SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) October 15,1997
(September 30, 1997)
AREA BANCSHARES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Kentucky 0-26032 61-0902343
(State or other jurisdiction (Commission (IRS Employer of
incorporation) File Number) Identification Number)
230 Frederica Street, Owensboro, Kentucky 42301
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:(502) 926-3232
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition and Disposition of Assets
On September 30, 1997, Area Bancshares
Corporation ("Area") of Owensboro, Kentucky
acquired 100% of the outstanding shares of
common stock of Cardinal Bancshares, Inc.
("Cardinal"), in a merger transaction. In the
transaction, accounted for as a pooling of
interests, Cardinal shareholders received
2.7391 shares of Area common stock for each one
share of Cardinal common stock held. Cardinal's
business is conducted primarily through its
four bank subsidiaries, The Vine Street Trust
Company, HNB Bank, First & Peoples Bank, The
Jefferson Banking Company, and its thrift
subsidiary, Alliance Bank. All of Cardinal's
banking subsidiaries and its thrift subsidiary
operate within the State of Kentucky. As a
result of the share exchange, Area will issue
4,200,519 shares of common stock with no long-
term debt being incurred. The physical assets
of Cardinal's subsidiaries will continue to be
used by them for general banking purposes.
Item 7. Financial Statements and Exhibits
(a) The following documents previously filed with
the SEC by Cardinal Bancshares, Inc. pursuant
to the Exchange Act are incorporated herein by
reference:
(i) Cardinal Bancshares, Inc. Annual Report on Form 10-K
for the fiscal year ended December 31, 1996; and
(ii) Cardinal Bancshares, Inc. Quarterly
Report on Form 10-Q for the six months ended
June 30, 1997.
(b) The following financial statements and related notes
thereto are included herein:
(i) Area Bancshares Corporation Supplemental Consolidated
Balance Sheets for the years ended December 31, 1996 and 1995;
(ii) Area Bancshares Corporation Supplemental Consolidated
Statements of Income for the years ended December 31,
1996, 1995 and 1994;
(iii) Area Bancshares Corporation Supplemental Consolidated
Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994; and
(iv) Area Bancshares Corporation Supplemental Consolidated
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
(c) Exhibits
Exhibit No. Description
2. Agreement and Plan of
Reorganization, dated May 1,
1997 between Area Bancshares
Corporation and Cardinal
Bancshares, Inc.(1)
4. Proxy Statement mailed to
shareholders of Area
Bancshares Corporation on or
about August 31, 1997.(2)
23. Consents of KPMG Peat
Marwick LLP
___________________
(1) Incorporated by reference to Exhibit 1 to the
Registration Statement on Form S-4 filed with
the Commission on June 17, 1997 (File No. 333-
29385)
(2) Incorporated by reference to the Registration
Statement on Form S-4 filed with the Commission
on June 17, 1997 (File No. 333-29385)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AREA BANCSHARES CORPORATION
By: /s/ Thomas R. Brumley
-------------------------
Brumley President
& Chief Executive Officer
(Principal Executive Officer)
By: /s/ John A. Ray
--------------------------
Executive Vice
President & Chief
Financial Officer
(Principal Financial Officer)
By: /s/ Gary R. White
-----------------------------
Vice President,
Controller
(Principal Accounting Officer)
Date: October 16, 1997
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page
2. Agreement and Plan
of Reorganization, dated
May 1, 1997 between
Area Bancshares
Corporation and
Cardinal
Bancshares, Inc.(1)
4. Proxy Statement
mailed to
shareholders of
Area Bancshares
Corporation on or
about August 31,
1997.(2)
23. Consents of KPMG Peat Marwick LLP
___________________
(1) Incorporated by reference to Exhibit 1 to the
Registration Statement on Form S-4 filed with
the Commission on June 17, 1997 (File No. 333-
29385)
(2) Incorporated by reference to the Registration
Statement on Form S-4 filed with the Commission
on June 17, 1997 (File No. 333-29385)
<PAGE>
EXHIBIT
23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Cardinal Bancshares, Inc.
We consent to incorporation by reference herein of our report
dated February 17,1997, with respect to the consolidated balance
sheets of Cardinal Bancshares, Inc. and subsidiaries as of December 31,
1996 and 1995 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears in the
December 31, 1996 annual report on Form 10-K of Cardinal Bancshares, Inc.
Our report refers to a change in the method of accounting for certain
investments in debt and equity securities in 1994.
Lexington, Kentucky KPMG Peat Marwick LLP
October 16, 1997
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDET AUDITROS
The Board of Directors
Area Bancshares Corporation
We consent to inclusion herein of our report dated October 10, 1997,
with respect to the supplemental consolidated balance sheets of Area
Bancshares Corporation and subsidiaries as of December 31, 1996 and
1995 and the related supplemental consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears in the
December 31, 1996, annual report on Form 10-K of Area Bancshares Corporation.
Our report refers to a change in the method of accounting for certain
investments in debt and equity securities in 1994.
Louisville, Kentucky KPMG Peat Marwick LLP
October 16, 1997
Independent Auditors' Report
The Board of Directors and Shareholders of
Area Bancshares Corporation
We have audited the accompanying supplemental consolidated balance
sheets of Area Bancshares Corporation and subsidiaries as of December 31,
1996 and 1995, and the related supplemental consolidated statements of
income, shareholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1996. These supplemental
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these supplemental
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive
effect to the merger of Area Bancshares Corporation and Cardinal Bancshares,
Inc. on September 30, 1997, which has been accounted for as a pooling-of-
interests as described in notes 1 and 2 to the supplemental
consolidated financial statements. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for
by the pooling-of-interests method in financial statements that do not
include the date of consummation. These financial statements do not
extend through the date of consummation; however, they will become the
historical consolidated financial statements of Area Bancshares
Corporation and subsidiaries after financial statements covering the date
of consummation of the business combination are issued.
In our opinion, the supplemental consolidated financial
statements referred to above present fairly, in all material respects,
the financial position of Area Bancshares Corporation and subsidiaries as
of December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31,1996, in conformity with generally accepted accounting
principles applicable after financial statements are issued for a period
which includes the date of consummation of the business combination.
KPMG Peat Marwick LLP
Louisville, Kentucky
October 10, 1997
<PAGE>
<TABLE>
Supplemental Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands, except share data)
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks (notes 13 and 17) $76,923 $74,910
Interest bearing deposits with banks 5,884 8,263
Federal funds sold 13,647 10,175
Trading account securities 43,877 50,403
Securities (notes 3, 11, and 13):
Available for sale (amortized cost $319,478
in 1996 and $349,031 in 1995) 324,943 355,217
Held to maturity (fair value $101,122 in
1996 and $98,319 in 1995) 97,120 94,015
-------- -------
Total securities 422,063 449,232
-------- -------
Mortgage loans held for sale 21,212 24,430
Loans, net of unearned discount
(notes 4 and 24) 1,147,060 1,091,867
Less allowance for loan losses (note 5) 18,663 17,814
--------- ---------
Net loans 1,128,397 1,074,053
--------- ---------
Premises and equipment (note 6) 29,428 30,863
Other assets (note 7) 54,859 56,230
--------- ---------
Total assets $1,796,290 $1,778,559
--------- ---------
LIABILTIES
Deposits:
Non-interest bearing demand $196,565 $185,031
Interest bearing demand 331,807 334,052
Savings 158,555 135,540
Certificates of deposit of $100,000 or
more (notes 9 and 10) 132,457 119,299
Other time (note 10) 575,015 604,934
--------- ---------
Total deposits 1,394,399 1,378,856
--------- ---------
Federal funds purchased 49,486 30,175
Securities sold under agreements to
repurchase (note 11) 99,910 127,895
Notes payable to the U.S. Treasury 8,883 4,601
Advances from the Federal Home Loan
Bank (note 12) 49,313 30,619
Other borrowings (note 13) 6,324 39,466
Other liabilities (note 14) 18,592 17,223
--------- ---------
Total liabilities 1,626,907 1,628,835
--------- ---------
SHAREHOLDERS' EQUITY (notes 15 and 17)
Preferred stock, no par value, authorized
500,000 shares; none issued - -
Common stock, no par value; authorized
shares: 1996, 16,000,000; 1995,
16,000,000: issued and outstanding
shares: 1996 15,514,222; 1995, 10,314,140 24,197 24,130
Paid-in capital 35,142 32,611
Retained earnings 107,581 90,292
Deferred compensation on restricted stock (469) (509)
ESOP and MRP loan obligations (note 13) (628) (843)
Net unrealized gains on securities available for
sale, net of tax (note 3) 3,560 4,043
------- -------
Total shareholders' equity 169,383 149,724
------- -------
Commitments and contingent liabilities
(notes 18 and 21) ------- -------
Total liabilities and shareholders'
equity $1,796,290 $1,778,559
========= =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
