estate 1.06% 1.29% 1.40%
Nonperforming assets to total
assets 0.77 0.92 0.95
Allowance for loan losses
to nonperforming loans 220 185 120
</TABLE>
Nonaccrual and restructured loans at December 31, 1993, were
$547,000 less than the amount recorded at December 31, 1992. The
reduction in nonaccrual and restructured loans would have been
approximately $2.6 million if guidelines relating to in-substance
foreclosures had not been changed as outlined in the following
paragraph.
Other real estate totaled $15,715,000 at December 31, 1993,
compared to $18,982,000 at December 31, 1992, a decrease of $3,267,000.
Approximately $2.1 million of the decrease is attributable to a June
1993 change in bank regulatory guidelines relating to in-substance
foreclosures. This amount was, in accordance with the revised
guidelines, transferred to nonaccrual loans.
Total nonperforming assets at December 31, 1993, was $38,044,000,
a decrease of $3,814,000 from the $41,858,000 reported at December 31,
1992. Liberty's nonperforming ratios, as shown above, are still more
favorable than the industry averages. Liberty continues to follow its
long-standing policy of not engaging in international lending and not
concentrating lending activity in any one industry.
Nonaccrual and restructured loans at December 31, 1992 were
$9,297,000 less than the year-end 1991 amount. However, other real
estate increased $9,758,000 during the same period resulting in an
increase in nonperforming assets of $461,000. Contributing to the
increase in other real estate was the assumption of $2,224,000 of
senior debt relating to an in-substance foreclosure of commercial real
estate during the fourth quarter of 1992. If Liberty had not assumed
this debt, other real estate would have increased $7,534,000 and total
nonperforming assets would have decreased $1,763,000.
Capital
During 1993, Liberty increased both its tier I and total capital
(as defined by the Federal Reserve Board under the Board's risk-based
capital guidelines). These increases were the result of internal
capital generation, a decrease in the disallowed amount of deferred tax
assets and, affecting total capital only, an increase in the allowance
for loan losses and the issuance of $55,000,000 of subordinated notes
due 2003 by Liberty Bank. These increases were partially offset by an
increase in disallowed goodwill due to the acquisition completed at the
end of the first quarter of 1993. As displayed by the following table,
Liberty's tier I capital at December 31, 1993 increased $45,890,000
over the 1992 amount to $359,929,000, and total capital reached
$462,660,000 at December 31, 1993. Liberty's risk-based capital and
leverage ratios, also shown in the following table, exceed the 4.00%
tier I, 8.00% total capital and 3.00% leverage minimums that are
required for each ratio. The leverage ratio compares tier I capital to
total average assets less disallowed amounts of goodwill, other
intangible assets and deferred tax assets.
<TABLE>
<CAPTION>
Selected Capital Information
In thousands at December 31 1993 1992 Change
-------- -------- --------
<S> <C> <C> <C>
Stockholders' equity $399,532 $353,227 $46,305
Less disallowed amounts of
goodwill and other intangibles 39,603 35,068 4,535
Less disallowed amounts of
deferred tax assets - 4,120 (4,120)
-------- -------- --------
Tier I capital 359,929 314,039 45,890
Allowable allowance for loan losses 47,815 42,278 5,537
Qualifying long-term debt 54,916 - 54,916
-------- -------- --------
Tier II capital 102,731 42,278 60,453
-------- -------- --------
Total capital $462,660 $356,317 $106,343
======== ======== ========
Total risk-weighted assets $3,823,911 $3,475,273 $348,638
========== ========== ========
Ratios
Tier I capital to risk-weighted
assets 9.41% 9.04%
Total capital to risk-weighted assets 12.10 10.25
Leverage 7.46 7.13
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
established five capital categories for insured depository institutions
under its Prompt Corrective Action provisions. The bank regulatory
agencies adopted regulations, which became effective in 1992, defining
these five capital categories for the banks they regulate. The
categories vary from "well capitalized" to "critically
undercapitalized". A "well capitalized" national bank is defined as
one with a total risk-based capital ratio of 10% or above, a tier I
risk-based capital ratio of 6% or above, a leverage ratio of 5% or
above and one not subject to any order, written agreement, capital
directive, or prompt corrective action directive to meet or maintain a
specific capital level. On December 31, 1993, each of Liberty's
affiliate banks had total risk-based capital, tier I risk-based capital
and leverage ratios which exceeded the minimum requirements established
for the "well capitalized" category.
Accounting and Regulatory Matters
In May 1993, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 114 ("SFAS No.
114") "Accounting by Creditors for Impairment of a Loan." The
Statement requires that impaired loans that are within the scope of
SFAS No. 114 be measured based on the present value of expected future
cash flows, discounted at the loan's effective interest rate; at the
loan's observable market price; or the fair value of the collateral, if
the loan is collateral dependent. Adoption of SFAS No. 114 is required
in January 1995 with earlier adoption permitted. Liberty has not
determined the impact of SFAS No. 114 on Liberty's financial condition
and results of operations but expects it to be immaterial.
Also in May 1993, the FASB issued Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115") "Accounting for Certain
Investments in Debt and Equity Securities." This Statement requires
that investment securities be classified as either held-to-maturity
securities, which are reported at amortized cost; trading securities,
which are reported at fair value, with unrealized gains and losses
included in earnings; or available-for-sale securities, which are
reported at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders' equity.
SFAS No. 115 is required to be adopted no later than January 1994. The
adoption of SFAS No. 115 is not expected to have a material impact on
Liberty's financial condition or results of operations.
Legal Proceedings
See note 13 to Liberty's consolidated financial statements for a
discussion of certain court actions.
<PAGE>
<TABLE>
<CAPTION>
Average Balances and Interest Rates
In thousands on a taxable equivalent basis Year 1993 Year 1992 Year 1991
--------------------------- --------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Investment securities
U.S. Treasury and Federal agencies $550,770 $31,556 5.73% $502,962 $35,039 6.97% $502,484 $41,089 8.18%
States and political subdivisions 240,106 21,087 8.78 213,926 19,726 9.22 184,484 18,289 9.91
Other 5,676 336 5.92 6,125 414 6.76 4,692 315 6.71
Trading account securities 1,706 64 3.75 4,801 226 4.71 240 21 8.75
Mortgage loans held for sale 5,206 382 7.34 6,943 501 7.22 1,390 115 8.27
Federal funds sold and securities
purchased under agreements to resell 100,257 3,120 3.11 135,015 4,935 3.66 65,004 3,603 5.54
Interest bearing deposits with banks 117 3 2.56 183 8 4.37 849 56 6.60
Loans, net of unearned income 3,383,888 274,966 8.13 3,045,653 273,118 8.97 2,770,146 286,756 10.35
---------- -------- ---------- -------- ---------- --------
Total earning assets 4,287,726 331,514 7.73 3,915,608 333,967 8.53 3,529,289 350,244 9.92
Less allowance for loan losses 47,045 -------- 40,190 -------- 35,598 --------
---------- ---------- ----------
4,240,681 3,875,418 3,493,691
Non-earning assets
Cash and due from banks 302,822 274,856 259,934
Premises and equipment 66,390 60,808 53,830
Other assets 118,932 109,071 103,909
---------- ---------- ----------
Total assets $4,728,825 $4,320,153 $3,911,364
========== ========== ==========
Interest bearing liabilities
Deposits
Interest bearing demand $583,081 14,782 2.54 $513,063 17,382 3.39 $418,083 21,464 5.13
Savings 1,000,881 28,824 2.88 902,097 33,596 3.72 606,470 32,966 5.44
Negotiable certificates of deposit 163,846 5,921 3.61 144,170 6,550 4.54 234,837 15,833 6.74
Other time 1,432,401 65,019 4.54 1,374,810 81,093 5.90 1,371,862 98,257 7.16
Federal funds purchased and securities
sold under agreements to repurchase 334,305 9,836 2.94 316,828 11,050 3.49 303,927 16,982 5.59
Other short-term borrowings 36,686 1,015 2.77 44,293 1,510 3.41 59,405 3,293 5.54
Long-term debt 78,034 5,306 6.80 38,072 2,541 6.67 43,671 3,176 7.27
---------- -------- ---------- -------- ---------- --------
Total interest bearing liabilities 3,629,234 130,703 3.60 3,333,333 153,722 4.61 3,038,255 191,971 6.32
---------- -------- ---------- -------- ---------- --------
Non-interest bearing liabilities
Non-interest bearing deposits 682,714 610,824 540,751
Other liabilities 40,445 41,225 40,728
---------- ---------- ----------
Total liabilities 4,352,393 3,985,382 3,619,734
Stockholders' equity 376,432 334,771 291,630
---------- ---------- ----------
Total liabilities and
stockholders' equity $4,728,825 $4,320,153 $3,911,364
========== ========== ==========
Net interest income $200,811 $180,245 $158,273
======== ======== ========
Net interest spread 4.13% 3.92% 3.60%
====== ====== ======
Net interest margin 4.68% 4.60% 4.48%
====== ====== ======
</TABLE>
<PAGE> Exhibit 13 item (F)
CONSOLIDATED BALANCE SHEET -------------------
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
In thousands except share data
December 31 1993 1992
---------- ----------
<S> <C> <C>
Assets
Cash and due from banks (note 3) $252,414 $252,817
Interest bearing deposits with banks 1,065 100
Federal funds sold and securities
purchased under agreements to resell 116,650 178,400
Trading account securities 41 5,220
