<PAGE> 1
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 June 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.
(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 July 31, 1997 11,339,640
1
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AREA BANCSHARES CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
<S> <C> <C>
Item 1. Financial Statements 3
Unaudited consolidated balance sheets, June 30, 1997 and December 31, 1996 3
Unaudited consolidated statements of income, three and six months ended June 30, 1997
and 1996 4
Unaudited consolidated statements of shareholders' equity, year ended December 31,
1996 and six months ended June 30, 1997 5
Unaudited consolidated statements of cash flows, six months ended June 30, 1997
and 1996 6
Notes to consolidated financial statements 8
Item 2. Management's discussion and analysis of financial condition and results of operations 10
Results of operation 11
Financial position 15
Liquidity 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters To A Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
2
<PAGE> 3
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNT IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash and due from banks $ 74,902 $ 55,516
Interest bearing deposits with banks 3,841 4,484
Federal funds sold -- 2,000
Trading account securities 50,875 43,877
Investment securities:
Available for sale (amortized cost of $205,805 and $211,291, respectively) 215,783 216,349
Held to maturity (fair value of $120,882 and $101,122, respectively) 116,028 97,120
----------- -----------
TOTAL INVESTMENT SECURITIES 331,811 313,469
----------- -----------
Mortgage loans held for sale 3,595 21,212
Loans, net of unearned discount 690,046 679,844
Less allowance for loan losses 12,732 12,289
----------- -----------
NET LOANS 677,314 667,555
----------- -----------
Premises and equipment, net 21,674 21,409
Accrued interest receivable 11,734 11,771
Intangible assets 11,518 12,112
Other assets 17,328 17,433
----------- -----------
TOTAL ASSETS $ 1,204,592 $ 1,170,838
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest-bearing deposits $ 158,488 $ 149,055
Interest-bearing deposits 675,098 696,096
----------- -----------
TOTAL DEPOSITS 833,586 845,151
----------- -----------
Federal fund purchased 47,540 49,486
Securities sold under agreements to repurchase 85,777 95,130
Notes payable to the U.S. Treasury 25,705 8,883
Advances from the Federal Home Loan Bank 64,140 32,537
Other borrowings 4,244 4,446
Accrued expenses and other liabilities 11,541 12,675
----------- -----------
TOTAL LIABILITIES 1,072,533 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: June 30, 1997, 11,339,640 ; December 31, 1996, 11,360,757 17,685 17,718
Paid-in capital 10,000 10,000
Retained earnings 98,389 91,994
Deferred compensation on restricted stock (428) (469)
Net unrealized gains on securities available for sale, net of tax 6,413 3,287
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 132,059 122,530
Commitments and contingent liabilities
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,204,592 $ 1,170,838
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 16,147 $ 14,989 $ 31,951 $ 29,888
Interest bearing deposits with banks 55 6 112 12
Federal funds sold 21 266 56 571
Interest and dividends on investment securities:
U.S. Treasury securities and Federal agencies
securities 2,960 3,338 5,869 6,510
Obligations of states and political subdivisions 1,506 1,403 2,899 2,821
Other 333 264 683 545
-------- -------- -------- --------
TOTAL INTEREST INCOME 21,022 20,266 41,570 40,347
-------- -------- -------- --------
Interest expense:
Interest on deposits 7,445 7,691 14,928 15,294
Short-term borrowings 551 1,581 2,431 3,210
Other borrowings 1,201 190 1,206 351
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 9,197 9,462 18,565 18,855
-------- -------- -------- --------
Net interest income 11,825 10,804 23,005 21,492
Provision for loan losses 205 372 547 602
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,620 10,432 22,458 20,890
-------- -------- -------- --------
Non-interest income:
Commissions and fees on fiduciary activities 760 760 1,642 1,516
Service charges on deposit accounts 1,300 1,284 2,589 2,496
Other service charges, commissions and fees 1,048 992 2,237 1,956
Securities gains, net (5) 445 -- 431
Gains on sales of mortgage loans, net 509 105 641 181
Gains (losses) on sales of other real estate owned, net (25) (4) (1) (7)
Other 110 96 278 221
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME 3,697 3,678 7,386 6,794
-------- -------- -------- --------
Non-interest expenses:
