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 the quarter ended March 31, 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, form 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 April 30, 1997, 11,336,828
<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, March 31, 1997
and December 31, 1996 3
Unaudited consolidated statements of income, three months
ended March 31, 1997 and 1996 4
Unaudited consolidated statements of shareholders' equity,
year ended December 31, 1996 and three months ended
March 31, 1997 5
Unaudited consolidated statements of cash flows, three
months ended March 31, 1997 and 1996 6
Notes to consolidated financial statements 8
Item 2. Management discussion and analysis of financial
condition and results of operations
Results of operation 11
Financial position 14
Liquidity 17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 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 Matter 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 March 31, December 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Cash and due from banks $ 52,736 $ 55,516
Interest bearing deposits with banks 4,215 4,484
Federal funds sold - 2,000
Trading account securities 50,863 43,877
Investment securities:
Available for sale (amortized cost
of $207,096 and $211,291,respectively) 211,265 216,349
Held to maturity (fair value of $98,060
and $101,122, respectively) 95,916 97,120
---------- ----------
Total investment securities 307,181 313,469
---------- ----------
Mortgage loans held for sale 8,258 21,212
Loans, net of unearned discount 674,087 679,844
Less allowance for loan losses 12,421 12,289
---------- ----------
Net loans 661,666 667,555
---------- ----------
Premises and equipment, net 21,844 21,409
Accrued interest receivable 10,887 11,771
Intangible assets 11,852 12,112
Other assets 16,874 17,433
---------- ----------
Total assets $1,146,376 $1,170,838
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest-bearing deposits $ 159,838 $ 149,055
Interest-bearing deposits 675,826 696,096
---------- ----------
Total deposits 835,664 845,151
---------- ----------
Federal funds purchased 40,662 49,486
Securities sold under agreements
to repurchase 81,125 95,130
Notes payable to the U.S. Treasury 19,096 8,883
Advances from the Federal Home Loan Bank 30,841 32,537
Other borrowings 4,421 4,446
Accrued expenses and other liabilities 9,815 12,675
--------- ---------
Total liabilities 1,021,624 1,048,308
--------- ---------
Preferred stock, no par value; authorized
500,000 shares; none issued - -
Common stock, no par value; authorized
16,000,000 shares; issued and outstanding:
March 31, 1997, 11,337,828; December 31, 1996,
11,360,757 17,682 17,718
Paid-in capital 10,000 10,000
Retained earnings 94,808 91,994
Deferred compensation on restricted stock (448) (469)
Net unrealized gains on securities available
for sale, net of tax 2,710 3,287
--------- ---------
Total shareholders' equity 124,752 122,530
Commitments and contingent liabilities --------- ---------
Total liabilities and
shareholders' equity $1,146,376 $1,170,838
========= =========
See notes to financial statements.
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Interest income:
Loans, including fees $15,804 $14,899
Interest bearing deposits with banks 57 6
Federal funds sold and securities
purchased under agreements to resell 35 305
Interest and dividends on investment securities:
U.S. Treasury securities and Federal
agencies securities 2,909 3,172
Obligations of states and political
subdivisions 1,393 1,418
Other 350 281
------ ------
Total interest income 20,548 20,081
------ ------
Interest expense:
Interest on deposits 7,483 7,603
Short-term borrowings 1,880 1,629
Other borrowings 5 161
------ ------
Total interest expense 9,368 9,393
------ ------
Net interest income 11,180 10,688
Provision for loan losses 342 230
------ ------
Net interest income after provision
for loan losses 10,838 10,458
------ ------
Non-interest income:
Commissions and fees on fiduciary
activities 882 756
Service charges on deposit accounts 1,289 1,212
Other service charges, commissions
and fees 1,189 964
Securities gains (losses), net 5 (14)
Gains on sales of mortgage loans, net 132 76
Gains (losses) on sales of other real
estate owned, net 24 (3)
Other 168 125
------ ------
Total non-interest income 3,689 3,116
------ ------
Non-interest expenses:
Salaries and employee benefits 4,647 4,427
Net occupancy expense 630 662
Furniture and equipment expense 625 559
Federal deposit insurance 24 25
Data processing expense 528 441
Other 3,098 2,883
------ ------
Total non-interest expenses 9,552 8,997
------ ------
Income before income tax expense 4,975 4,577
Income tax expense 1,370 1,221
------ ------
Net income $ 3,605 $ 3,356
====== ======
Weighted average common stock and
common stock equivalent shares 11,361 11,415
Per common and common equivalent share:
Net income $ .32 $ .29
Cash dividends .03 .023
See notes to financial statements.
