<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-11129
PIKEVILLE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
KENTUCKY 61-0979818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
208 NORTH MAYO TRAIL
PIKEVILLE, KENTUCKY 41501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 432-1414
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $5.00 PAR VALUE
(Title of Class)
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
----- -----
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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 29, 1996 was $187,048,000. The number of shares
outstanding of the Registrant's Common Stock as of February 29, 1996 was
9,124,314. For the purpose of the foregoing calculation only, all directors and
executive officers of the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
Form 10-K part indicated
Document Form 10-K
---------- -----------
(1) Proxy statement for the annual meeting Part III
of shareholders to be held April 23, 1996
<PAGE>
PART I
ITEM 1. BUSINESS
Pikeville National Corporation (the "Corporation") is a bank holding
company registered with the Board of Governors of the Federal Reserve System
pursuant to section 5 (a) of the Bank Holding Company Act of 1956, as
amended. The Corporation was incorporated August 12, 1980, under the laws of
the Commonwealth of Kentucky for the purpose of becoming a bank holding
company. On July 1, 1981, pursuant to a Merger Agreement dated May 30,
1981, the merger of Pikeville National Bank and Trust Company ("PNB") as a
subsidiary of the Corporation was consummated, whereby PNB became a
wholly-owned subsidiary of the Corporation through an exchange of one share
of common stock of PNB for two shares of common stock of the Corporation.
Prior to the date the merger became effective, the Corporation conducted no
active business operations. Since the merger, the business of the
Corporation has been to act as a holding company for affiliate financial
institutions. The Corporation currently owns all the capital stock of nine
commercial banks, one savings bank and one trust company, serving small and
mid-sized communities in eastern, central and south central Kentucky. The
commercial banks are Pikeville National Bank and Trust Company, Pikeville;
First Security Bank and Trust Company, Whitesburg; Commercial Bank, West
Liberty; The Exchange Bank of Kentucky, Mount Sterling; Farmers National
Bank, Williamsburg; Farmers-Deposit Bank, Flemingsburg; First American Bank,
Ashland; The Woodford Bank and Trust Company, Versailles and Commercial
Bank, Middlesboro. The Corporation's savings bank is Community Trust Bank,
FSB, Campbellsville. The trust company, Trust Company of Kentucky, Ashland,
purchased the trust operations of two subsidiary banks and has additional
offices in Lexington, Pikeville and Campbellsville, Kentucky. The trust
subsidiary commenced business operation on January 1, 1994. At December 31,
1995, the Corporation had total consolidated assets of $1.7 billion and
total consolidated deposits of $1.5 billion, making it the second largest
bank holding company headquartered in the Commonwealth of Kentucky.
On February 2, 1995, the Corporation acquired all outstanding shares of
Community Bank of Lexington, Inc., Lexington, Kentucky ("Community Bank")
with assets of $61 million. The Corporation issued 366,000 shares of common
stock with a market price of $24 per share in the acquisition. The
transaction was accounted for as a purchase with $6.3 million of goodwill
recognized. The offices of Community Bank became branches of Pikeville
National Bank and Trust Company, the Corporation's lead bank, on March 31,
1995.
On May 31, 1995, the Corporation acquired Woodford Bancorp, Inc.,
Versailles, Kentucky ("Woodford") with assets of $103 million for 967,000
shares of its common stock. Woodford was the parent company of The Woodford
Bank and Trust Company until its dissolution at the date of acquisition.
The transaction was accounted for as a pooling-of-interests, and all prior
period financial information was restated to give effect to the transaction.
On June 30, 1995, the Corporation acquired Commercial Bank, Middlesboro,
Kentucky ("Middlesboro") with assets of $99 million for $14.4 million in
cash. The transaction was accounted for as a purchase, and goodwill of $4.3
million was recognized. Funds of $13.5 million were borrowed in connection
with the acquisition.
On November 3, 1995, the Corporation acquired United Whitley
Corporation, Williamsburg, Kentucky ("Williamsburg"), and its subsidiary,
Bank of Williamsburg, with assets of $37 million for 172,000 shares of its
common stock. The transaction was accounted for as a pooling but without
restatement of prior period financial statements due to lack of materiality.
Bank of Williamsburg was merged into Farmers National Bank and United
Whitley Corporation was dissolved on the date of acquisition. Through the
merger transaction, the Corporation was able to move the bank charter of the
merged institution to adjacent Laurel County and now has a branch in London,
Kentucky.
2
<PAGE>
Through its subsidiaries, the Corporation engages in a wide range of
commercial and personal banking activities, which include accepting time and
demand deposits; making secured and unsecured loans to corporations,
individuals and others; providing cash management services to corporate and
individual customers; issuing letters of credit; renting safe deposit boxes
and providing funds transfer services. The lending activities of the
Corporation's subsidiaries include making commercial, construction,
mortgage, personal and credit card loans. Also available are lease
financing, lines of credit, revolving credits, term loans and other
specialized loans including asset-based financing. Various corporate
subsidiaries act as trustees of personal trusts, as executors of estates, as
trustees for employee benefit trusts, as registrars, transfer agents and
paying agents for bond and stock issues and as depositories for securities.
COMPETITION
The Corporation's subsidiaries face substantial competition for deposit,
credit and trust relationships, as well as other sources of funding in the
communities they serve. Competing providers include other national and
state banks, savings banks and trust companies, insurance companies,
mortgage banking operations, credit unions, finance companies, money market
funds and other financial and non-financial companies which may offer
products functionally equivalent to those offered by the Corporation's
subsidiaries. Many of these providers offer services within and outside the
market areas served by the Corporation's subsidiaries. The Corporation's
subsidiaries strive to offer competitively priced products along with
quality customer service to build banking relationships in the communities
they serve.
Since July 1989, banking legislation in Kentucky places no limits on the
number of banks or bank holding companies which a bank holding company may
acquire. Interstate acquisitions are allowed where reciprocity exists
between the laws of Kentucky and the home state of the acquiring bank
holding company. Bank holding companies continue to be limited to control of
less than 15% of deposits held by banks in the state (exclusive of
inter-bank and foreign deposits).
No material portion of the business of the Corporation is seasonal. The
business of the Corporation is not dependent upon any one customer or a few
customers, and the loss of any one or a few customers would not have a
materially adverse effect on the Corporation.
No operations in foreign countries are engaged in by the Corporation.
EMPLOYEES
As of December 31, 1995, the Corporation and its subsidiaries had 757 full-
time equivalent employees. Employees are provided with a variety of employee
benefits. A retirement plan, employee stock ownership plan, group life,
hospitalization, major medical insurance and an annual management incentive
compensation plan are available to eligible personnel.
SUPERVISION AND REGULATION
The Corporation, as a registered bank holding company, is restricted to
those activities permissible under the Bank Holding Company Act of 1956, as
amended, and is subject to actions of the Board of Governors of the Federal
Reserve System thereunder. It is required to file an annual report with the
Federal Reserve Board and is subject to an annual examination by the Board.
As a savings and loan holding company, the Corporation is also regulated by
the Office of Thrift Supervision.
The Corporation's national bank subsidiaries are subject to federal
banking law and to regulation and periodic examinations by the Comptroller
of the Currency under the
3
<PAGE>
National Bank Act and to the restrictions, including dividend restrictions,
thereunder. The Corporation's national bank subsidiaries (Pikeville
National Bank and Trust Company and Farmers National Bank) are members of
the Federal Reserve System and are subject to certain restrictions imposed
by and to examination and supervision under, the Federal Reserve Act. The
Corporation's state banks (First Security Bank and Trust Company, Commercial
Bank (West Liberty), The Exchange Bank of Kentucky, Farmers-Deposit Bank,
First American Bank, The Woodford Bank and Trust Company and Commercial Bank
(Middlesboro)) are subject to similar regulations and supervision by the
Kentucky Department of Financial Institutions ("KDFI"). The Corporation's
savings bank subsidiary, Community Trust Bank, FSB, is regulated and
examined by the Office of Thrift Supervision. The trust company subsidiary,
Trust Company of Kentucky, is regulated by the Federal Reserve Board and the
KDFI.
Deposits of the Corporation's subsidiary banks are insured by the Federal
Deposit Insurance Corporation Bank Insurance Fund, which subjects the banks
to regulation and examination under the provisions of the Federal Deposit
Insurance Act. Insofar as the Corporation's savings bank subsidiary is
concerned, its deposits are insured by the Federal Deposit Insurance
Corporation Savings Association Insurance Fund.
The operations of the Corporation and its subsidiaries also are affected
by other banking legislation and policies and practices of various
regulatory authorities. Such legislation and policies include statutory
maximum rates on some loans, reserve requirements, domestic monetary and
fiscal policy and limitations on the kinds of services which may be offered.
CAUTIONARY STATEMENT
Information provided herein by the Corporation contains, and from time to
time the Corporation may disseminate materials and make statements which may
contain "forward-looking" information, as that term is defined by the
Private Securities Litigation Reform Act of 1995 (the "Act"). These
cautionary statements are being made pursuant to the provisions of the Act
and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act. The Corporation cautions investors that any
forward-looking statements made by the Corporation are not guarantees of
future performance and that actual results may differ materially from those
in the forward-looking statements as a result of various factors, including
but not limited to, the following: (1) the increase or decrease of
interest rates as a whole (2) the condition of the national and local
economies of the communities served, including unemployment rates (3) the
ability of the company to improve operating efficiency through consolidation
of service and economies of scale and (4) any regulatory or law changes
which may affect the operating environment of the Corporation or any of its
affiliates.
SELECTED STATISTICAL INFORMATION
The following tables set forth certain statistical information relating to
the Corporation and its subsidiaries on a consolidated basis and should be read
together with the consolidated financial statements of the Corporation.
4
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT
INCOME/EXPENSE AND YIELDS/RATES
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(in thousands) BALANCES INTEREST RATE BALANCES INTEREST RATE BALANCES INTEREST RATE
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest-bearing
deposits $ 1,469 $ 112 7.62% $ 3,370 $ 207 6.14% $ 3,955 $ 328 8.29%
Investment securities
U.S. Treasuries and Agencies 301,263 19,123 6.35% 316,552 18,794 5.94% 326,527 21,259 6.51%
State & political
subdivisions (3) 55,263 4,668 8.45% 52,344 4,692 8.96% 37,776 4,066 10.76%
Other securities 78,510 5,011 6.38% 73,951 4,370 5.91% 66,520 3,630 5.46%
Federal funds sold 50,398 3,057 6.07% 47,488 1,996 4.20% 29,084 1,001 3.44%
Loans, net of unearned
(1)(2)(3) 1,021,637 101,511 9.94% 872,045 78,911 9.05% 849,202 76,724 9.03%
- - ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets $1,508,540 $133,482 8.86% $1,365,750 $108,970 7.98% $1,313,064 $107,008 8.15%
Less allowance for
loan losses 15,336 13,444 14,046
- - ---------------------------------------------------------------------------------------------------------------------------------
1,493,204 1,352,306 1,299,018
NON-EARNING ASSETS
Cash and due from banks 50,846 45,173 47,491
Premises and equipment, net 43,725 38,403 35,185
Other assets 43,148 34,748 33,747
- - ---------------------------------------------------------------------------------------------------------------------------------
Total assets $1,630,923 $1,470,630 $1,415,441
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES
Deposits
Savings and demand deposits $ 386,956 $ 12,166 3.14% $ 392,784 $ 11,446 2.91% $ 376,608 $ 11,160 2.96%
Time deposits 804,884 44,507 5.53% 671,863 28,443 4.23% 664,367 28,122 4.23%
Federal funds purchased &
securities sold under
repurchase agreements 25,934 1,435 5.53% 30,208 1,234 4.09% 23,574 915 3.88%
Other short-term borrowings 1,443 78 5.41% 2,935 90 3.07% 4,480 90 2.01%
Advances from Federal Home
Loan Bank 71,917 4,506 6.27% 68,022 4,132 6.07% 58,576 3,550 6.06%
Long-term debt 27,328 2,300 8.42% 26,739 2,025 7.57% 35,253 2,779 7.88%
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities $1,318,462 $ 64,992 4.93% $1,192,551 $ 47,370 3.97% $1,162,858 $ 46,616 4.01%
- - ---------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST BEARING
LIABILITIES
Demand Deposits 168,108 151,897 140,372
Other liabilities 13,573 10,017 9,766
- - ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,500,143 1,354,465 1,312,996
Shareholders' equity 130,780 116,165 102,445
- - ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,630,923 $1,470,630 $1,415,441
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net interest income (3) $ 68,490 $ 61,600 $60,392
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.93% 4.01% 4.14%
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Benefit of interest free funding 0.61% 0.50% 0.46%
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.54% 4.51% 4.60%
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Interest includes fees on loans of $3,203, $2,300 and $2,523 in 1995,
1994 and 1993 respectively.
(2) Loan balances include principal balances on non-accrual loans.
(3) Tax exempt income on securities and loans reported on a fully taxable
basis using a 35% rate.
5
<PAGE>
NET INTEREST DIFFERENTIAL
- - -------------------------
The following table illustrates the approximate effect on net
interest differentials of volume and rate changes between 1995 and 1994 and
between 1994 and 1993.
<TABLE>
<CAPTION> Change Due to Change Due to
Total Change ------------------ Total Change -------------------------
(in thousands) 1995/1994 Volume Rate 1994/1993 Volume Rate
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest-bearing deposits $ (95) $ (137) $ 42 $ (121) $ (44) $ (77)
U.S. Treasury & Federal
agency securities 329 (931) 1,260 (2,465) (635) (1,830)
Tax Exempt-State
& political
subdivisions (24) 255 (279) 626 1,385 (759)
Other securities 641 278 363 740 425 315
Federal funds sold 1,061 130 931 995 737 258
Loans 22,600 14,380 8,220 2,187 2,067 120
---------- ----------- ----------- ----------- ----------- -----------
Total Interest Income $ 24,512 $ 13,975 $ 10,537 $ 1,962 $ 3,935 $ (1,973)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE
Savings and demand deposits $ 720 $ (171) $ 891 $ $285 $ $474 $ (189)
Time deposits 16,064 6,309 9,755 322 317 5
Federal funds purchased
& securities sold under
repurchase agreements 201 (192) 393 319 269 50
Other short-term borrowings (12) (60) 48 0 (38) 38
Advances from FHLB 374 241 133 582 574 8
Long-term debt 275 46 229 (754) (648) (106)
---------- ----------- ----------- ----------- ----------- -----------
Total Interest Expense 17,622 6,173 11,449 754 948 (194)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Net Interest Income $ 6,890 $ 7,802 $ (912) $ 1,208 $ 2,987 $ (1,779)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
</TABLE>
For purposes of the above table, changes which are not solely due to rate or
volume are allocated on a percentage basis, using the absolute values of rate
and volume variance as a basis for percentages. Income is stated at a fully
taxable equivalent basis, assuming a 35% rate.
