<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 March 31, 1999
Commission File Number 0-26032
AREA BANCSHARES CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
INCORPORATED IN KENTUCKY IRS EMPLOYER ID NUMBER
NO. 61-0902343
230 FREDERICA STREET
OWENSBORO, KENTUCKY 42301
-------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (502) 926-3232
--------------
Former name, former address and former fiscal year, if changed since
last report: N/A
---
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class: Common stock
No Par Value
Shares Outstanding: As of April 30, 1999: 16,940,696
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, March 31, 1999, December 31, 1998 3
and March 31, 1998
Unaudited consolidated statements of income, three months ended March 31, 1999 and 1998 4
Unaudited consolidated statements of comprehensive income, three months ended
March 31, 1999 and 1998 5
Unaudited consolidated statements of shareholders' equity, year ended December 31,
1998 and three months ended March 31, 1999 6
Unaudited consolidated statements of cash flows, three months ended March 31, 1998
and 1998 7
Notes to consolidated financial statements 9
Item 2. Management's discussion and analysis of financial condition and results of operations 11
Results of operations 12
Financial position 20
Liquidity 23
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
2
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1999 1998 1998
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 91,567 $ 122,654 $ 71,740
Interest bearing deposits with banks 7,608 8,434 6,750
Federal funds sold 11,728 14,000 20,000
Trading account securities -- -- 73,880
Securities:
Available for sale (amortized cost of $360,464, $292,394 and $373,223) 428,939 340,874 320,043
Held to maturity (fair value of $127,337, $124,553, and $121,736) 121,262 117,869 115,730
----------- ----------- -----------
TOTAL SECURITIES 550,201 458,743 435,773
----------- ----------- -----------
Mortgage loans held for sale 12,329 14,208 16,139
Loans, net of unearned discount 1,455,798 1,412,567 1,180,243
Less allowance for loan losses 23,616 21,651 20,283
----------- ----------- -----------
NET LOANS 1,432,182 1,390,916 1,159,960
----------- ----------- -----------
Premises and equipment, net 44,142 41,267 30,123
Goodwill and other intangible assets 35,849 34,342 14,724
Other assets 53,577 47,801 42,238
=========== =========== ===========
TOTAL ASSETS $ 2,239,183 $ 2,132,365 $ 1,871,327
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 236,764 $ 251,950 $ 178,743
Interest-bearing deposits 1,520,051 1,439,914 1,278,587
----------- ----------- -----------
TOTAL DEPOSITS 1,756,815 1,691,864 1,457,330
----------- ----------- -----------
Federal funds purchased 25,739 1,107 22,375
Securities sold under agreements to repurchase 99,803 111,441 94,310
Notes payable to the U.S. Treasury 1,929 1,054 1,498
Advances from the Federal Home Loan Bank 40,335 41,309 68,959
Other borrowings 5,087 15,815 398
Accrued expenses and other liabilities 37,073 31,562 22,059
----------- ----------- -----------
TOTAL LIABILITIES 1,966,781 1,894,152 1,666,929
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized 500,000 shares; none issued -- -- --
Common stock, no par value; authorized 50,000,000 shares; issued and
outstanding March 31, 1999, 16,972,908, December 31, 1998, 15,669,729 29,250 24,397 24,338
Paid-in capital 35,632 35,632 35,632
Retained earnings 163,803 147,474 131,980
Deferred compensation on restricted stock (587) (612) (592)
ESOP and MRP loan obligations (216) (216) (337)
Accumulated other comprehensive income 44,520 31,538 13,377
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 272,402 238,213 204,398
----------- ----------- -----------
Commitments and contingent liabilities
=========== =========== ===========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,239,183 $ 2,132,365 $ 1,871,327
