U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1996
Commission File Number 0-26032
AREA BANCSHARES CORPORATION
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
INCORPORATED IN KENTUCKY IRS EMPLOYER ID NUMBER
No. 61-0902343
230 FREDERICA STREET
OWENSBORO, KENTUCKY 42301
--------------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (502) 926-3232
Former name, former address and former fiscal year, if changed since last
report: N/A
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.
(1) Yes X No (2) Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class: Common stock
No Par Value
Shares Outstanding: As of October 31, 1996, 7,575,388
<PAGE>
AREA BANCSHARES CORPORATION
Table of Contents
<TABLE>
<CAPTION>
PART I - Financial Information Page Number
<S> <C>
Item 1. Financial Statements
Unaudited consolidated balance sheets,
September 30, 1996 and December 31, 1995 3
Unaudited consolidated statements of income,
three months and nine months ended September 30,
1996 and 1995 4
Unaudited consolidated statements of shareholders'
equity, nine months ended September 30, 1996 and
year ended December 31, 1995 5
Unaudited consolidated statements of cash flows,
nine months ended September 30, 1996 and 1995 6
Notes to consolidated financial statements 8
Item 2. Management's discussion and analysis of financial
condition and results of operations
Results of operation 11
Financial position 15
Liquidity 18
PART II - Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters To A Vote of
Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amount in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Cash and due from banks $ 54,942 $ 52,738
Interest bearing deposits with banks 3,601 262
Federal funds sold and securities
purchased under agreements to resell - 100
Trading account securities 34,866 50,403
Investment securities:
Available for sale (amortized cost
of $226,054 and $211,905, respectively) 229,434 215,845
Held to maturity (fair value of $99,236
and $98,319, respectively) 95,976 94,015
------------- -------------
Total investment securities 325,410 309,860
------------- -------------
Mortgage loans held for sale 11,640 24,430
Loans, net of unearned discount 660,102 623,766
Less allowance for loan losses 12,745 12,025
------------- -------------
Net loans 647,357 611,741
------------- -------------
Premises and equipment, net 20,373 18,563
Accrued interest receivable 12,148 11,399
Intangible assets 12,641 14,315
Other assets 16,768 16,259
------------ ------------
Total assets $1,139,746 $1,110,070
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest-bearing deposits $ 160,763 $ 134,876
Interest-bearing deposits 660,893 673,246
------------- -------------
Total deposits 821,656 808,122
------------- -------------
Federal funds purchased 38,874 30,175
Securities sold under agreements to
repurchase 85,370 120,965
Notes payable to the U.S. Treasury 24,590 4,601
Advances from the Federal Home Loan Bank 26,723 12,452
Other borrowings 16,762 13,823
Accrued expenses and other liabilities 8,849 11,358
------------- -------------
Total liabilities 1,022,824 1,001,496
------------- -------------
Preferred stock, no par value; authorized
500,000 shares; none issued - -
Common stock, no par value; authorized
16,000,000 shares; issued and outstanding:
September 30, 1996, 7,581,388; December 31,
1995, 7,618,714 17,659 17,823
Paid-in capital 10,000 10,000
Retained earnings 87,546 78,699
Deferred compensation on restricted stock (480) (509)
Net unrealized gains on securities available
for sale, net of tax 2,197 2,561
------------- -------------
Total shareholders' equity 116,922 108,574
Commitments and contingent liabilities
Total liabilities and shareholders'
equity $1,139,746 $1,110,070
========== ==========
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans, including
fees $15,934 $14,481 $45,822 $41,998
Interest bearing
deposits with
banks 32 10 44 18
Federal funds
sold and
securities
purchased under
agreements to
resell 29 75 600 288
Interest and dividends
on investment securities:
U.S. Treasury
securities and
Federal agencies
securities 3,435 3,314 9,945 9,609
Obligations of
states and
political
subdivisions 1,387 1,456 4,208 4,382
Other 324 249 869 713
----------- ---------- ---------- ----------
Total interest
income 21,141 19,585 61,488 57,008
----------- ---------- ---------- ----------
Interest expense:
Interest on
deposits 7,761 7,181 23,055 20,385
Short-term
borrowings 1,805 2,227 5,015 6,876
Other borrowings 224 97 575 312
---------- ---------- ---------- ----------
Total interest
expense 9,790 9,505 28,645 27,573
---------- ---------- ---------- ----------
Net interest
income 11,351 10,080 32,843 29,435
Provision for
loan losses 334 238 936 2,433
---------- ---------- ---------- ----------
Net interest
income after
provision for
loan losses 11,017 9,842 31,907 27,002
---------- ---------- ---------- ----------
Non-interest income:
Commissions and
fees on fiduciary
activities 890 643 2,406 1,946
Service charges
on deposit
accounts 1,305 1,210 3,801 3,321
Other service
charges,
commissions and
fees 1,102 1,350 3,058 3,394
Securities gains
(losses), net (22) (39) 409 716
Gains on sales of
mortgage loans,
net 51 77 232 569
Gains on sales of
other real estate
owned, net 19 79 12 196
Other 125 98 346 458
--------- --------- --------- ---------
Total non-interest
income 3,470 3,418 10,264 10,600
--------- --------- --------- ---------
Non-interest expenses:
Salaries and
employee
benefits 4,532 4,044 13,526 12,234
Net occupancy
expense 641 569 1,851 1,594
Furniture and
equipment expense 602 500 1,741 1,423
Federal deposit
insurance, net of
refunds 12 (71) 49 773
Data processing
expense 425 378 1,353 1,199
Other 3,196 2,983 9,294 8,984
--------- --------- --------- ---------
Total non-
interest
expenses 9,408 8,403 27,814 26,207
--------- --------- --------- ---------
Income before
income tax
expense 5,079 4,857 14,357 11,395
Income tax
expense 1,382 1,281 3,889 2,786
--------- --------- --------- ---------
Net income $ 3,697 $ 3,576 $10,468 $ 8,609
========= ========= ========= =========
Weighted average
common stock and
common stock
equivalent
shares 7,588 7,618 7,598 7,625
Per common and
common equivalent
stock:
Net income $.49 $.47 $1.38 $1.13
Cash dividends $.04 $.035 $.115 $.10