<TABLE>
Supplemental Consolidated Statements of Income
Years Ended
December 31, 1996, 1995, and 1994
(In thousands, except per share data)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Loans, including fees $106,491 $100,692 $78,025
Interest bearing deposits
with banks 369 412 252
Federal funds sold 1,435 1,220 876
U.S. Treasury securities, Federal
agencies securities and other
taxable securities 22,710 23,803 17,775
Obligations of states and
political subdivisions 5,830 5,961 6,047
------- ------- -------
Total interest income 136,835 132,088 102,975
------- ------- -------
Interest expense:
Deposits (note 9) 54,453 51,409 34,338
Borrowings 9,957 12,921 8,114
------- ------- -------
Total interest expense 64,410 64,330 42,452
------- ------- -------
Net interest income 72,425 67,758 60,523
Provision for loan losses (note 5) 4,849 4,824 4,976
------- ------- -------
Net interest income after
provision for loan losses 67,576 62,934 55,547
------- ------- -------
Non-interest income:
Commissions and fees on
fiduciary activities 3,634 2,879 2,403
Service charges on deposit
accounts 6,400 5,770 5,235
Other service charges,
commissions and fees 4,751 5,610 5,215
Securities gains (losses),
net (note 3) 3,265 1,139 (1,519)
Gains on sales of loans, net 8,912 970 554
Gains on sales of other real
estate owned, net 68 196 905
Other income 1,208 1,849 1,011
------- ------- ------
Total non-interest income 28,238 18,413 13,804
------- ------- ------
Non-interest expenses:
Salaries and employee
benefits (note 18) 31,907 30,603 25,815
Net occupancy expense 4,139 4,006 3,524
Furniture and equipment expense 4,438 4,081 3,085
Other (notes 16 and 19) 25,428 25,724 28,675
-------- ------- ------
Total non-interest expenses 65,912 64,414 61,099
-------- ------- ------
Income before income taxes 29,902 16,933 8,252
Income tax expense (note 14) 10,016 4,487 1,278
-------- ------- ------
Net income $19,886 $12,446 $6,974
======== ======= ======
Net income per common share $1.25 $.79 $.45
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
<TABLE>
Supplemental Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994
(In thousands, except share and per share data)
<CAPTION>
Deferred ESOP Net Unrealized
Compensation and Gains (Losses)
on MRP on Securities
Common Stock Paid-in Retained Restricted Loan Available
Shares Amount Capital Earnings Stock Obligations For
Sale Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December
31, 1993,
as
previously
reported 5,091,645 $17,909 $10,000 $62,458 $(157) $- $- $90,210
Adjustments for
acquisition
accounted for
using the pooling
of interests
method
(note 2) 1,722,854 6,047 21,595 12,832 - (1,273) - 39,201
--------- ----- ------ ------ ------ ------- ---- ------
Balance,
December
31, 1993
as
restated 6,814,499 $23,956 $31,595 $75,290 $(157) $(1,273) - $129,411
Impact of change
in accounting for
securities at
January 1, 1994,
net of tax 958 958
Net income 6,974 6,974
Cash dividends
declared
($.12 per share) (2,025) (2,025)
3-for-2 stock
split (note 1) 3,389,870
Repurchase of
common stock (93,297) (411) (1,026) (787) (2,224)
Stock options
Exercised 46,230 233 342 575
Purchase of 4,500
shares for restricted
stock (note 15) (318) (318)
Repayment of ESOP
and MRP loan
obligations (note 13)
215 215
Change in unrealized
losses on securities
available for sale,
net of taxes (note 3)
(5,193) (5,193)
--------- ------ ------ ---- ----- ---- ------ -------
Balance,
December
31, 1994 10,157,302 23,778 30,911 79,452 (475) (1,058) (4,235) 128,373
Net income 12,446 12,446
Cash dividends
declared
($.135per share) (2,166) (2,166)
Repurchase of
common stock (12,385) (51) (168) (219)
Stock options
exercised
(note 15) 163,936 388 1,700 2,088
Income tax benefit
related to
exercise of
stock options
(note 14) 684 684
Restricted stock
issued 2,000 7 44 (51) -
Issuance of common
Stock 3,287 8 8
Amortization of
deferred
compensation on
restricted stock
(note 15) 17 17
Repayment of ESOP
and MRP loan
obligations
(note 13) 215 215
Net unrealized gain
on securities transferred
from held-to-maturity
to available for sale
(note 3) 723 723
Change in unrealized
gains on securities
available for sale,
net of tax
(note 3) 7,555 7,555
--------- ------ ------ ----- ---- ----- ------ -----
Balance,
December
31, 1995 10,314,140 24,130 32,611 90,292 (509) (843) 4,043 149,724
Net income 19,886 19,886
Cash dividends
declared
(note $.107) (2,461) (2,461)
Repurchase of
common stock (190,906) (445) (2,804) (1,066) (4,315)
Stock options
exercised
(note 15) 64,211 148 703 17 868
Income tax benefit
related to exercise
options (note 14) 275 275
3-for-2 stock
split
(note 1) 5,170,671 -
Spin-off of
subsidiary (note 2) 638 638
Issuance of
common stock 156,106 364 4,632 4,996
Amortization of
deferred
compensation
on restricted
stock (note 15) 40 40
Repayment of
ESOP and MRP
loan obligations
(note 13) 215 215
Change in unrealized
gains on securities
available for sale,
net of tax (note 3) (483) (483)
--------- ---- ----- ----- ----- ----- ---- -----
Balance,
December
31, 1996 15,514,222 $24,197 $35,142 107,581 $(469) $(628) $3,560 $169,383
========== ======= ====== ======= ====== ====== ====== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
<TABLE>
Supplemental Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, 1994
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $19,886 $12,446 $6,974
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 4,849 4,824 4,976
Deprecation, amortization and
accretion, net 6,458 4,431 4,679
(Gain) loss on sales of securities,
net (3,265) (1,139) 1,519
Gains on sales of loans, net (8,912) (970) (554)
Gains on sales of other real estate owned (68) (196) (905)
(Gain) loss on disposal of equipment (19) 152 (15)
Deferred income taxes (339) 939 (968)
Proceeds from sales of trading account
securities 85,954 178,112 120,105
Proceeds from maturities of trading
accounting securities 98,000 12,000 36,911
Purchases of trading accounting
securities (177,367) (198,997) (149,785)
Purchase and origination of mortgage
loans held for sale (128,817) (119,452) (130,848)
Proceeds from sales of mortgage loans
held for sale 132,447 117,991 159,687
Other, net 4,099 (3,809) (278)
--------- --------- ---------
Net cash provided by operating
activities 32,906 6,332 51,498
--------- --------- ---------
Cash flows form investing activities:
Purchase of Citizens Deposit Bancshares,
net of cash and due from banks (note 2) - (3,423) -
Decrease in interest bearing deposits
with banks 2,944 - 3,456
Increase in interest bearing deposits with
banks (4,222) (4,429) -
Proceeds from sales of securities available
for sale 75,726 85,202 81,333
Proceeds from maturities and calls of
securities available for sale 109,079 118,214 121,458
Proceeds from maturities and call of
securities held to maturity 4,882 14,794 18,450
Purchases of securities available for
sale (165,930) (198,398) (242,408)
Purchases of securities held to maturity (10,885) (13,129) (10,664)
Decrease (increase) in federal funds sold (3,472) 4,204 9,363
Loans originated, net of principal
collected on loans (107,571) (102,023) (169,511)
Purchases of premises and equipment (7,770) (7,570) (6,553)
Proceeds from sales of other real
estate owned 376 1,967 2,922
Proceeds from sales of premises and
equipment 149 347 126
Proceeds from sales of loans 33,551 - -
Acquisition of intangible assets - - (1,500)
Spin-off of subsidiary (note 2) (764) - -
-------- --------- ---------
Net cash used in investing
activities (73,907) (104,244) (193,528)
-------- --------- ---------
Cash flows from financing activities:
Increase in deposits $58,208 $125,889 $48,183
Increase (decrease) in Federal Funds
purchased 19,311 (9,575) 33,800
Increase (decrease) in securities sold
under agreements to repurchase (27,985) 3,155 35,208
Increase (decrease) in notes payable
to the U.S. Treasury 4,282 (4,529) (20,487)
Increase (decrease) in advances from
the Federal Home Loan Bank 19,924 (30,220) 48,856
Increase (decrease) in other
borrowings (32,927) 15,201 20,706
Proceeds from stock options exercised
and issuance of common stock 5,863 2,090 575
Repurchase of common stock (1,176) (212) (2,225)
Cash dividends paid (2,486) (2,148) (2,032)
Purchase of shares for restricted stock - - (318)
--------- --------- ---------
Net cash provided by financing
activities 43,014 99,651 162,266
--------- --------- ---------
Increase in cash and due from banks 2,013 1,739 20,236
Cash and due from banks, beginning of
year 74,910 73,171 52,935
--------- ------- --------
Cash and due from banks, end of year $76,923 $74,910 $73,171
--------- ------- --------
Cash flow information:
Income tax payments $8,183 $3,345 $5,205
Interest payments $64,079 $62,632 $41,521
Non-cash transactions:
Loans transferred to other assets $1,038 $1,178 $1,547
Securities held to maturity
transferred to available for sale - $29,166 -
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
The supplemental consolidated financial statements
have been prepared to give retroactive effect to the
acquisition of Cardinal Bancshares, Inc. as described in
Note 2. Generally accepted accounting principles
proscribe giving retroactive effect to a consummated
business combination accounted for by the pooling-of
interests method in financial statements that do not
include the date of consummation. These financial
statements reflect the consolidated financial position of
Area Bancshares Corporation (the "Corporation") and its
wholly owned subsidiaries prior to the date of
consummation and will become the historical consolidated
financial statements of the Corporation after financial
statements covering the date of consummation of the
business combination are issued.
