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, 1997
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.
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, 1997 15,552,667
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AREA BANCSHARES CORPORATION
Table of Contents
<CAPTION>
PART I - Financial Information Page Number
<S> <C>
Item 1. Financial Statements 3
Unaudited consolidated balance sheets, September
30, 1997 and December 31, 1996 3
Unaudited consolidated statements of income,
three and nine months ended September 30, 1997
and 1996 4
Unaudited consolidated statements of shareholders'
equity, year ended December 31, 1996 and nine months
ended September 30, 1997 5
Unaudited consolidated statements of cash flows,
nine months ended September 30, 1997 and 1996 7
Notes to consolidated financial statements 9
Item 2. Management's discussion and analysis of financial
condition and results of operations 13
Results of operations 13
Financial position 20
Liquidity 22
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 23
PART II - Other Information
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters To A Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
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<TABLE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $66,313 $76,923
Interest bearing deposits with banks 4,777 5,884
Federal funds sold 17,150 13,647
Trading account securities 50,886 43,877
Investment securities:
Available for sale (amortized cost of
$301,883 and $319,478, respectively) 316,811 324,943
Held to maturity (fair value of $122,261
and $101,122, respectively) 117,416 97,120
Total investment securities 434,227 422,063
Mortgage loans held for sale 6,117 21,212
Loans, net of unearned discount 1,204,274 1,147,060
Less allowance for loan losses 20,016 18,663
Net loans 1,184,258 1,128,397
Premises and equipment, net 29,822 29,428
Goodwill and other intangible assets 15,902 17,472
Other assets 39,492 37,387
Total assets $1,848,944 $1,796,290
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest-bearing deposits $175,308 $196,565
Interest-bearing deposits 1,221,362 1,197,834
Total deposits 1,396,670 1,394,399
Federal funds purchased 55,032 49,486
Securities sold under agreements to repurchase 94,118 99,910
Notes payable to the U.S. Treasury 24,414 8,883
Advances from the Federal Home Loan Bank 67,767 49,313
Other borrowings 649 6,324
Accrued expenses and other liabilities 20,881 18,592
Total liabilities 1,659,531 1,626,907
Preferred stock, no par value; authorized
500,000 shares; none issued - -
Common stock, no par value; authorized
50,000,000 shares on September 30, 1997
and 16,000,000 on December 31, 1996; issued
and outstanding: September 30, 1997,
15,551,567; December 31, 1996, 15,514,222 24,214 24,197
Paid-in capital 35,624 35,142
Retained earnings 120,933 107,581
Deferred compensation on restricted stock (633) (469)
ESOP and MRP loan obligations (458) (628)
Net unrealized gains on securities available
for sale, net of tax 9,733 3,560
Total shareholders' equity 189,413 169,383
Commitments and contingent liabilities
Total liabilities and shareholders'
equity $1,848,944 $1,796,290
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $28,438 $26,642 $82,668 $79,661
Interest bearing
deposits with banks 74 69 226 308
Federal funds sold 195 180 738 1,224
Interest and dividends on
investment securities:
U.S. Treasury, Federal
agencies and other taxable
securities 4,879 5,720 14,701 17,342
Obligations of states and
political subdivisions 1,907 1,431 4,998 4,329
Total interest income 35,493 34,042 103,331 102,864
Interest expense:
Interest on deposits 13,714 13,431 39,962 41,157
Interest on borrowings 2,529 2,436 6,937 7,490
Total interest expense 16,243 15,867 46,899 48,647
Net interest income 19,250 18,175 56,432 54,217
Provision for loan
losses 1,130 1,034 2,415 3,343
Net interest income
after provision for
loan losses 18,120 17,141 54,017 50,874
Non-interest income:
Commissions and fees
on fiduciary activities 1,109 1,004 3,139 2,731
Service charges on
deposit accounts 1,715 1,627 4,999 4,745
Other service charges,
commissions and fees 1,113 1,201 3,794 3,653
Securities gains, net 1 17 8 486
Gains on sales of
loans, net 507 96 1,148 8,802
Gains (losses) on sales
of other real estate
owned, net (9) 19 (10) 12
Other 218 214 750 783
Total non-interest
income 4,654 4,178 13,828 21,212
Non-interest expenses:
Salaries and employee
benefits 7,534 7,020 21,874 22,915
Net occupancy expense 1,057 972 3,020 3,158
Furniture and equipment
expense 1,202 1,032 3,328 3,451
Federal deposit insurance 62 896 166 1,180
Data processing expense 860 667 2,383 2,296
Other 5,413 4,939 15,112 15,954
Total non-interest
expenses 16,128 15,526 45,883 48,954
Income before income
tax expense 6,646 5,793 21,962 23,132
Income tax expense 1,857 1,658 6,401 7,997
Net income $4,789 $4,135 $15,561 $15,135
Weighted average common
stock and common stock
equivalent shares 15,875 15,809 15,858 15,880
Per common and common
equivalent stock:
Net income $.30 $.26 $.98 $.95
Cash dividends $.03 $.04 $.09 $.115
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(Amounts in thousands, except share and per share data)
(Unaudited)
<CAPTION>
ESOP Net Unrealized
Deferred and Gains (losses)
Compensation MRP on Securities
Common Stock Paid-in Retained on Restricted Loan Available