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(Amounts in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Compensation on Securities
Deferred Gains (losses)
Common Stock Paid-in Retained on Restricted Available
Shares Amount Capital Earnings Stock For Sale Total
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31,
1995
Balance December
31,
1994 7,625,539 $17,854 $10,000 $68,267 $(475) $(3,556) $92,090
Net income 11,582 11,582
Cash dividends
declared
($.135 per share) (1,026) (1,026)
Repurchase of
common
stock (9,575) (44) (168) (212)
Sale of Treasury
stock 750 6 6
Restricted
stock
issued 6,500 29 127 (156) -
Amortization
of deferred
compensation
on restricted
stock 17 17
Restricted
stock
forfeitures (4,500) (22) (83) 105 -
Change in
unrealized
losses on
securities
available
for sale,
net of
taxes 6,117 6,117
-------- ------ ------- ------- -------- ------ ------
Balance
December 31,
1995 7,618,714 17,823 10,000 78,699 (509) 2,561 108,574
Nine Months Ended
September 30, 1996
Net income
January through
September 30, 1996 10,468 10,468
Cash dividends
declared
($.115 per share) (870) (870)
Repurchase of
common stock 37,326 (164) (751) (915)
Amortization of
deferred
compensation
on restricted
stock 29 29
Change in
unrealized gains
on securities
available for sale,
net of tax (364) (364)
--------- ------- ------- ------- ------ ------ --------
Balance September 30,
1996 7,581,388 $17,659 $10,000 $87,546 $(480) $2,197 $116,922
========= ======= ======= ======= ====== ====== ========
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
Cash flows from operating activities: 1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Net income $10,468 $8,609
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for loan losses 936 2,433
Depreciation, amortization and
accretion, net 4,535 2,001
Gain on sales of securities, net (409) (723)
Gain on sales of mortgage loans, net (232) (91)
Gain on sales of other real estate owned (13) (217)
Gain on disposals of equipment (15) (7)
Deferred income taxes (478) 992
Proceeds from sales of trading
account securities 75,238 134,336
Proceeds from maturities of trading
account securities 74,000 -
Purchases of trading account securities (133,497) (148,614)
Purchases of mortgage loans held for sale (63,546) (98,466)
Proceeds from sales of mortgage loans
held for sale 90,397 90,462
Other, net (772) 2,501
------------ -----------
Net cash provided by (used in)
operating activities 56,612 (6,784)
------------ -----------
Cash flows from investing activities:
(Increase) decrease in interest
bearing deposits with banks (3,339) 2
Proceeds from sales of securities
available for sale 11,869 27,649
Proceeds from sales of securities
held to maturity 130 -
Proceeds from maturities of securities
available for sale 48,121 39,431
Proceeds from maturities of securities
held to maturity 2,674 4,178
Calls of securities available for sale 1,200 -
Calls of securities held to maturity 3,410 2,198
Purchases of securities available for sale (76,511) (79,942)
Purchases of securities held to maturity (7,994) (7,346)
Decrease in federal funds sold and securities
purchased under agreements to resell 100 3,169
Loans originated, net of principal collected
on loans (52,900) (989)
Purchases of premises and equipment (3,378) (2,177)
Proceeds from sales of other real estate owned 127 1,392
Proceeds from sales of premises and equipment 31 17
--------- ----------
Net cash provided by (used in) investing
activities (76,460) (12,418)
--------- ----------
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
Cash flows from financing activities: 1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Increase in deposits $13,534 $8,281
Increase in Federal funds purchased 8,699 9,750
Increase (decrease) in securities sold
under agreements to repurchase (35,595) 1,299
Increase in notes payable to the U.S.
Treasury 19,989 11,959
Increase (decrease) in advances from
the Federal Home Loan Bank 14,271 (28,414)
Increase in other borrowings 2,939 3,990
Repurchase of common stock - (175)
Cash dividends paid (870) (760)
Purchase of shares for restricted stock (915) (105)
------------ -------------
Net cash provided by (used in)
financing activities 22,052 5,825
------------ -------------
(Decrease) in cash and due form banks 2,204 (13,377)
Cash and due from banks, January 1 52,738 55,324
------------ -------------
Cash and due from banks, September 30 $ 54,942 $ 41,947
============ =============
Cash flow information:
Income tax payments $ 4,000 $ 2,700
Interest payments $ 28,431 $ 26,840
Non-cash transactions:
Loans transferred to other assets $ 759 $ 999
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996 AND 1995
NOTE 1. Summary of Significant Accounting Policies
The accompanying interim unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q
and, therefore, do not include all information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary
for a fair presentation have been reflected in the accompanying
consolidated financial statements. Results of interim periods are
not necessarily indicative of results to be expected for the full
year.
The accounting and reporting policies of Area Bancshares
Corporation, (the "Corporation") and its subsidiaries conform to
generally accepted accounting principles and general practices
within the banking industry. The consolidated financial statements
include the accounts of Area Bancshares Corporation and its wholly-
owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation. A full
description of significant accounting policies is presented in the
1995 annual report to shareholders.
NOTE 2. Presentation of Cash Flows
For purposes of reporting cash flows, cash and due from banks
include cash on hand and amounts due from banks. Cash flows from
deposits, federal funds purchased, securities sold under agreements
to repurchase, notes payable to the U.S. Treasury, advances from the
Federal Home Loan Bank, and other borrowings are treated as net
increases or decreases.
NOTE 3. Earnings Per Common and Common Equivalent Share
For 1996 and 1995, earnings per common and common equivalent share
are determined by dividing net income by the weighted average number
of common and common equivalent shares outstanding during the year.