Salaries and employee benefits 4,616 4,567 9,263 8,994
Net occupancy expense 622 548 1,252 1,210
Furniture and equipment expense 698 580 1,323 1,139
Federal deposit insurance 27 12 51 37
Data processing expense 484 487 1,012 928
Other 3,439 3,215 6,537 6,098
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSES 9,886 9,409 19,438 18,406
-------- -------- -------- --------
Income before income tax expense 5,431 4,701 10,406 9,278
Income tax expense 1,508 1,286 2,878 2,507
-------- -------- -------- --------
NET INCOME $ 3,923 $ 3,415 $ 7,528 $ 6,771
======== ======== ======== ========
Weighted average common stock and common stock
equivalent shares 11,346 11,397 11,353 11,406
Per common and common equivalent stock:
Net income $ .34 $ .30 $ .66 $ .59
Cash dividends $ .03 $ .027 $ .06 $ .05
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS
ENDED JUNE 30, 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 on 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
SIX MONTHS ENDED JUNE 30, 1997
Net income January through 7,528 7,528
June 30, 1997
Cash dividends declared
($.06 per share) (679) (679)
Repurchase of common stock (24,435) (38) (478) (516)
Stock options exercised 3,318 5 24 29
Amortization of deferred
compensation on restricted stock 41 41
Change in unrealized gains on
securities available for sale,
net of tax 3,126 3,126
---------- ------- ------- ------- ----- ------ --------
BALANCE, JUNE 30, 1996 11,339,640 $17,685 $10,000 $98,389 $(428) $6,413 $132,059
========== ======= ======= ======= ===== ====== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net income $ 7,528 $ 6,771
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses 547 602
Depreciation, amortization and accretion, net 1,706 2,460
Gain on sales of securities, net -- (431)
Gain on sales of mortgage loans, net (641) (181)
Loss (gain) on sales of other real estate owned 1 7
(Gain) on disposals of equipment (4) (15)
Deferred income taxes (61) (150)
Proceeds from sales of trading account securities 19,757 62,738
Proceeds from maturities of trading account securities 75,000 36,500
Purchases of trading account securities (101,723) (98,637)
Purchases of mortgage loans held for sale (39,750) (31,111)
Proceeds from sales of mortgage loans held for sale 70,591 46,311
Other, net (1,244) 3,697
--------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 31,707 28,561
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) in interest bearing deposits with banks 643 (195)
Proceeds from sales of securities available for sale 6,571 3,807
Proceeds from sales of securities held to maturity -- --
Proceeds from maturities of securities available for sale 36,623 29,000
Proceeds from maturities of securities held to maturity 2,960 1,887
Calls of securities available for sale -- 3,144
Calls of securities held to maturity 1,008 2,939
Purchases of securities available for sale (37,656) (50,824)
Purchases of securities held to maturity (22,748) (5,521)
Decrease (increase) in federal funds sold and securities purchased under
agreements to resell 2,000 (850)
Loans originated, net of principal collected on loans (24,698) (26,912)
Purchases of premises and equipment (1,456) (3,221)
Proceeds from sales of other real estate owned 228 5
Proceeds from sales of premises and equipment 11 2
--------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (36,514) (46,739)
--------- --------
</TABLE>
CONTINUED
6
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES: 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Increase (decrease) in deposits $ (11,565) $ 12,058
Increase (decrease) in Federal funds purchased (1,946) 7,150
Decrease in securities sold under agreements to repurchase (9,353) (35,687)
Increase in notes payable to the U.S. Treasury 16,822 14,868
Increase (decrease) in advances from the Federal Home Loan Bank 31,603 8,198
Increase (decrease) in other borrowings (202) 3,249
Proceeds from stock options exercised 29 --
Repurchase of common stock (516) (847)
Cash dividends paid (679) 567)
--------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 24,193 8,422
--------- --------
INCREASE (DECREASE) IN CASH AND DUE FORM BANKS 19,386 (9,756)
CASH AND DUE FROM BANKS, JANUARY 1 55,516 52,738
--------- --------
CASH AND DUE FROM BANKS, JUNE 30 $ 74,902 $ 42,982
========= ========
Cash flow information:
Income tax payments $ 2,300 $ 2,200
Interest payments $ 18,131 $ 18,730
Non-cash transactions:
Loans transferred to other assets $ 848 $ 513
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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 no 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 as well as a complete set of footnotes.