Mortgage loans held for sale 6,364 4,392
Investment securities (market value $826,654 in
1993; $784,997 in 1992) (note 4) 811,918 768,794
Loans (net of unearned income of $36,014 in
1993; $29,231 in 1992) (note 5) 3,588,824 3,220,563
Less:
Allowance for loan losses (note 6) 49,101 42,278
---------- ----------
Net loans 3,539,723 3,178,285
Premises and equipment (notes 7 and 9) 72,393 61,916
Other assets 115,527 115,821
---------- ----------
Total $4,916,095 $4,565,745
========== ==========
Liabilities
Deposits
Non-interest bearing - domestic $818,978 745,675
Interest bearing - domestic 3,199,158 2,966,374
Interest bearing - foreign 61,083 49,168
---------- ----------
Total deposits 4,079,219 3,761,217
Federal funds purchased and securities
sold under agreements to repurchase 221,189 326,663
Commercial paper 5,072 2,625
Other short-term borrowings 66,326 46,022
Other liabilities 41,147 36,656
Long-term debt (note 9) 103,610 39,335
---------- ----------
Total liabilities 4,516,563 4,212,518
---------- ----------
Commitments and contingent liabilities (notes 12 and 13)
Stockholders' Equity
Preferred stock
Authorized and unissued 10,000,000 shares - -
Common stock (notes 14, 15 and 19)
Authorized 60,000,000 shares in 1993 and
40,000,000 shares in 1992
Issued and outstanding 25,729,935 shares in 1993
and 18,772,995 shares in 1992 46,863 46,212
Surplus 79,691 68,196
Retained earnings (note 10) 272,978 238,819
---------- ----------
Total stockholders' equity 399,532 353,227
---------- ----------
Total $4,916,095 $4,565,745
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
In thousands except per share data
Year ended December 31 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Interest income
Loans (including fees) $271,874 $269,827 $282,789
Federal funds sold and securities
purchased under agreements to resell 3,120 4,935 3,603
Deposits with banks 3 8 56
U.S. Treasury and Federal agencies 31,556 35,039 41,089
Obligations of states and political subdivisions 14,164 13,518 12,665
Other securities 336 414 315
Mortgage loans held for sale 382 501 115
Trading account securities 60 223 16
-------- -------- --------
Total interest income 321,495 324,465 340,648
-------- -------- --------
Interest expense
Deposits 114,546 138,621 168,520
Federal funds purchased and securities
sold under agreements to repurchase 9,836 11,050 16,982
Other short-term borrowings 1,015 1,510 3,293
Long-term debt 5,306 2,541 3,176
-------- -------- --------
Total interest expense 130,703 153,722 191,971
-------- -------- --------
Net interest income 190,792 170,743 148,677
Provision for loan losses (note 6) 19,754 26,600 25,612
-------- -------- --------
Net interest income after provision for loan losses 171,038 144,143 123,065
-------- -------- --------
Non-interest income
Trust income 13,701 12,965 13,960
Service charges on deposit accounts 18,395 16,955 15,662
Bankcard income 6,139 5,635 4,923
Insurance premium income 3,291 5,228 6,066
Commissions and trading account profits 2,092 2,146 2,094
Investment securities gains (notes 4 and 8) 1,098 2,322 2,872
Other 15,968 11,388 9,337
-------- -------- --------
Total non-interest income 60,684 56,639 54,914
-------- -------- --------
Non-interest expense
Salaries and employee benefits (note 11) 69,512 66,805 60,676
Net occupancy expense 10,985 9,702 8,889
Equipment expense 13,958 11,870 9,686
Other (note 16) 65,674 52,378 49,556
-------- -------- --------
Total non-interest expense 160,129 140,755 128,807
-------- -------- --------
Income before income taxes and cumulative effect of
change in accounting principle 71,593 60,027 49,172
Income tax expense (note 8) 20,079 14,388 11,392
-------- -------- --------
Income before cumulative effect of change in
accounting principle 51,514 45,639 37,780
Cumulative effect on prior years of change in
accounting for income taxes - - 1,318
-------- -------- --------
Net income $51,514 $45,639 $39,098
======== ======== ========
Net income per share (note 14)
Primary
Income before cumulative effect of change in
accounting principle $2.03 $1.83 $1.60
Cumulative effect on prior years of change in
accounting for income taxes - - 0.06
------ ------ ------
Primary net income per share $2.03 $1.83 $1.66
====== ====== ======
Fully diluted
Income before cumulative effect of change in
accounting principle $2.03 $1.83 $1.55
Cumulative effect on prior years of change in
accounting for income taxes - - 0.05
------ ------ ------
Fully diluted net income per share $2.03 $1.83 $1.60
====== ====== ======
Average shares outstanding (note 14)
Primary 25,372 24,927 23,580
Fully diluted 25,372 24,927 24,847
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
Common Stock
--------------------
In thousands except share Number of Retained
and per share data Shares Amount Surplus Earnings Total
---------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1990 11,558,175 $25,796 $67,916 $181,631 $275,343
Net income - - - 39,098 39,098
Cash dividends declared of
$0.53 per share - - - (12,477) (12,477)
Conversion of convertible
subordinated debentures 875,744 18,522 - - 18,522
Exercise of stock options
(note 15) 6,801 101 - - 101
Retirement of stock relating
to acquisition of Florence
Deposit Bank (16,849) - - - -
3-for-2 stock split (note 14) 6,211,936 - - - -
---------- ------- ------- -------- --------
Balance December 31, 1991 18,635,807 44,419 67,916 208,252 320,587
Net income - - - 45,639 45,639
Cash dividends declared of
$0.60 per share - - - (14,951) (14,951)
Exercise of stock options
(note 15) 137,978 1,693 280 - 1,973
Cash paid for fractional
shares resulting from stock
split and other (note 14) (790) 100 - (121) (21)
---------- ------- ------- -------- --------
Balance December 31, 1992 18,772,995 46,212 68,196 238,819 353,227
Net income - - - 51,514 51,514
Cash dividends declared of
$0.8075 per share - - - (20,518) (20,518)
Acquisition of Financial
Dominion of Kentucky
Corporation (note 2) 270,000 10 9,508 - 9,518
Acquisition of First Federal
Savings Bank (note 2) 275,838 2 1,764 3,182 4,948
Exercise of stock options
(note 15) 51,518 638 223 - 861
4-for-3 stock split (note 14) 6,359,584 1 - (1) -
Cash paid for fractional
shares resulting from
stock split (note 14) - - - (18) (18)
---------- ------- ------- -------- --------
Balance December 31, 1993 25,729,935 $46,863 $79,691 $272,978 $399,532
========== ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
In thousands
Year ended December 31 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $51,514 $45,639 $39,098
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 19,754 26,600 25,612
Depreciation, amortization and accretion, net 21,523 16,465 12,855
Cumulative effect of change in accounting for
income taxes - - (1,318)
Deferred income tax expense (benefit) 5,331 467 (2,210)
(Gain) on sales of trading account securities,
investment securities and
mortgage loans held for sale (3,545) (4,412) (4,541)
(Gain) loss on sales of premises and equipment (454) 42 106
Decrease (increase) in trading account securities 6,977 (3,535) 1,911
(Increase) in mortgage loans held for sale (758) (544) (2,465)
Decrease in accrued interest receivable 374 3,867 3,192
Decrease in other assets 19,938 9,777 11,812
(Decrease) increase in accrued interest payable (1,599) (3,128) 1,328
Increase (decrease) in current income taxes payable 1,302 713 (706)
Increase in other liabilities 1,031 1,065 745
-------- -------- --------
Net cash provided by operating activities 121,388 93,016 85,419
-------- -------- --------
Cash flows from investing activities
Net decrease in interest bearing deposits with banks 10 203 1,797
Net decrease (increase) in federal funds sold and
securities purchased under agreements to resell 68,750 62,645 (206,545)
Purchases of investment securities (392,541) (327,094) (282,226)
Proceeds from sales of investment securities 18,319 49,826 116,309
Proceeds from maturities of investment securities 371,003 180,120 212,678
Net (increase) in loans made to customers (265,232) (319,574) (301,409)
Purchases of premises and equipment (18,452) (11,359) (12,974)
Proceeds from sales of premises and equipment 845 430 250
Net cash and cash equivalents inflow (outflow)
from acquisitions of subsidiaries 1,245 - (16,264)
-------- -------- --------
Net cash (used) by investing activities (216,053) (364,803) (488,384)
-------- -------- --------
Cash flows from financing activities
Net increase in deposits 135,722 149,907 399,166
Net (decrease) increase in federal funds purchased
and securities sold under agreements to repurchase (108,579) 79,942 (20,300)
Net increase (decrease) in commercial paper 2,447 (3,484) (1,705)
Net increase (decrease) in other short-term borrowings 20,304 (30,341) 25,474
Proceeds from issuance of long-term debt 79,911 15,224 63,000
Repayment of long-term debt (15,645) (15,247) (42,205)
Proceeds from issuance of common stock 638 1,693 101
Cash dividends paid (20,518) (14,951) (12,477)
Cash paid in lieu of fractional shares (18) (21) -
-------- -------- --------
Net cash provided by financing activities 94,262 182,722 411,054
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (403) (89,065) 8,089
Cash and cash equivalents at beginning of year 252,817 341,882 333,793
-------- -------- --------
Cash and cash equivalents at end of year $252,414 $252,817 $341,882
======== ======== ========
Supplemental disclosure
Interest paid $132,302 $156,850 $190,643
Income taxes paid 13,446 13,209 14,308
Noncash investing and financing activities 30,929 19,024 34,802
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Liberty National Bancorp, Inc., and Subsidiaries
1. Summary of Significant Accounting Policies
- ----------------------------------------------
The accounting and reporting policies of Liberty National Bancorp, Inc.