Dilutive common stock equivalents related to the stock option plan
were determined using the treasury stock method. Earnings per share
and common equivalent share assuming full dilution are the same as
earnings per common and common equivalent share.
NOTE 4. Investment Securities
Securities issued by states and political subdivisions are held to
maturity while all other securities are available for sale. The
amortized cost and approximate market values of investment
securities as of September 30, 1996 and December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Available for Sale
(Amounts in thousands)
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
September 30, 1996
U.S. Treasury and
Federal Agencies $155,043 $ 558 $1,004 $154,597
Mortgage-Backed
Securities 57,632 2,262 603 59,291
Other Debt Securities 13,379 2,213 46 15,546
-------- ------- ----- --------
Balance at September
30, 1996 $226,054 $5,033 $1,653 $229,434
======== ======= ====== ========
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996 AND 1995
(continued)
NOTE 5.Investment Securities (continued)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
December 31, 1995
U.S. Treasury and
Federal Agencies $166,622 $1,644 $ 840 $167,426
Mortgage-Backed
Securities 41,489 2,491 349 43,631
Other Debt Securities 3,794 994 - 4,788
-------- ------ ------- --------
Balance at December
31, 1995 $211,905 $5,129 $1,189 $215,845
======== ====== ====== ========
<CAPTION>
Held to Maturity
(Amounts in thousands)
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
September 30, 1996
States and Political
Subdivisions $95,976 $3,472 $212 $99,236
======= ====== ==== =======
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
December 31, 1995
States and Political
Subdivisions $94,015 $4,407 $103 $98,319
======= ====== ==== =======
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996 AND 1995
(continued)
NOTE 6. Accounting Matters
The Financial Accounting Standards Board issued several statements
during 1995 which were effective for the Corporation beginning in
1996.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", requires that long-
lived assets be reviewed for appropriate valuation. Should events
or changes in circumstances indicate the future cash flows from the
assets to be less than the carrying value, a loss should be
recognized based upon the fair value of the asset. Long-lived
assets to be disposed of will be reported at the lower of carrying
value or fair value less cost to sell. For a banking organization,
capital assets and other real estate acquired in satisfaction of
debt would be the most likely assets subject to this pronouncement.
Because the Corporation's other real estate assets are carried at
the lower of cost or fair value minus estimated selling costs, and
capital assets are deployed in operating facilities, the adoption of
SFAS No. 121 does not have a significant effect on the Corporation's
financial position or results of operations.
SFAS No. 122, "Accounting for Mortgage Servicing Rights", applies to
all companies with mortgage banking operations. SFAS No. 122
requires capitalization of mortgage servicing rights, regardless of
whether they were acquired through purchase or origination
activities. Prior to issuance of SFAS No. 122, only purchased
mortgage servicing rights were capitalized. The new standard
effectively eliminates the accounting distinction between originated
and purchased mortgage servicing rights. The Corporation's mortgage
acquisition operations include selling loans serviced released,
retaining servicing of loans sold, purchasing servicing rights, and
selling servicing rights. As such, implementation of this new
standard has not had a significant effect on the Corporation's
financial position or results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation", introduces
the use of a new fair value based method of accounting for stock-
based compensation arrangements, but permits companies to retain the
intrinsic value based method prescribed by Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the fair value based method of accounting,
compensation expense is recognized for stock options and other
equity instruments granted to employees based upon their fair value
at the grant date. The intrinsic value based method prescribed by
APB No. 25 recognizes compensation cost for stock options when the
option price is less than the market value of the underlying stock.
Companies not following the new fair value method are required to
provide expanded disclosure of net income and earnings per share as
if they had adopted the fair value accounting method. The
Corporation has elected to continue using the intrinsic value based
method and will provide expanded disclosures related to the fair
value method of accounting for stock-based compensation.
NOTE 7. Intangibles
Goodwill and core deposit intangibles arise from purchase
transactions. Goodwill is amortized on a straight-line basis over a
10 year period. Core deposit intangibles are amortized on a
straight-line basis over the estimated lives of the deposits which
average 10 years. At September 30, 1996 and December 31, 1995, the
unamortized balances of goodwill were $8,109,000 and $9,016,000, and
core deposit intangibles were $4,532,000 and $5,299,000,
respectively.
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Corporation is a multi-bank holding company incorporated in
Kentucky in 1981 and registered under the Bank Holding Company Act
of 1956, as amended. On September 30, 1996, the Corporation had
direct control of three affiliated commercial banks and indirect
control of three additional commercial banks through the ownership
of holding companies, all of which are located in Kentucky. Of the
six affiliated banks, three are national banks and three are state
banks.
The Corporation and its subsidiaries engage in retail and commercial
banking and related financial services. In connection with these
services, the company provides the usual products and services of
retail and commercial banking such as deposits, commercial loans,
personal loans, and trust services. The principal service of the
Corporation consists of making loans. The principal markets for
these loans are businesses and individuals. These loans are made at
the offices of the affiliated banks and subsidiaries, and some are
sold on the secondary market. Additionally, the Corporation engages
in activities that are closely related to banking, including
mortgage banking, investment brokerage, and consumer finance.
The discussion that follows is intended to provide additional
insight into the Corporation's financial condition and results of
operations. This discussion should be read in conjunction with the
consolidated financial statements and accompanying notes presented
in Item 1 of Part I of this report.
A. Results of Operations
Net income for the quarter ended September 30, 1996 was $3,697,000
or $.49 per share compared to $3,576,000 or $.47 per share for the
same period last year, an increase of $121,000 or 3.4% and $.02 per
share or 4.3% respectively. Year-to-date earnings were $10,468,000
or $1.38 per share compared to $8,609,000 or $1.13 per share in
1995. The year-to-date increases were $1,859,000 or 21.6% and $.25
per share or 22.1%, respectively. Earnings improved for the quarter
largely as a result of an increase in net interest income-tax
equivalent of $1,265,000 or 11.6% offset by an increase of
$1,005,000 or 12.0% in non-interest expenses. Earnings for the nine
months ended September 30, 1996, increased as a result of an
increase of $3,332,000 or 10.4% in the net interest income-taxable
equivalent combined with a reduction totaling $1,497,000 or 61.5% in
the provision for loan losses partially off-set by an increase of
$1,607,000 or 6.1% in non-interest expenses. The following table
show the components of net income on a taxable equivalent basis.