The consolidated financial statements include the
accounts of the Corporation and its wholly owned bank
subsidiaries, The Owensboro National Bank and subsidiary,
First City Bank and Trust Company and its subsidiary, ABC
Credit Corporation, Southern Deposit Bank, Commonwealth
Bancorp of Glasgow and subsidiaries, a wholly owned bank
holding company which includes Bowling Green Bank and
Trust Company, N.A., The New Farmers National Bank of
Glasgow, Citizens Deposit Bancshares and subsidiary, a
wholly owned bank holding company which includes Citizens
Deposit Bank (collectively, the "Banks") and Area
Services, Inc., a wholly owned non-bank subsidiary. Also
included is Cardinal Bancshares, Inc., a bank and thrift
holding company whose subsidiaries include: The Vine
Street Trust Company (Vine Street) and its principal
subsidiary, VST Financial Services; HNB Bank, N.A. (HNB),
Alliance Bank, FSB (formerly Mutual Federal Savings Bank)
(Alliance), First & Peoples Bank (First and Peoples), The
Jefferson Banking Company (Jefferson) (collectively with
the Area subsidiaries the "Banks") and Cardinal Data
Services Corporation (Cardinal Data). The Corporation
and its subsidiaries are primarily engaged in commercial
and personal banking services and the consumer finance
business throughout the Commonwealth of Kentucky. All
significant intercompany accounts and transactions have
been eliminated in consolidation.
The consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles. In preparing the financial statements,
management is required to make estimates and assumptions
that affect the reported amounts of assets and
liabilities as of the date of the consolidated balance
sheet and revenues and expenses for the period. Actual
results could differ from those estimates. Generally
accepted accounting principles also require disclosure of
contingent assets and liabilities at the date of the
financial statements. Material estimates that are
particularly susceptible to significant change in the
near-term are related to the determination of the
allowance for loan losses.
Securities
Effective January 1, 1994, the Corporation adopted
Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and
Equity Securities." SFAS No. 115 requires investments in
equity securities that have a readily determinable fair
value and investments in debt securities to be classified
into three categories, as follows: held to maturity
securities, trading securities, and securities available
for sale.
Under SFAS No. 115, classification of debt
securities as held to maturity is based on the
Corporation's positive intent and ability to hold such
securities to maturity. Securities held to maturity are
stated at amortized cost.
Amortization of premiums and discounts are recorded
by a method which approximates a level yield, unless
there is a decline in value which is considered to be
other than temporary, in which case the cost basis of
such security is written down to fair value and the
amount of the write-down is included in earnings.
Securities that are bought and held principally for
the purpose of selling them in the near term are
classified as trading account securities, and valued at
fair value with unrealized gains and losses included in
earnings.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Securities classified as available for sale, which
are reported at fair value with unrealized gains and
losses excluded from earnings and reported, net of tax,
as a separate component of shareholders' equity, include
all securities not classified as trading account
securities or securities held to maturity. These include
securities used as part of the Corporation's
asset/liability strategy which may be sold in response to
changes in interest rates, repayment risk, the need or
desire to increase capital and other similar factors.
Gains or losses on sales of securities available for sale
are recognized at the time of sale, based upon the
specific identification of the security sold, and are
included in non-interest income in the consolidated
statements of income.
Mortgage Loans Held for Sale
Mortgage loans held for sale are stated at the lower
of aggregate cost or market value.
Loans
Loans are stated at unpaid principal, reduced by
unearned discount. Interest income on discount-basis
loans is recognized using a method which approximates the
interest method. Interest on loans is recognized using
the interest method on principal amounts outstanding
during the period. The recognition of interest income on
loans is discontinued at the earlier of 90 days or when
in the opinion of management the collection of principal
or interest is doubtful. Interest received on non
accrual loans is either applied to principal or recorded
as interest income according to management's judgement as
to collectibility of principal. A non-accrual loan may
be restored to an accruing status when principal and
interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is
not in doubt. Loan fees are not significant.
As of January 1, 1995, the Corporation adopted SFAS
Nos. 114 and 118, "Accounting by Creditors for Impairment
of a Loan" and "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures," respectively.
These statements require that impaired loans be measured
based on the present value of future cash flows
discounted at the loans' observable market price or fair
value of the collateral if the loan is collateral
dependent. The Corporation does not apply SFAS No. 114
to loans which are part of a large group of smaller
balance homogeneous loans, such as residential mortgage
and consumer loans. Such loans are collectively
evaluated for impairment. The implementation of these
accounting standards has not had a significant impact on
the Corporation's financial position or results of
operations.
Allowance for Loan Losses
The allowance for loan losses is maintained at a
level considered by management to be adequate to provide
for loan losses inherent in the loan portfolio.
Management determines the adequacy of the allowance based
upon reviews of individual credits, recent loss
experience, current economic conditions and such other
factors, which in management's judgement deserve current
recognition in estimating loan losses. The allowance is
increased by the provision for loan losses and reduced by
net charge-offs.
Premises and Equipment
Premises and equipment are stated at cost less
accumulated depreciation and amortization, which is
computed on either the straight-line or declining-balance
methods over the estimated useful lives of the assets.
Gains or losses on disposition are reflected in current
earnings. Maintenance and repairs are charged to expense
as incurred.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Other Assets
Included in other assets is real estate acquired in
settlement of loans, which is carried at the lower of
cost or fair value, net of selling costs. Fair value is
the amount that the Corporation could reasonably expect
to receive for these assets in a sale between a willing
buyer and a willing seller. Any write-downs to fair
value at the date of acquisition are charged to the
allowance for loan losses. Costs relating to holding
real estate acquired in settlement of loans are charged
against income as incurred. Included in other assets is
goodwill of approximately $12,015,000 and $13,569,000,
net of amortization, for December 31, 1996 and 1995,
respectively, which is being amortized by the straight
line method over various periods ranging from 10-20
years. The Corporation assesses impairment of excess
cost over fair value of net assets acquired by comparing
the carrying amount with the projected undiscounted
future net cash flows. Based on this calculation, the
Corporation determined that there was no impairment of
intangible assets at December 31, 1996. Also included in
other assets is the value of core deposits purchased of
approximately $4,294,000 and $5,299,000, net of
amortization, for December 31, 1996 and 1995,
respectively, which is being amortized by an accelerated
method over ten years and a purchased bank charter of
$1,163,000 and $1,313,000 as of December 31, 1996 and
1995, respectively, that is being amortized over ten
years on a straight-line method.
Mortgage Servicing Rights
As of January 1, 1996, the Corporation adopted SFAS
No. 122, "Accounting for Mortgage Servicing Rights."
SFAS No. 122 requires capitalization of mortgage
servicing rights, regardless of whether they were
acquired through purchase or origination activities.
Prior to issuance of SFAS No. 122, only purchased
mortgage servicing rights were capitalized. The new
standard effectively eliminated the accounting
distinction between originated and purchased mortgage
servicing rights. The implementation of this accounting
standard has not had a significant impact on the
Corporation's financial position or results of
operations.
Net Income Per Common Share and Shareholders' Equity Changes
On April 18, 1994, the Corporation's shareholders
increased the authorized shares from 10,000,000 to
16,000,000. On March 21, 1994, the Corporation's
shareholders declared a 3-for-2 stock split effected in
the form of a dividend to shareholders of record on April
1, 1994, payable April 20, 1994. 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 the stock
splits.
The weighted average number of shares outstanding,
after giving effect to the stock splits, was 15,872,000
in 1996, 15,666,000 in 1995 and 15,552,000 in 1994.
Statements of Cash Flows
For purposes of the consolidated statements of cash
flows, the Corporation considers all cash and non
interest bearing deposits with banks to be cash
equivalents.
2. Business Combinations and Asset Dispositions
On November 16, 1995, the Corporation acquired
Citizens Deposit Bancshares, ("Citizens Bancshares") for
cash and notes payable of approximately $7,560,000. The
acquisition was accounted for under the purchase method
of accounting and, accordingly, the results of operations
of Citizens Bancshares have been included in the
consolidated financial statements since the date of
acquisition.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
2. Business Combinations and Asset Dispositions (continued)
<TABLE>
The aggregate fair value of net assets acquired in
the Citizens Bancshares acquisition included the
following:
<CAPTION>
<S> <C>
In thousands
Cash and cash equivalents $ 723
Federal funds sold 2,000
Investment securities 5,316
Loans, net 25,181
Premises and equipment 89
Other assets 843
Deposits (29,411)
Other liabilities (595)
----------
Net assets acquired $ 4,146
==========
</TABLE>
Total revenue and net income from Citizens
Bancshares for the one-and-one half months beginning
November 16, 1995, of approximately $375,000 and $51,600,
respectively, is included in the Corporation's 1995
consolidated statement of income.