("Liberty"), and its subsidiaries, including its principal subsidiary,
Liberty National Bank and Trust Company of Kentucky ("Liberty Bank"),
conform to generally accepted accounting principles and general
practices within the banking industry. A description of the significant
accounting policies and methods of applying those policies is presented
below:
Principles of Consolidation
The consolidated financial statements include the accounts of Liberty
and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform with
current classifications.
Consolidated Statement of Cash Flows
For purposes of the consolidated statement of cash flows, Liberty has
defined cash equivalents as non-interest bearing balances due from
banks.
Investment Securities
Investment securities are those securities purchased with the intent and
ability to hold to maturity and are carried at cost adjusted for
amortization of premiums and accretion of discounts recognized primarily
on the interest method. Gains and losses on the sales of investment
securities, computed on the basis of specific identification, are
recorded on a completed transaction basis.
Trading Account Securities
Trading account securities are stated at market value.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost
or market value. Gains and losses on mortgage loans held for sale are
included in other non-interest income.
Loans
Loans are stated at the principal amount outstanding, net of unearned
income. Interest income accrued on loans is based on the principal
amount outstanding and applicable rates, except for certain discounted
loans. Interest income on discounted loans is recognized as income
using a method which approximates the interest method.
The accrual of interest income is discontinued on loans, except consumer
loans, which become 90 days past due as to principal or interest unless
they are well secured and in the process of collection. Such loans
remain on a nonaccrual status until factors indicating doubtful
collectibility no longer exist. Consumer loans which become 120 days
past due are charged to the allowance for loan losses unless they are
well secured and in the process of collection.
Lease financing transactions are represented principally by direct
financing leases and are carried at the aggregate amount of rentals and
residual values net of related unearned income. Unearned income is
recognized under a method which provides a level rate of return on the
unrecovered investment.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that adequately
provides for potential losses and is based on management's evaluation of
the composition of the loan portfolio, historical loan loss experience,
the overall quality of the loans, and an assessment of current economic
conditions. The allowance for loan losses is increased by the provision
for loan losses and reduced by charge-offs, net of recoveries.
Premises and Equipment
Premises, leasehold improvements and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation of premises and
equipment is computed on the straight-line method over their estimated
useful lives. Leasehold improvements are amortized on the straight-line
method over the terms of the related leases, or over the useful life of
the improvements, whichever is shorter.
Interest Rate Swaps
Interest rate swap transactions are utilized as part of Liberty's
interest rate risk management strategy by hedging or synthetically
altering on-balance sheet instruments. The interest differential
applicable to the interest rate swaps which hedge specific assets and
liabilities is accrued over the lives of the agreements and reported as
an adjustment to the yield and rate of the underlying assets and
liabilities. Fees on interest rate swaps are deferred and amortized
over the lives of the agreements. If the instrument being hedged or
altered by a swap is disposed of, the swap agreement is marked to market
with any resulting gain or loss included in the determination of the
gain or loss from disposition. If the interest rate swap is terminated,
the gain or loss is deferred and amortized over the remaining life of
the specific asset or liability it was hedging or synthetically
altering.
Income Taxes
In the first quarter of 1991, effective as of January 1, 1991, Liberty
adopted the provisions of Statement of Financial Accounting Standards
No. 96, "Accounting for Income Taxes" ("SFAS No. 96"). The cumulative
effect of adopting SFAS No. 96 on prior years (to December 31, 1990) was
to increase net income for the year 1991 by $1,318,000 and is separately
shown in the consolidated statement of income. The effect of the
accounting change on income before the cumulative effect of the change
was not material.
In addition, effective January 1, 1992, Liberty adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109") which superseded SFAS No. 96. The effect
of adopting SFAS No. 109 was not material.
Under SFAS No. 109, the balance sheet amounts of deferred taxes are
recognized on the temporary differences between the bases of assets and
liabilities measured by tax laws and their bases reported in the
consolidated financial statements. Deferred tax expense or benefit is
then recognized for the change in deferred tax liabilities or assets
between periods. Deferred tax assets are recognized subject to an
assessment as to future realizability.
Computation of Net Income Per Share
Primary net income per share has been computed by dividing net income by
the weighted average number of shares of common stock outstanding during
each period, adjusted for any stock splits.
Fully diluted net income per share has been computed based on the
weighted average number of shares of common stock outstanding during
each period, adjusted for any stock splits, assuming conversion of
convertible subordinated debentures, if any, into common stock and
giving effect to the elimination from net income of interest expense,
less income tax effect, applicable to convertible subordinated
debentures.
2. Acquisitions and Merger
- ---------------------------
During 1993 and 1991, Liberty completed the acquisition of three
Kentucky banking entities. The acquisitions included Bank of Lexington
and Trust Company, Inc., in Lexington ("Lexington") on June 11, 1991;
Financial Dominion of Kentucky Corporation ("Financial Dominion"),
holding company for Hardin County Bank and Trust, Inc., in Radcliff
("Radcliff") and Farmers Deposit Bank of Brandenburg ("Brandenburg") on
March 31, 1993; and First Federal Savings Bank located in Hopkinsville
("Hopkinsville") on November 30, 1993. Lexington was merged on
September 13, 1991, with Liberty National Bank of Jessamine to form
Liberty National Bank of Lexington, which was merged with Liberty
National Bank and Trust Company of Louisville on October 1, 1993, under
the name Liberty National Bank and Trust Company of Kentucky. Radcliff
and Brandenburg are to be merged with Liberty National Bank and Trust
Company of Hardin County during the first quarter of 1994, to form
Liberty National Bank and Trust Company of Central Kentucky.
Lexington was acquired for cash totaling $24,511,000; Financial Dominion
was acquired through the issuance of 270,000 shares of Liberty common
stock and the cash payment of $7,043,000; and Hopkinsville was
acquired through the issuance of 275,838 shares of Liberty common stock.