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME - TAXABLE EQUIVALENT BASIS
(Amounts in thousands, except per share data)
3 MONTHS ENDED 9/30 9 MONTHS ENDED 9/30
1996 1995 CHANGE 1996 1995 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Interest income $21,141 $19,585 $1,556 $61,488 $57,008 $4,480
Taxable-equivalent
adjustment 817 823 (6) 2,397 2,473 (76)
------- ------- ------ ------- ------- ------
Interest income-
taxable equivalent 21,958 20,408 1,550 63,885 59,481 4,404
Interest expense 9,790 9,505 285 28,645 27,573 1,072
------- ------- ------ ------- ------- ------
Net interest income-
taxable equivalent 12,168 10,903 1,265 35,240 31,908 3,332
Provision for loan
losses 334 238 96 936 2,433 (1,497)
Non-interest income 3,470 3,418 52 10,264 10,600 (336)
Non-interest expenses 9,408 8,403 1,005 27,814 26,207 1,607
------- ------- ------ ------- ------- ------
Income before income
taxes 5,896 5,680 216 16,754 13,868 2,886
Income taxes 1,382 1,281 101 3,889 2,786 1,103
Tax equivalent
adjustment 817 823 (6) 2,397 2,473 (76)
------- ------- ------ ------- ------- ------
Net income $ 3,697 $ 3,576 $ 121 $10,468 $8,609 $1,859
======= ======= ======= ======= ====== ======
Net income per share $.49 $.47 $.02 $1.38 $1.13 $.25
==== ==== ==== ===== ===== ====
</TABLE>
<PAGE>
Net Interest Income
The largest component of the Corporation's operating income is net
interest income. Net interest income is the difference between
interest earned on earning assets and interest expense on interest
bearing liabilities. For purposes of this discussion, interest
income earned on tax-exempt securities and loans is adjusted to a
fully-taxable equivalent basis to facilitate comparison with
interest earned which is subject to statutory taxation.
Changes in net interest income generally occur due to fluctuations
in the balances and/or mixes of interest-earning assets and interest-
bearing liabilities, and changes in their corresponding interest
yields and costs.
The following table summarizes the fully-taxable equivalent interest
spread, which is the difference between the average yield on earning
assets and the average rate on interest bearing liabilities as well
as the net interest margin, which is the fully-taxable equivalent
net interest income divided by the average earning assets for the
three and nine months ended September 30, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
(Amounts in thousands, except percentages)
3 MONTHS ENDED 9/30 9 MONTHS ENDED 9/30
1996 1995 CHANGE 1996 1995 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Average rate on earning
assets 8.61% 8.54% .07% 8.55% 8.48% .07%
Average rate on interest
bearing liabilities 4.63% 4.78% (.15%) 4.62% 4.66% (.04%)
Net interest spread 3.98% 3.76% .22% 3.93% 3.82% .11%
Net interest margin 4.77% 4.56% .21% 4.71% 4.55% .16%
Average earning
assets $1,014,605 $948,266 $66,339 $998,502 $937,913 $60,589
Average interest
bearing liabilities $840,713 $789,874 $50,839 $828,139 $791,698 $36,441
</TABLE>
Net interest income, on a tax equivalent basis, increased $1,265,000
or 11.6% for the quarter ended September 30, 1996, as a result of an
increase in average net earning assets (average earning assets less
average interest bearing liabilities) and an increase in the net
interest margin from 4.56% to 4.77%. For the nine months ended
September 30, 1996, net interest income, on a tax equivalent basis,
increased $3,332,000 or 10.4% over the same period of 1995, as a
result of both an increase in average net earning assets (average
earning assets less average interest bearing liabilities) and an
improvement in the net interest margin. The net interest margin was
4.71% for the first nine months compared to 4.55% a year earlier.
The improvement in the net interest margin was the result of an
increase in the average rate on earning assets to 8.55% from 8.48%,
a reduction in the average rate on interest bearing liabilities to
4.62% from 4.66%, and an increase in average net earning assets
(average earning assets less average interest bearing liabilities).
Provision for Loan Losses
The allowance for loan losses is maintained at a level adequate to
absorb probable losses. Management determines the adequacy of the
allowance based upon reviews of individual loans, evaluation of the
risk characteristics of the loan portfolio, including the impact of
current economic conditions on the borrowers' ability to repay, past
collection and loss experience and such other factors, which in
management's judgment, deserve current recognition. However, actual
losses could differ significantly from the amount estimated by
management. The allowance for loan losses is established by charges
to operating earnings.
<PAGE>
<TABLE>
An analysis of the changes in the allowance for loan losses and
selected ratios follows:
<CAPTION>
(Amounts in thousands, except percentages)
3 MONTHS ENDED 9/30
1996 1995 CHANGE
<S> <C> <C> <C>
Balance, June 30 $12,101 $12,267 $(166)
Provision for loan losses 334 238 96
Loan loss recoveries 674 487 187
Loans charged off 364 1,065 (701)
------- ------- ------
Balance, September 30 $12,745 $11,927 $ 818
======= ======= =====
Average loans, net of
unearned income $645,730 $624,804 $20,926
Provision for loan losses
to average loans* .21% .15% .06%
Net loan charge-offs to
average loans* (.19%) .37% (.56%)
Allowance for loan losses
to end of period loans 1.93% 2.01% (.08%)
9 MONTHS ENDED 9/30
1996 1995 CHANGE
Balance, January 1 $12,025 $11,156 $ 869
Provision for loan losses 936 2,433 (1,497)
Loan loss recoveries 1,318 954 364
Loans charged off 1,534 2,616 (1,082)
------- ------- -------
Balance, September 30 $12,745 $11,927 $ 818
======= ======= =====
Average loans, net of
unearned income $628,430 $616,972 $11,458
Provision for loan losses
to average loans* .20% .53% (.33%)
Net loan charge-offs to
average loans* .05% .36% (.31%)
Allowance for loan losses
to end of period loans 1.93% 2.01% (.08%)
* amounts annualized
</TABLE>
The provision for loan losses increased $96,000 or 40.3% to $334,000
for the quarter ended September 30, 1996, and decreased $1,497,000
or 61.5% to $936,000 during the nine months ended September 30, 1996
compared to the same periods last year. The reduction for both the
quarter and nine month period was the result of improved loan
quality and reduced levels of net loan charge-offs (loan charge-offs
less recoveries).