6
<PAGE>
INVESTMENT PORTFOLIO
The maturity distribution and weighted average interest rates of
securities available-for-sale and securities held-to-maturity at December
31, 1995 as follows:
<TABLE>
<CAPTION>
ESTIMATED MATURITY AT DECEMBER 31, 1995
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL AMORTIZED
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS AFTER 10 YEARS FAIR VALUE COST
(in thousands) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-Sale
U.S. Treasury $28,353 5.80% $ 25,540 6.65% $ 2,194 7.27% $ 0 0.00% $ 56,087 6.24% $ 55,233
U.S. Gov. agencies
and corporations 16,400 6.52% 100,187 6.98% 37,247 6.59% 8,293 6.56% 162,127 6.82% 161,168
State and municipal
obligations 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0
Other securities 28,576 5.45% 8,170 6.30% 13,123 6.53% 11,634 6.03% 61,503 5.93% 62,454
--------------- ---------------- ---------------- ---------------- ---------------- --------
Total $73,329 5.82% $133,897 6.87% $ 52,564 6.60% $ 19,927 6.25% $279,717 6.51% $278,855
--------------- ---------------- ---------------- ---------------- ---------------- --------
TOTAL FAIR
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS AFTER 10 YEARS CARRYING AMOUNT VALUE
AMOUNT YIELD AMOUNT YIELD AMOUNT AMOUNT YIELD AMOUNT YIELD AMOUNT
- - ---------------------------------------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Treasury $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0 0.00% $ 0
U.S. Gov. agencies
and corporations 1,029 4.08% 49,835 5.47% 20,418 5.35% 7,822 7.20% 79,104 5.59% 78,299
State and municipal
obligations 4,887 10.90% 14,417 8.30% 24,343 7.01% 12,778 9.05% 56,425 8.14% 57,102
Other securities 1,992 9.64% 10,147 5.63% 3,053 6.40% 0 0.00% 15,192 6.31% 14,914
--------------- ---------------- ---------------- ---------------- ---------------- --------
Total $ 7,908 9.70% $ 74,399 6.04% $ 47,814 6.26% $ 20,600 8.35% $150,721 6.62% $150,315
--------------- ---------------- ---------------- ---------------- ---------------- --------
Total Securities $81,237 6.20% $208,296 6.58% $100,378 6.44% $ 40,527 7.32% $430,438 6.55%
--------------- ---------------- ---------------- ---------------- ----------------
--------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
The calculations of the weighted average interest rates for each
maturity category are based on yield weighted by the respective costs of the
securities. The weighted average rates on state and political subdivisions
are computed on a taxable equivalent basis using a 35% tax rate. For purposes
of the above presentation, maturities of mortgage-backed pass through
certificates and collateralized mortgage obligations are based on estimated
maturities.
Excluding those holdings of the investment portfolio in U. S.
Treasury securities and other agencies of the U. S. Government, there were no
securities of any one issuer which exceeded 10% of the shareholders' equity
of the Corporation at December 31, 1995.
SECURITIES
The book value of securities available-for-sale and securities
held-to-maturity as of December 31, 1995 and 1994 are presented in footnote 4
of the Annual Report to Shareholders which is incorporated by reference with
this filing.
The book value of securities at December 31, 1993 is presented below:
<TABLE>
<CAPTION>
Investment Securities
(In Thousands) Securities Held for Sale
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
U. S. Treasury and government agencies $ 138,177 $ 13,273
States and political subdivisions 39,973 -
Mortgage backed pass through certificates 164,840 16,581
Collateralized mortgage obligations 32,915 264
Other debt securities 4,493 -
------------- -------------
Total debt securities 380,398 30,118
Equity securities 8,079 22,362
------------- -------------
$ 388,477 $ 52,480
------------- -------------
------------- -------------
</TABLE>
7
<PAGE>
LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31
------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial:
Secured by real estate $ 258,541 $235,611 $210,514 $221,646 $214,621
Other 192,127 183,533 196,296 175,850 188,928
---------- -------- -------- -------- --------
Total commercial 450,668 419,144 406,810 397,496 403,549
Real Estate Construction 51,539 45,308 34,241 26,058 26,306
Real Estate Mortgage 398,288 290,998 274,017 291,318 281,337
Consumer loans 208,662 143,085 128,995 124,659 133,091
Equipment lease financing 5,911 7,919 9,872 14,130 15,934
---------- -------- -------- -------- --------
Total loans $1,115,068 $906,454 $853,935 $853,661 $860,217
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Percent of total year-end loans
Commercial:
Secured by real estate 23.19% 25.99% 24.65% 25.96% 24.95%
Other 17.24% 20.25% 22.99% 20.60% 21.96%
---------- -------- -------- -------- --------
Total commercial 40.43% 46.24% 47.64% 46.56% 46.91%
Real Estate Construction 4.61% 5.00% 4.01% 3.05% 3.06%
Real Estate Mortgage 35.72% 32.10% 32.09% 34.13% 32.71%
Consumer loans 18.71% 15.79% 15.10% 14.60% 15.47%
Equipment lease financing 0.53% 0.87% 1.16% 1.66% 1.85%
---------- -------- -------- -------- --------
100.00% 100.00% 100.00% 100.00% 100.00%
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
</TABLE>
The total loans above are net of unearned income.
The following table shows the amounts of loans (excluding residential
mortgages of 1-4 family residences, consumer loans and lease financing)
which, based on remaining scheduled repayments of principal are due in the
periods indicated. Also, the amounts are classified according to sensitivity
to changes in interest rates (fixed, variable).
<TABLE>
<CAPTION>
Maturity at December 31, 1995
---------------------------------------------------
After One
Within but within After
(in thousands) one year five years five years Total
<S> <C> <C> <C> <C>
Commercial, Financial
and Agricultural $123,777 $149,253 $177,638 $450,668
Real estate - Construction 20,414 15,048 16,077 51,539
-------- -------- -------- --------
$144,191 $164,301 $193,715 $502,207
-------- -------- -------- --------
-------- -------- -------- --------
Rate Sensitivity
Predetermined Rate $ 37,018 $ 47,527 $ 40,653 $125,198
Adjustable Rate 107,173 116,774 153,062 377,009
-------- -------- -------- --------
$144,191 $164,301 $193,715 $502,207
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
8
<PAGE>
NONPERFORMING LOANS
<TABLE>
<CAPTION>
December 31
---------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 9,433 $ 8,829 $11,186 $ 5,417 $ 7,676
Restructured loans 918 - - 4,022 356
90 days or more past due (not on non-accrual) 3,947 3,401 3,637 4,875 7,441
-------- -------- ------- ------- -------
Total nonperforming loans $ 14,298 $ 12,230 $14,823 $14,314 $15,473
Foreclosed properties (net) 1,927 4,320 3,635 7,061 7,835
-------- -------- ------- ------- -------
Total $ 16,225 $ 16,550 $18,458 $21,375 $23,308
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
Nonperforming assets to total loans
plus foreclosed properties 1.45% 1.83% 2.18% 2.51% 2.73%
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
Allowance to nonperforming loans 112.47% 106.12% 90.04% 95.96% 74.52%
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
</TABLE>
Nonaccrual, Past Due and Restructured Loans
<TABLE>
<CAPTION>
As a % of As a % of Accruing Loans As a % of
Nonaccrual Loan Balances Restructured Loan Balances Past Due 90 Loan Balances
(in thousands) Loans by Category Loans by Category Days or More by Category Balances
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995
Commercial loans-secured by
real estate $3,264 1.26% $918 0.36% $1,428 0.55% $ 258,541
Commercial loans-other 3,048 1.54% 237 0.12% 198,038
Consumer loans-secured by
real estate 2,873 0.64% 1,335 0.30% 449,827
Consumer loans-other 248 0.12% 947 0.45% 208,662
------ ---- ------ ----------
Total $9,433 0.85% $918 0.08% $3,947 0.35% $1,115,068
------ ----- ---- ----- ------ ----- ----------
------ ----- ---- ----- ------ ----- ----------
December 31, 1994
Commercial loans-secured by
real estate $5,584 2.37% $ $1,322 0.56% $ 235,611
Commercial loans-other 2,005 1.05% 520 0.27% 191,452
Consumer loans-secured by
real estate 1,199 0.36% 1,145 0.34% 336,306
Consumer loans-other 41 0.03% 414 0.29% 143,085
------ ---- ------ ----------
Total $8,829 0.97% $ 0 0.00% $3,401 0.38% $ 906,454
------ ---- ----- ------ ----------
------ ---- ----- ------ ----------
</TABLE>
The allowance for loan losses balance is maintained by management at a
level considered adequate to cover anticipated losses that are based on past
loss experience, general economic conditions, information about specific
borrower situations including their financial position and collateral values,
and other factors and estimates which are subject to change over time.
<TABLE>
1995
(In thousands) ------
<S> <C>
Gross interest income that would have been recorded in 1995 on nonaccrual loans outstanding
at December 31, 1995 if the loans had been current, in accordance with their original terms and had
been outstanding throughout the period or since origination if held for part of the period $1,600
Interest income actually recorded on nonaccrual loans and included in net income for the period (515)
------
Interest income not recognized during the period $1,085
------
------
</TABLE>
Discussion of the Nonaccrual Policy
The accrual of interest income on loans is discontinued when the collection
of interest and principal in full is not expected. When interest accruals
are discontinued, interest income accrued in the current period is reversed.
Any loans past due 90 days or more must be well secured and in the process of
collection to continue accruing interest.
Potential Problem Loans
When management has serious doubts as to the ability of borrowers to comply
with repayment terms, the loans are placed on nonaccrual status. Management,
therefore, believes that no additional potential problem loans exist which
would result in disclosure pursuant to Item III.C.1.
Foreign Outstandings
None
Loan Concentrations
The Corporation has no concentration of loans exceeding 10% of total loans
which is not otherwise disclosed at December 31, 1995.
Other Interest-Bearing Assets
The Corporation has no other interest bearing assets that would be required
to be disclosed under Item III.C.1 or 2, if such assets were loans, other
than $1.9 million held as other real estate owned, included above in
foreclosed properties.
9
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of year $ 12,978 $ 13,346 $ 13,736 $ 11,530 $ 9,072
Loans charged off:
Commercial, secured by real estate 1,278 1,442 1,538 1,831 2,624
Commercial, other 1,646 3,902 2,140 2,210 1,644
Real Estate Mortgage 514 407 598 1,005 1,022
Consumer loans 2,594 1,786 1,606 1,377 1,305
--------------------------------------------------------
Total charge-offs 6,032 7,537 5,882 6,423 6,595
Recoveries of loans previously charged off:
Commercial, secured by real estate 159 12 147 152 287
Commercial, other 331 395 333 503 395
Real Estate Mortgage 44 66 58 135 74
Consumer loans 740 630 512 528 383
--------------------------------------------------------
Total recoveries 1,274 1,103 1,050 1,318 1,139
Net charge-offs:
Commercial, secured by real estate 1,119 1,430 1,391 1,679 2,337
Commercial, other 1,315 3,507 1,807 1,707 1,249
Real Estate Mortgage 470 341 540 870 948
Consumer loans 1,854 1,156 1,094 849 922
--------------------------------------------------------
Total net charge-offs 4,758 6,434 4,832 5,105 5,456
Allowances of acquired banks 2,004 0 0 0 877
Provisions charged against operations 5,858 6,066 4,442 7,311 7,037
--------------------------------------------------------
Balance, end of year $ 16,082 $ 12,978 $ 13,346 $ 13,736 $ 11,530
--------------------------------------------------------
--------------------------------------------------------
Allocation of allowance, end of year
Commercial, secured by real estate $ 3,095 $ 3,649 $ 2,650 $ 2,812 $ 2,422
Commercial, other 2,300 2,349 1,921 2,130 1,692
Real Estate Construction 135 93 57 186 225
Real Estate Mortgage 1,044 905 1,659 1,945 2,353
Consumer 1,574 1,291 1,271 1,475 1,319
Equipment lease financing 71 108 91 147 117
Unallocated 7,863 4,583 5,697 5,041 3,402
--------------------------------------------------------
Balance, end of year $ 16,082 $ 12,978 $ 13,346 $ 13,736 $ 11,530
--------------------------------------------------------
--------------------------------------------------------
Average loans outstanding, net of
unearned interest $1,021,637 $ 872,045 $ 849,202 $ 857,532 $ 827,491
Loans outstanding at end of year, net of
unearned interest $1,115,068 $ 906,454 $ 853,935 $ 853,661 $ 860,217
Net charge-offs to average loan type
Commercial, secured by real estate 0.39% 0.60% 0.59% 0.95% 0.26%
Commercial, other 0.66% 0.94% 0.96% 0.80% 0.31%
Real Estate Mortgage 0.13% 0.13% 0.18% 0.41% 0.77%
Consumer loans 1.02% 0.78% 0.62% 0.57% 0.56%
Total 0.47% 0.74% 0.57% 0.60% 0.66%
Other ratios
Allowance to net loans, end of year 1.44% 1.43% 1.56% 1.61% 1.34%
Provision for loan losses to average loans 0.57% 0.70% 0.82% 0.84% 0.57%
</TABLE>
Management uses an internal analysis to determine the adequacy of the loan loss
reserve and charges to the provision for loan losses. This analysis is based
on net charge-off experience for prior years, current delinquency levels and
risk factors based on the local economy and relative experience of the lending
staff. This analysis is completed quarterly and forms the basis for allocation
of the loan loss reserve and what charges to provision may be required.
10
<PAGE>
AVERAGE DEPOSITS AND OTHER BORROWED FUNDS
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEPOSITS:
Non-interest bearing deposits $ 168,108 $ 151,897 $ 140,372
NOW accounts 151,781 132,270 126,277
Money market deposits 82,733 76,053 68,723
Savings 152,442 184,461 181,608
Certificates of deposit > $100,000 242,081 174,532 163,262
Certificates of deposit < $100,000
and other time deposits 562,803 497,331 501,105
------------ ------------ -------------
Total Deposits $ 1,359,948 $ 1,216,544 $ 1,181,347
OTHER BORROWED FUNDS:
Federal funds purchased
and securities sold under
repurchase agreements $ 25,934 $ 30,208 $ 23,574
Other short-term borrowings 1,443 2,935 4,480
Advances from Federal Home
Loan Bank 71,917 68,022 58,576
Long-term debt 27,328 26,739 35,253
------------ ------------ -------------
Total Other Borrowed Funds $ 126,622 $ 127,904 $ 121,883
------------ ------------ -------------
Total Deposits and Other
Borrowed Funds $ 1,486,570 $ 1,344,448 $ 1,303,230
------------ ------------ -------------
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at December 31, 1995
are summarized as follows:
<TABLE>
<CAPTION>
Certificates Time
(In Thousands) of Deposit Deposits Total
------------ ------------ -------------
<S> <C> <C> <C>
3 months or less $ 60,859 $ 0 $ 60,859
Over 3 through 6 months 33,650 6,661 40,311
Over 6 through 12 months 76,327 0 76,327
Over 12 months 94,446 162 94,608
------------ ------------ -------------
$ 265,282 $ 6,823 $ 272,105
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
SHORT-TERM BORROWINGS
The Corporation did not have any category of short-term borrowings for which
the average balance outstanding during the reported periods was 30 percent or
more of shareholders' equity at the end of the reported periods.