The Lexington and Financial Dominion acquisitions were accounted for
using the purchase method of accounting and, accordingly, the results of
operations of those acquired banking entities prior to their respective
acquisition dates have not been included in the accompanying
consolidated statement of income. The Hopkinsville acquisition was
accounted for using the pooling-of-interests method of accounting,
except that prior periods have not been restated since the effect was
not material.
A summary of net assets acquired in 1993 and 1991 follows:
<TABLE>
<CAPTION>
In thousands 1993 1992
-------- --------
<S> <C> <C>
Investment securities $47,243 $29,466
Loans, net 132,208 127,813
Deposits (182,280) (170,523)
Other assets and liabilities, net 17,295 22,823
-------- --------
Net assets acquired $14,466 $9,579
======== ========
</TABLE>
The combined total excess of cost over fair value of tangible net assets
acquired in the Lexington and Financial Dominion acquisitions was
$19,468,000. The excess is being amortized over a fifteen-year period
on a straight-line basis. The aggregate unamortized excess cost
relating to purchase transactions was $42,139,000 at December 31, 1993.
These amounts are being amortized over periods not exceeding twenty
years. Proforma consolidated results of operations for periods prior to
the date of acquisition for the Lexington and Financial Dominion
acquisitions are not presented because of the immaterial impact.
Pending Merger
On November 3, 1993, Liberty and BANC ONE CORPORATION ("BANC ONE")
announced they had signed an agreement for the merger of Liberty with a
subsidiary of BANC ONE.
Terms of the agreement call for Liberty shareholders to receive $35.00
in value of BANC ONE stock if BANC ONE shares are trading between $37.79
and $40.00 a share. If BANC ONE shares are trading at or below $37.79
per share, Liberty shareholders will receive 0.9262 shares of BANC ONE
stock for each share of Liberty. If BANC ONE is trading at or above
$40.00, Liberty shareholders will receive 0.8750 shares of BANC ONE
stock for each Liberty share.
Under the terms of the agreement, Liberty has the right to terminate the
transaction if BANC ONE shares are trading below $34.55 per share and at
or above $31.82 per share, unless BANC ONE agrees to issue additional
shares to Liberty shareholders so that the value of BANC ONE
shares received by Liberty shareholders is not less than $32.00 per
Liberty share. Under further terms of the agreement, Liberty may
terminate the transaction if the BANC ONE shares are trading at less
than $31.82 per BANC ONE share. Liberty's right to terminate the
transaction in these circumstances occurs shortly prior to the
anticipated closing of the transaction when BANC ONE stock is valued for
purposes of the transaction. The value of BANC ONE stock will be
determined by averaging trading prices during a 15-day trading period
ending eight trading days prior to the closing.
The BANC ONE share prices and the exchange ratio discussed in the
previous paragraphs have been adjusted to reflect a 10% stock dividend
payable March 4, 1994 to BANC ONE shareholders of record as of February
16, 1994 which BANC ONE declared on January 25, 1994.
In connection with this agreement, Liberty has granted BANC ONE an
option to purchase up to 19.9% of its common stock under certain
circumstances. The transaction is subject to Liberty shareholder and
regulatory approval and is anticipated to be completed in mid-1994.
3. Restrictions on Cash and Due from Banks
- -------------------------------------------
Liberty's affiliate banks are required by law to maintain reserves, in
the form of vault cash and non-interest bearing balances with the
Federal Reserve Bank, against a percentage of certain deposit
liabilities. The average amount of those required reserve balances for
the year ended December 31, 1993, was $82,521,000.
4. Investment Securities
- -------------------------
A comparison of carrying value and approximate market value of
investment securities as of December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
1993
--------------------------------------------
Unrealized
Carrying ------------------- Market
In thousands Value Gains Losses Value
-------- ------- ------ --------
<S> <C> <C> <C> <C>
U.S. Treasury and Federal
agencies $397,562 $3,391 $394 $400,559
Obligations of states
and political
subdivisions 252,391 10,527 556 262,362
Mortgage-backed securities 155,471 2,125 363 157,233
Other securities 6,494 6 - 6,500
-------- ------- ------ --------
$811,918 $16,049 $1,313 $826,654
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
1992
--------------------------------------------
Unrealized
Carrying ------------------- Market
In thousands Value Gains Losses Value
-------- ------- ------ --------
<S> <C> <C> <C> <C>
U.S. Treasury and Federal
agencies $366,718 $6,964 $62 $373,620
Obligations of states
and political
subdivisions 230,981 7,914 560 238,335
Mortgage-backed securities 167,231 2,945 1,004 169,172
Other securities 3,864 6 - 3,870
-------- ------- ------ --------
$768,794 $17,829 $1,626 $784,997
======== ======= ====== ========
</TABLE>
Investment securities with a carrying value of $562,380,000 and
$508,007,000 at December 31, 1993 and 1992, respectively, were pledged
to secure public funds, trust deposits and certain borrowings.
The carrying value and approximate market value of investment securities
(exclusive of Federal Reserve Bank and corporate stock and mortgage-
backed securities) at December 31, 1993, by contractual maturity, are
shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Market
In thousands Value Value
-------- --------
<S> <C> <C>
Due in one year or less $201,874 $203,401
Due after one year through five years 359,731 369,271
Due after five years through ten years 86,528 88,107
Due after ten years 2,046 2,367
-------- --------
650,179 663,146
Federal Reserve Bank and corporate stock 6,268 6,275
Mortgage-backed securities 155,471 157,233
-------- --------
$811,918 $826,654
======== ========
</TABLE>
Gross gains of $1,098,000, $2,322,000 and $2,875,000 for 1993, 1992, and
1991, respectively, and gross losses of $3,000 for 1991 were realized on
sales of investment securities. There were no gross losses realized on
sales of investment securities in 1993 and 1992.
5. Loans
- ---------
A summary of loans at December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
In thousands 1993 1992
---------- ----------
<S> <C> <C>
Commercial and financial $817,133 $775,966
Real estate - construction 108,420 93,375
Real estate - mortgage 1,235,215 1,129,536
Consumer 1,350,214 1,181,052
Lease financing 113,856 69,865
---------- ----------
3,624,838 3,249,794
Less unearned income 36,014 29,231
---------- ----------
$3,588,824 $3,220,563
========== ==========
</TABLE>
A summary of certain information with respect to nonaccruing and
restructured loans follows:
<TABLE>
<CAPTION>
In thousands 1993 1992
------- -------
<S> <C> <C>
Uncollected principal balance at
end of year $22,329 $22,876
Interest income that would have been
recorded during the year if all such
loans were on a current basis in
accordance with their original terms 1,911 2,096
Interest income that was recorded during the year 451 428
</TABLE>
Loans to executive officers and directors of Liberty and its significant
subsidiaries, and their associates, including loans to affiliated
companies of which these individuals are principal owners, amounted to
$21,268,000 and $23,004,000 at December 31, 1993 and 1992, respectively.
Changes during 1993 were as follows: new loans of $47,091,000, repayments
of $48,247,000 and reductions of $580,000 for loans no longer meeting
disclosure requirements. All such loans were made on substantially the
same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons and did not
involve more than a normal risk of collectibility.
6. Allowance for Loan Losses
- -----------------------------
An analysis of the changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Balance January 1 $42,278 $38,525 $30,879
Additions:
Balance of allowance for
loan losses of acquired
banks at acquisition dates 2,766 - 1,946
Provision for loan losses 19,754 26,600 25,612
------- ------- -------
64,798 65,125 58,437
------- ------- -------
Deductions:
Charge-offs 23,223 29,089 23,228
Less recoveries 7,526 6,242 3,316
------- ------- -------
Net charge-offs 15,697 22,847 19,912
------- ------- -------
Balance December 31 $49,101 $42,278 $38,525
======= ======= =======
</TABLE>
7. Premises and Equipment
- --------------------------
A summary of premises and equipment at December 31, 1993 and 1992
follows:
<TABLE>
<CAPTION>
In thousands 1993 1992
------- -------
<S> <C> <C>
Land $8,789 $8,220
Buildings 29,054 27,520
Leasehold improvements 18,285 17,088
Furniture and equipment 71,755 64,012
Construction in progress 7,927 1,395
------- -------
135,810 118,235
Less accumulated depreciation and amortization 63,417 56,319
------- -------
$72,393 $61,916
======= =======
</TABLE>
8. Income Taxes
- ----------------
The components of income tax expense (benefit) follow:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Current $14,748 $13,921 $13,602
Deferred 5,331 467 (2,210)
------- ------- -------
$20,079 $14,388 $11,392
======= ======= =======
</TABLE>
Income tax expense attributable to investment securities gains was
$384,000, $789,000 and $976,000 for 1993, 1992 and 1991, respectively.