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 June 30, 1997 and December 31, 1996 are as follows:
AVAILABLE FOR SALE
(Amounts in thousands)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and Federal Agencies $168,423 $ 713 $608 $168,528
Mortgage-Backed Securities 17,733 239 109 17,863
Equity Securities 18,050 9,798 55 27,793
Other Securities 1,599 -- -- 1,599
-------- ------- ---- --------
Balance at June 30, 1997 $205,805 $10,750 $772 $215,783
======== ======= ==== ========
</TABLE>
8
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
NOTE 4. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<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
======== ======= ==== ========
</TABLE>
HELD TO MATURITY
(Amounts in thousands)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
June 30, 1997
States and Political Subdivisions $116,028 $ 5,521 $667 $120,882
======== ======= ==== ========
</TABLE>
<TABLE>
<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>
9
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
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 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 effects of
SFAS No. 125 on its financial position and results of operations is
immaterial.
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 the deposits which
average 10 years. At June 30, 1997 and December 31, 1996, the
unamortized balances of goodwill were $7,445,000 and $ 7,818,000, and
core deposit intangibles were $3,938,000 and $4,294,000,
respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Corporation is a multi-bank holding company incorporated in
Kentucky in 1981 and registered under the Bank Holding Company Act of
1956, as amended. On June 30, 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.
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.
The discussion that follows is intended to provide additional insight
into the Corporation's financial condition and results of operations.
This discussion should be read in conjunction with the consolidated
financial statements and accompanying notes presented in Item 1 of
Part I of this report.
10
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
A. RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 1996 was $3,923,000 or
$.34 per share compared to $3,415,000 or $.30 per share for the same
period last year, an increase of $508,000 or 14.9% and $.04 per
share or 13.3% respectively. Year-to-date earnings were $7,528,000
or $.66 per share compared to $6,771,000 or $.59 per share in 1996.
The year-to-date increases were $757,000 or 11.2% and $.07 per share
or 11.9%, respectively. Earnings improved for the quarter largely as
a result of an increase in net interest income of $811,000 (taxable
equivalent) and a reduction in the provision for loans losses of
$167,000 offset by an increase in non-interest expenses of $477,000.
Earnings for the six months ended June 30, 1997, rose as a result of
an increase in net interest income-tax equivalent of $1,553,000 or
6.7%, a reduction of $55,000 in the provision for loan losses and an
increase of $592,000 or 8.7% in non-interest income partially offset
by an increase of $1,032,000 or 5.6% in non-interest expenses.
Return on average assets totaled 1.43% (annualized) during the
quarter ended June 30, 1997 and 1.38% (annualized) for the first six
months of the year compared to 1.29% (annualized) and 1.28%
(annualized) for the same periods in 1996. Return on average equity
was 12.59% (annualized) for the quarter ended June 30, 1997 and
12.21% (annualized) for the first half of the year compared to
12.34% (annualized) and 12.39% (annualized) for similar periods
during 1996.
The following table shows the components of net income on a taxable
equivalent basis:
CONDENSED STATEMENTS OF INCOME - TAXABLE EQUIVALENT BASIS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
3 MONTHS ENDED 6/30 6 MONTHS ENDED 6/30
1997 1996 CHANGE 1997 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income $21,022 $20,266 $ 756 $41,570 $40,347 $ 1,223
Taxable-equivalent adjustment 841 786 55 1,620 1,580 40
------- ------- ------- ------- ------- -------
Interest income-taxable equivalent 21,863 21,052 811 43,190 41,927 1,263
Interest expense 9,197 9,462 (265) 18,565 18,855 (290)
------- ------- ------- ------- ------- -------
Net interest income-taxable equivalent 12,666 11,590 1,076 24,625 23,072 1,553
Provision for loan losses 205 372 (167) 547 602 (55)
Non-interest income 3,697 3,678 19 7,386 6,794 592
Non-interest expenses 9,886 9,409 477 19,438 18,406 1,032
------- ------- ------- ------- ------- -------
Income before income taxes 6,272 5,487 785 12,026 10,858 1,168
Income taxes 1,508 1,286 222 2,878 2,507 371
Tax equivalent adjustment 841 786 55 1,620 1,580 40
------- ------- ------- ------- ------- -------
Net income $ 3,923 $ 3,415 $ 508 $ 7,528 $ 6,771 $ 757
======= ======= ======= ======= ======= =======
Net income per share $ .34 $ .30 $ .04 $ .66 $ .59 $ .07
======= ======= ======= ======= ======= =======
</TABLE>
11
<PAGE> 12
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
NET INTEREST INCOME
The largest component of the Corporation's operating income is net
interest income. Net interest income is the difference between
interest earned on earning assets and interest expense on interest
bearing liabilities. For purposes of this discussion, interest income
earned on tax-exempt securities and loans is adjusted to a
fully-taxable equivalent basis to facilitate comparison with interest
earned which is subject to statutory taxation.