The provision for loan losses as a percentage of average loans
totaled .21% (annualized) for the quarter ended September 30, 1996
compared to .15% (annualized) for the quarter ended September 30,
1995. For the nine month period ended September 30, 1996, the
provision for loan losses as a percentage of average loans decreased
to .20% (annualized) from .53% (annualized) for the same period in
1995. These decreases reflected a larger provision in the first
quarter of 1995 that was used to increase the reserve as a result of
loans charged off and to provide for the growth that had occurred in
the portfolio.
Net loan charge-offs (loan charge-offs less recoveries) to average
loans decreased to (.19)% (annualized) from .37% (annualized) for
the quarter ended September 30, 1996, and decreased to .05%
(annualized) from .36% (annualized) for the nine months ending
September 30, 1996. These reductions were largely the result of a
decrease in the loans charged-off in the third quarter of 1996
compared to the second quarter of 1995. The reduced level of charge-
offs during 1996 reflects the improved quality of the loan
portfolio.
The reserve for loan losses represented 1.93% of total loans on
September 30, 1996, down slightly from the September 30, 1995 level
of 2.01% and 1.93% at year-end. These decreases were primarily the
result of loan growth and a reduced provision for loan losses.
<PAGE>
Non-Interest Income
The following table sets forth the components of non-interest income
for the three and nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
(Amounts in thousands)
3 MONTHS ENDED 9/30 9 MONTHS ENDED 9/30
1996 1995 CHANGE 1996 1995 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees
on fiduciary
activities $890 $643 $247 $2,406 $1,946 $ 460
Service charges on
deposit accounts 1,305 1,210 95 3,801 3,321 480
Other service charges,
commissions and
fees 1,102 1,350 (248) 3,058 3,394 (336)
Securities gains
(net) (22) (39) 17 409 716 (307)
Gains on sales of
mortgage loans (net) 51 77 (26) 232 569 (337)
Gains (losses) on
sales of other real
estate (net) 19 79 (60) 12 196 (184)
Other 125 98 27 346 458 (112)
----- ----- ----- ------ ------ ------
TOTAL $3,470 $3,418 $ 52 $10,264 $10,600 $(336)
====== ====== ===== ======= ======= ======
</TABLE>
Non-interest income totaled $3,470,000 and $10,264,000 for the three
and nine month periods ended September 30, 1996. These amounts
represent an increase of $52,000 or 1.5% for the quarter and a
decrease of $336,000 or 3.2% for the nine month period ending
September 30, 1996. Commissions and fees on fiduciary activities
increased $247,000 or 38.4% in the third quarter of 1996 and
$460,000 or 23.6% for the nine month period as a result of increases
in both assets under management and fees charged. Service charges
on deposit accounts increased $95,000 or 7.9% to $1,305,000 and
$480,000 or 14.5% to $3,801,000, respectively, for the three and
nine months ended September 30, 1996, when compared to similar
period totals in 1995, due largely to increases in deposits subject
to service charges and the addition of a new affiliate during the
fourth quarter of 1995. The new affiliate accounted for $32,000 of
the increase for the quarter and $91,000 of the increase for the
nine month period. Other service charges, commissions and fees
decreased $248,000 or 18.4% for the quarter and decreased $336,000
or 9.9% for the nine months ended September 30, 1996 when compared
to the same periods of 1995. These decreases were primarily the
result of a reduction in mortgage activity during both the quarter
and year-to-date periods of 1996 when compared to the similar
periods of 1995. Securities gains increased $17,000 to $(22,000)
and decreased $307,000 or 42.9% to $409,000 for the quarter and nine
month periods ending September 30, 1996, respectively. The year-to-
date decrease was the result primarily of a gain in the amount of
$890,000 during the second quarter of 1995 on a security held as
available for sale. Gains on sales of mortgage loans decreased
$26,000 or 33.8% and $337,000 or 59.2% for the quarter and year-to-
date periods, respectively when compared to 1995 period totals.
These decreases were the result of reduced mortgage sales activity
caused by rising interest rates. Gains (losses) on sales of other
real estate decreased $60,000 or 75.9% to $19,000 and $184,000 or
93.9% to $12,000 for the three and nine month periods due to reduced
sales of other real estate. Other non-interest income rose $27,000
or 27.6% to $125,000 while falling $112,000 or 24.5% to $346,000 for
the three and nine month periods ending September 30, 1996. The
decrease for the nine month period was the result of legal fees
recovered during the first quarter of 1995 from prior years totaling
$125,000.