Shares Amount Capital Earnings Stock Obligations For Sale Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Balance,
December 31,
1995, as
previously
reported 7,618,714 $17,823 $10,000 $78,699 $(509) $2,561 $108,574
Adjustments
for acquisition
using the pooling
- -of-interests
method of
accounting
(note 1): 2,695,426 6,307 22,611 11,593 - (843) 1,482 41,150
Balance,
December 31,
1995, as
restated 10,314,140 $24,130 $32,611 $90,292 $(509) $(843) $4,043 $149,724
Net income 19,886 19,886
Cash dividends declared
($.107 per share) (2,461) (2,461)
Issuance of common
stock 156,106 364 4,632 4,996
Repurchase of
common
stock (190,906) (445) (2,804) (1,066) (4,315)
Stock options
exercised 64,211 148 703 17 868
3-for-2 stock
split
(note 3) 5,170,671 -
Income tax
benefit
related to
exercise of
options 275 275
Spin-off of
subsidiary
(note 7) 638 638
Repayment of
ESOP and MRP
loan obligations 215 215
Amortization
of deferred
compensation
on restricted
stock 40 40
Change in
unrealized
gains on
securities
available for
sale, net of
taxes (483) (483)
Balance
December 31,
1996 15,514,222 24,197 35,142 107,581 (469) (628) 3,560 169,383
</TABLE>
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(Amounts in thousands, except share and per share data)
(Unaudited)
<CAPTION>
ESOP Net Unrealized
Deferred and Gains (losses)
Compensation MRP on Securities
Common Stock Paid-in Retained on Restricted Loan Available
Shares Amount Capital Earnings Stock Obligations For Sale Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine Months
Ended September
30, 1997
Net income
January through
September
30, 1997 15,561 15,561
Cash dividends
declared
($.09 per share) (1,980) (1,980)
Repurchase of
common
stock (24,435) (38) (478) (516)
Stock
options
exercised 56,350 46 482 32 560
Amortization
of deferred
compensation
on restricted
stock 62 62
Net restricted
stock
issued 5,430 9 217 (226) -
Repayment
of ESOP
and MRP
loan
obligations 170 170
Change in
unrealized
gains on
securities
available
for sale,
net of tax 6,173 6,173
Balance,
September
30, 1997 15,551,567 $24,214 $35,624 $120,933 $(633) $(458) $9,733 $189,413
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Amounts in thousands)
<CAPTION>
Cash flows from operating activities: 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Net income $15,561 $15,135
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for loan losses 2,415 3,343
Depreciation, amortization and accretion, net 4,049 6,470
Gain on sales of securities, net (8) (486)
Gain on sales of loans, net (1,148) (8,802)
Loss (gain) on sales of other real estate owned 10 (12)
Loss (gain) on disposals of equipment 39 (15)
Deferred income taxes (201) (180)
Proceeds from sales of trading account
securities 29,637 75,238
Proceeds from maturities of trading
account securities 116,000 74,000
Purchases of trading account securities (152,600) (133,497)
Purchases of mortgage loans held for sale (65,904) (63,546)
Proceeds from sales of mortgage loans
held for sale 105,648 90,397
Other, net (187) 847
Net cash provided by (used in)
operating activities 53,311 58,892
Cash flows from investing activities:
Decrease in interest bearing deposits
with banks 1,107 819
Proceeds from sales of securities
available for sale 33,356 11,869
Proceeds from sales of securities held
to maturity - 130
Proceeds from maturities of securities
available for sale 85,968 78,101
Proceeds from maturities of securities
held to maturity 3,274 38,853
Calls of securities available for sale - 1,200
Calls of securities held to maturity 1,472 3,410
Purchases of securities available for sale (101,172) (129,713)
Purchases of securities held to maturity (24,824) (7,994)
Decrease (increase) in federal funds sold
and securities purchased under
agreements to resell (3,503) 3,310
Loans originated, net of principal
collected on loans (84,539) (93,198)
Net purchases of premises and equipment (3,686) (5,452)
Proceeds from sales of other real estate owned 237 127
Proceeds from sales of loans 11 33,552
Spin-off of subsidiary - (764)
Net cash provided by (used in)
investing activities (92,299) (65,750)
</TABLE>
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Amounts in thousands)
<CAPTION>
Cash flows from financing activities: 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Increase in deposits $2,271 $18,736
Increase in Federal funds purchased 10,936 8,699
Decrease in securities sold under
agreements to repurchase (11,182) (36,865)
Increase in notes payable to the
U.S. Treasury 15,531 19,989
Increase (decrease) in advances from
the Federal Home Loan Bank 18,454 (9,275)
Increase (decrease) in other borrowings (5,696) 2,939
Proceeds from stock options exercised 560 417
Issuance of common stock - 4,996
Cash dividends paid (1,980) (1,802)
Repurchase of common stock (516) (915)
Net cash provided by (used in)
financing activities 28,378 6,919
Increase (decrease) in cash and
due from banks (10,610) 61
Cash and due from banks, January 1 76,923 74,910
Cash and due from banks, September 30 $66,313 $74,971
</TABLE>
See notes to consolidated financial statements.
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
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,
("Area") 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 1996 annual report to
shareholders as well as a complete set of footnotes.