11
<PAGE>
ITEM 2. PROPERTIES
The Corporation's and PNB's main offices are located at 208 North Mayo Trail,
Pikeville, Kentucky, 41501. Pikeville National Realty Incorporated, a
wholly-owned subsidiary of PNB which was organized for the purpose of holding
real property used by PNB, holds title to PNB's main office under the terms of
Industrial Revenue Development Bonds of the Pike County Fiscal Court issued for
purposes of constructing such building.
PNB presently has nine branch offices in Pike County, one branch office in
Floyd County, one branch office in Knott County and four branch offices in
Fayette County, Kentucky in addition to its main office. PNB owns seven of its
branch banking offices and leases eight branch offices.
First Security Bank's main office is located at 112 West Main Street,
Whitesburg, Kentucky, 41858. First Security has four branch offices in Letcher
County, all of which are owned except for the Ermine, Kentucky branch and the
land for the Isom branch which are under lease. First Security Bank's main
office building is leased under an obligation accounted for as a capital lease.
Commercial Bank, West Liberty owns its only banking premises at 550 Main
Street, West Liberty, Kentucky, 41472. Commercial Bank also owns land which is
rented without lease agreements.
Exchange Bank of Kentucky owns its main office at the corner of High and
Maysville Streets in Mount Sterling, Kentucky, 40353 and its one branch
location. Exchange Bank leases the land for its ATM site and the land adjacent
to its main office for parking and a drive up window.
Farmers National Bank owns its main office at 201 N. 3rd Street,
Williamsburg, Kentucky, 40769, and its only branch office in Whitley County.
Farmers National Bank also has a branch office in London, Laurel County,
Kentucky, which is leased. Farmers National Bank has no other property or lease
relationships.
Farmers-Deposit Bank owns its main office at 101 North Main Cross,
Flemingsburg, Kentucky, 41041, and all three of its branch locations,. two of
which are in Flemingsburg, and the third in Ewing, Kentucky. Farmers-Deposit
Bank also owns real property which is leased to outside parties.
First American Bank owns its main office at 1544 Winchester Avenue, Ashland,
Kentucky, 41101, and its three branch locations, though it leases the land for
its Summit Branch. First American Bank opened two additional branches in 1992,
each of which occupies space within a mall. First American Bank leases office
space to tenants in its main office location, as well as The Arcade, which
adjoins the main office. Of the office space in The Arcade a portion is used
for Bank premises. First American Bank also leases the 16th Street Properties
which is sub-leased, and the Bank leases the Old Meade Station Branch property
and also receives tenant income on this property.
Community Trust Bank FSB's main office is located at 1218 East Broadway,
Campbellsville, Kentucky, 42718. The Bank has a branch office in each of the
following locations; Campbellsville, Columbia, Greensburg, Somerset (2), Lebanon
and Jamestown, Kentucky. Community Trust Bank, FSB, owns all of its locations
with the exception of the Lending Annex located next to the main office and its
supermarket branches located in Somerset and Lebanon. The building which is
used by the Community Trust Bank FSB Somerset Branch contains additional office
space which is leased to outside parties.
The Woodford Bank & Trust Company's main office is located at 101 North Main
Street, Versailles, Kentucky, 40383. Woodford owns its main office property and
leases its one branch location.
12
<PAGE>
Commercial Bank, Middlesboro owns its main office property located at 1924
Cumberland Avenue in Middlesboro, Kentucky, 40965 and has four additional branch
locations in Bell County, Kentucky. Two of these locations are owned and the
other two are leased.
Trust Company of Kentucky's main office is located at 1544 Winchester Avenue,
Ashland, Kentucky, 41101, in space leased from First American Bank. It also has
leased offices in PNB's main office, Community Trust Bank, FSB's main office and
in Lexington, Kentucky.
See notes 7 and 13 to consolidated financial statements included herein for
the year ended December 31, 1995, for additional information relating to
commitments and amounts invested in premises and equipment. The Corporation has
$301,000 of investments in real property, all in other real estate.
ITEM 3. LEGAL PROCEEDINGS
The Banks and certain officers are named defendants in legal actions arising
from normal business activities. Management, after consultation with legal
counsel, believes these actions are without merit or that the ultimate
liability, if any, resulting from them will not materially affect the
Corporation's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of the Corporation, their
positions with the Corporation and the year in which they first became an
executive officer or director.
<TABLE>
<CAPTION>
POSITIONS AND DATE FIRST
OFFICES BECAME DIRECTOR PRESENT
CURRENTLY OR EXECUTIVE PRINCIPAL
NAME AND AGE (1) HELD OFFICER OCCUPATION
<S> <C> <C> <C>
Burlin Coleman; 66 Chairman of 1980 Chairman of
Board, & Board
Director
Brandt Mullins; 68 Vice Chairman 1980 Vice
of Board, Director Chairman
Terry N. Coleman; 44 President, CEO, 1992 (2) President &
COO & Director CEO
Jean R. Hale; 49 Executive Vice 1992 (2) President &
President, CEO of PNB
Secretary &
Director
Richard M. Levy; 37 Executive Vice 1995 (3) Executive Vice
President & CFO President & CFO
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
William Vermillion; 50 Executive Vice 1996 (4) Executive Vice
President & President &
Manager of Manager of
Affiliate Operations Affiliate Operations
Ralph Weickel; 38 Executive Vice 1995 (5) Executive Vice
President & CIO President & CIO
</TABLE>
(1) The ages listed for the Corporation executive officers are as of February
29, 1996.
(2) Prior to becoming executive officers, Mr. Coleman and Ms. Hale served as
Vice Presidents of the Corporation and as executive officers of PNB since
1988.
(3) Mr. Levy served as Senior Vice President and Controller of Bank of America
Texas, N.A. prior to joining the Corporation.
(4) Mr. Vermillion served as President and CEO of Star Bank, Kentucky prior to
joining the Corporation.
(5) Mr. Weickel served as Vice President of the Corporation prior to becoming an
executive officer. Mr. Weickel served as Vice President, Manager of
Investments for Boatmen's National Bank of Des Moines, NA, prior to joining
the Corporation in 1993.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Corporation's common stock is listed on the NASDAQ National Market System
under the symbol PKVL. Herzog, Heine, Geduld, Inc., New York, New York; J. J.
B. Hilliard, W. L. Lyons, Inc., Louisville, Kentucky; Morgan, Keegan & Company,
Memphis, Tennessee and Robinson Humphrey Co. Inc., Atlanta, Georgia; are primary
market makers.
QUARTERLY FINANCIAL DATA
Three Months Ended (In thousands except per share amounts)
<TABLE>
<CAPTION>
December 31 September 30 June 30 March 31
<S> <C> <C> <C> <C>
1995
Net interest income $ 17,437 $ 16,894 $ 16,134 $ 15,569
Net interest income, taxable
equivalent basis 18,051 17,620 16,721 16,098
Provision for loan losses 1,850 1,615 1,322 1,071
Noninterest income 3,342 2,412 2,696 2,666
Noninterest expense 15,869 13,755 13,070 13,177
Net income 2,266 2,734 2,840 2,973
Per common share
Net income, primary $ 0.25 $ 0.30 $ 0.32 $ 0.34
Net income, fully diluted 0.25 0.30 0.32 0.34
Dividends declared 0.18 0.16 0.16 0.16
Common stock price:
High 21.50 23.00 23.50 25.25
Low 19.00 19.50 19.50 22.50
Last trade 19.25 20.25 20.75 22.50
Selected ratios
Return on average assets,
annualized 0.53% 0.65% 0.72% 0.77%
Return on average common
equity, annualized 6.96% 8.39% 8.78% 9.56%
Net interest margin, annualized 4.57% 4.47% 4.57% 4.52%
1994
Net interest income $ 15,366 $ 15,230 $ 14,660 $ 13,934
Net interest income, taxable
equivalent basis 16,030 15,951 15,145 14,474
Provision for loan losses 1,722 1,097 2,482 765
Noninterest income 2,452 2,403 2,361 2,437
Noninterest expense 12,772 16,178 11,778 11,559
Net income 2,580 454 2,133 3,045
Per common share
Net income, primary $ 0.30 $ 0.05 $ 0.25 $ 0.35
Net income, fully diluted 0.30 0.05 0.25 0.35
Dividends declared 0.16 0.15 0.15 0.15
Common stock price:
High 26.25 30.00 31.50 35.00
Low 23.50 23.50 27.50 28.50
Last trade 26.25 24.00 30.00 29.00
Selected ratios
Return on average assets,
annualized 0.69% 0.12% 0.58% 0.83%
Return on average common
equity, annualized 8.72% 1.52% 7.21% 10.67%
Net interest margin, annualized 4.56% 4.55% 4.43% 4.35%
</TABLE>
15
<PAGE>
There were approximately 2,400 holders of outstanding common shares of the
Corporation at February 29, 1996.
DIVIDENDS
The annual dividend was increased from $0.61 per share to $0.66 per share
during 1995. The Corporation has adopted a conservative policy of cash
dividends with periodic stock dividends. Dividends are typically paid on a
quarterly basis. Future dividends are subject to the discretion of the
Corporation's Board of Directors, cash needs, general business conditions,
dividends from the subsidiaries and applicable governmental regulations and
policies. For information concerning restrictions on dividends from subsidiary
banks to the Corporation, see Note 18 to the consolidated financial statements
included herein for the year ended December 31, 1995.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA 1991-1995
<TABLE>
<CAPTION>
Year Ended December 31 (In thousands except per share amounts)
For the year: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Interest income $ 131,026 $ 106,560 $ 104,929 $ 109,946 $ 118,259
Interest expense 64,992 47,370 46,616 53,746 68,564
Net interest income 66,034 59,190 58,313 56,200 49,695
Provision for loan losses 5,858 6,066 4,442 7,311 7,037
Noninterest income 11,116 9,653 12,069 11,427 7,197
Noninterest expense 55,871 52,287 45,571 42,140 38,931
Income before income taxes 15,421 10,490 20,369 18,176 10,924
Cumulative effect of accounting change -- -- -- -- 300
Income taxes 4,608 2,278 5,533 5,072 2,243
Net income $ 10,813 $ 8,212 $ 14,836 $ 13,104 $ 8,981
Per common share:
PRIMARY EARNINGS PER SHARE
Income before cumulative effect
of accounting change $ 1.21 $ 0.95 $ 1.80 $ 1.63 $ 1.06
Cumulative effect of accounting change -- -- -- -- 0.04
Net income $ 1.21 $ 0.95 $ 1.80 $ 1.63 $ 1.10
FULLY DILUTED EARNINGS PER SHARE
Income before cumulative effect
of accounting change $ 1.21 $ 0.95 $ 1.78 $ 1.60 $ 1.06
Cumulative effect of accounting change -- -- -- -- 0.04
Net income $ 1.21 $ 0.95 $ 1.78 $ 1.60 $ 1.10
Cash Dividends Declared - $ 0.66 $ 0.61 $ 0.55 $ 0.51 $ 0.49
As a percentage of net income 54.55% 64.21% 30.56% 31.29% 44.61%
Book value, end of year 14.66 13.57 13.44 12.08 10.82
Market price, end of year 19.25 26.25 29.33 21.00 10.89
Market value to book value, end of year 1.31x 1.93x 2.18x 1.74x 1.01x
Price/earnings ratio, end of year 15.9x 27.6x 16.5x 13.1x 9.9x
Cash dividend yield, end of year 3.74% 2.44% 2.05% 2.54% 4.66%
At year end:
Total assets $1,730,170 $1,499,434 $1,464,039 $1,390,910 $1,343,662
Long-term debt 27,873 24,944 35,277 36,340 38,117
Shareholders' equity 133,795 116,636 107,371 96,406 85,224
Averages:
Assets $1,630,922 $1,470,630 $1,415,441 $1,354,655 $1,269,502
Deposits 1,359,947 1,216,544 1,181,347 1,173,305 1,110,485
Earning assets 1,508,539 1,365,750 1,313,064 1,253,475 1,174,682
Loans 1,021,637 872,045 849,202 857,532 827,491
Shareholders' equity 130,780 116,165 102,445 90,594 79,090
Profitability ratios:
Return on average assets 0.66% 0.56% 1.05% 0.97% 0.71%
Return on average common equity 8.27% 7.07% 14.48% 14.46% 11.36%
Capital ratios:
Equity to assets, end of year 7.73% 7.78% 7.33% 6.93% 6.34%
Average equity to average assets 8.02% 7.90% 7.24% 6.69% 6.23%
Risk-based capital ratios
Leverage ratio 6.44% 7.19% 6.36% 5.89% 5.21%
Tier I Capital 10.24% 11.08% 10.10% 9.34% 7.80%
Total Capital 11.51% 12.33% 12.23% 11.53% 9.85%
Other significant ratios:
Allowance to net loans, end of year 1.44% 1.43% 1.58% 1.63% 1.36%
Allowance to nonperforming loans,
end of year 119.99% 106.12% 90.04% 95.96% 74.52%
Nonperforming assets to loans and
foreclosed properties, end of year 1.37% 1.83% 2.18% 2.51% 2.73%
Net interest margin 4.54% 4.51% 4.60% 4.68% 4.51%
Other statistics:
Average common shares outstanding
Primary 8,960 8,601 8,246 8,024 7,701
Fully diluted 8,960 8,602 8,323 8,169 7,701
Number of full-time equivalent employees,
end of year 757 655 699 675 673
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Pikeville National Corporation (the "Corporation") is a multi-bank holding
company headquartered in Pikeville, Kentucky. The Corporation owns nine
commercial banks, one savings bank, and one trust company. Through its
affiliates, the Corporation has sixty offices serving 85,000 households in
nineteen eastern and central Kentucky counties. The Corporation had total
assets of $1.73 billion as of December 31, 1995.
Acquisitions
After making no acquisitions during the years 1992 through 1994, the
Corporation resumed its strategic policy of diversification through
acquisition and acquired all of the outstanding stock of four Kentucky banks
during 1995. This gives the Corporation additional economies of scale and new
markets in which to deliver its existing products.
On February 2, 1995, the Corporation acquired Community Bank of Lexington,
Inc., Lexington, Kentucky ("Community Bank"), with assets of $61 million.