An analysis of the difference between the effective income tax rate for
1993, 1992 and 1991 and the federal statutory income tax rate of 35% in
1993 and 34% in 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 34.0% 34.0%
Changes from statutory rate resulting from:
Tax-exempt interest income (9.8) (11.5) (14.4)
Nondeductible interest expense 0.8 1.1 1.7
Nondeductible expenses 1.5 1.4 1.5
Other, net 0.5 (1.0) 0.4
----- ----- -----
28.0% 24.0% 23.2%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at
December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
In thousands 1993 1992
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $16,262 $13,878
Net operating loss carryforward of acquired bank 2,026 3,275
Other 979 622
------- -------
Total deferred tax assets 19,267 17,775
------- -------
Deferred tax liabilities:
Lease financing transactions 11,712 6,288
Premises and equipment 4,331 3,495
Core deposit intangibles 946 977
Other 2,460 2,584
------- -------
Total deferred tax liabilities 19,449 13,344
------- -------
Net deferred tax (liability) asset ($182) $4,431
======= =======
</TABLE>
The tax effects of temporary differences in 1991 that give rise to
significant portions of deferred tax expense (benefit) for the year
ended December 31, 1991 are as follows:
<TABLE>
<CAPTION>
In thousands 1991
-------
<S> <C>
Lease financing transactions $103
Provision for loan losses (2,805)
Depreciation (210)
Other, net 702
-------
($2,210)
=======
</TABLE>
At December 31, 1993, Liberty had a net operating loss carryforward for
tax purposes of $5,800,000 acquired in connection with the bank
acquisition completed during the second quarter of 1991. The net
operating loss carryforward, which is subject to specific limitations
and restrictions on its utilization, expires in the years 2002 through
2005.
9. Long-term Debt
- ------------------
A summary of long-term debt at December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
In thousands 1993 1992
-------- -------
<S> <C> <C>
Parent company:
Debt outstanding against $25 million
unsecured line of credit $ - $13,000
7.75% senior notes due January 1, 1999 24,000 24,000
Subsidiaries:
6.75% subordinated notes, $55 million
face amount, due June 1, 2003,
net of unamortized discount 54,916 -
Notes payable to Federal Home Loan Bank
of Cincinnati with weighted average
interest rate of 6.10% and with
varying maturities through July 2013 24,641 -
5.25% to 8.50% mortgage notes payable
with varying maturities through
July 1995 53 2,335
-------- -------
$103,610 $39,335
======== =======
</TABLE>
Interest on the 7.75% senior notes is payable semiannually on January 1 and
July 1. The notes are redeemable at any time on or after January 1, 1996
at the option of Liberty at prices decreasing from 102% in 1996 to 100% in
1998 and thereafter. The notes are unsecured obligations of Liberty
ranking on a parity with all other unsecured and unsubordinated obligations
of Liberty. The indenture covering the senior notes imposes certain
limitations relating to funded debt, liens and the sale or issuance of
capital stock of significant bank affiliates.
During May 1993, Liberty Bank issued $55 million of 6.75% subordinated notes
due June 1, 2003. The subordinated notes require interest to be paid
semiannually on June 1 and December 1 and are not subject to redemption
prior to maturity. Simultaneous with the receipt of the net proceeds from
the sale of the subordinated notes, Liberty Bank dividended to Liberty an
amount sufficient to repay the debt outstanding against the $25 million
unsecured line of credit.
Under the $25 million unsecured line of credit agreement, Liberty may
select an interest rate which floats daily or is fixed for periods of up to
six months. Interest on amounts borrowed is payable in periods not
exceeding three months. No principal payments are required prior to
June 30, 1995, which is the termination date of the line of credit. Under
the terms of the line of credit agreement, Liberty may extend the line of
credit for a one-year period. Certain restrictive covenants exist under
the line of credit agreement, the most significant of which is described in
note 10.
The notes payable to the Federal Home Loan Bank of Cincinnati are
collateralized by Federal Home Loan Bank capital stock owned by an
affiliate bank of Liberty and certain residential mortgage loans. The
notes have monthly payments, including interest, of approximately $198,000
through July 2008 and approximately $82,000 thereafter through July 2013.
The mortgage notes payable are collateralized by properties with a carrying
value of $1,504,000 and $5,755,000 at December 31, 1993 and 1992,
respectively.
In August 1993, Liberty Bank issued an offering circular which detailed
Liberty Bank's capability to offer from time to time unsecured and
unsubordinated medium-term bank notes in an aggregate principal amount of
up to $500 million. The term of each note will range from 30 days to 15
years as selected by the initial purchaser and agreed to by Liberty Bank.
No notes had been issued as of December 31, 1993.
Principal payments required for years 1994 through 1998 on long-term debt
outstanding at December 31, 1993, are $943,000, $962,000, $1,014,000,
$1,078,000, and $1,145,000, respectively.
10. Dividend Restrictions
- --------------------------
Payment of dividends by Liberty's affiliate banks is subject to certain
regulatory restrictions as set forth in national and state banking laws and
regulations. At December 31, 1993, combined retained earnings of the
affiliate banks were $244,591,000 of which $35,188,000 was available for
the payment of dividends in 1994 without obtaining prior approval from bank
regulatory agencies.
The $25 million unsecured line of credit described in note 9 includes a
number of restrictive covenants, the most significant of which requires a
minimum level of stockholders' equity minus any goodwill and certain other
intangible assets. At December 31, 1993, Liberty exceeded the required
level by $107,393,000.
11. Employee Benefit Plans
- ---------------------------
Liberty Bank has a noncontributory defined benefit retirement plan
covering substantially all employees of affiliated companies of Liberty
who have met certain requirements. The retirement plan's benefit formula
generally bases payments to retired employees upon their length of
service and a percentage of their highest consecutive five-year average
annual base compensation. Liberty's funding policy is to contribute
annually the minimum funding requirement. Retirement plan expense was
$1,284,000, $726,000 and $645,000 for 1993, 1992 and 1991, respectively.
The retirement plan's funded status and amounts recognized in the
consolidated financial statements at December 31, 1993 and 1992 follow:
<TABLE>
<CAPTION>
In thousands 1993 1992
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $22,372 in 1993 and
$17,519 in 1992 ($23,498) ($18,362)
======== ========
Projected benefit obligation for service rendered
to date ($33,295) ($26,093)
Plan assets at fair value, primarily listed stocks
and fixed income securities 24,094 25,289
-------- --------
Plan assets (less than) projected benefit
obligation (9,201) (804)
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 9,426 2,351
Unrecognized net asset value at January 1, 1986
being recognized over 15 years (2,812) (3,213)
Unrecognized prior service cost 672 737
-------- --------
(Accrued) retirement plan expense ($1,915) ($929)
======== ========
</TABLE>
The weighted-average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.90% and 4.50%, respectively, in
1993 and 8.75% and 4.50%, respectively, in 1992.
The components of net retirement plan expense follows:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $1,509 $1,313 $1,181
Interest cost on projected benefit
obligation 2,243 1,939 1,723
Actual return on plan assets (2,010) (1,447) (4,504)
Net amortization and deferral (458) (1,079) 2,245
------ ------ ------
Net retirement plan expense $1,284 $726 $645
====== ====== ======
</TABLE>
The expected long-term rate of return on assets used in determining net
retirement plan expense was 8.75% for 1993 and 9% for 1992.
Liberty Bank has an unfunded non-qualified excess benefit plan covering
certain key employees. Under the plan, $350,000, $274,000, and $282,000
was expensed for 1993, 1992, and 1991, respectively.
Liberty Bank has a contributory thrift plan which covers substantially
all employees of affiliated companies of Liberty who have met certain
requirements. Under the terms of the plan, each participating company
makes contributions equal to a percentage of employee contributions.
Employer contributions were $1,933,000, $1,745,000, and $1,619,000 for
1993, 1992, and 1991, respectively.
Liberty has a management incentive compensation plan under which cash
awards are made to certain key employees and are payable at the election
of the participants in the year following the award or on a deferred
basis. Amounts awarded for 1993, 1992, and 1991 totaled $1,034,000,
$1,138,000, and $700,000, respectively.