On September 30, 1997 Area completed a merger with Cardinal
Bancshares, Inc. ("Cardinal"), a multi-bank and thrift holding
company headquartered in Lexington, Kentucky. Total assets of
Cardinal on September 30, 1997 were approximately $659,000,000. The
transaction was accounted for as a pooling-of-interests, and
accordingly, all financial information contained herein of prior
results has been presented as if Area and Cardinal were combined at
the beginning of each period presented.
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 1997 and 1996, 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.
On November 18, 1996, the Board of Directors declared a 3-for-2 stock
split effected in the form of a dividend to shareholders of record on
December 4, 1996, payable December 16, 1996. All per share
information in these consolidated financial statements has been
restated to give effect to this stock split.
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
NOTE 4. Investment Securities
<TABLE>
The amortized cost and approximate market values of investment
securities as of September 30, 1997 and December 31, 1996 are as
follows:
<CAPTION>
Available for Sale
(Amounts in thousands)
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
September 30, 1997
U.S. Treasury and
Federal Agencies $201,093 $1,291 $634 $201,750
Mortgage-backed
securities 61,442 824 120 62,146
Obligations of states
and political
subdivisions 16,053 471 5 16,519
Equity and other
securities 23,295 13,101 - 36,396
$301,883 $15,687 $759 $316,811
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury and
Federal Agencies $235,523 $1,601 $619 $236,505
Mortgage-backed
securities 60,959 732 355 61,336
Obligations of states
and political
subdivisions 3,898 51 5 3,944
Equity and other
securities 19,098 4,233 173 23,158
$319,478 $6,617 $1,152 $324,943
<CAPTION>
Held to Maturity
(Amounts in thousands)
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
September 30, 1997
States and Political
Subdivisions $117,416 $5,416 $571 $122,261
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
December 31, 1996
States and Political
Subdivisions $97,120 $4,669 $667 $101,122
</TABLE>
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
NOTE 5. Intangibles
Goodwill, core deposit, and purchased bank charter 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 while purchased bank charter intangibles are
amortized over a ten-year period on a straight-line basis. At
September 30, 1997 and December 31, 1996, the unamortized balances of
goodwill were $12,134,000 and $12,015,000 and core deposit intangibles
were $3,768,000 and $4,294,000, respectively.
NOTE 6. Sale of Assets and Spin-off
On May 14, 1996, substantially all of the assets of Cardinal Credit
Corporation, a Cardinal subsidiary, were sold to Norwest Financial
were sold Kentucky, Inc. An after-tax gain of approximately
$4,600,000 was recorded in connection with such sale and the related
termination of Cardinal Credit Corporation's business. The cash
proceeds of the sale were invested in short-term securities.
<TABLE>
On May 23, 1996 a spin-off of Security First Network Bank ("SFNB"), a
Cardinal subsidiary, was effected. Shareholders of Cardinal common
stock received on a pro rata basis the distribution of 2,398,908
shares. The terms and conditions of the spin-off were set forth in
the First Amended and Restated Plan of Distribution adopted by the
Board of Directors of Cardinal on October 5, 1995. SFNB's common
stock is traded on Nasdaq's National Market System under the trading
symbol "SFNB". Summary balance sheet information of SFNB as of the
spin-off date is as follows:
<CAPTION>
(Dollars in thousands)
<S> <C>
Cash $ 764
Interest-bearing deposits 3,657
Securities 14,216
Net loans 20,637
Premises 3,959
Other assets 870
Deposits 42,644
FHLB advances 1,230
Other liabilities 867
Stockholder's equity (638)
</TABLE>
NOTE 7.Savings Association Insurance Fund Special Assessment
On September 30, 1996 the Deposit Insurance Funds Act of 1996 was
signed into law. As a result of this law, the FDIC collected a
special assessment of 65.7 basis points on Savings Association
Insurance Fund ("SAIF") assessable deposits as of March 31, 1995. An
expense of $726,000 for the special assessment was recorded in the
quarter ended September 30, 1996.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
NOTE 8.Impact of New Accounting Standards
The Financial Accounting Standards Board ("FASB") issued statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," during 1996 which is effective for Area beginning in
1997. SFAS No. 125 provides consistent standards for distinguishing
transfers of assets that are sales from transfers that are secured
borrowings. SFAS No. 125 requires that liabilities incurred by
transferors as part of a transfer be measured at fair value and that
any retained interest in transferred assets be measured by allocating
the previous carrying amount between the assets sold and retained
interest based upon their relative fair values at the date of the
transfer. Additionally, SFAS No. 125 requires that debtors reclassify
financial assets pledged as collateral and that secured parties
recognize those assets and their obligations to return them in certain
circumstances in which the secured party has taken control of those
assets.
Certain provision of SFAS No. 125 have been deferred for one year, to
after December 31, 1997, by the issuance of SFAS No. 127, "Deferral of
the Effective Dates for Certain Provisions of FASB Statement No. 125."
Management has determined that the potential effect of SFAS No. 125 on
its financial position and results of operations is immaterial.
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share"
and SFAS No. 129 "Disclosure of Information About Capital Structure."
SFAS No. 128 simplifies the computation of earnings per share ("EPS")
by replacing the historical measures of EPS with a presentation of
basic and diluted EPS by entities with complex capital structures.
Basic EPS includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of
an entity, similar to fully diluted EPS.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods, and
requires restatement of all prior period EPS data presented. Area
does not expect the implementation of SFAS No.128 to have a material
effect on the consolidated financial statements.