The Corporation issued 366,000 shares of common stock with a market price of
$24 per share in the acquisition. The transaction was accounted for as a
purchase, with $6.3 million of goodwill recognized. The offices of Community
Bank became branches of Pikeville National Bank and Trust Company, the
Corporation's lead bank, on March 31, 1995. While the Corporation had
already been active in lending in the Lexington-Fayette County market through
its loan production office, this acquisition gives the Corporation offices in
which to provide deposit products and other financial services in one of
Kentucky's fastest growing markets.
On May 31, 1995, the Corporation acquired Woodford Bancorp, Inc.,
Versailles, Kentucky ("Woodford"), with assets of $103 million for 967,000
shares of its common stock. The transaction was accounted for as a
pooling-of-interests, and all prior period financial information was restated
to give effect to the transaction. This acquisition gives the Corporation
another presence in the central Kentucky area, which has one of the highest
per capita incomes and lowest unemployment rates in Kentucky.
On June 30, 1995, the Corporation acquired Commercial Bank, Middlesboro,
Kentucky ("Middlesboro"), with assets of $99 million for $14.4 million in
cash. The transaction was accounted for as a purchase, and goodwill of $4.3
million was recognized. Funds of $13.5 million were borrowed in connection
with the acquisition. Middlesboro is located on the Kentucky-Virginia-Tennessee
border and is a growing market with a thriving tourism industry.
On November 3, 1995, the Corporation acquired United Whitley Corporation,
Williamsburg, Kentucky ("Williamsburg"), and its subsidiary, Bank of
Williamsburg, with assets of $37 million, for 172,000 shares of its common
stock. The transaction was accounted for as a pooling, but without
restatement of prior period financial information, due to lack of
materiality. Bank of Williamsburg was merged into Farmers National Bank,
Williamsburg, Kentucky, already owned by the Corporation on the date of
acquisition. Through the acquisition, the Corporation increased the deposit
base of an existing affiliate substantially while increasing its operating
costs only marginally. Through the merger transaction, the Corporation was
able to move the bank charter of the merged institution to adjacent Laurel
County and now has a branch in London, Kentucky, which is among the fastest
growing areas in Kentucky.
Results of Operations
1995 Compared to 1994
Net income for 1995 was $10.8 million compared to $8.2 million for 1994.
Earnings per share for 1995 was $1.21 per share ($1.21 fully diluted)
compared to $0.95 per share ($0.95 fully diluted) for 1994. All information
has been restated due to the acquisition
18
<PAGE>
of Woodford Bancorp, Inc., on May 31, 1995, which was accounted for as a
pooling-of-interests.
Net interest income for 1995 increased 11.5% as compared to 1994, rising
from $59.2 million in 1994 to $66.0 million in 1995. Noninterest income and
noninterest expenses increased by lesser amounts, with noninterest income
increasing from $9.7 million in 1994 to $11.1 million in 1995, and
noninterest expense increasing from $52.3 million in 1994 to $55.9 million in
1995.
Net income for 1994 was reduced by pre-tax losses of $2.8 million
associated with certain mortgage-backed derivative securities purchased from
customer trust accounts during the year and $0.9 million of restructuring and
reengineering costs. Provision for loan losses was slightly higher in 1994
than in 1995, due mainly to unusual loan losses of $1.6 million recognized on
two loans in the second quarter of 1994.
Return on average assets increased from 0.56% in 1994 to 0.66% in 1995 and
return on average equity increased from 7.07% in 1994 to 8.27% in 1995. Net
Interest Income
Net interest income increased 11.5% from 1994 to 1995 and was a major
contributing factor to the Corporation's increase in net income. Net
interest income increased from $59.2 million in 1994 to $66.0 million in
1995. The increase was mainly due to the increase in average earning assets
and the rising interest rates on assets and deposits that were in effect in
1995.
The Corporation's average earning assets increased from $1.37 billion in
1994 to $1.51 billion in 1995. Average interest bearing liabilities also
increased during the period, from $1.19 billion in 1994 to $1.32 billion in
1995. Average interest bearing liabilities as a percentage of average
earning assets remained fairly stable, going from 86.9% in 1994 to 87.4% in
1995.
The yield on interest earning assets and the cost of interest bearing
liabilities both increased during 1995 as compared to 1994. The taxable
equivalent yield on average interest earning assets increased from 7.98% in
1994 to 8.86% in 1995. The cost of average interest bearing liabilities
increased from 3.97% to 4.93% during the same period. Despite the fact that
the cost of interest bearing liabilities rose more than the yield on interest
earning assets and the net interest spread declined from 4.01% in 1994 to
3.93% in 1995, the net interest margin increased slightly from 4.51% in 1994
to 4.54% in 1995. This was due to the rise in interest rates. If interest
rates rise by approximately the same amount for both assets and liabilities,
all other things being equal, the net interest income and resulting net
interest margin will both increase, because interest earning assets have
larger balances.
Provision for loan losses
The provision for loan losses decreased from $6.1 million in 1994 to $5.9
million in 1995. Average loans were significantly higher in 1995 increasing
17.2% from $872.0 million in 1994 to $1.02 billion in 1995. The major factor
in the decrease in provision was the charge-off of two loans in the second
quarter of 1994 totaling $1.6 million. One charge off of $1.25 million was
for industrial computer software development and was the only loan of its
type in the Corporation's portfolio. The other loan at $350 thousand was
coal industry related.
Charge-offs net of recoveries as a percentage of average loans outstanding
declined from 0.73% in 1994 to 0.47% in 1995 as charge-offs were lower in
1995 and average loans increased. The allowance for loan losses increased
significantly, rising from $13.0 million at December 31, 1994 to $16.1
million at December 31, 1995. The acquisitions of Community Bank,
Middlesboro and Williamsburg accounted for $2.0 million of the increase in
the loan loss reserve.
Problem loans are reviewed on a monthly basis and specific allocations are
made based on review of collateral and payment ability of the borrower.
Loans are fully reserved when review determines that there is an inability to
pay and the liquidation value of
19
<PAGE>
collateral is insufficient. Loans 90 days or more past due are ordinarily
placed on non-accrual.
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan". Loans are categorized as impaired when it is probable that full
collection of principal and interest will not be received, except for groups
of smaller homogeneous loans, such as consumer and residential mortgage
loans. The statement also requires specific reserves for loans considered to
be impaired. The adoption of the statement was not material to the
Corporation's provision for loan losses or financial condition and results of
operations. The Corporation has an internal loan review department which is
responsible for reviewing the loan portfolios of all subsidiary banks.
Any loans classified as loss, doubtful, substandard or special mention that
are not included in non-performing loans do not (1) represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity or capital resources, or (2)
represent material credits about which management is aware of any information
which would cause management to have serious doubt as to the ability of the
borrowers to comply with the loan repayment terms. The Corporation does not
believe there are currently any trends, events or uncertainties that are
reasonably likely to have a material effect on the volume of its
non-performing loans.
Noninterest income
Noninterest income increased 15.2% from $9.7 million in 1994 to $11.1
million in 1995. Service charges on deposit accounts is the largest
component of noninterest income and increased from $4.7 million in 1994 to
$5.2 million in 1995 as the deposit base of the Corporation continued to
expand. Noninterest bearing deposits increased from $159.6 million as of
December 31, 1994 to $186.8 million at December 31, 1995. Trust income
declined from $1.6 million in 1994 to $1.3 million in 1995 as the trust
assets managed declined during the year. Other noninterest income increased
from $2.7 million in 1994 to $4.1 million in 1995. The largest component of
other noninterest income was insurance commissions, which increased 22.2%
from $0.9 million in 1994 to $1.1 million in 1995. This was due to new
lending programs which increased the company's loan portfolio during the
year. Loans accounted for 60.5% of total assets at December 31, 1994
compared to 64.4% of total assets at December 31, 1995. Net gains from the
sale of residential mortgage loans decreased from $784,000 in 1994 to
$462,000 in 1995 as the level of loans originated and sold declined. This is
normal in a time of rising interest rates. Gains on the sale of loans are
most likely to be higher in times of level or falling interest rates.
Securities gains and losses were not a factor in the increase as the
Corporation incurred net securities losses of $45,000 in 1994 and net
securities gains of $12,000 in 1995.
Noninterest expense
Noninterest expense increased from $52.3 million in 1994 to $55.9 million
in 1995. Except for two unusual items which decreased significantly, all
individual categories increased as would be expected in a period of expansion
through acquisitions. The increases in assets, employees and operational
facilities all contributed to across the board increases in noninterest
expenses. Salaries and employee benefits increased from $23.0 million in
1994 to $24.6 million in 1995 as the number of full-time equivalent employees
increased due to acquisitions of new banks and opening of new branches.
Occupancy expense also increased, rising from $3.3 million in 1994 to $3.9
million in 1995, also due to increased costs of acquisitions and new
branches. Also increasing during the period were equipment costs, from $3.2
million in 1994 to $3.7 million in 1995, data processing, from $2.1 million
in 1994 to $2.8 million in 1995, stationery & printing costs, from $1.5
million in 1994 to $1.9 million in 1995, other taxes, which mainly consists
of Kentucky Bank Shares Tax, from $1.7 million in 1994 to $2.0 million in
1995 and other noninterest expense, which increased from $11.1 million in
1994 to $13.9 million in 1995. The two items which decreased significantly
were losses associated with mortgage-backed derivative securities and
restructuring and reengineering costs.
20
<PAGE>
Mortgage-backed derivatives had been purchased for certain trust accounts
administered by the Corporation's affiliates. While these securities are
guaranteed by either the Federal Home Loan Mortgage Corporation or the
Federal National Mortgage Association and therefore, pose very little, if
any, credit risk, they exhibited an excessive volatility which led to a
significant decline in their market value in 1994. The Corporation
recognized a $2.8 million pre-tax loss in these securities in 1994 which
represented the difference between the book value carried in the customer
accounts and the actual market value. The Corporation purchased the
securities from the trust accounts during 1994 and because management
believes there is no credit loss, expects to collect the full face value over
time. The securities are carried at market value as available-for-sale and
currently no default on payments or additional market value declines have
been suffered to date.
During the latter part of 1993 and continuing through 1994, the Corporation
intensively examined ways to improve its performance through restructuring
its operations and reengineering its work flow processes. As a result of
this examination, the Corporation adopted a plan which downsized its
workforce by approximately 9% of total employment. Severance and other
related costs of downsizing in the amount of $0.9 million were recognized in
1994.
1994 Compared to 1993
Net income for 1994 was $8.2 million compared to $14.8 million for 1993.
Primary earnings per share for 1994 was $0.95 per share compared to $1.80 for
1993. Fully diluted earnings per share was $0.95 per share for 1994 compared
to $1.78 for 1993.
As noted in the 1995 to 1994 comparison, earnings for 1994 were negatively
impacted by losses of $2.8 million associated with mortgage-backed derivative
securities purchased from customer trust accounts during the year and by $0.9
million of restructuring and reengineering costs. Provision for loan losses
was higher in 1994 than in 1993, due mainly to unusual loan losses of $1.6
million in the second quarter of 1994, also noted in the 1995 to 1994
comparison.
Net interest income rose slightly from $58.3 million in 1993 to $59.2
million in 1994. The increase in net interest income was due to a higher
level of average earning assets. Yield on earning assets and cost of interest
bearing funds both declined, but yields on interest earning assets declined
by more, causing the net interest margin to decline for 1994 as compared to
1993.
Noninterest income declined 19.8% from $12.1 million in 1993 to $9.7
million in 1994. This was due to the decline of net securities and loan
sales gains from 1993 to 1994. In 1993, securities gains totaled $2.0
million and gains on sale of loans totaled $2.0 million while in 1994 the
company suffered net securities losses of $45 thousand and loan gains of $784
thousand. Exclusive of these two items, noninterest income increased from
$8.0 million in 1993 to $8.9 million in 1994.
Noninterest expense increased 14.7% from $45.6 million in 1993 to $52.3
million in 1994. The largest reason for the increase was the $2.8 million of
losses associated with mortgage-backed derivatives in 1994 and also
contributing were $0.9 million of restructuring and reengineering costs.
Data processing costs increased from $1.2 million in 1993 to $2.1 million in
1994 primarily as a result of the conversion of the Corporation's affiliates
to a new data processing system which began in 1993 and was completed in
1994. Other noninterest expense increased from $9.7 million in 1993 to $11.1
million in 1994 which was due primarily to increased legal and professional
fees associated with upcoming merger activity and consulting fees related to
the reengineering.
Liquidity
The Corporation's objectives are to ensure that funds are available at the
subsidiary banks to meet deposit withdrawals and credit demands without
unduly penalizing profitability, and to ensure that funding is available for
the parent company to meet the ongoing cash needs while maximizing
profitability. The Corporation continues to identify ways to provide for
liquidity on both a current and long-term basis. On a long-term
21
<PAGE>
basis, the subsidiary banks rely mainly on core deposits, certificates of
deposit of $100,000 or more, repayment of principal and interest on loans and
securities, as well as federal funds sold and purchased. The subsidiary
banks also rely on the sale of securities under repurchase agreements,
securities available-for-sale and Federal Home Loan Bank borrowings.
Deposits increased from $1.25 billion at December 31, 1994 to $1.47 billion
at December 31, 1995. Approximately $44 million of the increase was from the
acquisition of Community Bank, $89 million was from the acquisition of
Middlesboro and $34 million was from the acquisition of Williamsburg. This
growth has allowed the company to remain liquid in a time of increasing loan
demand requiring more funding than has been needed in recent years.
Due to the nature of the markets served by the subsidiary banks, management
believes that the majority of its certificates of deposit of $100,000 or more
are no more volatile than its core deposits. During the recent period of low
interest rates, these deposit balances remained stable as a percentage of
total deposits. In addition arrangements have been made with two
correspondent banks for the purchase of federal funds on an unsecured basis,
up to an aggregate of $54 million, if necessary, to meet the Corporation's
liquidity needs.
The Corporation owns $280 million of securities designated as
available-for-sale and valued at market which are available to meet liquidity
needs on a continuing basis. In the fourth quarter of 1995, the Financial
Accounting Standards Board interpreted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investment in Debt and Equity
Securities," to allow a one-time movement of securities from held-to-maturity
to available-for-sale. The Corporation moved $195 million of these
securities to available-for-sale during the fourth quarter of 1995 in
accordance with the Financial Accounting Standards Board's statement. The
Corporation also relies on Federal Home Loan Bank advances for both liquidity
and management of its asset/liability position. Often the Corporation matches
the maturity of these advances with pools of residential mortgage loans which
are not sold in the secondary market, some of which have maturities of ten to
fifteen years. Federal Home Loan Bank advances decreased from $69.8 million
at December 31, 1994 to $63.6 million at December 31, 1995.