The spin-off of Security First Network Bank
("Security First") from the Corporation was effected
pursuant to the Amended and Restated Plan of
Distribution. Under the Plan of Distribution, following
a payment of a $3.0 million cash dividend from Security
First, the Corporation effected the distribution by
delivering pro rata to each of its stockholders of record
on the record date for the distribution all of the
outstanding shares of Security First's common stock
(2,398,908 shares). As a result of the distribution, the
Corporation no longer owns any interest in Security
First.
<TABLE>
Summary financial data related to Security First as
of May 23, 1996, the date of the spin-off, follows:
<CAPTION>
In thousands
<S> <C>
Cash and due from banks $ 764
Interest bearing deposits in banks 3,657
Securities available for sale 14,216
Loans, net 20,637
Premises and equipment 3,959
Other assets 870
Deposits 42,644
Advances from FHLB 1,230
Other liabilities 867
Stockholders' equity (638)
</TABLE>
During the period from January 1, 1996 to May 23, 1996,
and for the years ended December 31, 1995 and 1994,
Security First's net income (loss) before income taxes
was ($1,482,000), ($1,983,000) and $459,000,
respectively.
On May 14, 1996, the Corporation completed the sale of
substantially all of the assets of Cardinal Credit
Corporation ("Cardinal Credit") to Norwest Financial
Kentucky, Inc. The Corporation recorded a gain of
approximately $8.2 million in connection with such sale.
As part of the agreement with Norwest, the Corporation
agreed that for three years it would not engage, within
the market area of Cardinal Credit, in the consumer
finance business in the same or substantially similar
manner in which Cardinal Credit engaged in that business.
Such agreement does not, however, preclude any subsidiary
from engaging in its banking business, including the
origination of consumer loans, as currently conducted.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
2. Business Combinations and Asset Dispositions (continued)
On September 30, 1997 Area consummated a merger with
Cardinal Bancshares, Inc. (Lexington, Kentucky). Area
exchanged 2.7391 shares of its stock for each share of
Cardinal for a total of 4,200,519 shares issued. This
transaction was accounted for as a pooling-of-interests.
<TABLE>
The following table presents a restatement of net
interest income, net income, and earnings per common
share to reflect this pooling-of-interests transaction.
<CAPTION>
(In thousands, except per share data)
Area
Bancshares Cardinal
Corporation Bancshares, Inc. Combined
<S> <C> <C> <C>
Year Ended December 31, 1996
Net interest income $44,201 $28,224 $72,425
Net income 15,555 4,331 19,886
Earnings per common stock 1.37 1.25
Year Ended December 31, 1995
Net interest income $39,977 $27,781 $67,758
Net income 11,582 864 12,446
Earnings per common share 1.01 .79
Year Ended December 31, 1994
Net interest income $37,430 $23,093 $60.523
Net income 7,512 (538) 6,974
Earnings per common share .66 .45
</TABLE>
3. Securities
Trading Account Securities
Gross realized losses on the sales of trading
account securities were approximately $24,000, $21,000,
and $11,000 in 1996, 1995, and 1994, respectively. There
were no realized gains on the sales of trading account
securities in 1996, 1995 or 1994.
Securities Available for Sale
<TABLE>
The amortized cost, gross unrealized gains, gross
unrealized losses, and approximate fair value of
securities available for sale at December 31, 1996 and
1995, are as follows:
<CAPTION>
In thousands
December 31, 1996 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and
Federal agencies $235,523 $1,601 $619 $236,505
Mortgage-backed
securities 60,959 732 355 61,336
Obligations of states
and political
subdivisions 3,898 51 5 3,944
Equity and other
securities 19,098 4,233 173 23,158
Totals $319,478 $6,617 $1,152 $324,943
December 31, 1995
U.S. Treasury and
Federal agencies $254,044 $3,263 $846 $256,461
Mortgage-backed
securities 83,493 3,210 538 86,165
Obligations of states
and political
subdivisions 2,868 89 - 2,957
Equity and other
securities 8,626 1,008 - 9,634
Totals $349,031 $7,570 $1,384 $355,217
</TABLE>
Gross gains of approximately $3,395,000, $1,378,000 and
$116,000 and gross losses of approximately $106,000,
$218,000, and $1,624,000 were realized on these sales in
1996, 1995, and 1994, respectively.
Effective December 1, 1995, a one-time reassessment of
the Corporation's securities held to maturity was
undertaken, as permitted by the Financial Accounting
Standards Board's special report related to the
implementation of FASB Statement No. 115. In connection
with that reassessment, the Corporation transferred
securities held to maturity with an amortized cost of
$29,166,000 to securities available for sale in order to
permit more responsiveness to changes in interest rates
and other balance sheet management factors.
Securities Held to Maturity
<TABLE>
The amortized cost, gross unrealized gains, gross
unrealized losses, and approximate fair value of
securities held to maturity at December 31, 1996 and 1995
are as follows:
<CAPTION>
December 31, 1996 Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of states
and political
subdivisions $97,120 $4,669 $667 $101,122
December 31, 1995
Obligations of states
and political
subdivisions $94,015 $4,407 $103 $98,319
</TABLE>
Contractual Maturities
The amortized cost and approximate fair value of
investment securities at December 31, 1996, by
contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because issuers
may have the right to call or prepay obligations with or
without call or prepayment penalties.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
<TABLE>
3. Securities (continued)
<CAPTION>
Securities Securities
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
In thousands Cost Value Cost Value
<S> <C> <C> <C> <C>
Due on one
year or less $104,771 $105,087 $4,123 $4,170
Due after one
year through
five years 134,713 135,212 14,564 15,328
Due after five
years through
ten years 960 966 31,283 32,931
Due after ten years 2,217 2,254 47,150 48,693
Equity securities 15,858 20,088 - -
258,519 263,607 97,120 101,122
Mortgage-backed
securities 60,959 61,336 - -
Totals $319,478 $324,943 $97,120 $101,122
</TABLE>
Securities with a par value of approximately
$238,196,000 and $281,355,000 at December 31, 1996 and
1995, respectively, were pledged to secure public and
trust deposits, securities sold under agreements to
repurchase and Federal Home Loan Bank advances.
4. Loans
<TABLE>
Loans are summarized as follows:
<CAPTION>
December 31
In thousands 1996 1995
<S> <C> <C>
Commercial $313,104 $311,309
Real estate-construction 39,484 20,467
Real estate-mortgage 577,266 503,168
Installment and other, net
of unearned discount 217,206 256,923
Totals $1,147,060 $1,091,867
<CAPTION>
The maturity dates of loans are as follows:
In thousands
Due after one
December 31, 1996 Due in one year through Due after
year or loss five years five years Total
<S> <C> <C> <C> <C>
Commercial $253,839 $40,423 $18,842 $313,104
Real estate-
construction 37,836 1,454 194 39,484
All other loans 453,762 247,521 93,189 794,472
$745,437 $289,398 $112,225 $1,147,060
</TABLE>
<PAGE>
Notes to Supplemental Consolidated Financial Statements
4. Loans (continued)
<TABLE>
In thousands
<CAPTION>
Due after one
December 31, 1995 Due in one year through Due after
year or loss five years five years Total
<S> <C> <C> <C> <C>
Commercial $269,899 $32,024 $9,386 $311,309
Real estate-
construction 18,645 1,822 - 20,467
All other loans 446,288 236,197 77,606 760,091
$734,832 $270,043 $86,992 $1,091,867
</TABLE>
The principal amount of loans serviced for the benefit
of others at December 31, 1996 and 1995 totaled
approximately $123,112,000 and $110,778,000,
respectively.
The principal amount of nonaccrual loans at December
31, 1996 and 1995 totaled approximately $2,727,000 and
$3,559,000, respectively. Interest that would have been
recorded if all such loans were on a current status in
accordance with original terms was approximately $342,000
and $344,000 in 1996 and 1995, respectively. The amount
of interest income that was recorded for such loans was
approximately $118,000 and $72,000 in 1996 and 1995,
respectively.