=========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 1998
<S> <C> <C>
Interest Income:
Loans, including fees $31,246 $28,239
Interest bearing deposits with banks 103 69
Federal funds sold 725 462
Taxable securities 4,736 4,723
Tax exempt securities 1,958 1,902
------- -------
TOTAL INTEREST INCOME 38,768 35,395
------- -------
Interest expense:
Interest on deposits 15,696 14,182
Interest on borrowings 2,337 2,311
------- -------
TOTAL INTEREST EXPENSE 18,033 16,493
------- -------
Net interest income 20,735 18,902
Provision for loan losses 164 612
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 20,571 18,290
------- -------
Non-interest income:
Commissions and fees on fiduciary activities 1,339 1,259
Service charges on deposit accounts 2,166 1,799
Other service charges, commissions and fees 1,324 1,404
Security gains (losses), net 2,597 125
Gains on sales of loans, net 425 268
Other non-interest income 1,124 96
------- -------
TOTAL NON-INTEREST INCOME 8,975 4,951
------- -------
Non-interest expenses:
Salaries and employee benefits 9,090 7,512
Net occupancy expense 1,283 937
Furniture and equipment expense 1,490 1,043
Federal deposit insurance 68 24
Data processing expense 1,504 805
Other non-interest expenses 4,856 4,605
------- -------
TOTAL NON-INTEREST EXPENSES 18,291 14,926
------- -------
Income before income tax expense 11,255 8,315
Income tax expense 2,977 2,444
======= =======
NET INCOME $ 8,278 $ 5,871
======= =======
Per common share:
Net income-basic $ 0.49 $ 0.38
-diluted $ 0.48 $ 0.37
Cash dividends $ 0.045 $ 0.035
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE NCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 1998
<S> <C> <C>
Net income $ 8,278 $ 5,871
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period 14,670 1,950
Less reclassification adjustment for gains included in net (1,688) (81)
income
Other comprehensive income 12,982 1,869
-------- -------
COMPREHENSIVE INCOME $ 21,260 $ 7,740
======== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998 AND THREE MONTHS ENDED MARCH 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON PAID-IN RETAINED DEFERRED ESOP AND ACCUMULATED TOTAL
STOCK- STOCK CAPITAL EARNINGS COMPENSATION MRP LOAN OTHER
SHARES -AMOUNT ON OBLIGATIONS COMPREHENSIVE
RESTRICTED INCOME
STOCK
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 15,576,916 $ 24,254 $35,632 $126,104 $(612) $ (337) $ 11,508 $196,549
Net income 22,626 22,626
Cash dividends declared ($.155
per share) (2,420) (2,420)
Repurchase of common stock (3,000) (5) (76) (81)
Stock options exercised,
including tax
benefits 92,238 143 1,145 1,288
Amortization of deferred
compensation on restricted 100 100
stock
Net restricted stock issued 3,575 5 95 (100) ----
Repayment of ESOP loan 121 121
obligations
Change in other comprehensive
income (loss), net of tax 20,030 20,030
---------- ------- ------- -------- ----- ----- ------ --------
Balance, December 31, 1998 15,669,729 24,397 35,632 147,474 (612) (216) 31,538 238,213
Net income 8,278 8,278
Cash dividends declared ($.045
per share) (763) (763)
Stock options exercised,
including tax benefits 3,210 8 31 39
Amortization of deferred
compensation on restricted 25 25
stock
Common stock issued 1,299,969 4,845 8,783 13,628
Change in other comprehensive
income (loss), net of tax 12,982 12,982
---------- ------- ------- -------- ----- ----- ------- --------
Balance, March 31, 1999 16,972,908 $29,250 $35,632 $163,803 $(587) $(216) $44,520 $272,402
========== ======= ======= ======== ===== ===== ======= ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net income $ 8,278 $ 5,871
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for loan losses 164 612
Depreciation, amortization and accretion, net 1,369 947
Gain on sales of securities and loans, net (3,022) (393)