SFAS No. 129 establishes standards for disclosing information about an
entity's capital structure. SFAS No. 129 contains no change in
disclosure requirements for companies that were subject to previously
existing requirements and was issued to eliminate the exemption of
nonpublic entities from certain previously issued disclosure
requirements. SFAS No. 129 is effective for financial statements for
periods ending after December 15, 1997 and is not expected to have a
material effect on Area's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information". SFAS No. 130 defines comprehensive income
as the change in equity (net assets) of a business enterprise during a
period from transactions and other events and circumstances from non-
owner sources. The statement requires comprehensive income to be
reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Area does not
expect the implementation of this statement to have a material effect
on the consolidated financial statements.
SFAS No. 131 changes the way public companies report information about
segments of their business in their annual financial statements and
requires them to report selected segment information in their
quarterly report to shareholders. SFAS No. 131 requires that
companies disclose segment data based on how management makes
decisions about allocating resources to segments and measures their
performance. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997. Area does not expect the implementation of
SFAS No. 131 to have a material effect on the consolidated financial
statements.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Area 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, 1997, the Corporation had direct control of three
affiliated commercial banks, indirect control of seven additional
commercial banks through the ownership of holding companies and
indirect control of one Federal thrift through the ownership of a
holding company, all of which are located in Kentucky. Of the banks
controlled by Area, four are national banks, six are state banks, and
one is a federal thrift. (See note 1 for a discussion of the merger
between Area and Cardinal on September 30, 1997).
Area and its subsidiaries engage in retail and commercial banking and
related financial services. In connection with these services, Area
provides the usual products and services of retail and commercial
banking such as deposits, commercial loans, personal loans, and trust
services. The principal business of Area 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, Area 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 Area'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, 1997 was $4,789,000 or
$.30 per share compared to $4,135,000 or $.26 per share for the same
period last year, an increase of $654,000 or 15.8% and $.04 per share
or 15.4% respectively. Year-to-date earnings were $15,561,000 or $.98
per share compared to $15,135,000 or $.95 per share in 1996. The year-
to-date increases were $426,000 or 2.8% and $.03 per share or 3.2%,
respectively. Earnings for the quarter reflected an increase in net
interest income-tax equivalent and an improvement in non-interest
income partially off-set by increased non-interest expenses. Earnings
for the nine months ended September 30, 1997, rose as a result of an
increase in net interest income-tax equivalent of $2,312,000 or 4.1%,
a reduction of $928,000 in the provision for loan losses and a
reduction of $3,071,000 in non-interest expenses offset by a reduction
of $7,384,000 in non-interest income as a result of a gain on the sale
of the assets of Cardinal Credit Corporation totaling $8,230,000
recorded in the second quarter of 1996.
Return on average assets totaled 1.07% (annualized) during the quarter
ended September 30, 1997 and 1.19% (annualized) for the first nine
months of the year compared to .97% (annualized) and 1.17%
(annualized) for the same periods in 1996. Return on average equity
was 9.99% (annualized) for the quarter ended September 30, 1997 and
11.51% (annualized) for the first nine months of the year compared to
9.81% (annualized) and 12.93% (annualized) for similar periods during
1996.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Results of Operations (continued)
<TABLE>
The following table shows the components of net income on a taxable
equivalent basis:
<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
1997 1996 CHANGE 1997 1996 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Interest income $35,493 $34,042 $1,451 $103,331 $102,864 $467
Taxable-equivalent
adjustment 940 841 99 2,559 2,462 97
Interest income-taxable
equivalent 36,433 34,883 1,550 105,890 105,326 564
Interest expense 16,243 15,867 376 46,899 48,647 (1,748)
Net interest income-
taxable equivalent 20,190 19,016 1,174 58,991 56,679 2,312
Provision for loan losses 1,130 1,034 96 2,415 3,343 (928)
Non-interest income 4,654 4,178 476 13,828 21,212 (7,384)
Non-interest expenses 16,128 15,526 602 45,883 48,954 (3,071)
Income before income taxes 7,586 6,634 952 24,521 25,594 (1,073)
Income taxes 1,857 1,658 199 6,401 7,997 (1,596)
Tax equivalent adjustment 940 841 99 2,559 2,462 97
Net income $4,789 $4,135 $654 $15,561 $15,135 $426
Net income per
share $.30 $.26 $.04 $.98 $.95 $.03
</TABLE>
Net Interest Income
The largest component of Area'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 balance and/or mix of interest-earning assets and interest-bearing
liabilities, and changes in their corresponding interest yields and
costs.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Net Interest Income (continued)
<TABLE>
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, 1997 and 1996, respectively.