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND THREE MONTHS ENDED MARCH 31, 1997
(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,
1996
Balance,
December 31,
1995 7,618,714 $17,823 $10,000 $78,699 $(509) $2,561 $108,574
Net income 15,555 15,555
Cash dividends declared
($.107 per share) (1,211) (1,211)
Repurchase of
common
stock (47,190) (110) (1,066) (1,176)
Stock
options
exercised 3,000 5 17 22
3-for-2 stock
split
(note 3) 3,786,233 -
Amortization of deferred
compensation of restricted
stock 40 40
Change in unrealized losses on
securities available for sale,
net of taxes 726 726
Balance
December 31,
1996 11,360,757 17,718 10,000 91,994 (469) 3,287 122,530
Three Months
Ended March 31,
1997
Net income January through
March 31, 1997 3,605 3,605
Cash dividends declared
($.03 per share) (339) (339)
Repurchase of
common
stock (23,435) (37) (459) (496)
Stock
options
exercised 506 1 7 8
Amortization
of deferred
compensation
on restricted
stock 21 21
Change in
unrealized
gains on
securities
available
for sale,
net of tax
(577) (577)
Balance,
March 31,
1996 11,337,828 $17,682 $10,000 $94,808 $(448) $2,710 $124,752
See notes to financial statements.
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Cash flows from operating activities: 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Net income $ 3,605 $ 3,356
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for loan losses 342 230
Depreciation, amortization and accretion, net 1,268 1,852
Loss (gain) on sales of securities, net (5) 14
Gain on sales of mortgage loans, net (132) (76)
Loss (Gain) on sales of other real estate owned (24) 3
(Gain) on disposals of equipment (4) (15)
Deferred income taxes (233) (79)
Proceeds from sales of trading account
securities 9,882 50,391
Proceeds from maturities of trading account
securities 34,000 -
Purchases of trading account securities (50,856) (48,821)
Purchases of mortgage loans held for sale (3,359) (17,296)
Proceeds from sales of mortgage loans
held for sale 23,511 9,367
Other, net (467) 3,268
-------- -------
Net cash provided by (used in)
operating activities 17,528 2,194
-------- -------
Cash flows from investing activities:
(Increase) decrease in interest bearing
deposits with banks 269 (52)
Proceeds from sales of securities available
for sale 5,572 1,013
Proceeds from sales of securities held
to maturity - -
Proceeds from maturities of securities
available for sale 14,947 18,000
Proceeds from maturities of securities
held to maturity 1,826 1,225
Calls of securities available for sale - 1,200
Calls of securities held to maturity 683 655
Purchases of securities available for sale (16,871) (24,450)
Purchases of securities held to maturity (1,224) (3,069)
Decrease (increase) in federal funds sold
and securities purchased under
agreements to resell 2,000 (4,900)
Loans originated, net of principal
collected on loans (2,078) (5,409)
Purchases of premises and equipment (952) (1,380)
Proceeds from sales of other real estate owned 160 -
Proceeds from sales of premises and equipment 11 22
------- -------
Net cash provided by (used in)
investing activities 4,343 (17,145)
------- -------
continued
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Cash flows from financing activities: 1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Increase (decrease) in deposits $ (9,487) $ 1,743
Increase (decrease) in Federal funds
purchased (8,824) 7,275
Increase (decrease) in securities sold
under agreements to repurchase (14,005) (13,986)
Increase in notes payable to the
U.S. Treasury 10,213 3,929
Increase (decrease) in advances from
the Federal Home Loan Bank (1,696) 6,629
Increase (decrease) in other borrowings (25) (1,641)
Proceeds from stock options exercised 8 -
Repurchase of common stock (496) (468)
Cash dividends paid (339) (265)
---------- --------
Net cash provided by (used in)
financing activities (24,651) 3,216
---------- --------
Increase (decrease) in cash and
due from banks (2,780) (11,735)
Cash and due from banks, January 1 55,516 52,738
---------- --------
Cash and due from banks, March 31 $ 52,736 $ 41,003
========== ========
Cash flow information:
Income tax payments $ 2,300 $ -
Interest payments $ 9,404 $ 9,313
Non-cash transactions:
Loans transferred to other assets $ 257 $ 342
See notes to financial statements.