<PAGE>
Non-interest Expense
<TABLE>
The following table sets forth the components of non-interest
expense for the three and nine months ended September 30, 1996:
<CAPTION>
(Amounts in thousands)
3 MONTHS ENDED 9/30 9 MONTHS ENDED 9/30
1996 1995 CHANGE 1996 1995 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Salaries and
employee benefits $4,532 $4,044 $488 $13,526 $12,234 $1,292
Net occupancy expense 641 569 72 1,851 1,594 257
Furniture and equipment
expense 602 500 102 1,741 1,423 318
Federal deposit
insurance 12 (71) 83 49 773 (724)
Data processing
expense 425 378 47 1,353 1,199 154
Other 3,196 2,983 213 9,294 8,984 310
------ ------ ---- ------- ------- ------
TOTAL $9,408 $8,403 $1,005 $27,814 $26,207 $1,607
====== ====== ====== ======= ======= ======
</TABLE>
Non-interest expenses when compared to 1995 period totals, increased
$1,005,000 or 12.0% in the third quarter and $1,607,000 or 6.1% for
the nine months ended September 30, 1996. Salaries and employee
benefits increased $488,000 or 12.1% to $4,532,000
for the third quarter and $1,292,000 or 10.6% to $13,526,000 for the
nine month period. The increase for both periods were the result of
additional staff required to support the current and future growth
as well as the acquisition of a new affiliate in the fourth quarter
of 1995. The new affiliate accounted for $116,000 of the increase
for the current quarter and $362,000 of the increase for the year-to-
date period. Net occupancy expense increased $72,000 or 12.7% to
$641,000 and $257,000 or 16.1% to $1,851,000 for the three and nine
month periods ending September 30, 1996. These increases were
largely the result of six new branches and the acquisition of a new
affiliate in the fourth quarter of 1995. Furniture and equipment
expense increased $102,000 or 20.4% to $602,000 and $318,000 or
22.3% to $1,741,000 for the three and nine month periods when
compared to 1995 period totals. Both of these increases were
primarily the result of the new branches and the new affiliate
discussed above. Federal deposit insurance increased $83,000 to
$12,000 for the quarter while decreasing $724,000 or 93.7% to
$49,000 for the nine month period. The increase for the quarter was
the result of a pretax refund totaling $459,000 received in the
third quarter of 1995 representing excess premiums paid while the
reduction for the nine month period reflects a lower rate. Data
processing expenses increased $47,000 or 12.4% to $425,000 and
$154,000 or 12.8% to $1,353,000 for the third quarter and year-to-
date periods, respectively. These increases were the result of the
Corporation's effort to enhance its data processing capabilities to
meet internal and customer needs. Other non-interest expenses
increased $213,000 or 7.1% to $3,196,000 and $310,000 or 3.5% to
$9,294,000 for the three and nine month periods when compared to
1995 period totals.
B. Financial Position
Total assets increased $29,676,000 or 2.7% to $1,139,746,000 from
December 31, 1995 to September 30, 1996.
Earning assets totaled $1,035,619,000 on September 30, 1996, an
increase of $26,798,000 or 2.7% over December 31, 1995. Loans,
including loans held for sale, grew $23,546,000 to $671,742,000
during the nine months ended September 30, 1996. Loans, including
loans held for sale, represent the largest category of earning
assets comprising 64.9% of earning assets as of September 30, 1996
and 64.3% on December 31, 1995.
Short-term investments, which include interest-bearing deposits with
banks, federal funds sold and securities purchased under agreements
to resell and trading account securities, totaled $38,467,000 on
September 30, 1996, a decrease of $12,298,000 or 24.2% from year-end
balances.
Investment securities represent 31.4% of earning assets. They
totaled $325,410,000 on September 30, 1996, an increase of
$15,550,000 or 5.0% over December 31, 1995 balances.
<PAGE>
Deposits grew by $13,534,000 or 1.7% to $821,656,000 from
$808,122,000 on December 31, 1995. Non-interest bearing deposits
grew $25,887,000 or 19.2% to $160,763,000 while interest bearing
deposits fell $12,353,000 or 1.8% to $660,893,000 from year-end
totals.
Borrowed funds, which include federal funds purchased, securities
sold under agreements to repurchase, notes payable to the U.S.
Treasury, advances from the Federal Home Loan Bank, and other
borrowings increased by $10,303,000 to $192,319,000 from
$182,016,000 on December 31, 1995.
Capital Resources
Shareholders' equity totaled $116,922,000 at September 30, 1996, an
increase of $8,348,000 or 7.7% from December 31, 1995. Out of net
income of $10,468,000 during the first nine months of 1996,
$8,847,000 was retained after paying dividends to shareholders of
$870,000 and purchasing common stock of $751,000. The net
unrealized gains on securities available for sale, net of taxes were
$2,197,000 at September 30, 1996, compared to net unrealized gains
of $2,561,000 at year-end 1995. Increasing market interest rates
during 1996 were responsible for the market value decline of the
securities available for sale.
The shareholders' equity-to-asset ratio was 10.26% at September 30,
1996 compared to 9.78% on December 31, 1995, exceeding the
regulatory level of 6.00% required for "well-capitalized" financial
institutions.
Book values per share were $15.42 and $14.25 at September 30, 1996
and December 31, 1995, respectively.
<TABLE>
A summary of the capital ratios are shown below.
<CAPTION>
Regulatory
Capital Requirements
September 30 December 31 September 30 Well Minimum
1996 1995 1995 Capitalized Required
<S> <C> <C> <C> <C> <C>
Leverage Ratio 9.45% 8.64% 8.95% 5.00% 3.00%
Tier I Risk Based
Capital Ratio 14.27% 13.59% 14.10% 6.00% 4.00%
Total Risk Based
Capital Ratio 15.53% 14.85% 15.36% 10.00% 8.00%
</TABLE>
Asset Quality
At September 30, 1996, the allowance for loan and lease losses was
$12,745,000 or 1.93% of quarter end loans, as compared to
$12,025,000 or 1.93% of loans at December 31, 1995. The ratio of
the allowance for loan and lease losses to non-performing assets
declined to 281.2% at September 30, 1996, compared with 289.6% at
December 31, 1995 largely as a result of an increase from $4,152,000
to $4,532,000 in total nonperforming assets. Non-performing assets
consist of non-accrual loans, loans past due ninety days or more
that are still accruing interest, restructured loans, and other real
estate owned and in-substance foreclosures. Currently, net charge-
offs are at .05% (annualized) of average year-to-date loans.