Loss (Gain) on sales of other real estate owned 11 52
(Gain) on disposals of equipment (40) --
Deferred income taxes 1,788 1,468
Proceeds from sales of trading account securities -- 9,880
Proceeds from maturities of trading account securities -- 35,994
Purchases of trading account securities -- (73,870)
Purchases of mortgage loans held for sale (34,020) (43,794)
Proceeds from sales of mortgage loans held for sale 35,899 37,640
Other, net 4,103 4,166
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 14,530 (21,427)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in interest bearing deposits with banks 826 (946)
Proceeds from sales of securities available for sale 1,867 1,652
Proceeds from sales of securities held to maturity -- --
Proceeds from maturities of securities available for sale 58,312 51,597
Proceeds from maturities of securities held to maturity 18,693 774
Calls of securities available for sale 2,200 2,000
Calls of securities held to maturity 1,435 1,341
Purchases of securities available for sale (130,169) (29,987)
Purchases of securities held to maturity (1,028) (960)
(Decrease) increase in federal funds sold and securities
purchased under agreements to resell 24,400 (20,000)
Loans originated, net of principal collected on loans 56,218 45,718
Purchases of premises and equipment (2,156) (1,473)
Cash and cash equivalents from acquisitions 7,249 --
Proceeds from sales of other real estate owned 136 112
Proceeds from sales of premises and equipment 81 --
------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 38,064 49,828
======= =======
</TABLE>
CONTINUED
7
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
CASH FLOWS FROM FINANCING ACTIVITIES: (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Increase (decrease) in deposits $ (81,248) $ 24,198
Decrease in federal funds purchased 24,632 (16,316)
Decrease in securities sold under agreements to repurchase (13,688) (15,551)
Increase (decrease) in notes payable to the U.S. Treasury 875 (18,083)
Decrease in advances from the Federal Home Loan Bank (2,800) (15,377)
Decrease in other borrowings (10,728) 1
Proceeds from issuance of common stock and stock options exercised 39 635
Repurchase of common stock -- --
Cash dividends paid (763) (546)
--------- ---------
NET CASH PROVIDED (USED IN) FINANCING ACTIVITIES (83,681) (41,039)
--------- ---------
DECREASE IN CASH AND DUE FROM BANKS (31,087) (12,638)
CASH AND DUE FROM BANKS, JANUARY 1 122,654 84,378
--------- ---------
CASH AND DUE FROM BANKS, MARCH 31 $ 91,567 $ 71,740
========= =========
Cash flow information:
Income tax payments -- --
Interest payments 18,730 15,803
Non-cash transactions:
Loans transferred to other assets 875 712
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999 AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q
and, therefore, do not include all information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair
presentation have been reflected in the accompanying consolidated
financial statements. Results of interim periods are not necessarily
indicative of results to be expected for the full year.
The accounting and reporting policies of Area Bancshares Corporation
("Area") and its subsidiaries conform to generally accepted accounting
principles and general practices within the banking industry. The
consolidated financial statements include the accounts of Area and its
wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation. A full description
of significant accounting policies as well as a complete set of
footnotes are presented in the 1998 annual report to shareholders.
NOTE 2. NET INCOME PER COMMON SHARE
Basic earnings per share are calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share gives effect to the increase in the average
shares outstanding that would have resulted from the exercise of
dilutive stock options.