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 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
(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
1996 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 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.
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 March 31, 1997 and December 31, 1996 are as
follows:
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
<TABLE>
<CAPTION>
NOTE 4. Investment Securities, (continued)
Available for Sale
(Amounts in thousands)
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury
and Federal Agencies $169,994 $ 499 $ 853 $169,640
Mortgage-Backed
Securities 18,545 320 151 18,714
Equity Securities 16,847 4,444 68 21,223
Other Securities 1,710 8 30 1,688
-------- ----- ----- -------
Balance at
March 31, 1997 $207,096 $5,271 $1,102 $211,265
======== ====== ====== ========
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury and
Federal Agencies $173,647 $1,049 $579 $174,117
Mortgage-backed
securities 19,938 245 188 19,995
Equity securities 14,466 4,704 3 19,167
Other securities 3,240 - 170 3,070
-------- ------ ---- --------
Balance at
December 31, 1996 $211,291 $5,998 $940 $216,349
======== ====== ==== ========
<CAPTION>
Held to Maturity
(Amounts in thousands)
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
March 31, 1997
States and Political
Subdivisions $95,916 $3,412 $1,268 $98,060
======= ====== ====== =======
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
<TABLE>
<CAPTION>
Held to Maturity (continued)
(Amounts in thousands)
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>
NOTE 5. Accounting Matters
The Financial Accounting Standards Board 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 the Corporation
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. The statement also 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 provisions 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 not determined the potential
effects of SFAS No. 125 on its financial position or results of
operations.
NOTE 6. 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 deposits which
average 10 years. At March 31, 1997 and December 31, 1996, the
unamortized balances of goodwill were $7,736,000 and $7,818,000, and
core deposit intangibles were $4,116,000 and $4,294,000,
respectively.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
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 March 31, 1997, 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 banks
controlled by the Corporation, three are national banks and three
are state banks.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
The Corporation and its subsidiaries engage in retail and commercial
banking and related financial services. In connection with these
services, the Corporation 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.
A. Results of Operations
Net income for the quarter ended March 31, 1997 was $3,605,000 or
$.32 per share (earnings per share have retroactively restated to
reflect a 3-for-2 stock split effected in the form of a dividend in
December 1996) compared to $3,356,000 or $.29 per share for the same
period last year, an increase of $249,000 or 7.4% and $.03 per share
or 10.3%, respectively. Earnings increased for the quarter
primarily as a result of an increase in net interest income of
$477,000 (taxable equivalent) and an increase in non-interest income
of $573,000, offset by increases in the provision for loan losses
and non-interest expenses totaling $112,000 and $555,000,
respectively.
Return on average assets totaled 1.33% (annualized) during the
quarter ended March 31, 1997 compared to 1.27% (annualized) for the
same period in 1996 while return on average equity was 11.82%
(annualized) for the current quarter versus 12.45% (annualized) for
the same period last year.