<TABLE>
Information regarding impaired loans at December 31,
1996 and 1995:
<CAPTION>
1996 1995
<S> <C> <C>
Recorded investment $6,398,000 $9,086,000
Impaired loans with
SFAS No. 114 valuation allowance 3,549,000 5,976,000
Amount of SFAS No. 114
valuation allowance 903,000 1,652,000
Amount of impaired loans without
SFAS No. 114 valuation allowance 2,849,000 3,110,000
Average recorded investment 7,635,000 9,243,000
Interest recognized during
impairment 459,000 1,698,000
</TABLE>
The Corporation recognized interest income on impaired
loans using two methods of accounting. Interest received
on non-accrual loans is either applied to principal or
recorded as interest income according to management's
judgement as to collectibility of principal while all
other impaired loans use the accrual basis method. Under
the cash basis method, cash interest payments are
recorded as income, limited to that amount that would
have been recognized on the recorded investment at the
contractual interest rate.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
5. Allowance for Loan Losses
<TABLE>
An analysis of changes in the allowance for loan losses
follows:
<CAPTION>
December 31
In thousands 1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of
year $17,814 $16,370 $13,770
Effect of business
combinations and asset
dispositions (1,334) 554 -
Provision for loan losses 4,849 4,824 4,976
Loans charged off (4,611) (5,396) (3,203)
Recoveries of loans
previously charged off 1,945 1,462 827
Balance at end of year $18,663 $17,814 $16,370
</TABLE>
6. Premises and Equipment
<TABLE>
A summary of premises and equipment follows:
<CAPTION>
December 31
In thousands 1996 1995
<S> <C> <C>
Bank premises $30,436 $28,647
Furniture and equipment 22,387 24,903
Leasehold improvements 3,463 985
56,286 54,535
Less accumulated depreciation
and amortization 26,858 23,672
Totals $29,428 $30,863
</TABLE>
7. Other Real Estate Owned
Other real estate owned (OREO) includes properties that
the Corporation's subsidiaries have taken title in full
or partial satisfaction of repayment obligations. At
December 31, 1996 and 1995, OREO aggregated approximately
$1,171,000 and $1,185,000, respectively.
8. Capitalized Servicing Rights
<TABLE>
An analysis of capitalized servicing rights for the
year ended December 31, 1996 as follows:
<CAPTION>
In thousands Purchased Originated Total
<S> <C> <C> <C>
Balance, December 31, 1995 - - -
Amounts capitalized $313 $88 $401
Sales (114) - (114)
Amortization (3) (6) (9)
Balance, December 31, 1996 $196 $82 $278
</TABLE>
Capitalized servicing rights are stated at cost less
amortization over the estimated useful lives of the
assets. The Corporation values the carrying value and
related amortization of the assets on a quarterly basis
by considering prices for similar assets and the results
of valuation techniques to the extent available in the
circumstances. Impairment and subsequent adjustments in
each stratum, if any, is recognized by a valuation
allowance and a charge against servicing income. The
estimated fair value of capitalized servicing rights as
of December 31, 1996 was approximately $350,000.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
9. Interest on Certificates of Deposits of $100,000 or more
Interest on certificates of deposits of $100,000 or
more was approximately $3,540,000, $2,676,000 and
$2,244,000 for 1996, 1995 and 1994, respectively.
10. Brokered Deposits
At December 31, 1996, the Corporation had no brokered
deposits. At December 31, 1995 a bank subsidiary had
brokered deposits totaling $5,000,000.
11. Securities Sold Under Agreements to Repurchase
<TABLE>
The carrying value and fair value of securities sold
and the related repurchase liability at December 31, 1996
are as follows:
<CAPTION>
U.S. Treasury Obligations
Carrying Value Fair Value Weighted
Repurchase of Securities of Securities Average
In thousands Amount Sold Sold Interest Rate
<S> <C> <C> <C> <C>
Overnight $46,476 $51,826 $51,826 4.80%
1-29 Days 11,439 11,664 11,664 5.53%
30-90 Days 764 779 779 5.74%
Over 90 Days 15,640 17,257 17,257 6.12%
Totals $74,319 $81,526 $81,526 5.20%
U.S. Government Agency Obligations
<CAPTION>
Carrying Value Fair Value Weighted
Repurchase of Securities of Securities Average
In thousands Amount Sold Sold Interest Rate
<S> <C> <C> <C> <C>
Overnight $25,299 $25,608 $25,608 3.98%
1-29 Days - - - -
30-90 Days 292 302 302 5.25%
Over 90 Days - - - -
Totals $25,591 $25,910 $25,910 4.00%
<CAPTION>
Information pertaining to securities sold under
agreements to repurchase follow:
December 31 1996 1995
<S> <C> <C>
Amount outstanding at December 31 $99,910 $127,895
Average amount outstanding
during the year 90,050 119,762
Maximum amount outstanding at any
month-end 115,814 131,939
Weighted average interest rate:
As of year-end 4.54% 5.16%
Paid during year 4.95% 5.50%
</TABLE>
The Corporation has repurchase agreements where the
collateral remains under its control as well as
agreements where the counterparty maintains control of
the collateral.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
12. Advances from the Federal Home Loan Bank
The Banks are members of the Federal Home Loan Bank of
Cincinnati ("FHLB") and, accordingly, are eligible to
borrow from the FHLB. The Banks pledge FHLB stock and
certain first mortgage loans as collateral for these
advances. The aggregate balance of these mortgages must
equal 150% of the outstanding advances. At December 31,
1996 and 1995, the outstanding advances from the FHLB
were $49,313,000 and $30,619,000, respectively. Certain
information with respect to the outstanding advances from
the FHLB is summarized below:
<TABLE>
In thousands December 31, 1996 December 31, 1995
Weighted Weighted
Average Average
Interest Interest
Year of Maturity Amount Rate Amount Rate
<S> <C> <C> <C> <C>
1996 $ - - $1,000 5.75%
1997 14,641 5.50% 4,582 5.70%
1998 2,369 5.51% 398 5.47%
1999 4,423 6.14% 509 6.20%
2000 220 7.22% 228 6.08%
2001-2005 12,900 6.35% 10,490 6.19%
2006-2010 12,346 7.43% 11,646 7.56%
2001 and thereafter 2,414 6.94% 1,766 6.94%
Totals $49,313 6.32% $30,619 6.60%
</TABLE>
Scheduled principal repayments on advances from the
FHLB at December 31, 1996, are approximately $15,867,000,
$3,062,000, $4,961,000, $902,000 and $3,925,000 for 1997
through 2001, respectively, and $21,321,000 thereafter.
13. Other Borrowings
<TABLE>
In thousands 1996 1995
<S> <C> <C>
Revolving credit $20,000,000 promissory
note dated April 1, 1993 at a varying
rate of interest equal to the
lesser of prime or the adjusted LIBOR
rate plus 1.15% with a final maturity
of June 30, 1998. The interest rate
at December 31, 1996 was 6.81%. A non-use
fee of one-eighth of one percent of the
average unused portion of the note is
applied annually. This fee will be waived
by maintaining $150,000 average compensating
balance. No non-use fee was paid in 1996
or 1995. $375 $2,200
Promissory note, dated March 27, 1991,
at a varying rate of interest equal to
The Owensboro National Bank's one year
certificate of deposit rate adjusted annually,
payable in twelve annual installments of
$10,269 plus interest with a final maturity
of April 1, 2003. The interest rate at
December 31, 1996 was 4.62% 71 82
Promissory note, dated November 16, 1995
at an interest rate of 6.00% and a maturity
date of January 10, 1996. - 7,541
</TABLE>
<PAGE>
Notes to Supplemental Consolidated Financial Statements
<TABLE>
13. Other Borrowings (continued)
<CAPTION>
In thousands 1996 1995
<S> <C> <C>
Promissory note, dated August 24, 1995, due
August 27, 1997 to the Student Loan Marketing
Association, at a varying rate of interest
equal to the thirteen (13) week U.S. Treasury
bill coupon issue yield plus .67%. The
interest rate at December 31, 1996 was 5.89%.
The loan is secured by $4,595,000 in obligations
of states and political subdivisions.
Additionally, during the term of this loan a
subsidiary has agreed to originate approximately
$1,322,000 in Qualified Education Credit loans. 4,000 4,000
Line of credit payable to a bank, due June 30,
1997. Interest is payable quarterly at the prime
rate minus .5% as of December 31, 1996. 1,250 10,000
Cardinal Bancshares, Inc. Affiliates Employee
Stock Ownership Plan (ESOP) note payable to a
bank in annual principal installments of $26,015
through December 1999. Interest is payable
quarterly at the prime rate. 78 104
Cardinal Bancshares, Inc. Affiliates Employee
Stock Ownership Plan (ESOP) note payable to a
bank in annual principal installments $94,875
through December 2000. Interest is payable
quarterly at the prime rate. 380 474
First Federal Management Retention Plan (MRP)
note payable to a bank in annual principal
installments of $18,211 through December 1997.
Interest is payable quarterly at the prime rate. 18 37
Mutual Federal Management Retention Plan (MRP)
note payable to bank in annual principal
installments of $75,900 through December 1998.