The components of basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
1999 1998
---- ----
<S> <C> <C>
(Amounts in thousands, except per share data)
NET INCOME, BASIC AND DILUTED $ 8,278 $ 5,871
======= =======
Average shares outstanding 16,915 15,613
Effect of dilutive securities 251 270
------- -------
Average shares outstanding including dilutive securities 17,166 15,883
======= =======
NET INCOME PER SHARE, BASIC $ 0.49 $ 0.38
======= =======
NET INCOME PER SHARE, DILUTIVE $ 0.48 $ 0.37
======= =======
</TABLE>
NOTE 3. SECURITIES
The amortized cost and approximate market values of securities as of
March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
(Amounts in thousands)
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $262,987 $ 1,046 $ 380 $263,653
Mortgage-backed securities 60,742 718 56 61,404
Obligations of state and political subdivisions 19,002 846 24 19,824
Equity and other securities 17,733 66,574 249 84,058
======== ======== ======== ========
BALANCE AT MARCH 31, 1999 $360,464 $ 69,184 $ 709 $428,939
======== ======== ======== ========
</TABLE>
9
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999 AND 1998
NOTE 3. SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $ 187,993 $ 1,697 $ 226 $ 189,464
Mortgage-backed securities 68,094 836 71 68,859
Obligations of state and political subdivisions 18,894 1,075 13 19,756
Equity and other securities 17,613 45,413 231 62,795
======== ======== ====== =========
BALANCE AT DECEMBER 31, 1998 $292,394 $ 49,021 $ 541 $ 340,874
======== ======== ====== =========
HELD TO MATURITY
(Amounts in thousands)
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
MARCH 31, 1999
Obligations of state and political subdivisions $121,262 $ 6,264 $ 189 $127,337
======== ======== ====== =========
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
DECEMBER 31, 1998
Obligations of state and political subdivisions $ 117,869 $ 6,863 $ 179 $ 124,553
======== ======== ====== =========
</TABLE>
NOTE 4. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was
issued in June 1998. SFAS No. 133 standardizes the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are
required to carry all derivative instruments in the statement of
financial position at fair value. The accounting for changes in the
fair value (i.e. gains or losses) of a derivative instrument depends
on whether it has been designed and qualifies as part of a hedging
relationship and if so, the reason for holding it. If certain
conditions are met, entities may elect to designate a derivative
instrument as a hedge against exposure to changes in fair values,
cash flows or foreign currencies. If the hedged exposure is a fair
value exposure, the gain or loss on the derivative instrument is
recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk
hedged. If the hedged exposure is a cash flow exposure, the effective
portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income and
subsequently reclassified into earnings when the forecasted
transaction affects earnings. Any amounts excluded from the
assessment of hedge effectiveness as well as the ineffective portion
of the gain or loss is reported in earnings immediately. Accounting
for foreign currency hedges is similar to the accounting for fair
value and cash flow hedges. If the derivative instrument is not
designated as a hedge, the gain or loss is recognized in earnings in
the period of change.
Area must adopt SFAS No. 133 by January 1, 2000, however early
adoption is permitted. On adoption, the provisions of SFAS No. 133
must be applied prospectively. Area has not determined the impact
that SFAS No. 133 will have on its financial statements and believes
that such determination will not be meaningful until closer to the
date of adoption.
10
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999 AND 1998
NOTE 5. INTANGIBLES
The excess cost over fair value of net assets acquired in purchase
business combinations (goodwill) of $32,278,000 and $30,564,000 net
of accumulated amortization as of March 31, 1999 and December 31,
1998, respectively, is being amortized over a 10-40 year period on a
straight-line basis. Other intangible assets consist of the value of
core deposits purchased of approximately $2,746,000 and $2,915,000,
net of accumulated amortization, as of March 31, 1999 and December
31, 1998, respectively, which is being amortized by an accelerated
method over ten years and a purchased bank charter of $825,000 and
$863,000 as of March 31, 1999 and December 31, 1998, respectively,
which is being amortized over a 10-year period on a straight-line
basis. Amortization expense for the three-month periods ended March
31, 1999 and 1998 was $876,000 and $511,000, respectively.
NOTE 6. BUSINESS COMBINATIONS
On August 23, 1998 Area acquired NationsBank of Kentucky, N.A., a
wholly-owned subsidiary of NationsBank Corporation. NationsBank of
Kentucky, N.A. had total assets of approximately $133,000,000, net of
certain deposits that were retained by NationsBank of Kentucky, N.A.,
loans of approximately $84,000,000 and deposits of approximately
$113,000,000. The acquisition was accounted for under the purchase
method of accounting and, accordingly, the results of NationsBank of
Kentucky, N.A. have been included in Area's consolidated statements
since the date of acquisition. In conjunction with the acquisition,
approximately $22,030,000 of intangibles were recorded.