The following table shows 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 3/31
1997 1996 CHANGE
<S> <C> <C> <C>
Interest Income $20,548 $20,081 $467
Taxable-Equivalent Adjustment 779 794 (15)
------- ------- ----
Interest Income -
Taxable Equivalent 21,327 20,875 452
Interest Expense 9,368 9,393 (25)
------- ------- ----
Net Interest Income -
Taxable Equivalent 11,959 11,482 477
Provision For Loan Losses 342 230 112
Non-interest Income 3,689 3,116 573
Non-interest Expenses 9,552 8,997 555
------- ------- ----
Income Before Income Taxes 5,754 5,371 383
Income Taxes 1,370 1,221 149
Tax Equivalent Adjustment 779 794 (15)
------- ------- ----
Net Income $ 3,605 $ 3,356 $249
======= ======= ====
</TABLE>
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.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
Net Interest Income (continued)
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 months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
(Amounts in thousands, except percentages)
3 MONTHS ENDED 3/31
1997 1996 CHANGE
<S> <C> <C> <C>
Average rate on earning assets 8.46% 8.59% (.13%)
Average rate on interest bearing
liabilities 4.53% 4.60% (.07%)
Net interest spread 3.93% 3.99% (.06%)
Net interest margin 4.75% 4.73% .02%
Average earning assets $1,021,945 $977,180 $44,765
Average interest bearing
liabilities $ 838,428 $821,588 $16,840
</TABLE>
Net interest income, on a fully-taxable equivalent basis, increased
$477,000 or 4.2% for the quarter ended March 31, 1997 compared to
the same period of 1996. The net interest margin was 4.75%
(annualized) for the first three months of 1997 compared to 4.73%
(annualized) a year earlier. The increase in the net interest
margin was the result of an increase totaling $27,925,000 in average
net earning assets (average earning assets less average interest
bearing liabilities) during the current quarter versus the same
period in 1996, off-set partially by a decrease of .06% (annualized)
in the net interest spread.
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.
An analysis of the changes in the allowance for loan losses and
selected ratios follows:
<TABLE>
<CAPTION>
(Amounts in thousands, except percentages)
3 MONTHS ENDED 3/31
1997 1996 CHANGE
<S> <C> <C> <C>
Balance, December 31 $12,289 $12,025 $264
Provision for loan losses 342 230 112
Loan loss recoveries 365 446 (81)
Loans charged off 575 371 204
------- ------- ----
Balance, March 31 $12,421 $12,330 $ 91
======= ======= ====
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
<TABLE>
<CAPTION>
Provision for Loan Losses (continued)
3 MONTHS ENDED 3/31
1997 1996 CHANGE
<S> <C> <C> <C>
Average loans, net of unearned
income $679,662 $618,957 $60,705
Provision for loan losses to
average loans .20% .15% .05%
Net loan charge-offs
(recoveries) to average loans .12% (.05%) .17%
Allowance for loan losses to
end of period loans 1.84% 1.98% (.14%)
Amounts annualized
</TABLE>
The provision for loan losses increased $112,000 or 48.7% to
$342,000 for the quarter ended March 31, 1997 compared to the same
period last year. The increase for the quarter is the result of
growth in the loan portfolio.
The provision for loan losses as a percentage of average loans
totaled .20% (annualized) for the quarter ended March 31, 1997
compared to .15% (annualized) for the quarter ended March 31, 1996.
The allowance for loan losses represented 1.84% of total loans on
March 31, 1997, up slightly from 1.81% on December 31, 1996. This
increase was the result of a decrease in loans outstanding and an
increase in the allowance for loan losses during the period.
Non-Interest Income
The following table sets forth the components of non-interest income
for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
(Amounts in thousands)
3 MONTHS ENDED 3/31
1997 1996 CHANGE
<S> <C> <C> <C>
Commissions and fees on
fiduciary activities $ 882 $ 756 $126
Service charges on deposit
accounts 1,289 1,212 77
Other service charges,
commissions and fees 1,189 964 225
Securities losses (net) 5 (14) 19
Gains on sales of mortgage
loans (net) 132 76 56
Gains (losses) on sales of
other real estate (net) 24 (3) 27
Other 168 125 43
------ ------ ----
Total $3,689 $3,116 $573
====== ====== ====
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
Non-Interest Income (continued)
Non-interest income for the quarter ending March 31, 1997, totaled
$3,689,000, which was an increase of $573,000 or 18.4% when compared
to the $3,116,000 of non-interest income reported for the quarter
ending March 31, 1996. Commissions and fees on fiduciary activities
increased $126,000 or 16.7% to $882,000 in the first quarter of 1997
largely as a result of an increase in assets under management.