The Corporation generally relies upon net inflows of cash from financing
activities, supplemented by net inflows of cash from operating activities, to
provide cash for its investing activities. As is typical of many financial
institutions, significant financing activities include deposit gathering, use
of short-term borrowing facilities such as federal funds purchased and
securities sold under repurchase agreements, and the issuance of long-term
debt. The Corporation borrowed $13.5 million in June to finance the
acquisition of Middlesboro, of which $7.8 million was repaid during the
second half of 1995. This debt is under a $17.5 million credit line expiring
June 29, 1997, which is in the form of a revolving line of credit (see
long-term debt footnote to the consolidated financial statements). The
Corporation's primary investing activities include purchases of investment
securities and loan originations.
In conjunction with maintaining a satisfactory level of liquidity,
management monitors the degree of interest rate risk assumed on the balance
sheet. The Corporation monitors its interest rate risk by the use of static
and dynamic gap models at the one year interval. The static gap model
monitors the difference in interest rate sensitive assets and interest rate
sensitive liabilities as a percentage of total assets that mature within the
specified time frame. The dynamic gap model goes further in that it assumes
that interest rate sensitive assets and liabilities will be reinvested. The
Corporation uses the Sendero system to monitor its interest rate risk. The
Corporation desires an interest sensitivity gap of not more than fifteen
percent of total assets at the one year interval.
22
<PAGE>
The Corporation's static interest rate gap position as of December 31, 1995 is
presented below:
Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1995 0-3 3-12 Total Over
(In thousands) Months Months 1 Year 1 Year Total
<S> <C> <C> <C> <C> <C>
Interest earning assets
Federal funds sold $ 39,555 $ -- $ 39,555 $ -- $ 39,555
Securities and deposits 113,017 70,189 183,206 251,672 434,878
Loans 432,992 269,237 702,229 412,839 1,115,068
Total earning assets $ 585,564 $ 339,426 $ 924,990 $ 664,511 $ 1,589,501
Interest bearing liabilities
NOW, money market and
savings accounts $ 269,524 $ 160,229 $ 429,753 $ -- $ 429,753
Time deposits 225,585 388,033 613,618 237,243 850,861
Federal funds purchased
and other short-
term borrowings 20,383 -- 20,383 -- 20,383
Advances from FHLB 5,216 5,367 10,583 53,046 63,629
Long-term debt 8,125 2,000 10,125 17,748 27,873
Total interest bearing
liabilities $ 528,833 $ 555,629 $1,084,462 $ 308,037 $ 1,392,499
Interest sensitivity gap
For the period $ 56,731 $(216,203) $ (159,472) $ 356,474 $ 197,002
Cumulative 56,731 (159,472) (159,472) 197,002 197,002
Cumulative as a percent
of earning assets 3.57% (10.03)% (10.03)% 12.39% 12.39%
</TABLE>
The Corporation now uses on a limited basis interest rate swaps as an
additional tool in managing interest rate risk. As of December 31, 1995, there
was outstanding $10 million in notional principal value of interest rate swaps.
Interest rate swaps involve an exchange of cash flows based on the notional
principal amount and agreed upon fixed and variable interest rates. In this
transaction, the Corporation has agreed to pay a floating interest rate based on
LIBOR and receive a fixed interest rate in return. The impact on operations of
interest rate swaps was not significant during 1995 and is not expected to be
significant during 1996.
Capital Resources
Total shareholders' equity increased from $116.6 million at December 31, 1994
to $133.8 million at December 31, 1995. The acquisitions of Community Bank and
Williamsburg added $9.4 million to shareholders' equity during 1995.
The primary source of capital of the Corporation is retained earnings. Cash
dividends per share were $0.66 per share for 1995 and $0.61 per share for 1994.
The Corporation retained 45% of its earnings for 1995 and 36% for 1994.
Under guidelines issued by banking regulators, the Corporation and its
subsidiary banks are required to maintain a minimum Tier I risk-based capital
ratio of 4% and a minimum total risk-based ratio of 8%. Risk-based capital
ratios weight the relative risk factors of all assets and also consider the risk
associated with off-balance sheet items. The Corporation must also maintain a
minimum Tier I leverage ratio of 4%. The following table provides the capital
ratios for the Corporation as of December 31, 1995 and 1994. Shareholders
common equity for Tier I capital is adjusted for unrealized losses on debt
securities only.
23
<PAGE>
Capital Data
<TABLE>
<CAPTION>
December 31 (In thousands) 1995 1994
<S> <C> <C>
Corporate capital components
Tier I capital
Shareholders' common equity (net of
tax effected AFS debt securities
unrealized gain of $940 and
unrealized loss of$813,
respectively) $ 132,855 $117,449
Less goodwill (20,110) (10,367)
Total Tier I capital 112,745 107,082
Tier II capital
Allowable allowance for loan losses 14,043 12,085
Total capital $ 126,788 $119,167
Risk adjusted assets $ 1,101,286 $966,810
Capital ratios
Tier I risk-based capital ratio 10.24% 11.08%
Total risk-based capital ratio 11.51% 12.33%
Tier I leverage ratio 6.44% 7.19%
Average equity to average assets 8.02% 7.90%
Dividends declared per share $ 0.66 $ 0.61
Return on average assets 0.66% 0.56%
Return on average common equity 8.27% 7.07%
</TABLE>
The guidelines which require bank holding companies, commercial banks, and
savings banks to maintain certain minimum ratios define companies as "well
capitalized" that sufficiently exceed the minimum ratios. The banking
regulators may alter minimum capital requirements as a result of revising their
internal policies and their ratings of individual institutions. Pikeville
National Corporation and all banking affiliates met the criteria for "well
capitalized" at December 31, 1995.
As of December 31, 1995, management is not aware of any current
recommendations by banking regulatory authorities which, if they were to be
implemented, would have, or are reasonably likely to have, a material adverse
impact on the Corporation's liquidity, capital resources, or operations.
The Corporation's principal source of funds used to pay dividends to
shareholders and service long-term debt is the dividends it receives from
subsidiary banks. Various federal and state statutory provisions, as well as
regulatory policies and directives, limit the amount of dividends that
subsidiary banks can pay without prior regulatory approval. These restrictions
have had no major impact on the Corporation's dividend policy or its ability to
service long- term debt, nor is it anticipated that they will have any major
impact in the foreseeable future.
24
<PAGE>
Impact of inflation and changing prices
The majority of the Corporation's assets and liabilities are monetary in
nature. Therefore, the Corporation differs greatly from most commercial and
industrial companies that have significant investments in nonmonetary assets,
such as fixed assets and inventories. However, inflation does have an important
impact on the growth of assets in the banking industry and on the resulting need
to increase equity capital at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation also affects other expenses,
which tend to rise during periods of general inflation.
Management believes the most significant impact on financial and operating
results is the Corporation's ability to react to changes in interest rates.
Management seeks to maintain an essentially balanced position between interest
sensitive assets and liabilities in order to protect against the effects of wide
interest rate fluctuations.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 (In thousands except per share amounts) 1995 1994
<S> <C> <C>
Assets
Cash and balances due from banks $ 67,457 $ 66,173
Federal funds sold 39,555 13,925
Securities available-for-sale 279,717 87,415
Securities held-to-maturity (fair value of $150,315
and $345,110, respectively) 150,721 363,546
Loans 1,115,068 906,454
Allowance for loan losses (16,082) (12,978)
Net loans 1,098,986 893,476
Premises and equipment, net 47,553 38,765
Excess of cost over net assets acquired (net of accumulated
amortization of $5,469 and $4,315, respectively) 20,110 10,367
Interest receivable and other assets 26,071 25,767
Total Assets $1,730,170 $1,499,434
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing $ 186,829 $ 159,633
Interest bearing 1,280,614 1,086,754
Total deposits 1,467,443 1,246,387
Federal funds purchased and other short-term borrowings 20,383 31,154
Interest payable and other liabilities 17,047 10,553
Advances from Federal Home Loan Bank 63,629 69,760
Long-term debt 27,873 24,944
Total Liabilities 1,596,375 1,382,798
Shareholders' equity:
Preferred stock, 300,000 shares authorized and unissued
Common stock, $5 par value, shares authorized 25,000,000;
shares issued and outstanding, 1995 - 9,124,314; 1994 -
8,592,287 45,622 42,961
Capital surplus 27,883 20,788
Retained earnings 59,934 54,928
Net unrealized appreciation (depreciation) on securities
available-for-sale, net of tax of $(506) and $438,
respectively 356 (2,041)
Total Shareholders' Equity 133,795 116,636
Total Liabilities and Shareholders' Equity $1,730,170 $1,499,434
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
<S> <C> <C> <C>
(In thousands except per share amounts)
Interest Income:
Interest and fees on loans $100,686 $ 78,143 $ 76,068
Interest and dividends on securities -
Taxable 22,503 23,164 24,889
Tax exempt 4,668 3,050 2,643
Other 3,169 2,203 1,329
Total interest income 131,026 106,560 104,929
Interest Expense:
Interest on deposits 56,673 39,889 39,282
Interest on federal funds purchased and other
short-term borrowings 1,513 1,324 1,005
Interest on advances from Federal Home Loan Bank 4,506 4,132 3,550
Interest on long-term debt 2,300 2,025 2,779
Total interest expense 64,992 47,370 46,616
Net interest income 66,034 59,190 58,313
Provision for loan losses 5,858 6,066 4,442
Net interest income after provision for
loan losses 60,176 53,124 53,871
Noninterest Income:
Service charges on deposit accounts 5,224 4,651 4,226
Gains on sale of loans, net 462 784 2,038
Trust income 1,341 1,600 1,162
Securities gains (losses), net 12 (45) 2,003
Other 4,077 2,663 2,640
Total noninterest income 11,116 9,653 12,069
Noninterest Expense:
Salaries and employee benefits 24,639 23,033 22,877
Occupancy, net 3,934 3,250 3,052
Equipment 3,706 3,173 3,049
Data processing 2,808 2,084 1,184
Stationery, printing and office supplies 1,919 1,496 1,499
Taxes other than payroll, property and income 1,980 1,682 1,471
FDIC insurance 2,990 2,715 2,753
Losses associated with mortgage-backed
derivative securities -- 2,793 --
Restructuring and reengineering costs -- 945 --
Other 13,895 11,116 9,686
Total noninterest expense 55,871 52,287 45,571
Income before income taxes 15,421 10,490 20,369
Income taxes 4,608 2,278 5,533
Net income $ 10,813 $ 8,212 $ 14,836
Earnings per share:
Primary $ 1.21 $ .95 $ 1.80
Fully diluted 1.21 .95 1.78
Average shares outstanding:
Primary 8,960 8,601 8,246
Fully diluted 8,960 8,602 8,323
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized Net
Appreciation/ Unrealized
(Depreciation) Losses on
on Securities Marketable
Common Capital Retained Available-for-Sale, Equity
(In thousands except per share Stock Surplus Earnings Net of Tax Securities Total
amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 28,240 $ 14,921 $ 53,277 $ -- $(32) $96,406
Net income for 1993 14,836 14,836
Cash dividends declared
($.55 per share) (3,954) (3,954)
Issuance of 7,319 shares
common stock 25 88 113
Repurchase of Woodford
Bancorp, Inc. common stock (32) (2) (34)
Change in net unrealized loss on
marketable equity securities 4 4
Balance, December 31, 1993 28,233 15,009 64,157 -- (28) 107,371
Effect of adopting SFAS No. 115,
net of tax 521 28 549
Net income for 1994 8,212 8,212
Cash dividends declared
($.61 per share) (4,747) (4,747)
Issuance of 19,382 shares
common stock 97 387 484
Issuance of 581,963 shares
common stock in conjunction
with debenture redemption 1,940 5,398 7,338
Common stock split including
purchase of fractional shares 12,691 (6) (12,694) (9)
Net change in unrealized
appreciation/(depreciation)
on securities available-for-sale,
net of tax of $727 (2,562) (2,562)
Balance, December 31, 1994 42,961 20,788 54,928 (2,041) -- 116,636
Net income for 1995 10,813 10,813
Cash dividends declared
($.66 per share) (5,807) (5,807)
Issuance of 26,885 shares
common stock 135 180 315
Issuance of 505,223 shares
common stock in conjunction
with acquisitions 2,526 6,915 9,441
Net change in unrealized
appreciation/(depreciation) on
securities available-for-sale,
net of tax of $944 2,397 2,397
Balance, December 31, 1995 $45,622 $ 27,883 $ 59,934 $ 356 $-- $133,795
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (In thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,813 $ 8,212 $ 14,836
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,874 3,539 2,930
Provision for loan and other real estate losses 6,273 7,092 4,717
Deferred income taxes (33) 162 (88)
Securities (gains) losses, net (12) 45 (2,003)
Gain on sale of loans, net (462) (784) (2,038)
Net amortization of securities premiums 532 1,595 1,545
Sales of securities held for sale -- -- 37,302
Maturities of securities held for sale -- -- 8,559
Purchases of securities held for sale -- -- (16,327)
Loans originated for sale (26,797) (49,598) (128,391)
Proceeds from sale of loans 23,290 56,995 128,700
Changes in:
Interest receivable and other assets (962) (903) (2,669)
Interest payable and other liabilities 3,908 515 1,327
Net cash provided by operating activities 20,424 26,870 48,400
Cash flows from investing activities:
Payments to acquire net assets of subsidiaries (14,918) -- --
Proceeds from:
Sale/call of investment securities -- -- 21,100
Sale of mortgage-backed securities -- -- 54,131
Sale/call of securities available-for-sale 18,058 3,949 --
Maturity of securities available-for-sale 53,474 29,326 --
Maturity of securities held-to-maturity 32,709 55,652 --
Maturity of investment securities -- -- 51,492
Principal payments of mortgage-backed securities 135,518 34,278 68,380
Purchase of:
Securities available-for-sale (28,250) (45,958) --
Securities held-to-maturity (40,179) (29,113) --
Investment securities -- -- (142,331)
Mortgage-backed securities (110,522) (62,230) (149,983)
Net change in loans (75,147) (68,753) (4,209)
Net change in premises and equipment (4,795) (4,374) (6,705)
Other 5,921 1,878 3,926
Net cash used in investing activities (28,131) (85,345) (104,199)
Cash flows from financing activities:
Net change in deposits 50,175 32,369 27,212
Net change in federal funds purchased and
other short-term borrowings (15,771) (1,119) 8,265
Advances from Federal Home Loan Bank 1,595 16,058 34,445
Repayments of advances from Federal Home Loan Bank (16,783) (11,526) (8,144)
Proceeds from long-term debt 13,526 -- 17,410
Payments on long-term debt (10,597) (10,363) (18,480)
Issuance and repurchase of common stock, net 315 7,813 79
Dividends paid (5,385) (4,581) (3,832)
Net cash provided by financing activities 17,075 28,651 56,955
Net increase (decrease) in cash and cash equivalents 9,368 (29,824) 1,156
Cash and cash equivalents at beginning of year 80,098 109,922 108,766
Cash and cash equivalents of acquired banks 17,546 -- --
Cash and cash equivalents at end of year $107,012 $ 80,098 $109,922
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include
Pikeville National Corporation (the Corporation) and all its subsidiaries,
including its principal subsidiary, Pikeville National Bank and Trust
Company. Material intercompany transactions and accounts have been
eliminated in consolidation. In preparing financial statements, management
must make estimates and assumptions. These estimates and assumptions affect
the amounts reported for assets, liabilities, revenues and expenses, as well
as affecting the disclosures provided. Future results could differ from the
current estimates. Estimates that are more susceptible to change in the near
term include the allowance for loan losses and other than temporary
reductions in the fair value of certain securities and litigation loss
contingencies.