On January 4,1999, Area merged with Peoples Bancorp of Winchester,
which is headquartered in Winchester, Kentucky. Peoples Bancorp of
Winchester had total assets of $165,000,000 and was a one-bank
holding company for Peoples Commercial Bank. Area issued
approximately 1,300,000 shares of its common stock in conjunction
with the merger. This acquisition was accounted for as a
pooling-of-interests; however, due to the relative size of Peoples
Bancorp of Winchester's financial condition and results of operations
to that of Area, the historical financial statements of Area has not
been restated to reflect this combination.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Area is a multi-bank holding company that was incorporated in
Kentucky in 1976 and is registered under the Bank Holding Company
Act of 1956, as amended. On March 31, 1999, the Corporation directly
controlled five affiliated commercial banks and indirectly
controlled eight additional commercial banks through the ownership
of holding companies, all of which are located in Kentucky. Of the
banks controlled by Area, four are national banks and nine are state
banks.
Area and its subsidiaries engage in retail and commercial banking
and related financial services. In connection with these services,
Area provides the usual products and services of retail and
commercial banking such as deposits, commercial loans, personal
loans and trust services. The principal business of Area consists of
making loans. The principal markets for these loans are businesses
and individuals. These loans are made at the offices of the
affiliated banks and subsidiaries, and some are sold on the
secondary market. Additionally, Area engages in activities that are
closely related to banking, including mortgage banking and
investment brokerage.
The discussion that follows is intended to provide additional insight
into Area's financial condition and results of operations. This
discussion should be read with the consolidated financial statements
and accompanying notes presented in Item 1 of Part I of this report.
11
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
FORWARD LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q and
the exhibits to this quarterly report, that are not statements of
historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act (the "Act"). In
addition, certain statements in future filings by Area with the
Securities and Exchange Commission, in press releases, and in oral and
written statements made by or with the approval of Area that are not
statements of historical fact constitute forward-looking statements
within the meaning of the Act. Examples of forward-looking statements
include, but are not limited to: (1) projections of revenues, income or
loss, earnings or loss per share, the payment or non-payment of
dividends, capital structure and other financial items; (2) statements
of Area's plans and objectives, including those relating to products or
services; (3) statements of future economic performance; and (4)
statements of assumptions underlying such statements. Words such as
"believes," "anticipates," "expects," "intends," "targeted," and
similar expressions are intended to identify forward-looking statements
but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may
cause actual results to differ materially from those in such
statements. Factors that could cause actual results to differ from
those discussed in the forward-looking statements include, but are not
limited to: (1) the strength of the U.S. economy in general and the
strength of the local economies in which operations are conducted; (2)
the effects of and changes in trade, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the
Federal Reserve System; (3) inflation, interest rate, market and
monetary fluctuations; (4) the timely development and acceptance of new
products and services and perceived overall value of these products and
services by users; (5) changes in consumer spending, borrowing and
saving habits; (6) technological changes; (7) acquisitions; (8) the
ability to increase market share and control expenses; (9) the effect
of changes in laws and regulations (including laws and regulations
concerning taxes, banking, securities and insurance) with which Area
and its subsidiaries must comply; (10) the effect of changes in
accounting policies and practices, as may be adopted by the regulatory
agencies as well as the Financial Accounting Standards Board; (11)
changes in Area's organization, compensation and benefit plans; (12)
the costs and effects of litigation and of unexpected or adverse
outcomes in such litigation; and (13) Area's success managing the risks
involved in the foregoing. Such forward-looking statements speak only
as of the date on which the statements are made, and Area undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which a statement is made to reflect
the occurrence of unanticipated events.
A. RESULTS OF OPERATIONS
Net income for the quarter ended March 31, 1999 was $8,278,000 versus
$5,871,000 in the same period of 1998. Diluted earnings per share were
$0.48 compared to $0.37 for the same period in 1998. The increase for
the current quarter from the first quarter of 1998 was $2,407,000 or
41.0% for net income and $0.11 or 29.7% per diluted share. The higher
net income during the quarter was largely the result of an increase in
net interest income (taxable equivalent basis) totaling $1,871,000 and
an increase in non-interest income of $4,024,000 off-set by an increase
of $3,365,000 in non-interest expense.