Service charges on deposit accounts increased $77,000 or 6.4% to
$1,289,000 when compared to the first quarter of 1996 primarily as a
result of growth in deposits that are subject to service charges.
Other service charges, commissions and fees increased $225,000 or
23.3% to $1,189,000 for the three months ended March 31, 1997 when
compared to the same period of 1996. The increase for the quarter
can be attributed to increased activity in the sale of mortgage
loans. Gains on the sales of securities, mortgage loans and other
real estate totaled $161,000 during the quarter compared to $59,000
for the same period in 1996.
Non-Interest Expense
The following table sets forth the components of non-interest
expense for the three months ended March 31, 1997:
<TABLE>
<CAPTION>
(Amounts in thousands)
3 MONTHS ENDED 3/31
1997 1996 CHANGE
<S> <C> <C> <C>
Salaries and employee benefits $4,647 $4,427 $220
Net occupancy expense 630 662 (32)
Furniture and equipment expense 625 559 66
Federal deposit insurance 24 25 (1)
Data processing expense 528 441 87
Other 3,098 2,883 215
------ ------ ----
Total $9,552 $8,997 $555
====== ====== ====
</TABLE>
Non-interest expenses when compared to 1996 period totals, increased
$555,000 or 6.2% to $9,552,000 in the first quarter of 1997.
Salaries and employee benefits increased $220,000 or 5.0% to
$4,647,000 during the first quarter of 1997. The increase was
primarily the result of normal salary increases as well as
additional staff required to support current and future growth.
Net occupancy expense and furniture and equipment expense increased
$34,000 or 2.8% to $1,255,000 during the first quarter of 1997 when
compared to the same period in 1996. The increase was largely the
result of 3 new branches, bringing to 36 the total number of retail
banking locations. Data processing expenses increased $87,000 or
19.7% to $528,000 from $441,000 during the quarter. This increase
was the result of improvements to the data processing system. Other
non-interest expenses increased $215,000 or 7.5% to $3,098,000, when
compared to 1996 period totals primarily as a result of an increase
in license and operating taxes.
B. Financial Position
Total assets decreased $24,462,000 or 2.1% to $1,146,376,000 from
December 31, 1996 to March 31, 1997.
Earning assets totaled $1,044,604 on March 31, 1997, a decrease of
$20,282,000 or 1.90% from December 31, 1996. Loans, including loans
held for sale, decreased $18,711,000 to $682,345,000 during the
three months ended March 31, 1997. Loans including loans held for
sale, represent the largest category of earning assets comprising
65.3% of earning assets as of March 31, 1997 and 65.8% on December
31, 1996.
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
B. Financial Position (continued)
Short-term investments, which include interest-bearing deposits with
banks, federal funds sold and trading account securities, totaled
$55,078,000 on March 31, 1997, an increase of $4,717,000 or 9.4%
from year-end balances.
Investment securities represent 29.4% of earning assets. They
totaled $307,181,000 on March 31, 1997, a decrease of $6,288,000 or
2.0% from December 31, 1996 balances.
Deposits decreased $9,487,000 or 1.1% to $835,664,000 from
$845,151,000 on December 31, 1996.
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 decreased by $14,337,000 or 7.5% to $176,145,000
from $190,482,000 on December 31, 1996.
Capital Resources
Stockholders' equity totaled $124,752,000 at March 31, 1997, an
increase of $2,222,000 or 1.8% from December 31, 1996. Out of net
income of $3,605,000 during the first three months of 1997,
$2,770,000 was retained after paying dividends to shareholders of
$339,000 and purchasing common stock of $496,000. The net
unrealized gains on securities available for sale, net of taxes, was
$2,710,000 at March 31, 1997, compared to net unrealized gains of
$3,287,000 at year-end 1996. Increasing market interest rates
during the first quarter of 1997 were responsible for the market
value decline of the securities available for sale.
The stockholders' equity-to-asset ratio was 10.88% at March 31, 1997
compared to 10.47% on December 31, 1996, exceeding the regulatory
level required for "well-capitalized" financial institutions.