In December 1990, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 106 ("SFAS No.
106") "Employers' Accounting for Postretirement Benefits Other Than
Pensions". Although it applies to all forms of postretirement benefits,
the Statement principally focuses on postretirement health care benefits
and will require companies to accrue, during the period that an employee
renders service to the company, the expense of providing such benefits.
Liberty currently recognizes the expense of such benefits at the time the
benefits are provided. During 1992, Liberty eliminated, except for
certain grandfathered employees, its policy of providing health care
benefits to age 65 for those employees who retired prior to age 65.
Liberty's adoption of SFAS No. 106 in 1993 did not have a material impact
on Liberty's financial condition or results of operations.
In November 1992, the FASB issued Statement of Financial Accounting
Standards No. 112 ("SFAS No. 112") "Employers' Accounting for
Postemployment Benefits Other Than Pensions". The Statement requires
employers to accrue an obligation for postemployment benefits if
employees' rights to those benefits accumulate or vest, payment is
probable, and the amount of the benefits can be reasonably estimated.
Postemployment benefits that do not meet those four conditions would be
accrued when it is probable that a liability has been incurred and the
amount of the benefits can be reasonably estimated.
Adoption of SFAS No. 112 is required in 1994. Liberty believes its
adoption of SFAS No. 112 will not have a material impact on Liberty's
financial condition or results of operations.
12. Lease Commitments
- ----------------------
Certain premises and equipment are leased under noncancelable leases
which provide for minimum rental payments as follows:
<TABLE>
<CAPTION>
Rental payments Lease sublease Net rental
In thousands required rental income payments required
--------------- ------------- -----------------
<S> <C> <C> <C>
1994 $4,641 $198 $4,443
1995 4,396 198 4,198
1996 3,915 198 3,717
1997 2,210 183 2,027
1998 1,595 87 1,508
1999-2030 16,095 253 15,842
</TABLE>
Rental expense under cancelable and noncancelable leases for 1993, 1992
and 1991 was $6,453,000, $5,269,000, and $3,710,000, respectively. Such
amounts are net of sublease rental income for 1993, 1992 and 1991 of
$412,000, $610,000, and $622,000, respectively.
13. Commitments and Contingent Liabilities
- -------------------------------------------
Liberty's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course
of business to meet the financing needs of customers and to reduce
Liberty's exposure to fluctuation in interest rates. These include
commitments to extend credit, standby letters of credit, and interest
rate swap agreements. These instruments involve, to varying degrees,
elements of credit, interest rate and liquidity risk in excess of the
amount recognized in the consolidated balance sheet. The extent of
Liberty's involvement in various commitments or contingent liabilities is
expressed by the contract or notional amounts of such instruments.
Commitments to extend credit, which amounted to $909,061,000 at
December 31, 1993, are agreements to lend to a customer as long as all
conditions established in the contract are fulfilled. Commitments
generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Liberty evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by Liberty upon extension of
credit, is based upon management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory,
property, plant, equipment, income-producing commercial properties,
marketable securities and interest bearing time deposits.
Standby letters of credit are conditional commitments issued by Liberty
guaranteeing the performance of a customer to a third party. Those
guarantees primarily consist of performance assurances made on behalf of
customers who have a contractual commitment to produce or deliver goods
or services. Most guarantees are for one year or less. The risk to
Liberty arises from its obligation to make payment in the event of the
customers' contractual default and is essentially the same as that
involved in extending loan commitments to customers. The amount of
collateral obtained, if deemed necessary by Liberty, is based upon
management's credit evaluation of the customer. Collateral held varies.
At December 31, 1993, Liberty had $109,335,000 in standby letters of
credit outstanding.
Interest rate swap transactions generally involve the exchange of fixed
and floating rate interest payment obligations without the exchange of
the underlying principal amounts. Liberty uses interest rate swap
transactions as part of its interest rate risk management strategy. The
underlying principal amounts in interest rate swap transactions, or
notional amounts, express the volume of the transactions but not the
amounts subject to credit risk. At December 31, 1993, the notional
amount of interest rate swap transactions was $55,000,000. The amount at
risk, calculated by estimating the cost of replacing at current market
rates all the outstanding agreements for which Liberty would incur a
loss, was approximately $281,000 at December 31, 1993.
Liberty grants commercial loans, real estate loans, consumer loans and
lease financing to customers primarily in the immediate market areas of
its affiliate banks in Kentucky and southern Indiana and has a
diversified loan portfolio.
In 1989, a jury returned a verdict against Liberty Bank for compensatory
damages based on lender liability claims which totaled (net of a judgment
in Liberty Bank's favor against the borrower of approximately $2.8
million under a note) approximately $4.2 million. On September 23, 1991,
the trial court granted Liberty Bank's motion for a judgment
notwithstanding the verdict ("JNOV") thereby overturning the judgment,
and conditionally granted Liberty Bank's motion for a new trial if the
JNOV was subsequently vacated or reversed on appeal. On March 19, 1993,
the Kentucky Court of Appeals issued an opinion vacating the JNOV and the
conditional grant of a new trial and remanded the matter to the trial
court for proceedings consistent with the opinion.
As previously announced, in September 1993 the Kentucky Supreme Court
denied Liberty Bank's motion for discretionary review of the Kentucky
Court of Appeals decision. In October 1993, Liberty paid the sum of
$4,202,458 in damages and $2,007,542 for interest on that amount to
settle the matter. Liberty accrued and charged to operations the
settlement amount in the third quarter of 1993. All related federal
court proceedings were settled at no additional expense to Liberty.
In addition to the legal proceedings described in the previous paragraph,
other legal proceedings involving Liberty and its subsidiaries
periodically arise in the ordinary course of business, including claims
by debtors and their related interests against Liberty's subsidiaries
following initiation of collection proceedings. These legal proceedings
sometimes involve claims for substantial damages. Management, after
discussion with legal counsel and after consideration of possible
recourse to third parties, believes the ultimate result of these legal
proceedings will not have a material adverse effect upon the consolidated
financial statements of Liberty.
14. Stock Splits
- -----------------
Liberty's Board of Directors declared a 3-for-2 common stock split in the
form of a 50% stock dividend on January 15, 1992 and a 4-for-3 common
stock split in the form of a 33 1/3% stock dividend on April 14, 1993.
The additional shares resulting from the respective stock splits were
distributed on February 17, 1992 and May 17, 1993 to stockholders of
record on February 3, 1992 and May 3, 1993.
15. Stock Options
- ------------------
Liberty has a stock option plan which permits options with ten-year terms
to be granted to certain key employees to purchase Liberty common stock
at not less than fair market value of the common stock at date of grant.
The maximum number of shares authorized for issuance is based on 6% of
the highest number of shares outstanding at any time since adoption of
the plan (approximately 1,544,000 shares at December 31, 1993, based upon
Liberty common stock outstanding on that date). No options may be
granted later than February 5, 1996.
In addition, the plan permits stock appreciation rights ("SARs") to be
granted concurrently with any option granted. SARs entitle the holder of
the related option to surrender the option and, in lieu of exercise, to
receive a cash payment from Liberty equal to the excess of the fair
market value of the common stock at the date the right is exercised over
the option price of the option surrendered. No SARs have been issued as
of December 31, 1993.
A summary of share data related to the stock option plan and to stock
options of an acquired banking entity which were converted to Liberty
stock options at the time of acquisition follows:
<TABLE>
<CAPTION>
Number of Option price
shares per share
--------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1990 913,519 $11.44 to $14.00
Granted 376,277 12.38
Exercised 36,951 11.44 to 14.00
Expired or terminated - -
---------
Options outstanding at December 31, 1991 1,252,845 11.44 to 14.00
Granted - -
Exercised 244,403 11.44 to 14.00
Expired or terminated 5,931 12.38 to 14.00
---------
Options outstanding at December 31, 1992 1,002,511 11.44 to 14.00
Granted - -
Options of acquired banking entity 4,720 6.80
Exercised 76,389 11.44 to 14.00
Expired or terminated 1,167 12.38
---------
Options outstanding at December 31, 1993 929,675 6.80 to 14.00
=========
</TABLE>
At December 31, 1993, options for 929,675 shares were exercisable.