Interest is payable quarterly at
the prime rate. 152 228
Revolving line of credit payable to banks,
due May 31, 1996. Interest is payable monthly
at the prime rate. - 14,800
Totals $6,324 $39,466
</TABLE>
Scheduled principal repayments on other borrowings at
December 31, 1996, are approximately $5,475,000,
$582,000, $131,000, $105,000, and $10,000 for 1997
through 2001, respectively, and $21,000 thereafter.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
<TABLE>
14. Income Taxes
The components of income tax expense (benefit) are as
follows:
<CAPTION>
In thousands 1996 1995 1994
<S> <C> <C> <C>
Income taxes applicable to operations:
Current $10,355 $3,548 $2,246
Deferred (339) 939 (968)
Total applicable to operations 10,016 4,487 1,278
Charged (credited) to components of
shareholders' equity:
Net unrealized securities gains (losses) 856 4,406 (2,264)
Income tax benefit of stock options and
grants (275) (719) (7)
Total income taxes $10,597 $8,174 $(993)
<CAPTION>
The following table presents a reconciliation of the
provision for income taxes as shown in the consolidated
statements of income with that which would be computed by
applying the statutory federal income tax rate of 35% to
income taxes.
In thousands 1996 1995 1994
<S> <C> <C> <C>
Tax expense at statutory rates $10,381 $5,909 $2,896
Increase (decrease) in taxes
resulting from:
Tax-exempt interest and dividends
(net of non-deductible interest) (1,938) (2,003) (2,108)
Amortization of intangibles 587 505 466
Dividend in excess of tax basis
of Security First 789 - -
Other, net 197 76 24
Totals $10,016 $4,487 $1,278
</TABLE>
<TABLE>
Deferred taxes aggregate to a net liability of
$1,440,000 and $2,440,000 at December 31, 1996 and 1995,
respectively, and are included in other assets and other
liabilities in the consolidated balance sheets. The tax
effects of temporary differences that give rise to the
significant portions of deferred tax assets and deferred
tax liabilities at December 31, 1996 and December 31,
1995, are as follows:
<CAPTION>
In thousands 1996 1995
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $5,894 $4,804
Deferred compensation 1,058 575
Other 145 812
Total gross deferred tax assets 7,097 6,191
</TABLE>
<PAGE>
Notes to Supplemental Consolidated Financial Statements
<TABLE>
14. Income Taxes (continued)
<CAPTION>
In thousands 1996 1995
<S> <C> <C>
Deferred tax liabilities
Purchase accounting adjustments 3,073 3,701
Unrealized gain on securities
available for sale 2,069 2,142
Pension income 682 709
Depreciation 463 558
Accounting differences on securities 499 319
Leasing operations 697 299
FHLB stock dividends 737 474
Other 317 429
Total gross deferred tax
liabilities 8,537 8,631
Net deferred tax liability $(1,440) $(2,440)
</TABLE>
15. Stock Option and Restricted Stock Plans
The Corporation has various stock option and restricted
stock plans for key employees. As of December 31, 1996,
the Corporation had 138,536 shares available for issuance
under these plans.
Stock options granted under the option program are at
the market price on the date of grant except for certain
limited stock options. Each option is for one share of
common stock. All options become exercisable over a
period of time and expire within a ten-year period from
the date of grant.
During 1994 through 1996 the Corporation issued 16,500
shares of restricted common stock to certain key
employees. The vesting periods range from 1995 to 2003.
The amount recorded for the restricted stock issue is
based on the market value of the Corporation's common
stock on the award dates and the unearned portion is
shown as deferred compensation in the consolidated
balance sheets in shareholders' equity.
The Corporation applies APB Opinion No. 25 and related
interpretations in accounting for its plans.
Accordingly, except for certain limited stock options, no
compensation cost has been recognized. Compensation cost
related to limited stock options was $1,969,000, $250,000
and $250,000 during 1996, 1995 and 1994. Compensation
cost related to the restricted stock plan was $40,000,
$17,500, and $0 during 1996, 1995, and 1994,
respectively.
Incentive Stock Option Plan
Under the incentive stock option plan, the Corporation
may grant options to selected executive officers, other
highly compensated employees, and directors of the
Corporation. Under the plan the exercise price of each
option equals the market price of the Corporation's stock
on the date of grant except that to any owner of 10% or
more of the total combined voting power of the
Corporation the option price is 110% of the market price
on the date of grant. The maximum term of an option is
ten years. Options are granted at the discretion of the
Board of Directors and vest evenly over the option
period.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
15. Stock Option and Restricted Stock Plans (continued)
<TABLE>
A summary of the status of the Corporation's incentive
stock option plan as of December 31, 1996, 1995, 1994 and
changes during the years ended on those dates is
presented below:
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning
of year 557,138 $5.92 667,406 $6.19 572,984 $4.57
Granted 98,197 14.53 94,279 11.94 154,915 11.59
Exercised (57,585) 8.13 (91,841) 7.27 (43,935) 4.15
Forfeited (33,197) 11.21 (112,706) 11.34 (16,558) 7.03
Outstanding at
end of year 564,553 $6.88 557,138 $5.926 67,406 $6.19
Options exercisable
at year-end 45,197 $8.29 24,254 $7.99 84,901 $6.99
Weighted-average
fair value of
options granted
during the year $7.79 $7.51 -
<CAPTION>
Had compensation cost for the Corporation's stock
option plan been determined consistent with the fair
value method described in SFAS No. 123, the Corporation's
net income and earnings per share would have been reduced
to the proforma amounts indicated below:
1996 1995 1994
<S> <C> <C> <C>
Net income:
As reported $19,886,000 $12,446,000 $6,974,000
Proforma $19,718,000 $12,368,000 $6,970,000
Net income per common
share:
As reported $1.25 $.79 $.45
Proforma $1.22 $.77 $.45
</TABLE>
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions
used for grants in 1996, 1995, and 1994, respectively:
dividend yield of .75% for all years; expected volatility
of 20% for all years; risk-free interest rates of 5.43% -
6.42% for 1995 and 5.38% - 7.32% for 1994. No options
were granted in 1996.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
15. Stock Option and Restricted Stock Plans (continued)
<TABLE>
The following table summarizes information about
incentive stock options outstanding at December 31, 1996:
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Average Number Weighted Average
Range of Outstanding Remaining Weighted Average Exercisable Exercise
Exercise
Prices at 12-31-96 Contractual Life Exercise Price 12-31-96 Price
<C> <C> <C> <C> <C> <C>
$1.83-
$9.13 364,105 5.8 yrs $3.43 41,686 $7.56
$10.08-
$11.59 81,390 7.6 yrs 10.88 756 10.77
$14.48-
$16.00 119,058 8.6 yrs 14.70 2,755 15.82
</TABLE>
Restricted Stock Award Plan
The Corporation has a restricted stock ward plan. Under
the plan, the Corporation may grant restricted stock to
selected executive officers, other highly-compensated
employees, and directors of the Corporation. Under the
plan the shares generally vest evenly over a five-year
period commencing approximately two to five years after
the award is granted.
During the restriction period, the shares covered by the
award that are not vested are not transferable by the
award recipient. Moreover, if the award recipient
terminates employment with the Corporation for any reason
during the restriction period, the restricted stock
award, to the extent not already vested, is forfeited as
of the date of the termination. Awards are granted at
the discretion of the Board of Directors.
<TABLE>
A summary of the status of the Corporation's restricted
stock award plan as of December 31, 1996, 1995, and 1994
and changes during the years ended on those dates is
presented below:
<CAPTION>
1996 1995 1994
Shares Shares Shares
<S> <C> <C> <C>
Outstanding at beginning
of year 39,000 38,250 33,000
Granted - 9,750 6,750
Exercised 4,400 2,250 1,500
Forfeited - 6,750 -
Outstanding at end of
year 34,600 39,000 38,250
</TABLE>
16. Loss on Trust Investments
In 1994, a bank subsidiary's trust department made
certain investments in government securities that were of
good credit quality, however, they had a high interest
rate sensitivity. It was determined that these
investments were inappropriate for the purpose acquired,
resulting in a loss of approximately $4,920,000.
17. Regulatory Matters
The Corporation's principal source of funds is
dividends received form the Banks. Payments of dividends
by the Banks are restricted by national and state banking
laws and regulations. At January 1, 1997, there were
approximately $14,551,000 of these retained earnings
available for the payment of dividends without prior
approval by regulatory authorities.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
17. Regulatory Matters (continued)
The Corporation and the Banks are required to maintain
minimum ratios of capital to risk-weighted assets and a
minimum leverage ratio, as defined by banking regulators.
At December 31, 1996, the Corporation's Tier 1 and total
risk-based capital ratios were 12.93% and 14.19%,
respectively. The leverage ratio was 8.86% at December
31, 1996. At December 31, 1996, the Corporation and the
Banks exceeded the minimum regulatory capital
requirements.
As of December 31, 1997 and 1996, the most recent
notification from the Federal Reserve bank categorized
the Corporation as well capitalized under the regulatory
framework for prompt corrective action. To be
categorized as well capitalized, the Corporation must
maintain minimum leverage, Tier 1 risk-based capital, and
total risk-based capital ratios as set forth in the table
below. There are no conditions or events since that
notification that management believes have changed the
Corporation's category.