Book value per share was $11.00 and $10.79 at March 31, 1997 and
December 31, 1996, respectively.
<TABLE>
A summary of the capital ratios are shown below.
<CAPTION>
Regulatory
Capital Requirements
March 31 December 31 March 31 Well Minimum
1997 1996 1996 Capitalized Required
<S> <C> <C> <C> <C> <C>
Leverage Ratio 10.11% 9.88% 9.08% 5.00% 4.00%
Tier I Risk Based
Capital Ratio 15.02% 14.33% 13.75% 6.00% 4.00%
Total Risk Based
Capital Ratio 16.28% 15.58% 15.00% 10.00% 8.00%
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
Asset Quality
At March 31, 1997, the allowance for loan and lease losses was
$12,421,000 or 1.84% of quarter end loans, as compared to 1.81% at
December 31, 1996. The ratio of the allowance for loan and lease
losses to non-performing assets increased slightly to 304.0% at
March 31, 1997, compared with 298.5% at December 31, 1996 as a
result of an increase in the allowance for loan losses to
$12,421,000 on March 31, 1997 from $12,289,000 at year-end and a
decrease in non-performing assets from $4,117,000 on December 31,
1996 to $4,086,000 on March 31, 1997. 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
(recoveries) are at .12% of average year-to-date loans compared to
(.05%) during the same period in 1996.
Management has determined that 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.
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.
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 policies, and provide
objective loan portfolio appraisals to the Board of Directors and
management.
The following schedule shows the dollar amount of assets at March
31, 1997, December 31, 1996, and March 31, 1996, which were
nonaccrual loans, loans contractually past due 90 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) March 31 December 31 March 31
1997 1996 1996
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans $1,635 $2,120 $2,876
Loans contractually past due
90 days or more as to interest
or principal payments and still
accruing 1,339 844 1,708
Restructured loans - - -
------ ------ ------
Total nonperforming
and restructured
loans 2,974 2,964 4,584
Other real estate owned and
in-substance foreclosures 1,112 1,153 1,248
------ ------ ------
Total nonperforming
assets $4,086 $4,117 $5,832
====== ====== ======
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
C. Liquidity
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 March 31, 1997, 72.9% of total assets were funded by deposits
while 15.4% were funded with secondary sources of liquidity
discussed above, compared to 72.2% and 16.3%, respectively, as of
December 31, 1996.
The net loan-to-deposit ratio increased from 79.0% on December 31,
1996 to 79.2% on March 31, 1997.
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 82.9%, and the cumulative gap as a
percentage of total assets was (11.1)%. Because of inherent
limitations of gap analysis, the Corporation 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>
March 31, 1997
(Amounts in thousands) 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 $4,215 $ - $ - $4,215 $ - $4,215
Trading Account
Securities 50,863 - - 50,863 - 50,863
Investment
Securities 45,263 20,360 48,932 114,555 192,626 307,181
Mortgages Held for Sale 8,258 - - 8,258 - 8,258
Loans 210,032 44,262 185,209 439,503 234,584 674,087
------- ------ ------- ------- ------- -------
Total Interest
Sensitive Assets 318,631 64,622 234,141 617,394 427,210 1,044,604
</TABLE>
<PAGE>
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1996
(continued)
Interest Rate Sensitivity (continued)
<TABLE>
<CAPTION>
March 31, 1997
(Amounts in thousands) Within 2-3 4-12 Total After Total
1 Month Months Months 1 Year 1 Year
<S> <C> <C> <C> <C> <C> <C>
Interest Sensitive Liabilities:
Interest Bearing Transaction
Accounts (1) 296,991 - - 296,991 - 296,991
Other Interest Bearing
Deposits 67,742 61,451 159,308 288,501 90,334 378,835
Federal Funds Purchased 40,662 - - 40,662 - 40,662
Securities Sold Under
Agreements to Repurchase 72,556 4,589 1,595 78,740 2,385 81,125
Notes Payable to U.S.