Nature of Operations - Substantially all assets, liabilities, revenues, and
expenses are related to banking operations, including lending, investing of
funds and obtaining of deposits and other financing. All of the
Corporation's business offices and the majority of its business is located in
eastern and central Kentucky.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand,
amounts due from banks, interest bearing deposits in other financial
institutions and federal funds sold. Generally, federal funds are sold for
one day periods. Cash flows are reported net for customer loan transactions,
deposit transactions, and other short-term borrowings.
Securities - Management determines the classification of securities at
purchase. On January 1, 1994 the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". The Corporation now classifies securities into
held-to-maturity or available-for-sale categories. Held-to-maturity
securities are those which the Corporation has the positive intent and
ability to hold to maturity, and are reported at amortized cost.
Available-for-sale securities are those the Corporation may decide to sell if
needed for liquidity, asset-liability management or other reasons.
Available-for-sale securities are reported at fair value, with unrealized
gains and losses included as a separate component of shareholders' equity,
net of tax. The unrealized gains and losses on securities available-for-sale
includes unrealized losses on equity securities of $584 thousand and $1.2
million at December 31, 1995 and 1994, respectively, which have not been
recorded net of tax as these capital losses would not be deductible for tax
purposes unless offset by capital gains. If declines in fair value are not
temporary, the carrying value of the securities are written down to fair
value as a realized loss.
Prior to 1994, securities were reported at amortized cost, except for
securities held-for-sale which were reported at the lower of cost or market
value in the aggregate.
Gains or losses on disposition of securities are computed by specific
identification for all securities except for shares in mutual funds, which
are computed by average cost. Interest and dividend income, adjusted by
amortization of purchase premium or discount, is included in earnings.
Loans - Loans are reported at the carrying value of unpaid principal
reduced by unearned interest and an allowance for loan losses. Income is
recorded on the level yield basis. Interest accrual is discontinued when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Any loan greater than 90 days past due
must be well secured and in the process of collection to continue accruing
interest.
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the aggregate.
Net unrealized losses are recognized in a valuation allowance by charges to
income.
The provision for loan losses charged to operating expenses is an amount
sufficient to maintain the allowance for loan losses at an adequate level to
absorb future loan losses based on management's best estimate of loan losses,
using such considerations as the current condition and volume of the loan
portfolio, economic conditions within the
30
<PAGE>
service area, review of specific problem loans, and any other known factors
influencing loan collectibility. For loss provisions and valuation
allowances, the amount provided is management's estimate of probable losses.
However, it is possible the amount could be higher, in some cases up to the
full amount of the related asset or obligation.
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan". Under this Statement, impaired loans are measured at the present
value of estimated future cash flows of the loan using the loan rate or at
the fair value of collateral. Loans are impaired when it is estimated it is
probable that all payments will not be collected as scheduled. Upon
adoption, the Corporation recorded no additional loan loss provision.
Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential first and second mortgage loans, residential
construction, home equity, automobile and other consumer loans. Commercial
loans and mortgage loans secured by other properties are evaluated
individually for impairment. When analysis of borrower operating results and
financial condition indicates that underlying cash flows of the borrower are
not adequate to meet debt service requirements, the loan is evaluated for
impairment. This may be associated with a delay or shortfall in payments of
90 days or more. Loans are generally moved to nonaccrual status when 90 days
or more past due, unless the loan is well secured and in the process of
collection. These loans are often also considered impaired. Impaired loans,
in whole or in part, are charged off when deemed uncollectible using the same
criteria as any other loan.
Carrying values of impaired loans are periodically adjusted to reflect
payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such. Other cash
payments reduce carrying value, while increases due to changes in estimates
of future payments and the passage of time are reported as interest income
and decreases as provision for loan losses.
Premises and Equipment - Premises, equipment and leasehold improvements are
stated at cost less accumulated depreciation and amortization. Depreciation
is computed primarily on the straight-line method over the estimated useful
lives or the shorter of the estimated useful lives or terms of the related
leases. Maintenance, repairs and minor improvements are expensed as incurred.
Other Real Estate - Real estate acquired by foreclosure is carried at the
lower of the investment in the property or its fair value. An allowance for
estimated losses on real estate is provided by a charge to operating expense
when a subsequent decline in value occurs. Operating expenses of such
properties, net of related income, and gains and losses on disposition are
included in other expenses.
Purchase Accounting - At date of purchase, net assets of subsidiaries
acquired are recorded at fair value. Any excess of cost over net assets
acquired (goodwill) is amortized by the straight-line method over fifteen to
twenty-five years. Management reviews the earnings of the operations
acquired for evidence of impairment of the unamortized amount.
Income Taxes - Income tax expense is based on the taxes due on the
consolidated tax return plus deferred taxes based on the expected future tax
consequences of temporary differences between carrying amounts and tax bases
of assets and liabilities, using enacted tax rates.
Earnings Per Share - Primary and fully diluted earnings per share are
calculated by dividing net income by the weighted average number of shares of
common stock outstanding and the number of shares of common stock under the
treasury-stock method for stock options, when dilutive. (See Note 19.)
Postretirement Health Care Plan - The Corporation sponsors a
postretirement health care plan for substantially all employees. During the
years employees render service, the expected cost of providing benefits to
employees and their beneficiaries and covered dependents is accrued. Retired
employees may remain in the health care plan with their contribution equal to
their premium expense determined exclusively on the loss experience of the
retirees in the plan.
31
<PAGE>
Reclassification - Certain reclassifications have been made in the prior
financial statements to conform to current classifications.
2. BUSINESS COMBINATIONS
On February 2, 1995, the Corporation acquired all outstanding common shares
of Community Bank of Lexington, Inc. ("Community Bank") for 366,000 shares of
its common stock with a market price of $24 per share. The transaction was
accounted for as a purchase, with $6.3 million of goodwill recorded. The
assets and results of operations of Community Bank are included from the date
of purchase forward. At acquisition, Community Bank had total assets of $61
million and equity of $2.9 million. On March 31, 1995, Community Bank was
merged into Pikeville National Bank and Trust Company, and its offices were
converted into branches.
On May 31, 1995, the Corporation acquired all outstanding common shares of
Woodford Bancorp Inc., Versailles, Kentucky ("Woodford") for 967,000 shares
of its common stock in a pooling-of-interests transaction. At acquisition,
Woodford had total assets of $103 million and shareholders' equity of $12.2
million. The financial statements and all related information have been
restated to include the assets and results of operations of Woodford for all
periods presented.
On June 30, 1995, the Corporation acquired all outstanding common shares of
Commercial Bank of Middlesboro ("Middlesboro") for cash of $14.4 million.
This transaction was accounted for as a purchase, with $4.3 million of
goodwill recorded. The assets and results of operations of Middlesboro are
included from the date of purchase forward. At acquisition, Middlesboro had
assets of $99 million and equity of $8.2 million.
On November 3, 1995, the Corporation acquired all outstanding common shares
of United Whitley Corporation, Williamsburg, Kentucky ("Williamsburg") and
its subsidiary Bank of Williamsburg for 172,000 shares of its common stock in
a pooling-of-interests transaction. At acquisition, Williamsburg had assets
of $37 million and equity of $2.3 million. Due to lack of materiality, prior
period financial statements have not been restated. The assets and results
of operations of Williamsburg are included from the date of acquisition
forward. Bank of Williamsburg was merged into another of the Corporation's
affiliates, Farmers National Bank, Williamsburg, Kentucky on the date of
acquisition.
Presented below are the separate equity accounts of Pikeville National
Corporation and Woodford Bancorp, Inc. as of January 1, 1993, the first date
presented in the consolidated financial statements:
<TABLE>
<CAPTION>
Common Capital Retained Net Unrealized
(In thousands) Stock Surplus Earnings Losses Total
<S> <C> <C> <C> <C> <C>
Pikeville, as originally presented $23,373 $14,921 $48,176 $(32) $86,438
Woodford Bancorp 4,867 0 5,101 0 9,968
Consolidated $28,240 $14,921 $53,277 $(32) $96,406
</TABLE>
Presented below are the separate results of operations of the Corporation
and Woodford Bancorp, Inc. for the three months ended March 31, 1995 and the
years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
(In thousands) Pikeville Woodford Consolidated
<S> <C> <C> <C>
1995 (through March 31)
Net interest income $14,498 $ 1,071 $15,569
Net income 2,426 547 2,973
1994
Net interest income 54,399 4,791 59,190
Net income 7,477 735 8,212
1993
Net interest income 53,446 4,867 58,313
Net income 13,632 1,204 14,836
</TABLE>
32
<PAGE>
Unaudited pro forma condensed results of operations for the years ended
December 31, 1995 and 1994, as if Community Bank and Middlesboro had been
acquired January 1, 1994 are presented below. The results are not
necessarily indicative of future consolidated operations.
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Revenue $146,739 $128,821
Income before extraordinary items 10,948 8,038
Net income 10,948 8,038
Earnings per share 1.22 0.90
</TABLE>
3. CASH AND DUE FROM BANKS
Included in cash and due from banks are noninterest bearing deposits that
are held at the Federal Reserve or maintained in vault cash in accordance
with regulatory reserve requirements. The balance requirement was $15.1
million at December 31, 1995, and $11.3 million at December 31, 1994. Also
included are interest bearing deposits with other financial institutions
which were $4.4 million at December 31, 1995 and $1.9 million at December 31,
1994. Cash paid during the years ended 1995, 1994 and 1993 for interest was
$64.2 million, $46.8 million and $46.7 million, respectively. Cash paid
during the same periods for income taxes was $2.9 million, $3.4 million and
$5.9 million, respectively.
4. SECURITIES
Amortized cost and fair value of securities at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Available-for-sale Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 80,165 $1,184 $ (227) $ 81,122
Mortgage-backed pass through certificates 136,236 1,573 (717) 137,092
Collateralized mortgage obligations 25,714 48 (314) 25,448
Other debt securities 3,177 6 (107) 3,076
Total debt securities 245,292 2,811 (1,365) 246,738
Marketable equity securities 33,563 10 (594) 32,979
$278,855 $2,821 $(1,959) $279,717
<CAPTION>
Gross Gross
Held-to-maturity Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
U.S. Treasury and government agencies $ 28,820 $ 153 $ (226) $ 28,747
States and political subdivisions 56,425 1,094 (417) 57,102
Mortgage-backed pass through certificates 50,284 3 (735) 49,552
Collateralized mortgage obligations 13,200 -- (278) 12,922
Other debt securities 1,992 -- -- 1,992
$150,721 $ 1,250 $ (1,656) $150,315
</TABLE>
Amortized cost and fair value of securities at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Available-for-sale Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 34,458 $ 69 $ (96) $ 34,431
Mortgage-backed pass through certificates 15,454 -- (1,187) 14,267
Collateralized mortgage obligations 2,670 28 (2) 2,696
Other debt securities 5,163 -- (63) 5,100
Total debt securities 57,745 97 (1,348) 56,494
Marketable equity securities 32,149 -- (1,228) 30,921
$ 89,894 $ 97 $ (2,576) $ 87,415
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Held-to-maturity Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 87,808 $ 212 $ (1,796) $ 86,224
States and political subdivisions 55,509 506 (3,271) 52,744
Mortgage-backed pass through certificates 176,920 68 (10,892) 166,096
Collateralized mortgage obligations 35,750 1 (2,931) 32,820
Other debt securities 7,559 -- (333) 7,226
$363,546 $ 787 $(19,223) $345,110
</TABLE>
The amortized cost and fair value of securities at December 31, 1995, 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>
Available-for-sale Held-to-maturity
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $ 34,182 $ 33,693 $ 4,901 $ 4,955
Due after one through five years 43,953 45,235 30,724 30,937
Due after five through ten years 2,030 2,194 36,841 36,748
Due after ten years -- -- 12,779 13,209
Mortgage-backed pass through certificates
and collateralized mortgage obligations 161,950 162,540 63,484 62,474
Other securities 3,177 3,076 1,992 1,992
245,292 246,738 150,721 150,315
Marketable equity securities 33,563 32,979 -- --
$278,855 $279,717 $150,721 $150,315
</TABLE>
Proceeds from sales and calls of securities during 1995, 1994 and 1993 were
$18.1 million, $3.9 million and $112.5 million, respectively. Gross gains of
$18,000 and gross losses of $6,000 were realized on sales and calls in 1995,
gross gains of $10 thousand and gross losses of $55 thousand were realized on
such sales and calls in 1994, gross gains of $2.9 million and gross losses of
$0.9 million were realized on such sales and calls in 1993. In 1993, the
Corporation sold four separate municipal security issues supported by
Guaranteed Investment Contracts issued by Executive Life Insurance Company,
which has been seized by state insurance regulators and is currently under a
court supervised conservatorship. The Corporation wrote down its investment
in these securities by $1.1 million in 1991. The sale of these securities
during 1993 recovered $1.1 million of this write-down.
Upon adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investment in Debt and Equity Securities" in 1994,
the Corporation transferred $52.5 million from securities held for sale to
securities available-for-sale, $10.9 million from investment securities to
securities available-for-sale and $377.5 million from investment securities
to securities held-to-maturity. The Corporation also transferred $13.7
million from securities held-to-maturity to securities available-for-sale
within 90 days of maturity. During 1995, the Financial Accounting Standards
Board interpreted Statement No. 115 to allow for a one-time transfer of
securities from held-to-maturity to available-for-sale. The Corporation
transferred securities with an amortized cost of $195.3 million from
held-to-maturity to available-for-sale to better manage its liquidity
position as a result of this. This transfer did not have a material impact
on the Corporation's equity position.
Securities in the amount of $175 million and $134 million at December 31,
1995 and 1994, respectively, were pledged to secure public deposits, trust
funds, securities sold under repurchase agreements, and advances from the
Federal Home Loan Bank.