16. Other Non-interest Expense
- -------------------------------
The major components of other non-interest expense follow:
<TABLE>
<CAPTION>
In thousands 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Delivery and communication $6,713 $6,161 $5,706
Supplies 6,376 5,843 5,572
Taxes and insurance 14,326 13,050 11,013
Professional services 8,937 6,515 5,157
Lender liability settlement 6,210 - -
All other 23,112 20,809 22,108
------- ------- -------
$65,674 $52,378 $49,556
======= ======= =======
</TABLE>
17. Liberty National Bancorp, Inc. (parent company only)
- --------------------------------------------------------
Condensed Balance Sheet
<TABLE>
<CAPTION>
In thousands
December 31 1993 1992
-------- --------
<S> <C> <C>
Assets
Advances to affiliate bank $8,133 $2,458
Investment in subsidiaries 425,232 390,789
Other assets 576 1,115
-------- --------
Total $433,941 $394,362
======== ========
Liabilities and Stockholders' Equity
Commercial paper $5,072 $2,625
Other liabilities 5,337 1,510
Long-term debt 24,000 37,000
Stockholders' equity 399,532 353,227
-------- --------
Total $433,941 $394,362
======== ========
</TABLE>
Condensed Statement of Income
<TABLE>
<CAPTION>
In thousands
Year ended December 31 1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
Income
Cash dividends from subsidiaries $42,568 $26,865 $18,552
Interest on advances to affiliate bank 125 404 885
Other income 40 - -
------- ------- -------
Total income 42,733 27,269 19,437
------- ------- -------
Expense
Interest on commercial paper 125 404 885
Interest on long-term debt 2,112 2,522 3,128
Other expense 2,577 2,082 2,179
------- ------- -------
Total expense 4,814 5,008 6,192
------- ------- -------
Income before income taxes, equity in
undistributed net income of subsidiaries
and cumulative effect of change in
accounting principle 37,919 22,261 13,245
Federal income tax benefit 1,187 2,087 1,551
------- ------- -------
Income before equity in undistributed net
income of subsidiaries and cumlative
effect of change in accounting principle 39,106 24,348 14,796
Equity in undistributed net income of
subsidiaries 12,408 21,291 24,056
------- ------- -------
Income before cumulative effect of change
in accounting principle 51,514 45,639 38,852
Cumulative effect on prior years of change
in accounting for income taxes - - 246
------- ------- -------
Net income $51,514 $45,639 $39,098
======= ======= =======
</TABLE>
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
In thousands
Year ended December 31 1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $51,514 $45,639 $39,098
Adjustments to reconcile net income to net
cash provided by operating activities
Amortization 1,359 1,183 1,204
Cumulative effect of change in
accounting for income taxes - - (246)
Deferred income tax (benefit) (32) (32) (149)
Equity in undistributed net income
of subsidiaries (12,408) (21,291) (24,056)
(Increase) decrease in accrued
interest receivable (2) (3) 12
Decrease (increase) in other assets 462 (452) (450)
(Decrease) increase in accrued
interest payable (67) 853 (460)
Increase (decrease) in current
income taxes payable 793 (293) 89
Increase (decrease) in other
liabilities 3,356 (62) (37)
------- ------- -------
Net cash provided by operating
activities 44,975 25,542 15,005
------- ------- -------
Cash flows from investing activities
Investments in subsidiaries (8,849) (9,201) (26,861)
------- ------- -------
Net cash (used) by investing activities (8,849) (9,201) (26,861)
------- ------- -------
Cash flows from financing activities
Net increase (decrease) in
commercial paper 2,447 (3,484) (1,705)
Proceeds from issuance of long-term debt - 13,000 63,000
Repayment of long-term debt (13,000) (15,000) (41,950)
Proceeds from issuance of common stock 638 1,693 101
Cash dividends paid (20,518) (14,951) (12,477)
Cash paid in lieu of fractional shares (18) (21) -
------- ------- -------
Net cash (used) provided by financing
activities (30,451) (18,763) 6,969
------- ------- -------
Net increase (decrease) in cash and
cash equivalents 5,675 (2,422) (4,887)
Cash and cash equivalents at
beginning of year 2,458 4,880 9,767
------- ------- -------
Cash and cash equivalents at end of year $8,133 $2,458 $4,880
======= ======= =======
Supplemental disclosure
Interest paid $2,304 $2,073 $4,473
Income tax refund 1,948 1,762 1,491
Noncash investing and financing activities 14,466 44 18,830
</TABLE>
Advances to affiliate bank are defined as cash and cash equivalents.
18. Fair Values of Financial Instruments
- -----------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS No. 107") requires disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future
cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS
No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate
fair value amounts presented are not intended to represent the underlying
value of Liberty.
The methods and assumptions used by Liberty in estimating its fair value
disclosures for financial instruments are presented below:
Cash and Short-term Investments
The carrying amounts for cash and short-term investments approximates
their fair values.
Trading Account Securities and Mortgage Loans Held for Sale
Fair values for trading account securities and mortgage loans held for
sale are based upon quoted market prices where available. If quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Investment Securities
Fair values for investment securities are based upon quoted market
prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Loans, net
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The
fair values of other types of loans are estimated by discounting the
future cash flows using current interest rates at which similar loans
would be made to borrowers with similar credit quality and for the same
remaining maturities.
Deposits
The fair values for demand deposits, savings accounts and certain money
market deposits are the amounts payable on demand at the reporting date.
The carrying amounts for variable-rate, fixed-term money market accounts
and certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
Short-term Borrowings
The carrying amounts for short-term borrowings approximates their fair
values.
Long-term Debt
The fair values for long-term debt are estimated using discounted cash
flow analyses, based on Liberty's current incremental borrowing rates for
similar types of borrowing arrangements.
Commitments to Extend Credit and Standby Letters of Credit
The fair values of commitments to extend credit is estimated using fees
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of
the customer. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair values of standby letters of credit are based on fees
currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
Interest Rate Swap Agreements
The fair values of interest rate swap agreements are estimated using
dealer quotes. These values represent the costs to replace all
outstanding interest rate swap agreements at current market rates, taking
into consideration the current creditworthiness of the counterparties.
The estimated fair values of Liberty's financial instruments at
December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
-------------------- -------------------
Carrying Fair Carrying Fair
In thousands Value Value Value Value
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $370,129 $370,129 $431,317 $431,317
Trading account securities and
mortgage loans held for sale 6,405 6,405 9,612 9,612
Investment securities 811,918 826,654 768,794 784,997
Loans, net (excluding lease
financing) 3,446,690 3,526,477 3,122,305 3,168,507
Financial liabilities:
Deposits 4,079,219 4,095,297 3,761,217 3,779,199
Short-term borrowings 292,587 292,587 375,310 375,310
Long-term debt 103,610 110,174 39,335 40,312
Unrecognized financial instruments:
Commitments to extend credit (833) (776)
Standby letters of credit (3,059) (2,143)
Interest rate swap agreements in
a net receivable position 281 -
</TABLE>
19. Stockholder Rights Plan
- ----------------------------
In 1992, Liberty's Board of Directors adopted a stockholder rights plan
designed to protect Liberty stockholders and to deter any takeover
initiatives which Liberty's Board determines are not in the best
interests of Liberty and its stockholders.
In November 1993, Liberty and the rights agent executed an amendment to
the stockholder rights plan in conjunction with Liberty's pending merger
with BANC ONE (see note 2). The amendment provides, among other things,
that neither BANC ONE nor any of its subsidiaries will become an
"Acquiring Person" and that no "Triggering Event," "Stock Acquisition
Date" or "Distribution Date" (as such terms are defined in the rights
agreement) will occur as a result of the completion of the merger. In
addition, the amendment provides that the rights will expire upon
completion of the merger.
Under the plan, a right (adjusted to 0.75 of a right after the 4-for-3
stock split distributed in May 1993) to purchase one one-hundredth of a
share of a new series of junior participating preferred stock for $85 is
attached to each outstanding share of Liberty common stock. The rights
detach and become exercisable on the 20th business day following the date
any person or group acquires 20% or more of Liberty's outstanding common
stock (an "Acquiring Person") or commences a tender offer or exchange
offer for 30% or more of Liberty's outstanding common stock. However,
any rights held by an Acquiring Person cannot be exercised.