Treasury 19,096 - - 19,096 - 19,096
Advances from Federal Home
Loan Bank 4,500 1,000 11,312 16,812 14,029 30,841
Other Borrowings 10 - 4,000 4,010 411 4,421
------- ------ ------- ------- ------- -------
Total Interest Sensitive
Liabilities 501,557 67,040 176,215 744,812 107,159 851,971
------- ------ ------- ------- ------- -------
Interest Sensitivity
Gap $(182,926) $(2,418) $57,926 $(127,418) $320,051 $192,633
========= ======= ======= ========= ======== ========
Cumulative Gap $(182,926) $(185,344) $(127,418) $(127,418) $192,633 $192,633
Cumulative Gap
as a Percentage
of Total Assets (16.0%) (16.2%) (11.1%) (11.1%) 16.8% 16.8%
Cumulative Ratio
of Interest
Sensitive Assets
to Interest
Sensitive
Liabilities 63.5% 67.4% 82.9% 82.9% 122.6% 122.6%
<FN>
<F1>
(1)Since 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>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<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
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
Exhibit 11 Statement RE Computation of Earnings Per Share
page 20
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 Bancshares Corporation, Inc. signed a
definitive agreement that provides for the combination of
Area Bancshares Corporation and Cardinal Bancshares, Inc.
<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
March 31,
1997 1996
<S> <C> <C>
Shares of common stock, beginning 11,360,757 11,428,071
========== ==========
Shares of common stock, ending 11,337,828 11,398,971
========== ==========
Computation of weighted average number of
common and common equivalent shares:
Common shares outstanding at the
beginning of the period 11,360,757 11,428,071
Weighted average number of shares
issued - -
Weighted average number of shares
redeemed 8,210 18,911
Weighted average of common stock
equivalent shares attributable to
stock options granted, computed under
the treasury stock method 8,272 5,712
---------- ----------
Weighted average number of common
and common equivalent shares
(note 3) 11,360,819 11,414,872
========== ==========
Earnings and earnings per common and common
equivalent shares: (note 3)
Net income $3,605,000 $3,356,000
========== ==========
Earnings per common and common
equivalent share $.32 $.29
==== ====
Dividends per share $.03 $.023
==== =====
* March 31, 1996 per share data restated to reflect a 3-for-2 stock split
effected in the form of a dividend in December 1996.
</TABLE>
<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>
<CAPTION>
AREA BANCSHARES CORPORATION
<S> <C>
Date: MAY 12, 1997 By: /s/ Thomas R. Brumley
--------------------------------
Thomas R. Brumley
President and Chief Executive Officer
Date: MAY 12, 1997 By: /s/ John A. Ray
--------------------------------
John A. Ray
Senior Vice President,
Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 52,736
<INT-BEARING-DEPOSITS> 4,215
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 50,863
<INVESTMENTS-HELD-FOR-SALE> 211,265
<INVESTMENTS-CARRYING> 95,916
<INVESTMENTS-MARKET> 98,060
<LOANS> 674,087
<ALLOWANCE> 12,421
<TOTAL-ASSETS> 1,146,376
<DEPOSITS> 835,664
<SHORT-TERM> 145,304
<LIABILITIES-OTHER> 9,815
<LONG-TERM> 30,841
0
0
<COMMON> 17,682
<OTHER-SE> 107,070
<TOTAL-LIABILITIES-AND-EQUITY> 1,146,376
<INTEREST-LOAN> 15,804
<INTEREST-INVEST> 4,302
<INTEREST-OTHER> 350
<INTEREST-TOTAL> 20,548
<INTEREST-DEPOSIT> 7,483
<INTEREST-EXPENSE> 9,368
<INTEREST-INCOME-NET> 11,180
<LOAN-LOSSES> 342
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 9,552
<INCOME-PRETAX> 4,975
<INCOME-PRE-EXTRAORDINARY> 4,975
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,605
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 8.46
<LOANS-NON> 1,635
<LOANS-PAST> 1,339
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,289
<CHARGE-OFFS> 575
<RECOVERIES> 365
<ALLOWANCE-CLOSE> 12,421
<ALLOWANCE-DOMESTIC> 12,421
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,426
</TABLE>