Changes in net interest income generally occur due to fluctuations in
the balances and/or mixes of interest-earning assets and
interest-bearing liabilities, and changes in their corresponding
interest yields and costs.
The following table summarizes the fully-taxable equivalent interest
spread, which is the difference between the average yield on earning
assets and the average rate on interest bearing liabilities as well
as the net interest margin, which is the fully-taxable equivalent net
interest income divided by the average earning assets for the three
and six months ended June 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
3 MONTHS ENDED 6/30 6 MONTHS ENDED 6/30
1997 1996 CHANGE 1997 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Average rate on earning assets 8.60% 8.44% .16% 8.53% 8.51% .02%
Average rate on interest bearing liabilities 4.43% 4.63% (.20%) 4.48% 4.61% (.13%)
Net interest spread 4.17% 3.81% .36% 4.05% 3.90% .15%
Net interest margin 4.98% 4.65% .33% 4.86% 4.68% .18%
Average earning assets $1,020,175 $1,003,544 $ 16,631 $1,021,055 $990,362 $ 30,693
Average interest bearing liabilities $ 833,589 $ 821,978 $ 11,611 $ 835,995 $821,783 $ 14,212
</TABLE>
Net interest income, on a tax equivalent basis, increased $1,076,000
or 9.3% for the quarter ended June 30, 1997, primarily as a result of
an increase in average net earning assets (average earning assets
less average interest bearing liabilities), an increase in the
average rate on interest earning assets of .16% and a reduction of
.20% in the average rate on interest bearing liabilities. For the six
months ended June 30, 1997, net interest income, on a tax equivalent
basis, increased $1,553,000 or 6.7% over the same period of 1996,
largely as a result of an increase in average net earning assets
(average earning assets less average interest bearing liabilities) as
well as a reduction of .13% in the average rate on interest bearing
liabilities. The net interest margin was 4.86% for the first six
months compared to 4.68% a year earlier. The improvement in the net
interest margin was the result of a decrease of .13% in the rate paid
on interest bearing liabilities while the rate on earning assets
increased .02% 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.
12
<PAGE> 13
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
PROVISION FOR LOAN LOSSES (CONTINUED)
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 6/30
1997 1996 CHANGE
---- ---- ------
<S> <C> <C> <C>
Balance, March 31 $ 12,421 $ 12,330 $ 91
Provision for loan losses 205 372 (167)
Loan loss recoveries 501 198 303
Loans charged off 395 799 (404)
---------- --------- --------
Balance, June 30 $ 12,732 $ 12,101 $ 631
========== ========= ========
Average loans, net of unearned income $ 703,796 $ 620,413 $ 83,383
Provision for loan losses to average loans* .12% .24% (.12%)
Net loan charge-offs to average loans* (.06%) .39% (.45%)
Allowance for loan losses to end of period loans 1.85% 1.91% (.06%)
</TABLE>
<TABLE>
<CAPTION>
6 MONTHS ENDED 6/30
1997 1996 CHANGE
---- ---- ------
<S> <C> <C> <C>
Balance, January 1 $ 12,289 $ 12,025 $ 264
Provision for loan losses 547 602 (55)
Loan loss recoveries 866 644 222
Loans charged off 970 1,170 (200)
---------- --------- ------
Balance, June 30 $ 12,732 $ 12,101 $ 631
========== ========= ======
Average loans, net of unearned income $ 691,796 $ 619,685 $72,111
Provision for loan losses to average loans* .16% .19% (.03%)
Net loan charge-offs to average loans* .03% .17% (.14%)
Allowance for loan losses to end of period loans 1.85% 1.91% (.06%)
</TABLE>
* amounts annualized
The provision for loan losses decreased $167,000 or 44.9% to $205,000
for the quarter ended June 30, 1997, and decreased $55,000 or 9.1% to
$547,000 during the six months ended June 30, 1997 compared to the
same periods last year. The reduction for both the quarter and six
month period was the result of improved loan quality and a reduction
in net loans charged off (loans charged off less recoveries).