<CAPTION>
(Amounts in thousands, except percentages)
3 MONTHS ENDED 9/30 9 MONTHS ENDED 9/30
1997 1996 CHANGE 1997 1996 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Average rate on earning
assets 8.62% 8.68% (.06%) 8.63% 8.72% (.09%)
Average rate on interest
bearing liabilities 4.61% 4.66% (.05%) 4.56% 4.71% (.15%)
Net interest spread 4.01% 4.02% (.01%) 4.07% 4.01% .06%
Net interest margin 4.78% 4.72% .06% 4.81% 4.68% .13%
Average earning
assets 1,676,197 1,601,274 74,923 1,639,743 1,612,567 27,176
Average interest
bearing liabilities 1,397,501 1,357,628 39,873 1,376,550 1,379,330 (2,780)
</TABLE>
Net interest income, on a tax equivalent basis, increased $1,174,000
or 6.2% for the quarter ended September 30, 1997, as a result of an
increase in average net earning assets (average earning assets less
average interest bearing liabilities) an increase in the net interest
margin from 4.72% to 4.78%. For the nine months ended September 30,
1997, net interest income, on a tax equivalent basis, increased
$2,312,000 or 4.1% over the same period of 1996, as a result of an
increase in average net earning assets as well as an increase in the
net interest margin from 4.68% to 4.81%. The improvement in the net
interest margin was the result of a decrease of .15% in the rate paid
on interest bearing liabilities offset by the rate on earning assets
decreasing .09% during the period.
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>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Provision for Loan Losses (continued)
<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
1997 1996 CHANGE
<S> <C> <C> <C>
Balance, June 30 $19,474 $17,298 $2,176
Provision for loan losses 1,130 1,034 96
Loan loss recoveries 252 754 (502)
Loans charged off 840 656 184
Balance, September 30 $20,016 $18,430 $1,586
Average loans, net of
unearned income $1,201,043 $1,095,974 $105,069
Provision for loan losses
to average loans* .38% .38% -
Net loan charge-offs to
average loans* .20% (.04%) +.24%
Allowance for loan losses
to end of period loans 1.66% 1.64% +.02%
* Amounts annualized
<CAPTION>
9 MONTHS ENDED 9/30
1997 1996 CHANGE
<S> <C> <C> <C>
Balance, January 1 $18,663 $17,814 $849
Provision for loan losses 2,415 3,343 (928)
Loan loss recoveries 1,263 1,640 (377)
Loans charged off 2,325 3,033 (708)
Adjustments for the sale
of Cardinal Credit
Corporation and spin-off
of SFNB - (1,334) 1,334
Balance, September 30 $20,016 $18,430 $1,586
Average loans, net of
unearned income $1,178,125 $1,087,245 $90,880
Provision for loan losses
to average loans* .27% .41% (.14%)
Net loan charge-offs to
average loans* .12% .17% (.05%)
Allowance for loan losses
to end of period loans 1.66% 1.64% +.02%
* amounts annualized
</TABLE>
The provision for loan losses increased $96,000 or 9.3% to $1,130,000
for the quarter ended September 30, 1997, and decreased $928,000 or
27.8% to $2,415,000 during the nine months ended September 30, 1997
compared to the same periods last year. The decrease for the nine
months ended September 30, 1997 was primarily the result of a decrease
in nonperforming assets from $5,725,000 on September 30, 1996 to
$5,440,000 on September 30, 1997.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Provision for Loan Losses (continued)
The provision for loan losses as a percentage of average loans totaled
.38% (annualized) for both the quarter ended September 30, 1997 and
September 30, 1996. For the nine-month period ended September 30,
1997, the provision for loan losses as a percentage of average loans
decreased to .27% (annualized) from .41% (annualized) for the same
period in 1996. The decrease for the nine-month period is the result
of a decrease in nonperforming loans discussed above.
Net loan charge-offs (loan charge-offs less recoveries) to average
loans increased to .20% (annualized) from (.04)% (annualized) for the
quarter ended September 30, 1997, and decreased to .12% (annualized)
from .17% (annualized) for the nine months ended September 30, 1997.
The reserve for loan losses represented 1.66% of total loans on
September 30, 1997, as compared to the September 30, 1996 level of
1.64% and 1.63% at year-end.
Non-Interest Income
<TABLE>
The following table sets forth the components of non-interest income
for the three and nine months ended September 30, 1997 and 1996:
<CAPTION>
(Amounts in thousands)
3 MONTHS ENDED 9/30 9 MONTHS ENDED 9/30
1997 1996 CHANGE 1997 1996 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees
on fiduciary
activities $1,109 $1,004 $105 $3,139 $2,731 $408
Service charges
on deposit accounts 1,715 1,627 88 4,999 4,745 254
Other service charges,
commissions
and fees 1,113 1,201 (88) 3,794 3,653 141
Securities gains (net) 1 17 (16) 8 486 (478)
Gains on sales of
loans (net) 507 96 411 1,148 8,802 (7,654)
Gains (losses) on sales
of other real estate
owned (net) (9) 19 (28) (10) 12 (22)
Other 218 214 (4) 750 783 (33)
TOTAL $4,654 $4,178 $476 $13,828 $21,212 $(7,384)
</TABLE>
Non-interest income totaled $4,654,000 and $13,828,000 for the three
and nine-month periods ended September 30, 1997. These amounts
represent an increase of $476,000 or 11.4% for the current quarter and
a decrease of $7,384,000 or 34.8% for the nine months ended September
30, 1997, when compared to 1996 period totals. Commissions and fees
on fiduciary activities increased $105,000 or 10.5% in the third
quarter of 1997 and $408,000 or 14.9% for the nine-month period
primarily as a result of increases in assets under management.