<PAGE>
The following schedule shows the dollar amount of assets at
September 30, 1996 and December 31, 1995, which were nonaccrual
loans, loans contractually past due ninety days or more as to
interest or principal payments and still accruing, restructured
loans, and other real estate and in-substance foreclosures:
<TABLE>
<CAPTION>
(In thousands)
September 30 December 31
1996 1995
<S> <C> <C>
Nonperforming assets:
Nonaccrual loans $2,027 $2,777
Loans contractually past
due ninety days or more as
to interest or principal
payments and still accruing 1,272 283
Restructured loans - -
------- --------
Total nonperforming and
restructured loans 3,299 3,060
Other real estate owned and
in-substance foreclosures 1,233 1,092
------- --------
Total nonperforming assets $4,532 $4,152
======= ========
</TABLE>
The allowance for loan and lease losses is maintained at a level
that is sufficient to absorb the losses that, in the reasonable
opinion and judgment of management, are known and inherent in the
loan portfolio. Management's evaluation includes an analysis of the
overall quality of the loan portfolio, historical loan loss
experience, loan delinquency trends, and the economic conditions
within the Corporation's marketing area. Additional allocations for
the allowance are based on specifically identified potential loss
situations.
<TABLE>
The allowance for loan and lease losses is allocated by category of
loan and by a percentage distribution of the allowance allocation.
An allocation of the allowance for loan and lease losses is an
estimate of the portion which will be used to cover future charge-
offs in each loan category, but does not preclude any portion of the
allowance allocated to one type of loan from being used to cushion
losses of another loan type. This allocation is determined by the
estimated loss within each loan pool as well as any specific
allocations that may be assigned to specific loans within the same
portfolio section with the remainder being assigned to the
unallocated category. The following table shows the allocation of
the allowance for loan and lease losses by category of loan at
September 30, 1996 and December 31, 1995:
<CAPTION>
September 30, 1996 December 31, 1995
Allowance for Percent Allowance for Percent
loan losses of total loan losses of total
<S> <C> <C> <C> <C>
Commercial $ 3,764,000 29.5% $ 3,481,000 28.9%
Real estate 1,526,000 12.0% 1,218,000 10.1%
Consumer 3,634,000 28.5% 3,233,000 26.9%
Unallocated 3,821,000 30.0% 4,093,000 34.1%
----------- ------ ----------- -------
TOTAL $12,745,000 100.0% $12,025,000 100.0%
=========== ====== =========== ======
</TABLE>
A continuous and comprehensive loan review program is maintained by
the Corporation for each affiliate bank. The purpose of these
reviews is to provide periodic review and inspection of loans to
ensure the safety, liquidity, and profitability of the loan
portfolio. The Corporation's loan review department is entrusted
with the responsibility to identify foreseeable problems, measure
compliance with established loan and operating polices, and provide
objective loan portfolio appraisals to the Board of Directors and
management.
<PAGE>
C. Liquidity
Core deposits have historically provided the Corporation with a
major source of stable and relatively low-cost funding. Secondary
sources of liquidity include federal funds purchased, securities
sold under agreements to repurchase, notes payable to the U.S.
Treasury, advances from the Federal Home Loan Bank, and other
borrowings.
As of September 30, 1996, 72.1% of total assets were funded by core
deposits while 16.9% were funded with secondary sources of liquidity
discussed above, compared to 72.8% and 16.4%, respectively, for the
year ended December 31, 1995.
The loan-to-deposit ratio increased from 77.2% on December 31, 1995
to 80.3% on September 30, 1996.
Interest Rate Sensitivity
Interest rate sensitivity has traditionally been measured by gap
analysis, which represents the difference between assets and
liabilities that reprice in certain time periods. This method,
while useful, has a number of limitations as it is a static point-in-
time measurement and does not take into account the varying degrees
of sensitivity to interest rates within the balance sheet. As shown
in the following table, on a static-gap basis, the cumulative ratio
of interest sensitive assets to interest sensitive liabilities in a
one-year time frame was 78.2%, and the cumulative gap as a
percentage of total assets was (14.7%). Because of inherent
limitations of gap analysis, Area Bancshares uses a simulation model
to more realistically measure its sensitivity to changing interest
rates. Management monitors the rate sensitivity and liquidity
positions on an ongoing basis and, when necessary, appropriate
action is taken to minimize any adverse effects of rapid interest
rate movements or any unexpected liquidity concerns.
<TABLE>
<CAPTION>
(Amounts in thousands)
September 30, 1996
Within 2-3 4-12 Total After Total
1 Month Months Months 1 Year 1 Year
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest Bearing Deposits
and Federal Funds Sold $3,601 - - $3,601 - $3,601
Trading Account
Securities 34,866 - - 34,866 - 34,866
Investment Securities 39,601 12,782 48,789 101,172 224,238 325,410
Mortgages Held for Sale 11,640 - - 11,640 - 11,640
Loans 206,702 48,232 193,251 448,185 211,917 660,102
-------- ------- -------- -------- ------- -------
Total Interest
Sensitive Assets 296,410 61,014 242,040 599,464 436,155 1,035,619
-------- ------- -------- -------- ------- ---------
Interest Sensitive Liabilities:
Interest Bearing Transactions
Accounts (1) 267,433 - - 267,433 - 267,433
Other Interest Bearing
Deposits 71,060 57,792 208,729 337,581 55,879 393,460
Federal Funds Purchased 38,874 - - 38,874 - 38,874
Securities Sold Under
Agreements to Repurchase 73,161 8,400 2,062 83,623 1,747 85,370
Notes Payable to U.S.