34
<PAGE>
5. LOANS
Major classifications of loans, net of unearned income, are summarized as
follows:
<TABLE>
<CAPTION>
December 31 (In thousands) 1995 1994
<S> <C> <C>
Commercial, secured by real estate $ 258,541 $235,611
Commercial, other 192,127 183,533
Real estate - commercial construction 40,140 36,368
Real estate - residential construction 11,399 8,940
Real estate - consumer mortgage 398,288 290,998
Consumer 208,662 143,085
Equipment lease financing 5,911 7,919
$1,115,068 $906,454
</TABLE>
Included in loan balances are loans held for sale in the amount of $8.1
million at December 31, 1995 and $4.1 million at December 31, 1994. The
amount of loans on a non-accruing income status was $9.4 million and $8.8
million at December 31, 1995 and 1994, respectively. Additional interest
which would have been recorded during 1995, 1994 and 1993 if such loans had
been accruing interest was approximately $1.1 million, $876 thousand, and
$886 thousand, respectively.
Certain directors, executive officers and principal shareholders of the
Corporation or Banks, including associates of such persons, were loan
customers during 1995. Such loans were made in the ordinary course of
business at normal credit terms and interest rates. 1995 activity for loans
aggregating $60 thousand or more to any one related party is as follows:
<TABLE>
<S> <C>
(In thousands)
Balance, January 1, 1995 $29,540
New loans 7,875
Loans now meeting disclosure requirements 2,071
Payments (7,043)
Loans no longer meeting disclosure requirements (2,607)
Balance, December 31, 1995 $29,836
</TABLE>
Information regarding impaired loans is as follows for the year ended
December 31, 1995:
<TABLE>
<CAPTION>
(In thousands) 1995
<S> <C>
Average investment in impaired loans $ 6,971
Interest income recognized on impaired loans
including interest income recognized on cash basis 539
Interest income recognized on impaired loans
on cash basis 515
</TABLE>
Information regarding impaired loans at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1995
<S> <C>
Balance of impaired loans $ 7,574
Less loans for which no allowance for loan
losses is allocated (5,133)
Loan balance for which an allowance for loan
losses is allocated 2,441
Portion of allowance for loan losses allocated
to the impaired loans 462
</TABLE>
35
<PAGE>
6. ALLOWANCE FOR LOSSES
Activity in the allowance for loan losses is as follows:
(In thousands) 1995 1994 1993
Balance, beginning of year $12,978 $13,346 $13,736
Balances of acquired banks 2,004 -- --
Provisions charged against operations 5,858 6,066 4,442
Recoveries 1,274 1,103 1,050
Loans charged off (6,032) (7,537) (5,882)
Balance, end of year $16,082 $12,978 $13,346
Activity in the allowance for other real estate losses is as follows:
(In thousands) 1995 1994 1993
Balance, beginning of year $ 1,852 $ 846 $ 827
Provisions charged to operations 415 1,026 275
Charge-offs (1,643) (20) (256)
Balance, end of year $ 624 $ 1,852 $ 846
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31 (In thousands) 1995 1994
Land and buildings $ 46,727 $ 38,259
Leasehold improvements 3,191 2,810
Furniture, fixtures and equipment 24,537 19,815
Construction in progress 530 46
$ 74,985 $ 60,930
Less accumulated depreciation and
amortization (27,432) (22,165)
$ 47,553 $ 38,765
Depreciation and amortization of premises and equipment for 1995, 1994 and
1993 was $3.4 million, $2.7 million, and $2.2 million, respectively.
8. DEPOSITS
Interest expense on deposits is categorized as follows:
(In thousands) 1995 1994 1993
Savings, NOW and money market accounts $12,167 $11,446 $11,160
Certificates of deposit of $100
thousand or more 14,148 8,308 10,043
Other time deposits 30,358 20,135 18,079
$56,673 $39,889 $39,282
Time certificates of deposit outstanding in denominations of $100
thousand or more were $265 million and $198 million at December 31, 1995
and 1994, respectively.
36
<PAGE>
9. LONG-TERM DEBT
Long-term debt is categorized as follows:
<TABLE>
<CAPTION>
December 31 (In thousands) 1995 1994
<S> <C> <C>
Parent Company:
Revolving bank note, interest at prime minus 88 basis points,
interest payable quarterly, secured by stock pledge agreement
of all common stock of three bank subsidiaries, maximum
borrowing of $17,500,000 (see below) $ 5,700 $ --
Bank note, 6.30% interest payable quarterly; principal payment
of $2.0 million due June, 1996; secured by stock pledge
agreement of all common stock of one bank subsidiary
(see below) 2,000 4,000
Six Year Senior Notes, 7.375% interest, due January 1, 1999;
interest payable semiannually; redeemable in whole or in part
at the option of the Corporation at any time on or after
January 1, 1997 5,000 5,000
Ten Year Senior Notes, 8.25% interest, due January 1, 2003;
interest payable semiannually; redeemable in whole or in part
at the option of the Corporation at any time on or after
January 1, 1999 12,230 12,230
Subsidiaries:
Industrial Revenue Development Bonds (see below) 854 1,500
Capital lease obligations, interest at lender's prime rate, payable
in quarterly principal and interest installments of $53
thousand, adjusted for prime rate changes through
September 2004, secured by real property. The Bank has
a purchase option in September 2004 for $921 thousand
or a renewal option for five years 1,571 1,614
Other 518 600
$27,873 $24,944
</TABLE>
The Bank notes and related loan agreements require the maintenance of
certain capital and operational ratios for the Corporation and for the
subsidiary banks whose stock is pledged as collateral, all of which have been
complied with at December 31, 1995.
Industrial Revenue Development Bonds with original amounts of $7.8 million
and $1.3 million issued in March 1981 and September 1982, respectively, are
collateralized by a first mortgage on the Pikeville National Bank and Trust
Company main office and two branch buildings and a security interest in all
equipment and other property acquired with the proceeds of the bonds. The
carrying value of such property at December 31, 1995 and 1994 totaled $5.6
million and $5.8 million, respectively. Principal payments on the bonds are
due March 1 and May 1, respectively, of each year through 1997, in varying
amounts. Interest is payable semiannually at 70% of the prime rate, not to
exceed 25%.
Principal payments due on long-term debt during 1996 through 2000 are as
follows: 1996 - $2.9 million; 1997 - $0.3 million; 1998 - $0.2 million; 1999
- - -$0.1 million; 2000 - $0.1 million.
37
<PAGE>
10. ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from the Federal Home Loan Bank are due for repayment as follows:
December 31 (In thousands) 1995 1994
Due in one year or less $11,118 $ 5,000
Due in one to five years 23,547 5,762
Due in five to ten years 25,242 45,134
Due after ten years 3,722 13,864
$63,629 $69,760
These advances generally require monthly principal payments and are
collateralized by Federal Home Loan Bank stock of $10.4 million and $95.4
million of certain first mortgage loans as of December 31, 1995. Interest
rates range from 4.00% to 9.05%.
11. FEDERAL INCOME TAXES
The components of the provision for income taxes are as follows:
(In thousands) 1995 1994 1993
Currently payable $ 4,641 $ 2,116 $ 5,621
Deferred 219 (423) (88)
Increase in valuation allowance (252) 585 --
$ 4,608 $ 2,278 $ 5,533
The components of the net deferred tax asset as of December 31 are as
follows:
(In thousands) 1995 1994
Deferred Tax Assets
Lease financing income $ -- $ 237
Bad debt deduction 4,684 3,993
Other real estate write-down 942 648
Net unrealized depreciation on securities
available-for-sale -- 868
Losses on mortgage-backed derivative
securities -- 300
Accrued expenses 718 --
Deferred compensation 209 194
Other 1,405 625
Total deferred tax assets $ 7,958 $ 6,865
Deferred Tax Liabilities
Depreciation $(4,055) $(3,185)
Net unrealized appreciation on securities
available-for-sale (302) --
FHLB stock dividends (658) (486)
Other (613) (454)
Total deferred tax liabilities $(5,628) $(4,125)
Valuation allowance (803) (1,055)
Net deferred tax asset $ 1,527 $ 1,685
The valuation allowance is provided based on management's estimate of
future taxable income and on availability of refund of prior taxes paid.
38
<PAGE>
A reconciliation between the statutory and effective tax rates is as follows:
(In thousands) 1995 1994 1993
Tax at statutory rate $ 5,398 35.0% $ 3,672 35.0% $ 7,129 35.0%
Tax-exempt interest (1,605) (10.4) (1,560) (14.9) (1,406) (6.9)
Non-deductible interest
related to carrying
tax-exempt obligations 256 1.7 259 2.5 112 .6
Other, net 559 3.6 (93) (.9) (302) (1.5)
$ 4,608 29.9% $ 2,278 21.7% $ 5,533 27.2%
12. EMPLOYEE BENEFITS
The Corporation has a KSOP plan covering substantially all employees. Half
of the first 8% of wages contributed by an employee is matched and goes into
the savings and retirement portion of the plan. Employees may contribute
additional non-matched amounts up to maximum limits provided by IRS
regulations, and the Corporation may at its discretion, contribute an
additional percentage of covered employees' gross wages.
The Corporation currently contributes 4% of covered employees gross wages
to the employee stock ownership plan (ESOP) portion of the plan. The ESOP
uses the contribution to acquire shares of the Corporation's common stock.
The ESOP owned 154,934 shares of Corporation stock at December 31, 1995.
Substantially all shares owned by the ESOP were allocated to employees'
accounts at December 31, 1995. The market price of the shares at the date of
allocation is essentially the same as the market price at the date of
purchase.
The total retirement plan expense, including ESOP expense above, for 1995,
1994 and 1993 was $1.1 million, $1.1 million, and $1.0 million, respectively.
Under the 1989 stock option plan, certain key employees are granted options
to purchase the Corporation's common stock at fair value at the date of the
grant. Options become exercisable on anniversary dates of the grant in
cumulative annual installments of one-fourth of the number of shares granted.
These options expire the earlier of termination of employment or 10 years
from the date of the grant.
Following is a summary of transactions:
Exercise Price Shares under Option
Per Share 1995 1994
Outstanding, beginning of year $10.67 - $34.50 68,593 79,312
Granted during the year $20.25 - $23.13 8,854 9,093
Exercised during the year $10.67 - $12.00 (6,818) (10,687)
Expired during the year $10.67 - $34.50 (2,562) (9,125)
Outstanding, end of year $10.67 - $34.50 68,067 68,593
Currently eligible at end of the year $10.67 - $21.67 41,331 32,438
At December 31, 1995, there were 128,178 shares reserved for future grants.
The Corporation has a postretirement health care plan for substantially all
employees. The effects of the plan are not material to the Corporation's
financial position or results of operations.
39
<PAGE>
13. OPERATING LEASES
Certain premises and equipment are leased under operating leases. Minimum
rental payments are as follows:
(In thousands)
1996 $1,027
1997 762
1998 648
1999 569
2000 380
Thereafter 3,964
$7,350
Rental expense under operating leases was $1.2 million, $1.2 million, and
$1.4 million in 1995, 1994 and 1993, respectively.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - The carrying amount is a reasonable estimate of
fair value.
Securities - Fair values are based on quoted market prices or dealer quotes.
Loans and Loans Held for Sale - The fair value of fixed rate loans and
variable rate mortgage loans is estimated by discounting the future cash
flows using current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. For other
variable rate loans, the carrying amount is a reasonable estimate of fair
value.
Deposits - The fair value of demand deposits, savings accounts, and money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
Short-Term Borrowings - The carrying amount is a reasonable estimate of
fair value.
Advances from Federal Home Loan Bank - The fair value of these
fixed-maturity advances is estimated by discounting future cash flows using
the rates currently offered for advances of similar remaining maturities.
Long-Term Debt - The interest rate on the Corporation's long-term debt is
variable or approximates current market rates for similar instruments and
therefore the carrying amount is a reasonable estimate of fair value.
Other Financial Instruments - The estimated fair value for other financial
instruments and off-balance sheet loan commitments approximates cost at
December 31, 1995 and 1994 and is not considered significant.
40
<PAGE>
<TABLE>
<CAPTION>
1995 1994
Estimated Estimated
Carrying Fair Carrying Fair
December 31 (In thousands) Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 107,012 $ 107,012 $ 80,098 $ 80,098
Securities 430,438 430,032 450,961 432,525
Loans 1,115,068 1,119,240 906,454 892,004
Less: allowance for loan losses (16,082) (16,082) (12,978) (12,978)
$1,636,436 $1,640,202 $1,424,535 $1,391,649
Financial liabilities:
Deposits $1,467,443 $1,469,866 $1,246,387 $1,248,656
Short-term borrowings 20,383 20,383 31,154 31,154
Advances from Federal Home
Loan Bank 63,629 63,802 69,760 63,782
Long-term debt 27,873 27,873 24,944 24,944
$1,579,328 $1,581,924 $1,372,245 $1,368,536
</TABLE>
15. OFF-BALANCE SHEET TRANSACTIONS
The Banks are a party to transactions with off-balance sheet risk in the
normal course of business to meet the financing needs of their customers.
These financial instruments include standby letters of credit and commitments
to extend credit in the form of unused lines of credit. The Banks use the
same credit policies in making commitments and conditional obligations as
they do for on-balance sheet instruments and include these commitments and
conditional obligations in their calculations as to the adequacy of their
allowances for loan losses.
At December 31, the Banks had the following financial instruments, whose
approximate contract amounts represent credit risk:
(In thousands) 1995 1994
Standby letters of credit $ 16,854 $ 15,319
Commitments to extend credit 118,958 107,980
Standby letters of credit represent conditional commitments to guarantee
the performance of a third party. The credit risk involved is essentially
the same as the risk involved in making loans.
Fixed rate loan commitments at December 31, 1995 of $11.6 million have
interest rates ranging predominately from 4.63% to 12.69% and are for terms
up to 5 years. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Banks evaluate each customer's
credit-worthiness on a case-by-case basis. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. A portion of the
commitments are to extend credit at fixed rates. These credit commitments are
based on prevailing rates, terms and conditions applicable to other loans
being made at December 31, 1995. Collateral held varies but may include
accounts receivable, inventory, property and equipment and income-producing
properties.
During 1994, the Corporation entered into a 3 year interest rate swap.
Semiannually, the Corporation receives interest at a fixed rate of 5.5% and
pays interest at LIBOR. Interest is computed on a notional amount of $10
million. During 1995, the Corporation recognized $56 thousand as expense on
this agreement. LIBOR may change substantially in the future due to market
factors. The fair value of this financial instrument for its remaining term
is not material.
41
<PAGE>
16. CONCENTRATION OF CREDIT RISK
The Banks grant commercial, residential and consumer related loans to
customers primarily located in eastern and central Kentucky. Although the
Banks have diverse loan portfolios, a certain portion of the debtors' ability
to perform is somewhat dependent upon the coal industry.
17. COMMITMENTS AND CONTINGENCIES
The Banks and certain officers are named defendants in legal actions from
normal business activities. Management, after consultation with legal
counsel, believes these actions are without merit or that the ultimate
liability, if any, will not materially affect the Corporation's consolidated
financial position or results of operations.