Area believes that the most meaningful comparison of the results of
operations excludes nonrecurring items. During the current quarter Area
received a favorable insurance settlement totaling $615,000 after-tax
($945,000 pre-tax) and recorded $122,000 of after-tax merger-related
adjustments which enhanced net income. Net income, adjusted for these
items, totaled $7,541,000 or $0.44 per diluted share compared to
$5,871,000 or $0.37 per diluted share earned during the first quarter
of 1998. The first quarter of 1998 had no adjustments. Adjusted net
income increased $1,670,000 or 28.4% while adjusted diluted earnings
per share increased $0.07 or 18.9% from the first quarter of 1998.
Return on average assets was 1.49% (annualized) in the first quarter of
1999 compared to 1.32% (annualized) during the same period of 1998.
Adjusted return on average assets (excluding the nonrecurring items
discussed above) totaled 1.36% (annualized) during the quarter ended
March 31, 1999 compared to 1.32% for the same period in 1998. Return on
average equity was 13.13% (annualized) for the quarter ended March 31,
1999 compared to 11.71% during the first quarter of 1998. Adjusted
return on average equity (excluding the nonrecurring items discussed
above) was 11.96% (annualized) for the quarter ended March 31, 1999 and
11.71% for the first quarter of 1998.
12
<PAGE> 13
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
A. RESULTS OF OPERATIONS (CONTINUED)
The following table provides selected operating data, per share data,
selected ratios and average balances for the three-month periods ended
March 31, 1999 and 1998:
EXHIBIT 1: HIGHLIGHTS
(Amounts in thousands, except percentages and per share data)
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31
1999 1998 CHANGE
---- ---- ------
<S> <C> <C> <C>
OPERATING DATA
Net income $ 8,278 $ 5,871 $ 2,407
Net income (1) 7,541 5,871 1,670
PER SHARE DATA
Basic earnings per share 0.49 0.38 0.11
Basic earnings per share (1) 0.45 0.38 0.07
Diluted earnings per share 0.48 0.37 0.11
Diluted earnings per share (1) 0.44 0.37 0.07
Cash dividends per share 0.045 0.035 0.01
Book value at March 31 16.05 13.08 2.97
Market price at March 31 23.38 28.50 (5.12)
SELECTED RATIOS AND DATA
Return on assets (annualized) 1.49% 1.32% 0.17%
Return on assets (annualized)(1) 1.36% 1.32% 0.04%
Return on equity (annualized) 13.13% 11.71% 1.42%
Return on equity (annualized)(1) 11.96% 11.71% 0.25%
Efficiency ratio 59.44% 59.96% (0.55%)
Efficiency ratio (1) 60.22% 59.96% 0.26%
Net interest margin (annualized) 4.22% 4.64% (0.42%)
Equity-to-assets 12.17% 10.92% 1.25%
Allowance for loan losses to loans 1.62% 1.72% (0.10%)
Allowance for loan losses to
nonperforming loans 954.2% 650.5% 303.7%
Nonperforming loans to total loans 0.17% 0.26% (0.09%)
AVERAGE BALANCES
Total assets $2,251,909 $1,803,214 $448,695
Earning assets 2,094,743 1,719,224 375,519
Shareholders' equity 255,633 203,285 52,348
</TABLE>
(1) Excludes an after-tax favorable insurance settlement of $615 and
$122 of merger-related adjustments in 1999 which enhanced net
income.
13
<PAGE> 14
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
ADJUSTED CASH BASED EARNINGS
Area believes it is important to also disclose adjusted cash based earnings,
which excludes nonrecurring items and intangible asset amortization. Although
Area believes these calculations are helpful in understanding the performance of
Area, cash based earnings should not be considered a substitute for net income
or cash flow as indicators of Area's financial performance or its ability to
generate liquidity. The following presents the adjusted cash based net income
and various cash based performance ratios:
(Amounts in thousands, except percentages and per share data)
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31
1999 1998 CHANGE
---- ---- ------
<S> <C> <C> <C>
Adjusted net income (1) $ 7,541 $5,871 $1,670
Add back:
Goodwill and other intangible amortization 876 511 365
Less: tax effect 154 60 94
------- ------- ------
722 451 271
ADJUSTED CASH BASED NET INCOME $ 8,263 $ 6,322 $1,941
======= ======= ======
</TABLE>
(1) Excludes an after-tax favorable insurance settlement of $615 and $122
of merger-related adjustments in 1999 which enhanced net income.