Treasury 24,590 - - 24,590 - 24,590
Advances from Federal Home
Loan Bank 239 5,978 8,600 14,817 11,906 26,723
Other Borrowings - - - - 16,762 16,762
-------- ------- -------- -------- ------- --------
Total Interest Sensitive
Liabilities 475,357 72,170 219,391 766,918 86,294 853,212
-------- ------- -------- -------- ------- --------
Interest Sensitivity
Gap $(178,947) $(11,156) $22,649 $(167,454) $349,861 $182,407
========== ========= ======= ========== ======== ========
</TABLE>
<PAGE>
Interest Rate Sensitivity (continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, 1996
Within 2-3 4-12 Total After Total
1 Month Months Months 1 Year 1 Year
<S> <C> <C> <C> <C> <C> <C>
Cumulative Gap $(178,947) $(190,103) $(167,454) $(167,454) $182,407 $182,407
Cumulative Gap
as a Percentage
of Total Assets (15.7%) (16.7%) (14.7%) (14.7%) 16.0% 16.0%
Cumulative Ratio
of Interest
Sensitive Assets
to Interest
Sensitive
Liabilities 62.4% 65.3% 78.2% 78.2% 121.4% 121.4%
<FN>
<F1>
(1)Interest bearing transaction accounts (NOW's, Money Market
accounts and passbooks) are generally less sensitive to changes in
interest rates than other sources of funds, management has
determined to include these accounts in the "Within 1 Month"
category for gap analysis.
</FN>
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters To a Vote of Security Holders
Not applicable.
Item 5. Other Information
a) Exhibits:
Exhibit 10: Memorandum dated September 18, 1996 regarding
executive officer incentive compensation
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 11 Statement RE Computation of Earnings Per Share page
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
AREA BANCSHARES CORPORATION
<S> <C>
Date: November 7, 1996 By: Thomas R. Brumley
----------------------- ---------------------------------
Thomas R. Brumley
President and Chief Executive
Officer
Date: November 7, 1996 By: John A. Ray
------------------------ -------------------------------
John A. Ray
Senior Vice President, Chief
Financial Officer
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
EXHIBIT 10
Memorandum dated September 18, 1996 regarding executive officer incentive
compensation
Motion was made by Pollard White and seconded by Gary Latham and approved
unanimously at the Holding Company Board meeting September 16, 1996, for
the following resolution:
I.Resolved effective October 1, 1996, the salary of Tom Brumley shall be
increased to $19,000 per month (12 x $19,000 = $228,000 annually).
II.Resolved effective calendar year beginning January 1, 1997, Mr.
Brumley shall be paid annual incentive compensation calculated as
follows:
Multiply the average number of Area Bancshares Corporation common shares
outstanding (1), times one dollar and eighty cents ($1.80), then
subtract this number from the after-tax profit of the Corporation as
certified by its outside auditing firm.
After subtracting the number of shares times one dollar and eighty cents
($1.80) from the after-tax profit, the resulting number shall be
multiplied times one percent (1%), and this number is the annual bonus.
However, if the 1997 after-tax earnings per share is greater than the
1996 after-tax earnings, Mr. Brumley shall be paid the above, or $22,000
whichever is greater. If the earnings per share is down for the year
from 1996, there will be no bonus paid for the year.
The above is the method of calculation if there is an increase in earnings
per share from the previous year, wherein said increase is six percent (6%)
or less. If the earnings per share from the previous year is greater than
six percent (6%), but no more than eight percent (8%), the one percent (1%)
number shall be increased to one and a quarter percent (1-1/4%). If said
increase is more than eight percent (8%), but no more than ten percent
(10%), the percentage so applied shall be increased to one and a half
percent (1-1/2%). If said increase is more than ten percent (10%), but no
more than twelve percent (12%), percentage is applied shall be one and
three quarters percent (1-3/4%). If the said percentage increase in
earnings per share is greater than twelve percent (12%), then the
percentage so applied shall be two percent (2%).
Each year the Holding Company Board shall review both the salary and
incentive compensation, and make whatever changes the Board deems
appropriate.
It is anticipated that the 1997 incentive compensation will be paid the
last day of the month following the issuance of the certified annual report
by the outside auditors.
The Board expects that the reserve for loan losses shall be maintained in
the area upwards of two percent (2%) and that other conservative accounting
practices shall be continued.
Mr. Brumley must be employed as a full time employee by Area Bancshares
Corporation on the last day of the calendar year for any of the above
outlined bonus to be considered earned. An exception will be made in the
event of death or disability. In such case, a bonus equal to the
percentage of the year which Mr. Brumley was a full time employee will be
paid. This partial year-payment will not be paid until the last day of the
month following the issuance of the outside auditors report.
If in any future year there should be a decline in earnings per share, the
percentages applied above would not apply to the down year (the highest
previous year of earnings per share would be the base).
(1)To determine the average number of Area Bancshares Corporation common
stock, take the number of shares outstanding the last day of each month
beginning with January, and add them together and divide this sum by
twelve (12).
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
EXHIBIT 11
Statement RE Computation of Earnings Per Common Share and Common Equivalent
Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Shares of common stock,
beginning 7,583,942 7,621,039 7,618,714 7,625,539
========= ========= ========= =========
Shares of common stock,
ending 7,581,388 7,613,039 7,581,388 7,613,039
========= ========= ========= =========
Computation of weighted average number of
common and common equivalent shares:
Common shares outstanding
at the beginning
of the period 7,583,942 7,621,039 7,618,714 7,625,539
Weighted average number of
shares issued - - - -
Weighted average number of
shares redeemed 1,610 6,870 24,547 5,348
Weighted average of common
stock equivalent attributable
to stock options granted,
computed under the treasury
stock method 5,567 4,126 3,808 4,455
--------- --------- --------- ---------
Weighted average number of
common and common equivalent
shares (note 3) 7,587,899 7,618,295 7,597,975 7,624,646
========= ========= ========= =========
Earnings and earnings per common and common
equivalent shares: (note 3)
Net income $3,697,000 $3,576,000 $10,468,000 $8,609,000
========== ========== =========== ==========
Earnings per common and common
equivalent share $.49 $.47 $1.38 $1.13
==== ==== ===== =====
Dividends per share $.04 $.035 $.115 $.10
==== ===== ===== ====
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<S> <C>
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0
0
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</TABLE>