18. LIMITATION ON SUBSIDIARY BANK DIVIDENDS
The Corporation's principal source of funds is dividends received from the
subsidiary banks. Regulations limit the amount of dividends that may be paid
by the Banks without prior approval. During 1996, approximately $4.5 million
plus any 1996 net profits can be paid by the Banks without prior regulatory
approval.
19. COMMON STOCK SPLIT
On November 23, 1993, the Board of Directors approved a 3-for-2 stock split
effective February 1, 1994 in the form of a dividend of the Corporation's
common stock to shareholders of record on January 5, 1994. As a result of
the split, retained earnings were reduced by $12.7 million. All references
in the accompanying financial statements to the number of average shares and
per share data have been restated to reflect the stock split.
20. IMPACT OF NEW ACCOUNTING STANDARDS
Several new accounting standards have been issued by the Financial
Accounting Standards Board that will apply in 1996. Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets", requires a review of long-term assets for impairment of recorded
value and resulting write-downs if value is impaired. Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights",
requires recognition of an asset when servicing rights are retained on
in-house originated loans that are sold. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", requires
pro-forma disclosure of the effect on net income of valuing future option
grants at estimated fair value of the option granted. These statements are
not expected to have a material effect on the Corporation's financial
position or results of operations.
21. NONINTEREST EXPENSE
Prior to 1995, mortgage-backed derivative securities were purchased for
certain trust accounts administered by the Corporation's affiliates. While
all of these securities are guaranteed by U.S. Government sponsored entities
and pose very little, if any, credit risk, they have exhibited excessive
market volatility which led to a significant decline in their market value
during 1994. The Corporation purchased these securities at the amount
carried in the customer trust accounts, and recognized a $2.8 million pre-tax
loss between book and market value at the date of purchase.
During the latter part of 1993 and 1994, the Corporation intensely examined
ways to improve its performance through restructuring operations and
reengineering work flow processes. As a result, the Corporation adopted a
plan to reduce its workforce. Severance pay and other related costs of
down-sizing totaling $945 thousand were recognized in 1994.
42
<PAGE>
22. PARENT COMPANY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31 (In thousands) 1995 1994
<S> <C> <C>
Assets
Cash on deposit $ 3,336 $ 2,682
Securities available-for-sale 4,319 3,453
Investment in and advances to subsidiary banks 141,472 117,186
Excess of cost over net assets acquired (net of
accumulated amortization) 8,543 8,845
Other assets 6,994 10,698
Total Assets $164,664 $142,864
Liabilities and Shareholders' Equity
Short-term borrowings $ 2,531 $ 2,000
Long-term debt 24,930 21,230
Other liabilities 3,408 2,998
Total liabilities 30,869 26,228
Shareholders' equity 133,795 116,636
Total Liabilities and Shareholders' Equity $164,664 $142,864
CONDENSED STATEMENTS OF INCOME
Year Ended December 31 (In thousands) 1995 1994 1993
<S> <C> <C> <C>
Income:
Dividends from subsidiary banks $21,038 $13,472 $13,061
Other income 3,771 1,886 1,102
Total income 24,809 15,358 14,163
Expenses:
Interest expense $ 2,216 $ 1,784 $ 2,528
Amortization expense 467 459 459
Other expenses 10,206 10,031 3,783
Total expenses $12,889 $12,274 $ 6,770
Income before income taxes and equity
in undistributed income of subsidiaries $11,920 $ 3,084 $ 7,393
Income tax benefit (2,993) (3,475) (1,823)
Income before equity in undistributed
income of subsidiaries $14,913 $ 6,559 $ 9,216
Equity in undistributed income
of subsidiaries (4,100) 1,653 5,620
Net Income $10,813 $ 8,212 $14,836
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31 (In thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 10,813 $ 8,212 $ 14,836
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization, net 199 489 467
Equity in undistributed earnings of subsidiaries 4,100 (1,653) (5,620)
Change in other assets and liabilities, net 1,449 110 (5,841)
Net cash provided by operating activities 16,561 7,158 3,842
Cash Flows From Investing Activities:
Purchase of securities available-for-sale (150) (3,860) --
Payments to acquire net assets of subsidiaries (14,918) -- (1,300)
Net cash used in investing activities (15,068) (3,860) (1,300)
Cash Flows From Financing Activities:
Dividends paid (5,385) (4,580) (3,832)
Net proceeds from issuance of common stock 315 7,813 113
Net change in short-term borrowings 531 2,000 --
Repayment of long-term debt (9,800) (9,490) (17,750)
Proceeds from long-term debt 13,500 -- 17,250
Net cash provided by (used in) financing activities (839) (4,257) (4,219)
Net increase (decrease) in cash and cash equivalents 654 (959) (1,677)
Cash and cash equivalents at beginning of year 2,682 3,641 5,318
Cash and Cash Equivalents At End of Year $ 3,336 $ 2,682 $ 3,641
</TABLE>
<PAGE>
Report of Management
The management of Pikeville National Corporation has the responsibility
for the preparation, integrity and reliability of the financial statements and
related financial information contained in this annual report. Management
believes the consolidated financial statements and related financial
information reflect fairly the substance of the transactions and present
fairly the Corporation's financial position and results of operations in
conformity with generally accepted accounting principles and prevailing
practices within the banking industry including necessary judgments and
estimates as required.
In meeting its responsibilities for the reliability of the financial
statements and related financial information, management has established and
is responsible for maintaining a system of internal accounting controls. The
system is designed to provide reasonable assurance that assets are safeguarded
and that transactions are properly authorized and recorded to facilitate
preparation of financial statements which present fairly the financial
position and results of operations of the Corporation in accordance with
generally accepted accounting principles. Although internal accounting
controls are designed to achieve these objectives, it must be recognized that
errors or irregularities may nonetheless occur. Management believes that its
system of internal accounting controls provides reasonable assurance that
errors or irregularities that could be material to the financial statements
are prevented or would be detected within a reasonable period of time in the
normal course of business. A vital part of the system is a continual and
thorough internal audit program.
The board of directors of the Corporation has an audit committee composed
of six directors who are not officers or employees of the Corporation. The
committee meets periodically with management, internal auditors and the
independent public accountants to review audit results and to assure that the
audit and internal control functions are being properly discharged.
Crowe, Chizek and Company LLP, independent public accountants have been
engaged to render an independent professional opinion on the Corporation's
financial statements. Their audit is conducted in accordance with generally
accepted auditing standards and forms the basis for their reports as to the
fair presentation of the Corporation's financial position and results of
operations contained in this annual report.
Terry N. Coleman
President and Chief Executive Officer
Richard M. Levy
Executive Vice President and Chief Financial Officer
45
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Pikeville National Corporation
Pikeville, Kentucky
We have audited the accompanying consolidated balance sheets of Pikeville
National Corporation and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years ended December 31, 1995, 1994 and 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pikeville
National Corporation and subsidiaries as of December 31, 1995 and 1994 and the
results of its operations and its cash flows for the years ended December 31,
1995, 1994 and 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 impaired loans effective
January 1, 1995, and for securities effective January 1, 1994.
Crowe, Chizek and Company LLP
South Bend, Indiana
January 13, 1996
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Corporation's Audit Committee replaced Crowe, Chizek and Company LLP
with Ernst & Young LLP as its independent auditors for 1996. Crowe, Chizek
and Company LLP had issued an unqualified opinion on the Corporation's 1995
consolidated financial statements. There were no disagreements with the
present or former accountants on any matter of accounting principles or
practices, financial statement disclosure, or scope of auditing procedures.
The Corporation has authorized the former accountant to respond fully to the
inquiries of the successor accountant. For further information, refer to the
Corporation's 8-K filed with the Securities and Exchange Commission for the
event of January 23, 1996.
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by these Items other than the information set
forth above under Part I, "Executive Officers of Registrant", is omitted
because the Corporation is filing a definitive proxy statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report which includes the required information. The required
information contained in the Corporation's proxy statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedules- See Index to
consolidated Financial statements at Item 8 of this report.
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibits
------- -----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated September 27, 1994 between Pikeville National
Corporation and Woodford Bancorp, Inc. (Incorporated by reference to registration statement
no. 33-90448).
2.2 Amendment No.1 to Agreement and Plan of Reorganization dated September 27, 1994 between
Pikeville National Corporation and Woodford Bancorp, Inc., as amended February 7, 1995
(Incorporated by reference to registration statement no. 33-90448).
2.3 Amendment No. 2 to Agreement and Plan of Reorganization dated September 27, 1994 between
Pikeville National Corporation and Woodford Bancorp, Inc., as amended March 2, 1995
(Incorporated by reference to registration statement no. 33-90448).
3.1 Articles of Incorporation and all amendments thereto (Incorporated by reference to
registration statement no. 33-35138).
3.2 By-laws of the Corporations, as amended July 25,1995 (Incorporated by reference to
registration statement no. 33-61891).
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
10.1 Pikeville National Corporation Savings and Employee Stock Ownership Plan (Incorporated by
reference to registration statement no. 33-18961).
10.2 Second restated Pikeville National Corporation 1989 Stock Option Plan (Incorporated by
reference to registration statement no. 33-36165).
21 List of subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K required to be filed during the last quarter of 1995
There were no reports on Form 8-K required to be filed during the last
quarter of 1995.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedules
None.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf the undersigned, thereunto duly authorized.
PIKEVILLE NATIONAL CORPORATION
March 27, 1996 By: /s/ Richard M. Levy
---------------------------------------
Richard M. Levy
Executive Vice President
Principal Financial Officer
49
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Corporation and in the capacities and on the date indicated.
<TABLE>
<C> <S> <C>
March 19, 1996 Chairman of the Board
/s/ Burlin Coleman Director
-----------------------------
Burlin Coleman
Chief Executive Officer
March 19, 1996 President
/s/ Terry N. Coleman Director
-----------------------------
Terry N. Coleman
March 19, 1996 /s/ Charles J. Baird Director
-----------------------------
Charles J. Baird
March 19, 1996 /s/ Nick A. Cooley Director
-----------------------------
Nick A. Cooley
March___, 1996 Director
-----------------------------
John B. DuPuy, Jr.
March___, 1996 Director
-----------------------------
William A. Graham, Jr.
March 19, 1996 /s/ Jean R. Hale Secretary & Director
-----------------------------
Jean R. Hale
March 19, 1996 /s/ Earl Gene Johnson Director
-----------------------------
Earl Gene Johnson
March ___, 1996 Director
-----------------------------
John H. Mays
March 19, 1996 /s/ Leonard F. McCoy Director
-----------------------------
Leonard McCoy
Assistant Secretary &
March 19, 1996 /s/ Lucian I. Meade Director
-----------------------------
Lucian I. Meade
March 19, 1996 /s/ Brandt Mullins Vice Chairman & Director
-----------------------------
Brandt Mullins
March 19, 1996 /s/ M. Lynn Parrish Director
-----------------------------
M. Lynn Parrish
March 19, 1996 /s/ E. M. Rogers Director
-----------------------------
E. M. Rogers
March ___, 1996 Director
-----------------------------
Porter P. Welch
50
<PAGE>
PIKEVILLE NATIONAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No.
- - -----------
2.1 Agreement and plan of reorganization dated September 27, 1994
between Pikeville National Corporation and Woodford Bancorp, Inc.,
incorporated herein by reference.
2.2 Amendment No. 1 to Agreement and Plan of reorganization dated
September 27, 1994 between Pikeville National Corporation and
Woodford Bancorp, Inc., as amended February 7, 1995 and
incorporated herein by reference.
2.3 Amendment No. 2 to Agreement and Plan of reorganization dated
September 27, 1994 between Pikeville National Corporation and
Woodford Bancorp, Inc., as amended March 2, 1995 and incorporated
herein by reference.
3.1 Articles of Incorporation for the Company, incorporated herein by
reference.
3.2 By-laws of the Company as amended through the date of this filing,
incorporated herein by reference.
10.1 Pikeville National Corporation Savings and Employee Stock Ownership
Plan , incorporated herein by reference.
10.2 Second restated Pikeville National Corporation 1989 stock option
plan, incorporated herein by reference.
21 List of subsidiaries
23 Consent of Independent Public Accountants
</TABLE>
53
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
The Corporation has eleven subsidiaries at December 31, 1995.
<TABLE>
<CAPTION>
Percent
Voting Stock
Jurisdiction of Shares Owned Held by
Organization By Corporation Corporation
------------ -------------- -----------
<S> <C> <C> <C>
Pikeville National Bank United States 285,000 Common 100%
and Trust Company
Pikeville, Kentucky
First Security Bank Kentucky 25 Common 100%
& Trust Co.
Whitesburg, Kentucky
Commercial Bank Kentucky 5,670 Common 100%
West Liberty,
Kentucky
The Exchange Bank of
Kentucky Kentucky 17 Common 100%
Mt. Sterling,
Kentucky
Farmers National Bank United States 60,000 Common 100%
Williamsburg,
Kentucky
Farmers-Deposit Bank Kentucky 22,500 Common 100%
Flemingsburg,
Kentucky
First American Bank Kentucky 400,000 Common 100%
Ashland, Kentucky
Community Trust Bank United States 100 Common 100%
FSB
Campbellsville,
Kentucky
Trust Company of Kentucky 500 Common 100%
Kentucky
Ashland, Kentucky
The Woodford Bank and Kentucky 50,000 Common 100%
Trust Company
Versailles, Kentucky
Commercial Bank Kentucky 150,000 Common 100%
Middlesboro, Kentucky
</TABLE>
All shares of First American Bank are pledged as collateral on the bank
note outstanding to National City Bank, Louisville, Kentucky. All shares of
Farmers National Bank, Community Trust Bank FSB and The Woodford Bank and Trust
Company are pledged as collateral on the bank note outstanding to Star Bank,
Cincinnati, Ohio.
51
<PAGE>
EXHIBIT 23
Consent of Independent Public Accountants
We hereby consent to the incorporation by reference of our report dated January
13, 1996 on the consolidated financial statements of Pikeville National
Corporation included in its form 10-K for the year ended December 31, 1995, in
Pikeville National Corporation's previously filed Form S-8 Registration
Statement No. 33-36165.
Crowe, Chizek and Company LLP
South Bend, Indiana
March 27, 1996
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 107,012
<SECURITIES> 430,438
<RECEIVABLES> 0
<ALLOWANCES> 16,082
<INVENTORY> 0
<CURRENT-ASSETS> 563,521
<PP&E> 47,553
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,730,170
<CURRENT-LIABILITIES> 1,504,873
<BONDS> 91,502
0
0
<COMMON> 45,622
<OTHER-SE> 88,173
<TOTAL-LIABILITY-AND-EQUITY> 1,730,170
<SALES> 131,026
<TOTAL-REVENUES> 142,142
<CGS> 64,992
<TOTAL-COSTS> 120,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,858
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,421
<INCOME-TAX> 4,608
<INCOME-CONTINUING> 10,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,813
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