The provision for loan losses as a percentage of average loans
totaled .12% (annualized) for the quarter ended June 30, 1997
compared to .24% (annualized) for the quarter ended June 30, 1996.
For the six month period ended June 30, 1997, the provision for loan
losses as a percentage of average loans decreased to .16%
(annualized) from .19% (annualized) for the same period in 1996.
These decreases reflected the continued improvement in the quality of
loans.
Net loan charge-offs (loan charge-offs less recoveries) to average
loans decreased to (.06)% (annualized) from .39% (annualized) for the
quarter ended June 30, 1997, and decreased to .03% (annualized) from
.17% (annualized) for the six months ending June 30, 1997.
13
<PAGE> 14
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
PROVISION FOR LOAN LOSSES (CONTINUED)
The reserve for loan losses represented 1.85% of total loans on June
30, 1997, as compared to the June 30, 1996 level of 1.91% and 1.81%
at year-end. The decrease from June 30, 1996 was primarily the result
of loan growth while the increase since year-end was due to growth in
the reserve.
NON-INTEREST INCOME
The following table sets forth the components of non-interest income
for the three and six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
3 MONTHS ENDED 6/30 6 MONTHS ENDED 6/30
1997 1996 CHANGE 1997 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees on fiduciary activities $ 760 $ 760 $ - $1,642 $1,516 $126
Service charges on deposit accounts 1,300 1,284 16 2,589 2,496 93
Other service charges, commissions and fees 1,048 992 56 2,237 1,956 281
Securities gains (net) (5) 445 (450) - 431 (431)
Gains on sales of mortgage loans (net) 509 105 404 641 181 460
Gains (losses) on sales of other real estate (net) (25) (4) (21) (1) (7) 6
Other 110 96 14 278 221 57
------ ------- -------- ------ ------ ----
TOTAL $3,697 $ 3,678 $ 19 $7,386 $6,794 $592
====== ======= ======== ====== ====== ====
</TABLE>
Non-interest income totaled $3,697,000 and $7,386,000 for the three
and six month periods ended June 30, 1997. These amounts represent
increases of $19,000 or .5% and $592,000 or 8.7%, respectively, when
compared to 1997 period totals. Commissions and fees on fiduciary
activities remained unchanged in the second quarter of 1997 and
increased $126,000 or 8.3% for the six month period. Service charges
on deposit accounts increased $16,000 or 1.2% to $1,300,000 and
$93,000 or 3.7% to $2,589,000 respectively, for the three and six
months ended June 30, 1997, when compared to similar period totals in
1996, due largely to increases in deposits subject to service charges
and fees charged for services provided. Other service charges,
commissions and fees increased $56,000 or 5.6% for the quarter ended
June 30, 1997 and $281,000 or 14.4% for the six months ended June 30,
1997 when compared to the same periods of 1997. The increase for the
six month period can be attributed to increased activity in the sale
of mortgage loans. Securities gains decreased $450,000 to $(5,000)
and $431,000 for the three and six month periods ending June 30,
1997. Gains on sales of mortgage loans increased $404,000 or 384.8%
and $460,000 or 254.1% for the quarter and year-to-date periods
respectively when compared to 1997 periods. These improvements were
the result of increased mortgage sales activity due to decreasing
interest rates in the second quarter. Gains (losses) on sales of
other real estate decreased $21,000 and increased $6,000 to $(25,000)
and $(1,000) for the three and six month periods. Other non-interest
income grew $14,000 or 14.6% to $110,000 and $57,000 or 25.8% to
$278,000 for the three and six month periods ended June 30, 1997.