Service charges on deposit accounts increased $88,000 or 5.4% to
$1,715,000 and $254,000 or 5.4% to $4,999,000 respectively, for the
three and nine months ended September 30, 1997, when compared to
similar period totals in 1996, due largely to increases in deposits
subject to service charges. Other service charges, commissions and
fees decreased $88,000 or 7.3% for the quarter ended September 30,
1997 while increasing $141,000 or 3.9% for the nine months ended
September 30, 1997 when compared to the same periods of 1996. The
decrease for the quarter was largely the result of a decline in
mortgage activity. Securities gains decreased $16,000 to $1,000 and
$478,000 to $8,000 for the three-and nine-month periods ending
September 30, 1997.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Non-Interest Income (continued)
Gains on the sales of loans increased $411,000 to $507,000 in the
quarter ended September 30, 1997 as a result of increased sales
activity while decreasing $7,654,000 to $1,148,000 during the nine
months ended September 30, 1997. The decrease for the nine months was
largely the result of a gain in the amount of $8,230,000 recorded in
1996 related to the sale of substantially all of the assets of
Cardinal Credit Corporation. Gains on the sales of loans would have
increased $572,000 without the sale of Cardinal Credit Corporation
assets due to increased activity in the sale of mortgage loans. Other
non-interest income increased $4,000 or 1.9% to $218,000 and while
descreasing $33,000 or 4.2% to $750,000 for the three-and nine-month
periods ended September 30, 1997.
Non-Interest Expenses
<TABLE>
The following table sets forth the components of non-interest expenses
for the three months ended September 30, 1997 and 1996:
<CAPTION>
(Amounts in thousands)
3 MONTHS ENDED 9/30
1997 1996 CHANGE
<S> <C> <C> <C>
Salaries and employee benefits $7,534 $7,020 $514
Net occupancy expense 1,057 972 85
Furniture and equipment expense 1,202 1,032 170
Federal deposit insurance 62 896 (834)
Data processing expense 860 667 193
Other 5,413 4,939 474
TOTAL $16,128 $15,526 $602
</TABLE>
For the quarter ended September 30, 1997 total non-interest expenses
increased $602,000 or 3.9% to $16,128,000. Salaries and employee
benefits increased $514,000 or 7.3% to $7,534,000 for the third
quarter as a result of additional staff required to support current
and future growth as well as normal salary adjustments. Net occupancy
expense and furniture and equipment expense increased $255,000 or
12.7% to $2,259,000 for the three-month period ended September 30,
1997. This increase was largely the result of the addition of new
branches. Federal deposit insurance expense declined $834,000 to
$62,000 as a result of the one-time SAIF Special Assessment totaling
$726,000 included in the third quarter of 1996. Data processing
expenses increased $193,000 or 28.9% to $860,000 during the quarter as
a result of continued enhancements to Area's data processing
capabilities to meet internal and customer needs. Other non-interest
expenses increased $474,000 or 9.6% to $5,413,000 for the three months
ended September 30, 1996 primarily as a result of increases in license
taxes, professional fees and marketing.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Non-Interest Expenses (continued)
<TABLE>
The following table sets forth the components of non-interest expenses
for the nine months ended September 30, 1997 and 1996 and the adjusted
(for the sale of Cardinal Credit Corporation and the spin-off of SFNB
as described in note 7 herein) non-interest expenses for the nine
months ended September 30, 1997:
<CAPTION>
Nine months ended September 30,
1997 1996 1996 Change
As As Reported Cardinal As From 1997
Reported Reported Change Credit SFNB Adjusted Reported
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and
benefits $21,874 $22,915 $(1,041) $1,321 $729 $20,865 $1,009
Net occupancy
expense 3,020 3,158 (138) 266 52 2,840 180
Furniture and
equipment expense 3,328 3,451 (123) 91 426 2,934 394
Federal deposit
insurance 166 1,180 (1,014) - 30 1,150 (984)
Data processing
expense 2,383 2,296 87 22 158 2,116 267
Other 15,112 15,954 (842) 991 590 14,373 739
Total $45,883 $48,954 $(3,071) $2,691 $1,985 $44,278 $1,605
</TABLE>
Non-interest expenses decreased $3,071,000 for the nine months ended
September 30, 1997 compared to the same period in 1996. Substantially
all of the decrease can be attributed to the termination of business
of Cardinal Credit Corporation and the spin-off of SFNB (see note 6
herein) Area's non-interest expenses were not impacted by Cardinal
Credit Corporation and SFNB for the first nine months of 1997 since
Cardinal Credit Corporation terminated business on May 14, 1996 and
SFNB was spun-off effective May 23, 1996. The following discusses
changes in non-interest expenses from the nine months ended September
30, 1996 as adjusted (for the sale of Cardinal Credit Corporation's
assets and the spin-off of SFNB) and the reported nine months ended
September 30, 1997.
Non-interest expenses when compared to adjusted 1996 period totals
increased $1,605,000 or 3.6% to $45,883,000. Salaries and employee
benefits increased $1,009,000 or 4.8% to $21,874,000 primarily as a
result of additional staff and normal salary increases. Net occupancy
expense and furniture and equipment expense increased $574,000 or 9.9%
to $6,348,000 largely as a result of the addition of new branches.
Federal deposit insurance expense declined $984,000 to $166,000 as a
result of the one-time SAIF special assessment totaling $726,000
included in the 1996 period and a reduction in rates paid to the FDIC.