Except as qualified by the November 1993 Amendment, following
the distribution of the rights, if (i) an Acquiring Person engages
in a self-dealing transaction as defined in the rights plan, (ii)
any person or group actually acquires 30% or more of Liberty's common
stock, or (iii) an event occurs that results in an Acquiring Person's
ownership interest being increased by more than 1%, each right (other
than rights held by an Acquiring Person) will entitle its holder to
purchase, for the $85 exercise price, a number of shares of Liberty's
common stock having a market value of twice the exercise price. At any
time after the rights become exercisable for Liberty's common stock,
Liberty's Board of Directors may exchange the rights (other than rights
owned by an Acquiring Person), in whole or in part, at an exchange ratio
of one common share per right, subject to adjustment.
Also, except as qualified by the November 1993 Amendment, if Liberty
is acquired in a merger or other business combination in which
Liberty is not the surviving corporation (other than a transaction
that Liberty's independent directors determine to be in the best
interests of Liberty and its stockholders) or 50% or more of Liberty's
consolidated assets or earning power are sold, each right will entitle
the holder to purchase, for the exercise price, stock of the acquiring
company having a market value of twice the exercise price. The rights
may be redeemed by Liberty for $.01 per right at any time until 20
business days following the date when any person or group acquires 20% or
more of Liberty's outstanding common stock. Unless earlier redeemed or
expired, the rights will terminate on September 11, 2002.
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
To the Board of Directors and Stockholders
Liberty National Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Liberty
National Bancorp, Inc., and Subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Liberty National Bancorp, Inc., and Subsidiaries at December 31, 1993 and
1992, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Corporation changed its method of accounting for income taxes in 1991.
/s/ Coopers & Lybrand
Louisville, Kentucky
January 11, 1994
<PAGE> Exhibit 13 item (G)
QUARTERLY RESULTS OF OPERATIONS (unaudited) -------------------
Liberty National Bancorp, Inc., and Subsidiaries
<TABLE>
<CAPTION>
In thousands except per share data
Quarter 1993
----------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $78,575 $80,064 $80,543 $82,313
Interest expense 32,238 32,503 33,044 32,918
------- ------- ------- -------
Net interest income 46,337 47,561 47,499 49,395
Provision for loan losses 5,627 6,321 2,136 5,670
------- ------- ------- -------
Net interest income after
provision for loan losses 40,710 41,240 45,363 43,725
Non-interest income 13,056 16,504 15,473 15,651
Non-interest expense 36,299 39,019 45,111 39,700
------- ------- ------- -------
Income before income taxes 17,467 18,725 15,725 19,676
Income tax expense 4,749 5,222 4,422 5,686
------- ------- ------- -------
Net income $12,718 $13,503 $11,303 13,990
======= ======= ======= =======
Net income per share (a) $0.51 $0.53 $0.44 $0.55
</TABLE>
<TABLE>
<CAPTION>
In thousands except per share data
Quarter 1992
----------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $82,641 $81,250 $80,342 $80,232
Interest expense 42,742 39,119 37,196 34,665
------- ------- ------- -------
Net interest income 39,899 42,131 43,146 45,567
Provision for loan losses 6,026 6,281 7,333 6,960
------- ------- ------- -------
Net interest income after
provision for loan losses 33,873 35,850 35,813 38,607
Non-interest income 15,187 14,490 14,062 12,900
Non-interest expense 34,026 35,275 35,045 36,409
------- ------- ------- -------
Income before income taxes 15,034 15,065 14,830 15,098
Income tax expense 3,728 3,411 3,691 3,558
------- ------- ------- -------
Net income $11,306 $11,654 $11,139 $11,540
======= ======= ======= =======
Net income per share (a) $0.45 $0.47 $0.45 $0.46
</TABLE>
(a) Per share amounts have been adjusted to reflect the 4-for-3 stock
split distributed in May 1993.
Exhibit 21
----------
Subsidiaries of Liberty
The following table sets forth the direct and indirect operating
subsidiaries of Liberty as of December 31, 1993 and the jurisdiction in
which each subsidiary was incorporated or organized.
Jurisdiction
of
Name organization
- --------------------------------------------------------------------------
Liberty National Bank and Trust Company of Kentucky (1) United States
Liberty Investment Services, Inc. (1) Kentucky
Liberty Financial Services, Inc. (1) Kentucky
LNB Acquisition Corp. (1) Kentucky
CSB Bancshares, Inc. (1) Kentucky
Liberty National Leasing Company (2) Kentucky
Liberty Vehicle Leasing Company (2) Kentucky
Investment Realty Company (2) Kentucky
Liberty Properties, Inc. (2) Kentucky
LNB Life Insurance Company (2) Kentucky
Money Card Incorporated (2) Kentucky
Liberty National Bank of Owensboro (1) United States
Citizens State Corporation (3) Kentucky
Liberty National Bank of Northern Kentucky (1) United States
Liberty National Bank of Madisonville (1) United States
Liberty National Bank and Trust Company of Indiana (4) United States
First B.C. Realty Corporation (5) Indiana
Liberty National Bank of Shelbyville (1) United States
Liberty National Bank and Trust
Company of Hardin County (1) United States
Farmers Deposit Bank of Brandenburg (6) Kentucky
Hardin County Bank and Trust, Inc. (6) Kentucky
First Federal Savings Bank (1) United States
- --------------------------------------------------------------------------
(1) wholly-owned by Liberty
(2) wholly-owned by Liberty Bank
(3) wholly-owned by Liberty National Bank of Owensboro
(4) wholly-owned by CSB Bancshares, Inc.
(5) wholly-owned by Liberty National Bank and Trust Company of Indiana
(6) wholly-owned by LNB Acquisition Corp.
<PAGE> Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------
We consent to the incorporation by reference in the registration
statement of Liberty National Bancorp, Inc., and Subsidiaries on
Form S-8 (File No. 2-83421, No. 33-4363 and No. 33-52275) of our
report dated January 11, 1994 on our audits of the consolidated
balance sheets as of December 31, 1993 and 1992, and the related
consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended
December 31, 1993, which report is included in this Annual Report
on Form 10-K.
/s/ COOPERS & LYBRAND
Louisville, Kentucky
March 16, 1994
<PAGE> Exhibit 99.1
------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(x) Annual Report Pursuant to Section 15(d)
of the Securities Exchange Act of 1934
For the fiscal period ended December 31, 1993
or
( ) Transition Report Pursuant to Section 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
----- ----
Commission file number 0-9630
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below.
The Liberty 1992 Restated Thrift Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office.
Liberty National Bancorp, Inc.
416 West Jefferson Street
P.O. Box 32500
Louisville, Kentucky 40232-2500
REQUIRED INFORMATION
(a) Financial Statements
Report of Independent Accountants
The financial statements noted below are filed in paper under cover
of Form SE, as allowed by Rule 311 of Regulation S-T.
Statement of Financial Condition as of
December 31, 1993 and 1992
Statement of Income and Changes in
Plan Equity for the years ended
December 31, 1993, 1992 and 1991
Notes to Financial Statements
Supplemental Schedules:
Schedules I, II and III have been omitted
because the required information is
shown in the financial statements.
(b) Exhibit
(A) Consent of independent accountants.
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To Chairman of the Administrative Benefit Committee
The Liberty 1992 Restated Thrift Plan
We have audited the accompanying statement of financial condition of The
Liberty 1992 Restated Thrift Plan as of December 31, 1993 and 1992, and
the related statement of income and changes in plan equity for each of the
three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of The Liberty 1992
Restated Thrift Plan as of December 31, 1993 and 1992 and the income
and changes in plan equity for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND
Louisville, Kentucky
March 11, 1994
<PAGE> Exhibit (A)
-----------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------
We consent to the incorporation by reference in the registration
statement of The Liberty 1992 Restated Thrift Plan on Form S-8
(File No. 2-83421) of our report dated March 11, 1994 on our audits
of the financial statements of The Liberty 1992 Restated Thrift
Plan as of December 31, 1993 and 1992, and for the years ended
December 31, 1993, 1992 and 1991, which report is included in the
Annual Report on Form 11-K for the year ended December 31, 1993.
Form 11-K is filed as an exhibit to Form 10-K of Liberty National
Bancorp, Inc. for the year ended December 31, 1993.
/s/ COOPERS & LYBRAND
Louisville, Kentucky
March 16, 1994
Exhibit 99.2
------------
UNDERTAKINGS
From Item 512 of Regulation S-K (captions are those used in Item 512):
(a) Rule 415 offering.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to its Securities Act of 1933 registration
statement No. 2-83421, No. 33-4363 and No. 33-52275:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Filings incorporating subsequent Exchange Act documents by reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Acceleration of effectiveness.
Insofar as idemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