14
<PAGE> 15
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
NON-INTEREST EXPENSE
The following table sets forth the components of non-interest
expense for the three and six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
3 MONTHS ENDED 6/30 6 MONTHS ENDED 6/30
1997 1996 CHANGE 1997 1996 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $4,616 $4,567 $ 49 $ 9,263 $ 8,994 $ 269
Net occupancy expense 622 548 74 1,252 1,210 42
Furniture and equipment expense 698 580 118 1,323 1,139 184
Federal deposit insurance 27 12 15 51 37 14
Data processing expense 484 487 (3) 1,012 928 84
Other 3,439 3,215 224 6,537 6,098 439
------ ------ ----- ------- ------- ------
TOTAL $9,886 $9,409 $ 477 $19,438 $18,406 $1,032
====== ====== ===== ======= ======= ======
</TABLE>
Non-interest expenses when compared to 1996 period totals, increased
$477,000 or 5.1 % in the second quarter and $1,032,000 or 5.6% for
the six months ended June 30, 1997. Salaries and employee benefits
increased $49,000 or 1.1% to $4,616,000 for the second quarter and
$269,000 or 3.0% to $9,263,000 for the six month period. The increase
for the six month period is the result of additional staff required
to support the current and future growth. Net occupancy expense and
furniture and equipment expense increased $192,000 or 17.0% to
$1,320,000 and $226,000 or 9.6% to $2,575,000 for the three and six
month periods ended June 30, 1997. These increases were largely the
result of the addition of three new branches. Data processing
expenses declined $3,000 or .6% to $484,000 during the second quarter
while increasing $84,000 or 9.1% to $1,012,000 for the six month
period when compared to 1996. The increase for the six month period
was the result of continued enhancements in the Corporation's data
processing capabilities to meeting internal and customer needs. Other
non-interest expenses increased $224,000 or 7.0% to $3,439,000 and
$439,000 or 7.2% to $6,537,000 for the three and six month periods
when compared to 1996 period totals primarily as a result of
increases in license taxes and marketing expenses.
INCOME TAX EXPENSE
Income tax expense totaled $1,508,000 and $2,878,000 for the three
and six month periods ended June 30, 1996. These amounts represent
increases of $222,000 or 17.3% and $371,000 or 14.8%, respectively,
when compared to 1996 period totals. The increase in the tax expense
was largely the result of a higher level of pretax income. The
effective tax rate was 27.8% and 27.7% for the three and six month
periods ended June 30, 1997 compared to 27.4% and 27.0% for the same
periods of 1996, respectively. 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 $33,754,000 or 2.9% to $1,204,592,000 from
December 31, 1996 to June 30, 1997.
Earning assets totaled $1,080,168,000 on June 30, 1997, an increase
of $15,282,000 or 1.4% over December 31, 1996. Loans, including loans
held for sale, declined $7,415,000 to $693,641,000 during the six
months ended June 30, 1997. Loans, including loans held for sale,
represent the largest category of earning assets comprising 64.2% of
earning assets as of June 30, 1997 and 65.8% on December 31, 1996.
15
<PAGE> 16
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
FINANCIAL POSITION (CONTINUED)
Short-term investments, which include interest-bearing deposits with
banks, federal funds sold and trading account securities, totaled
$54,716,000 on June 30, 1997, an increase of $4,355,000 or 8.6% from
year-end balances.
Investment securities represent 30.7% of earning assets. They totaled
$331,811,000 on June 30, 1997, an increase of $18,342,000 or 5.9%
over December 31, 1996 balances.
Deposits totaled $833,586,000 on June 30, 1997, a decrease of
$11,565,000 or 1.4% from December 31, 1996. Non-interest-bearing
deposits grew $9,433,000 or 6.3% to $158,488,000 from year-end
totals, while interest-bearing deposits declined $20,998,000 or 3.0%
to $675,098,000 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 $36,924,000 to $227,406,000 from $190,482,000
on December 31, 1996.
CAPITAL RESOURCES
Shareholders' equity totaled $132,059,000 at June 30, 1997, an
increase of $9,529,000 or 7.8% from December 31, 1996. Out of net
income of $7,528,000 during the first six months of 1997, $6,333,000
was retained after paying dividends to shareholders of $679,000 and
purchasing common stock of $516,000. The net unrealized gains on
securities available for sale, net of taxes were $6,413,000 at June
30, 1997, compared to net unrealized gains of $3,287,000 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 10.96% at June 30, 1997
compared to 10.47% on December 31, 1996.
Book value per share was $11.65 and $10.79 at June 30, 1997 and
December 31, 1996, respectively.
A summary of the capital ratios are shown below.