Data processing expenses increased $267,000 or 12.6% during the nine-
month period as a result of continued enhancements to Area's data
processing capabilities. Other non-interest expenses increased
$739,000 or 5.1% to $15,112,000 during the nine months ended September
30, 1997.
In August 1997 management initiated a company-wide review of all
computer systems and applications to ensure year 2000 compliance.
This review and related corrective action, if necessary, is scheduled
for completion in June 1998. Area expects to incur internal staff
costs related to year 2000 issues during this period, but anticipates
that these expenses will be immaterial.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Income Tax Expense
Income tax expense totaled $1,857,000 and $6,401,000 for the three and
nine-month periods ended September 30, 1997. The decrease in the tax
expense for the nine months was largely the result of a lower level of
pretax income. The effective tax rate was 27.9% and 29.1% for the
three-and nine-month periods ended September 30, 1997 compared to
28.6% and 34.6% for the same periods of 1996, respectively. The
decrease in the effective tax rate for the nine-months ended September
30, 1997 compared to the same period in 1996 was primarily the result
of an increase in tax-exempt income. The effective tax rate differs
from the marginal income tax rate of 35% in both 1997 and 1996,
primarily as a result of tax-exempt income.
B. Financial Position
Total assets increased $52,654,000 or 2.9% to $1,848,944,000 from
December 31, 1996 to September 30, 1997.
Earning assets totaled $1,717,431,000 on September 30, 1997, an
increase of $63,688,000 or 3.9% over December 31, 1996. Loans,
including loans held for sale, increased $42,119,000 to $1,210,391,000
during the nine months ended September 30, 1997. Loans, including
loans held for sale, represent the largest category of earning assets,
comprising 70.5% of earning assets as of September 30, 1997 and 70.6%
as of December 31, 1996.
Short-term investments, which include interest-bearing deposits with
banks, federal funds sold and trading account securities, totaled
$72,813,000 on September 30, 1997, an increase of $9,405,000 or 14.8%
from year-end balances.
Investment securities represent 25.3% of earning assets. They totaled
$434,227,000 on September 30, 1997, an increase of $12,164,000 or 2.9%
over December 31, 1996 balances.
Deposits totaled $1,396,670,000 on September 30, 1997, an increase of
$2,271,000 or .2% from December 31, 1996. Non-interest-bearing
deposits declined $21,257,000 or 10.8% to $175,308,000 from year-end
totals, while interest-bearing deposits increased $23,528,000 or 2.0%
to $1,221,362,000 during this period.
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 $28,064,000 to $241,980,000 from $213,916,000 on
December 31, 1996.
Capital Resources
Shareholders' equity totaled $189,413,000 at September 30, 1997, an
increase of $20,030,000 or 11.8% from December 31, 1996. Out of net
income of $15,561,000 during the first nine months of 1997,
$13,581,000 was retained after paying dividends to shareholders of
$1,980,000. The net unrealized gains on securities available for
sale, net of taxes were $9,733,000 at September 30, 1997, compared to
net unrealized gains of $3,560,000 at year-end 1996. An increase in
unrealized gains on equity securities was largely responsible for this
increase.
The shareholders' equity-to-asset ratio was 10.24% at September 30,
1997 compared to 9.43% on December 31, 1996.
Book value per share was $12.18 and $10.92 at September 30, 1997 and
December 31, 1996, respectively.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Capital Resources (continued)
<TABLE>
A summary of the capital ratios are shown below.
<CAPTION>
Regulatory
Capital Requirements
September 30 December 31 September 30 Well Minimum
1997 1996 1996 Capitalized Required
<S> <C> <C> <C> <C> <C>
Leverage Ratio 9.33% 8.86% 8.61% 5.00% 4.00%
Tier I Risk Based
Capital Ratio 13.04% 12.93% 12.83% 6.00% 4.00%
Total Risk Based
Capital Ratio 14.30% 14.19% 14.09% 10.00% 8.00%
</TABLE>
Asset Quality
At September 30, 1997, the allowance for loan losses was $20,016,000
or 1.66% of quarter end loans, as compared to 1.63% of loans at
December 31, 1996. The ratio of the allowance for loan losses to non-
performing assets increased to 367.9% at September 30, 1997, compared
with 364.9% at December 31, 1996 as a result of an increase in the
allowance for loan losses and a reduction 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. Currently, net
charge-offs (loan charge-offs less recoveries) are at .12%
(annualized) of average year-to-date loans compared to .17%
(annualized) during the same period in 1996. This reduction reflects
a lower level of loans charged off.
Management has determined that the allowance for loan 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 Area's marketing area. Additional allocations for
the allowance are based on specifically identified potential loss
situations.
The allowance for loan losses is allocated by category of loan and by
a percentage distribution of the allowance allocation. An allocation
of the allowance for loan 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.