<TABLE>
The Corporation and its significant subsidiaries'
actual capital amounts and ratios are presented in the
following table:
<CAPTION>
December 31, 1996
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
In thousands,
except percentages
Leverage Ratio:
(Tier 1 Capital to
Average Assets)
Consolidated $151,463 8.86% $68,382 4.00% $85,472 5.00%
The Owensboro
National Bank 32,317 7.75% 16,682 4.00% 20,852 5.00%
First City Bank
and Company 18,326 11.41% 10,425 4.00% 13,031 5.00%
Bowling Green
Bank and Trust
Company, N.A. 13,414 8.71% 6,160 4.00% 7,700 5.00%
Vine Street Trust
Company 13,230 7.98% 6,630 4.00% 8,290 5.00%
Tier 1 Risk-Based
Capital Ratio:
(Tier 1 Capital to
Risk Weighted
Assets)
Consolidated $151,463 12.93% $46,853 4.00% $70,284 6.00%
The Owensboro
National Bank 32,317 11.12% 11,628 4.00% 17,442 6.00%
First City Bank
and Trust
Company 18,326 11.79% 6,218 4.00% 9,327 6.00%
Bowling Green
Bank and Trust
Company, N.A. 13,414 12.65% 4,241 4.00% 6,362 6.00%
Vine Street Trust
Company 13,230 10.11% 5,230 4.00% 7,850 6.00%
<CAPTION>
December 31, 1996
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Puposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Risk-Based
Capital Ratio:
(Risk Based Capital
to Risk Weighted
Assets)
Consolidated $166,154 14.19% $93,705 8.00% $117,136 10.00%
The Owensboro
National Bank 35,959 12.37% 23,256 8.00% 29,071 10.00%
First City Bank and
Trust Company 20,276 13.04% 12,436 8.00% 15,545 10.00%
Bowling Green
Bank and Trust
Company, N.A. 14,751 13.91% 8,482 8.00% 10,603 10.00%
Vine Street Trust
Company 14,820 11.32% 10,470 8.00% 13,090 10.00%
<CAPTION>
December 31, 1995
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Leverage Ratio:
(Tier 1 Capital to
Average Assets)
Consolidated $125,841 7.27% $69,232 4.00% $86,534 5.00%
The Owensboro
National Bank 30,995 7.29% 17,005 4.00% 21,257 5.00%
First City Bank
and Trust
Company 17,639 7.76% 9,091 4.00% 11,363 5.00%
Bowling Green
Bank and Trust
Company, N.A. 11,989 7.83% 6,129 4.00% 7,661 5.00%
Vine Street Trust
Company 8,440 5.54% 6,100 4.00% 7,620 5.00%
<CAPTION>
December 31, 1995
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Risk-Based
Capital Ratio:
(Tier 1 Capital to
Risk Weighted Assets)
Consolidated $125,841 11.35% $44,329 4.00% $66,504 6.00%
The Owensboro
National Bank 30,995 11.22% 11,051 4.00% 16,576 6.00%
First City Bank and
Trust Company 17,639 13.04% 5,411 4.00% 8,116 6.00%
Bowling Green
Bank and Trust
Company, N.A. 11,989 12.86% 3,730 4.00% 5,595 6.00%
Vine Street Trust
Company 8,440 6.36% 5,310 4.00% 7,960 6.00%
<CAPTION>
December 31, 1995
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
In thousands,
except percentages
Total Risk-Based
Capital Ratio:
(Risk Based Capital to
Risk Weighted Assets)
Consolidated $139,750 12.61% $88,668 8.00% $110,833 10.00%
The Owensboro
National Bank 33,605 12.16% 22,101 8.00% 27,626 10.00%
First City Bank
and Trust
Company 17,597 13.01% 10,822 8.00% 13,527 10.00%
Bowling Green
Bank and Trust
Company, N.A. 13,161 14.11% 7,460 8.00% 9,325 10.00%
Vine Street Trust
Company 10,100 7.61% 10,610 8.00% 13,270 10.00%
</TABLE>
<PAGE>
Notes to Supplemental Consolidated Financial Statements
18. Retirement Plans
The Corporation maintains a noncontributory defined
benefit pension plan covering substantially all employees
who satisfy certain age and service requirements The
benefits are generally based on years of service and
average compensation, which compensation is generally
computed using the five consecutive years prior to
retirement that yield the highest average. The
Corporation's funding policy is to contribute annually at
least the minimum amount required by the Employee
Retirement Income Security Act of 1974, but no more than
is tax deductible.
<TABLE>
The following table sets for the aforementioned plans'
funded status and the components of net pension cost
(income):
<CAPTION>
In thousands 1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of benefit
obligations at December 31:
Vested benefit obligations $7,116 $6,905 $5,200
Accumulated benefit obligation $7,283 $7,025 $5,361
Projected benefit obligations $9,822 $9,444 $7,055
Plan assets at fair value 11,718 11,036 8,720
Plan assets in excess of projected
benefit obligations 1,896 1,592 1,665
Unrecognized net loss 841 1,175 1,021
Unrecognized prior service cost 554 729 794
Unamortized portion of net asset at
January 1, 1987 and 1989 being
amortized over approximately
17 years (909) (1,035) (1,161)
Prepaid pension cost (included in
other assets) $2,382 $2,461 $2,319
Net pension cost includes the
following (income) expense
components:
Service cost-benefits earned
during the year $700 $459 $445
Interest cost on projected benefit
obligation 675 564 522
Actual return on assets (1,527) (2,246) 69
Net amortization and deferral 572 1,479 (850)
Net pension cost $420 $256 $186
</TABLE>
The discount rate used in determining the actual
present value of the projected benefit obligation at
December 31, 1996, 1995 and 1994 were 7.50%, 7.25% and
8.00%, respectively. The rate of increase in future
compensation levels used in determing the actuarial
present value of the projected benefit obligation
December 31, 1996, 1995 and 1994 was 4.50% - 5.00%. The
expected long term rate of return on plan assets utilized
for the three years was 8.00% - 8.50%.
Assets in the plan consist primarily of common stocks,
mutual funds, U.S. Government obligations and municipal
bonds.
The Corporation sponsors a savings plan under Section
401(k) of the Internal Revenue Code, covering
substantially all salaried employees. For 1996, 1995 and
1994 the Corporation's expense totaled approximately
$427,000, $563,000 and $341,000.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
19. Other Operating Expenses
<TABLE>
Other operating expenses consist of the following:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Data Processing Expenses $3,193 $2,749 $2,909
FDIC Insurance 1,264 1,681 2,693
Loss on Trust Investments
(note16) - - 4,920
Advertising and Business
Development 2,789 2,731 2,290
Bank Share Tax 1,743 1,594 1,274
Professional Fees 2,320 3,110 2,390
Other 14,119 13,859 12,199
$25,428 $25,724 $28,675
</TABLE>
20. Concentrations of Credit Risk
The Banks actively engage in lending, primarily in home
counties and adjacent areas, except for mortgage loans
held for sale which are widely dispersed across the
United States. The credit exposure is diversified with
secured and unsecured loans to consumers, small
businesses, farmers and corporations. Collateral is
received to support these loans when collateral is deemed
necessary. The most significant categories of collateral
include cash on deposit with the Banks, marketable
securities, income producing property, home mortgages,
and consumer durables. Although the Banks have
diversified loan portfolios, a customer's ability to
honor loan contracts is reliant upon the economic
stability of the geographic region and/or industry in
which they do business. No single industry exceeds 10%
of loans.
21. Off-Balance Sheet financial Instruments
The Banks are party to financial instruments with off
balance sheet risk in the normal course of business to
meet the financing needs of their customers and to reduce
their exposure to fluctuations in interest rates. These
financial instruments include commitments to extend
credit and standby letters of credit. These financial
instruments involve to varying degrees elements of credit
and interest rate risk in excess of the amount recognized
in the consolidated balance sheets.
The Banks' exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit is represented by the contract amount
of these instruments. The Banks use the same credit
policies in making commitments and conditional
obligations as they do for on-balance sheet financial
instruments.
Commitments to extend credit are agreements to lend to
a customer as long as there is no violation of any
condition established in the contract. Commitments
generally have fixed expiration dates or other
termination clauses and may require the payment of a fee.
Since many of the commitments are expected to expire
without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements.
Total commitments to extend credit, excluding irrevocable
letters of credit, at December 31, 1996 and 1995, were
approximately $254,968,000 and $255,782,000,
respectively. The creditworthiness of the Banks'
customers is evaluated on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the
Banks upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held
varies, but may include accounts receivable, marketable
securities, inventory, property, plant and equipment,
residential real estate and income-producing commercial
properties.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
21. Off-Balance Sheet financial Instruments (continued)
Standby letters of credit are conditional commitments
issued by the Banks to guarantee the performance of a
customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that
related to extending credit to customers. The Banks had
approximately $20,824,000 and $15,872,000 in irrevocable
letters of credit outstanding at December 31, 1996 and
1995, respectively.