<TABLE>
<CAPTION>
Regulatory
Capital Requirements
June 30 December 31 June 30 Well Minimum
1997 1996 1996 Capitalized Required
---- ---- ---- ----------- --------
<S> <C> <C> <C> <C> <C>
Leverage Ratio 10.50% 9.88% 9.36% 5.00% 4.00%
Tier I Risk Based Capital Ratio 14.84% 14.33% 14.16% 6.00% 4.00%
Total Risk Based Capital Ratio 16.09% 15.58% 15.42% 10.00% 8.00%
</TABLE>
16
<PAGE> 17
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
ASSET QUALITY
At June 30, 1997, the allowance for loan and lease losses was
$12,732,000 or 1.85% of quarter end loans, as compared to 1.81% of
loans at December 31, 1996. The ratio of the allowance for loan and
lease losses to non-performing assets increased slightly to 331.8% at
June 30, 1997, compared with 298.5% 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
and in-substance foreclosures. Currently, net charge-offs (loan
charge-offs less recoveries) are at .03% (annualized) of average
year-to-date loans compared to .17% (annualized) 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.
The 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 June 30,
1997 and December 31, 1996, and June 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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
June 30 December 31 June 30
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans $1,294 $2,120 $2,466
Loans contractually past due ninety days or more
as to interest or principal payments and still
accruing 1,057 844 533
Restructured loans - - -
------ ------ ------
TOTAL NONPERFORMING AND RESTRUCTURED LOANS 2,351 2,964 2,999
Other real estate owned and in-substance foreclosures 1,486 1,153 1,341
------ ------ ------
TOTAL NONPERFORMING ASSETS $3,837 $4,117 $4,340
====== ====== ======
</TABLE>
17
<PAGE> 18
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 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 June 30, 1997, 69.2% of total assets were funded by core
deposits while 18.9% 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 81.3% on June 30, 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 83.1%, and the cumulative gap as a percentage
of total assets was 10.5%. 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.
18
<PAGE> 19
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
INTEREST RATE SENSITIVITY (CONTINUED)
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
June 30, 1997
Within 2-3 4-12 Total After Total
1 Month Months Months 1 Year 1 Year
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposits and
Federal Funds Sold $ 3,841 - - $ 3,841 - $ 3,841
Trading Account Securities 50,875 - - 50,875 - 50,875
Investment Securities 34,581 $ 14,865 $ 56,256 105,702 $226,109 331,811
Mortgages Held for Sale 3,595 - - 3,595 - 3,595
Loans 207,582 49,108 188,762 445,452 244,594 690,046
-------- ---------- ------- ------- ------- ---------
Total Interest Sensitive Assets 300,474 63,973 245,018 609,465 470,703 1,080,168
-------- ---------- ------- ------- ------- ---------
Interest Sensitive Liabilities:
Interest Bearing Transactions
Accounts (1) 274,665 - - 274,665 - 274,665
Other Interest Bearing Deposits 70,926 47,781 144,275 262,982 137,451 400,433
Federal Funds Purchased 47,540 - - 47,540 - 47,540
Securities Sold Under Agreements
to Repurchase 76,879 - 6,569 83,448 2,329 85,777
Notes Payable to U.S. Treasury 25,705 - - 25,705 - 25,705
Advances from Federal Home
Loan Bank 10,000 12,100 16,732 38,832 25,308 64,140
Other Borrowings 10 - - 10 4,234 4,244
---------- ---------- --------- ---------- -------- --------
Total Interest Sensitive Liabilities 505,725 59,881 167,576 733,182 169,322 902,504
---------- ---------- --------- ---------- -------- --------
Interest Sensitivity Gap $(205,251) $ 4,092 $ 77,442 $(123,717) $301,381 $177,664
========== ========= ========= ========== ======== ========
Cumulative Gap $(205,251) $(201,159) $(123,717) $(123,717) $177,664 $177,664
Cumulative Gap as a Percentage
of Total Assets (17.0%) (16.7%) (10.3%) (10.3%) 14.7% 14.7%
Cumulative Ratio of Interest
Sensitive Assets to Interest
Sensitive Liabilities 59.4% 64.4% 83.1% 83.1% 119.7% 119.7%
</TABLE>
(1) Interest bearing transaction accounts (NOW's, Money Market
accounts and passbooks) are generally less sensitive to changes
in interest rates than other sources of funds, management has
determined to include these accounts in the "Within 1 Month"
category for gap analysis.
19
<PAGE> 20
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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
The annual meeting of shareholders was held on May 19, 1997.