A continuous and comprehensive loan review program is maintained by
Area 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. Area's loan
review department is entrusted with the responsibility to identify
foreseeable problems, measure compliance with established loan and
operating policies, and provide objective loan portfolio appraisals to
the Board of Directors and management.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Asset Quality (continued)
<TABLE>
The following schedule shows the dollar amount of assets at September
30, 1997 and December 31, 1996, and September 30, 1996, 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:
<CAPTION>
(In thousands)
September 30 December 31 September 30
1997 1996 1996
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans $2,220 $2,727 $2,926
Loans contractually past
due ninety days or more
as to interest or principal
payments and still accruing 1,734 1,217 1,546
Total nonperforming and restructured
loans 3,954 3,944 4,472
Other real estate owned 1,486 1,171 1,253
Total nonperforming assets $5,440 $5,115 $5,725
</TABLE>
C. Liquidity
Deposits have historically provided Area 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, 1997, 75.5% of total assets were funded by core
deposits while 13.1% were funded with secondary sources of liquidity
discussed above, compared to 77.6% and 11.9%, respectively, as of
December 31, 1996.
The net loan-to-deposit ratio increased from 80.9% on December 31,
1996 to 84.8% on September 30, 1997.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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
A special meeting of shareholders was held on September 15, 1997
to vote upon the following:
Proposal 1: To amend Area's Articles of Incorporation to
increase the number of shares of authorized
no par value common stock from
16,000,000 to 50,000,000.
Proposal 2: To approve the agreement and plan of merger (see
item 6(b) below) entered into with Cardinal
Bancshares, Inc. pursuant to which Cardinal
Bancshares, Inc. merged with Area. The exchange
ratio was 2.7391 shares of Area common stock for
each share of Cardinal common stock.
<TABLE>
The outcome of the voting was as follows:
<CAPTION>
For Against Abstain Total
<S> <C> <C> <C> <C>
Proposal 1: 8,476,725 9,082 4,140 8,489,947
Proposal 2: 8,482,770 3,037 4,140 8,489,947
</TABLE>
Total outstanding shares eligible to vote were 11,304,860
Item 5. Other Information
Not applicable.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
SEPTEMBER 30, 1997 AND 1996
(continued)
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 11 Statement RE Computation of Earnings Per Share page
26.
Exhibit 27 Financial Data Schedule (For SEC use only)
b) Form 8-K dated May 2, 1997 was filed with the United States
Securities and Exchange Commission and reported the
following information under "Item 5 - Other Events:"
On May 1, 1997, Area signed a definitive agreement that
provided for the combination of Area and Cardinal.
<PAGE>
SIGNATURES
<TABLE>
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.
<CAPTION>
AREA BANCSHARES CORPORATION
<S> <C>
Date: November 14, 1997 By: /S/ Thomas R. Brumley
Thomas R. Brumley
President and Chief Executive
Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /S/ John A. Ray
John A. Ray
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 1997 By: /S/ Gary R.White
Vice President, Controller
(Principal Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
EXHIBIT 11
Statement RE Computation of Earnings Per Common Share and Common Equivalent
Share *
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Shares of common stock,
beginning 15,735,257 15,715,573 15,514,222 15,465,743
Shares of common stock,
ending 15,551,567 15,711,742 15,551,567 15,711,742
Computation of weighted
average number of common
and common equivalent shares:
Common shares outstanding
at the beginning
of the period 15,735,257 15,715,573 15,514,222 15,465,743
Weighted average number
of shares issued - - - 195,829
Weighted average number
of shares redeemed - 2,415 19,049 36,821
Weighted average number
of Cardinal shares owned
by Area (inter-company
investment) 214,882 214,882 214,882 95,503
Weighted average of common
stock equivalent attributable
to stock options granted,
computed under the treasury
stock method 355,011 311,098 577,410 350,987
Weighted average number of
common and common equivalent
shares (note 3) 15,875,386 15,809,374 15,857,701 15,880,235
Earnings and earnings per
common and common
equivalent shares:
(note 3)
Net income $4,789,000 $4,135,000 $15,561,000 $15,135,000
Earnings per common and
common equivalent share $.30 $.26 $.98 $.95
Dividends per share $.03 $.04 $.09 $.115
</TABLE>
* September 30, 1996 per share data restated to reflect a 3-for-2 stock
split effected in the form of a dividend in December 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 66,313
<INT-BEARING-DEPOSITS> 4,777
<FED-FUNDS-SOLD> 17,150
<TRADING-ASSETS> 50,886
<INVESTMENTS-HELD-FOR-SALE> 316,811
<INVESTMENTS-CARRYING> 117,416
<INVESTMENTS-MARKET> 122,261
<LOANS> 1,204,274
<ALLOWANCE> 20,016
<TOTAL-ASSETS> 1,848,944
<DEPOSITS> 1,396,670
<SHORT-TERM> 241,980
<LIABILITIES-OTHER> 20,881
<LONG-TERM> 0
0
0
<COMMON> 24,214
<OTHER-SE> 165,199
<TOTAL-LIABILITIES-AND-EQUITY> 1,848,944
<INTEREST-LOAN> 82,668
<INTEREST-INVEST> 20,663
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 103,331
<INTEREST-DEPOSIT> 39,962
<INTEREST-EXPENSE> 46,899
<INTEREST-INCOME-NET> 56,432
<LOAN-LOSSES> 2,415
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 45,883
<INCOME-PRETAX> 21,962
<INCOME-PRE-EXTRAORDINARY> 15,561
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,561
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 8.63
<LOANS-NON> 2,220
<LOANS-PAST> 1,734
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 18,663
<CHARGE-OFFS> 2,325
<RECOVERIES> 1,263
<ALLOWANCE-CLOSE> 20,016
<ALLOWANCE-DOMESTIC> 20,016
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,194
</TABLE>