Interest rate swap contracts are entered into as an
asset/liability management strategy to reduce interest
rate risk. Interest rate swap contracts are exchanges of
interest payments, such as fixed-rate payments for
floating-rate payments, based on a notional principal
amount, which is an agreed-upon amount upon which
calculations of interest payments to be exchanged are
based, and is significantly greater than the amount at
risk. The primary risk associated with swaps is the
exposure to movements in interest rates and the abilities
of the counterparties to meet the terms of the contract.
One of the Banks has entered into a fixed amortizing
interest rate swap contract with an original notional
amount of $1,000,000, which matures in September 2003.
The notional amount outstanding was $752,000 and $835,000
at December 31, 1996 and 1995, respectively. The Bank is
a fixed-rate payer at a rate of 7.45% over the term of
the contract, and receives interest at the prime rate.
The net receipts or payments under the agreements are
recorded as adjustments to interest income on the accrual
basis. The contract was entered into convert a specific
loan from a fixed to a variable interest rate. Certain
mortgages are designated as colateral for the swap
agreement.
As of December 31, 1996, there were various pending
legal actions and proceedings in which claims for damages
are asserted. Management, after discussion with legal
counsel, believes the ultimate result of these legal
actions and proceedings will not have a material adverse
effect upon the consolidated financial statement of the
Corporation.
22. Disclosures About Fair Value of Financial Instruments
<TABLE>
The estimated fair value of the Corporation's financial
instruments are as follows:
<CAPTION>
In thousands 1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial Asset:
Cash and short-term
investments $96,454 $96,454 $93,348 $93,348
Trading account
securities 43,877 43,877 50,403 50,403
Securities available
for sale 324,943 324,943 355,217 355,217
Securities held to
maturity 97,120 101,122 94,015 98,319
Mortgage loans held
for sale 21,212 21,212 24,430 24,430
Loans, net 1,128,397 1,133,821 1,074,053 1,082,288
Financial Liabilities:
Deposits 1,394,399 1,397,995 1,378,856 1,385,681
Federal funds purchased
and securities sold
under agreement to
repurchase 149,396 149,450 158,070 158,066
Notes payable to the
U.S. Treasury 8,883 8,883 4,601 4,601
Advances from the Federal
Home Loan Bank 49,313 50,605 30,619 31,168
Other borrowings 6,324 6,324 39,466 39,466
Commitments - - - -
</TABLE>
<PAGE>
Notes to Supplemental Consolidated Financial Statements
22. Disclosures About Fair Value of Financial Instruments (continued)
The following methods and assumptions were used to
estimate fair value of each class of financial
instruments for which it is practicable to estimate that
value:
Cash and Short-Term Investments
For these short-term instruments, the carrying amount
is a reasonable estimate of fair value.
Securities
For securities, fair value equals quoted market price,
if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for
similar investments or dealer quotes.
Mortgage Loans Held for Sale
The fair value or mortgage loans held for sale is
estimated on an aggregate basis considering market prices
and yields sought by the Banks' normal market outlets
including the Federal Home Loan Mortgage Corporation and
the Federal National Mortgage Association current
delivery prices. The Corporation believes the carrying
amounts are a reasonable estimate of fair value.
Loans
The fair value of loans is estimated by discounting the
future cash flows using the current rates at which
similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Deposits
The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed
maturity certificates of deposits is estimated by
discounting the future cash flows using the rates
currently offered for deposits of similar remaining
maturities.
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase
The fair value of short-term Federal funds purchased
and securities sold under agreements to repurchase is the
amount payable on demand at the reporting date. The fair
value of fixed maturity Federal funds purchased and
securities sold under agreements to repurchase is
estimated by discounting the future cash flows using the
rates currently offered for instruments of similar
remaining maturities.
Notes Payable to the U.S. Treasury
The fair value of the notes payable to the U.S.
Treasury is the carrying amount at the reporting date, as
due to their short-term nature.
Advances from the Federal Home Loan Bank
The fair value of the advances from the Federal Home
Loan Bank is estimated by discounting the future cash
flows using the rates currently offered for instruments
of similar remaining maturities.
<PAGE>
Notes to Supplemental Consolidated Financial Statements
22. Disclosures About Fair Value of Financial Instruments (continued)
Other Borrowings
The fair value of other borrowings is the carrying
amount at the reporting date, as no significant fair
value differences exist due to their repricing
characteristics.
Commitments
The fair value of commitments to extend credit and
stand-by letters of credit is estimated using the fees
currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also
considers the difference between current level of
interest rates and the committed rates. The fair value
of letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to
terminate them or otherwise settle for obligations with
the counterparties. At the reporting date, no
significant fair value differences exist on commitments
to extend credit and standby letters of credit.
Limitations
The fair value estimates are made at a specific point
in time based on relevant market information and
information about the financial instruments. Because no
market exists for a significant portion of the
Corporation's financial instruments, fair value estimates
are based on judgements regarding future expected loss
experience, current economic conditions, risk
characteristics of various financial instruments and
other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant
judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly
affect the estimates. The fair value estimates are based
on financial instruments without attempting to estimate
the value of assets and liabilities that are not
financial instruments, such as premises and equipment and
other assets and liabilities. Accordingly, the fair
value estimates are not intended to represent the
Corporation's underlying value in the instruments.
23. Parent Company Financial Information
<TABLE>
Condensed financial information for Area Bancshares
Corporation (Parent Company) are as follows:
<CAPTION>
Condensed Balance Sheets (in thousands) 1996 1995
<S> <C> <C>
ASSETS
Cash on demand deposit with bank subsidiary $709 $562
Securities available for sale 22,237 17,619
Securities held to maturity 10 47
Demand loan to subsidiaries 1,920 1,095
Investments in:
Bank and bank holding company
subsidiaries 142,639 139,158
Nonbank subsidiaries 494 401
Other assets 5,397 2,680
Total assets $173,406 $161,562
LIABILITIES AND SHAREHOLDERS' EQUITY
Other borrowings $ - $9,740
Other liabilities 4,023 2,098
Shareholders' equity 169,383 149,724
Total liabilities and
shareholders' equity $173,406 $161,562
</TABLE>
<PAGE>
Notes to Supplemental Consolidated Financial Statements
23. Parent Company Financial Information (continued)
<TABLE>
Condensed Income Statements (in thousands) 1996 1995 1994
<S> <C> <C> <C>
Income
Dividends from:
Bank and bank holding company
subsidiaries $15,910 $10,425 $4,960
Interest from subsidiaries 95 207 144
Securities gains, net 3,269 - -
Other 4,609 2,125 857
Total income 23,883 12,757 5,961
Expenses
Interest on short-term borrowed funds 701 401 39
Salaries and employee benefits 2,968 1,418 696
Other 2,160 1,253 911
Total expenses 5,829 3,072 1,646
Income before income taxes and equity in
undistributed earnings of subsidiaries 18,054 9,685 4,315
Applicable income tax expense
(benefit) 735 (275) (183)
Income before equity in undistributed earnings
of subsidiaries 17,319 9,960 4,498
Equity in undistributed earnings of
subsidiaries 2,567 2,486 2,476
Net income $19,886 $12,446 $6,974
Condensed Statements of Cash Flows (in thousands)
Cash flows from operating activities:
Net income $19,886 $12,446 $6,974
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed earnings of
subsidiaries (2,567) (2,486) (2,476)
Loss (gain) on sales of securities, net (3,269) - 1
Other, net (694) 156 (1,131)
Net cash provided by operating activities 13,356 10,116 3,368
Cash flows from investing activities:
Purchases of securities (15,120) (7,356) (18,907)
Sales and maturities of securities 15,591 30 16,377
Net decrease (increase) in demand loans to
nonbank subsidiaries (825) 1,905 (925)
Investment in subsidiaries (750) (7,560) (3,000)
Net cash used in investing activities (1,104) (12,981) (6,455)
</TABLE>
<PAGE>
Notes to Supplemental Consolidated Financial Statements
<TABLE>
23. Parent Company Financial Information (continued)
<CAPTION>
Condensed Statements of Cash Flows
(in thousands) 1996 1995 1994
<S> <C> <C> <C>
Cash flows from financing activities:
Increase (decrease) in other
borrowings $(9,740) $4,340 $5,400
Proceeds from stock options
exercised 22 6 171
Repurchase of common stock, net (1,176) (212) (1,013)
Cash dividends paid (1,211) (1,026) (916)
Purchase of shares for
restricted stock - - (318)
Net cash provided by (used in)
financing activities (12,105) 3,108 3,324
Increase in cash 147 243 237
Cash at beginning of year 562 319 82
Cash at end of year $709 $562 $319
</TABLE>
24. Related Party Transactions
Loans to officers, directors, and entities of which
these individuals are principal owners were approximately
$53,031,000 and $42,698,000 at December 31, 1996 and
1995, respectively. During 1996, $53,489,000 of new
loans or advances on existing loans were made to these
related parties. Repayments from such persons totaled
$42,844,000. These loans were made on substantially the
same terms including interest rates and collateral, as
those prevailing at the time for other customers and do
not in the opinion of management involve more than normal
credit risk.