The matters that were voted upon included the election of
directors for one-year ending 1998 or until their successors
have been elected and qualified.
The outcome of the voting was as follows:
<TABLE>
<CAPTION>
Name Voted For Voted Against Abstained from voting
---- --------- ------------- ---------------------
<S> <C> <C> <C>
Anthony G. Bittel 9,022,636 0 0
Thomas R. Brumley 9,022,524 0 0
C. M. Gatton 9,021,712 0 0
Gary H. Latham 9,021,712 0 0
Raymond McKinney 9,021,712 0 0
Allan R. Rhodes 9,022,636 0 0
David W. Smith, Jr. 9,022,636 0 0
William H. Thompson 9,022,636 0 0
Pollard White 9,021,712 0 0
</TABLE>
Total outstanding shares eligible to vote were 11,303,048
Item 5. Other Information
Not applicable.
20
<PAGE> 21
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997 AND 1996
(CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
a) Exhibits:
Exhibit 11 Statement RE Computation of Earnings Per Share page
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.
</TABLE>
21
<PAGE> 22
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.
AREA BANCSHARES CORPORATION
Date: August 14, 1997 By: /S/ Thomas R. Brumley
------------------ -------------------------------------
Thomas R. Brumley
President and Chief Executive Officer
Date: August 14, 1997 By: /S/ John A. Ray
------------------ ---------------------------------------
John A. Ray
Executive Vice President and Chief
Financial Officer
22
<PAGE> 1
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE *
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares of common stock, beginning 11,337,828 11,398,971 11,360,757 11,428,071
=========== =========== =========== ===========
Shares of common stock, ending 11,339,640 11,375,913 11,339,640 11,375,913
=========== =========== =========== ===========
Computation of weighted average number of
common and common equivalent shares:
Common shares outstanding at the beginning
of the period 11,337,828 11,398,971 11,360,757 11,428,071
Weighted average number of shares issued -- -- -- --
Weighted average number of shares redeemed 890 7,686 16,312 27,848
Weighted average of common stock equivalent
attributable to stock options granted, computed
under the treasury stock method 8,977 5,271 8,272 5,712
----------- ----------- ----------- -----------
Weighted average number of common and common
equivalent shares (note 3) 11,345,915 11,396,556 11,352,717 11,405,935
=========== =========== =========== ===========
Earnings and earnings per common and common
equivalent shares: (note 3)
Net income $ 3,923,000 $ 3,415,000 $ 7,528,000 $ 6,771,000
=========== =========== =========== ===========
Earnings per common and common
equivalent share $ .34 $ .30 $ .66 $ .59
=========== =========== =========== ===========
Dividends per share $ .03 $ .027 $ .06 $ .05
=========== =========== =========== ===========
</TABLE>
* June 30, 1996 per share data restated to reflect a 3-for-2 stock split
effected in the form of a dividend in December 1996.
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 74,902
<INT-BEARING-DEPOSITS> 3,841
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 50,875
<INVESTMENTS-HELD-FOR-SALE> 215,183
<INVESTMENTS-CARRYING> 116,028
<INVESTMENTS-MARKET> 120,882
<LOANS> 690,046
<ALLOWANCE> 12,732
<TOTAL-ASSETS> 1,204,592
<DEPOSITS> 833,586
<SHORT-TERM> 227,406
<LIABILITIES-OTHER> 11,541
<LONG-TERM> 0
0
0
<COMMON> 17,685
<OTHER-SE> 114,374
<TOTAL-LIABILITIES-AND-EQUITY> 1,204,592
<INTEREST-LOAN> 31,951
<INTEREST-INVEST> 9,451
<INTEREST-OTHER> 168
<INTEREST-TOTAL> 41,570
<INTEREST-DEPOSIT> 14,928
<INTEREST-EXPENSE> 18,565
<INTEREST-INCOME-NET> 23,005
<LOAN-LOSSES> 547
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 19,438
<INCOME-PRETAX> 10,406
<INCOME-PRE-EXTRAORDINARY> 7,528
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,528
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<YIELD-ACTUAL> 8.53
<LOANS-NON> 1,294
<LOANS-PAST> 1,057
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,289
<CHARGE-OFFS> 970
<RECOVERIES> 866
<ALLOWANCE-CLOSE> 12,732
<ALLOWANCE-DOMESTIC> 12,732
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,817
</TABLE>