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31
1999 1998 CHANGE
---- ---- ------
<S> <C> <C> <C>
Per share data
Adjusted cash based basic earnings per share $0.49 $0.40 $0.09
Adjusted cash based diluted earnings per share 0.48 0.40 0.08
Performance ratios (annualized)
Adjusted cash based return on tangible assets 1.51% 1.43% 0.18%
Adjusted cash based return on tangible equity 15.17% 13.38% 1.76%
Adjusted cash based efficiency ratio 57.28% 57.91% (.63%)
</TABLE>
NET INTEREST INCOME
The largest component of Area's operating income is net interest
income. Net interest income is the difference between interest earned
on earning assets and interest expense on interest bearing
liabilities. For purposes of this discussion, interest income earned
on tax-exempt securities and loans is adjusted to a fully taxable
equivalent basis to facilitate comparison with interest earned which
is subject to statutory taxation.
Changes in net interest income generally occur due to fluctuations in
the balance and/or mix of interest-earning assets and
interest-bearing liabilities, and changes in their corresponding
interest yields and costs.
Net interest income, on a tax equivalent basis, increased $1,871,000
or 9.4% to $21,813,000 during the quarter ended March 31, 1999. The
net interest margin is computed by dividing net interest income on a
fully taxable equivalent basis by average earning assets. Area's net
interest margin decreased from 4.64% during the quarter ended March
31, 1998 to 4.22% during the current quarter. This decrease was
largely the result of a decrease in the average rate on earning
assets from 8.48% in the first quarter of 1998 to 7.71% in the
current quarter. Competitive pressures on loan pricing and a
relatively flat yield curve were primarily responsible for the
decrease in the average rate on earning assets. As a partial offset,
the average rate on interest bearing liabilities decreased from 4.60%
to 4.23%. These changes resulted in a decrease of 0.40% in the net
interest spread for the current quarter versus the same period in
1998.
14
<PAGE> 15
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
NET INTEREST INCOME (CONTINUED)
The following presents the components of net income on a taxable
equivalent basis:
z
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 1998 CHANGE
---- ---- ------
<S> <C> <C> <C>
Interest income $ 38,768 $ 35,395 $ 3,373
Taxable-equivalent adjustment 1,078 1,040 38
------- ------- -------
Interest income-taxable equivalent 39,846 36,435 3,411
Interest expense 18,033 16,493 1,540
------- ------- -------
Net interest income-taxable equivalent 21,813 19,942 1,871
Provision for loan losses 164 612 (448)
Non-interest income 8,975 4,951 4,024
Non-interest expenses 18,291 14,926 3,365
------- ------- -------
Income before income taxes 12,333 9,355 2,978
Income taxes 2,977 2,444 533
Taxable-equivalent adjustment 1,078 1,040
------- ------- -------
38
NET INCOME $ 8,278 $ 5,841 $ 2,437
======= ======= =======
</TABLE>
The following table summarizes the fully-taxable equivalent interest spread,
which is the difference between the average yield on earning assets and the
average rate on interest bearing liabilities as well as the net interest margin,
which is the fully-taxable equivalent net interest income divided by the average
earning assets for the three months ended March 31, 1999 and 1998.
(Amounts in thousands, except percentages)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998 CHANGE
---- ---- ------
<S> <C> <C> <C>
Average rate on earning assets (1) 7.71% 8.48% (0.77%)
Average rate on interest bearing liabilities (1) 4.23% 4.60% (0.37%)
Net interest spread (1) 3.48% 3.88% (0.40%)
Net interest margin (1) 4.22% 4.64% (0.42%)
Average earning assets $ 2,094,74 $1,719,224 $375,519
Average interest bearing liabilities 1,729,337 1,434,534 294,803
</TABLE>
(1) Amounts annualized
PROVISION FOR LOAN LOSSES
The allowance for loan losses is maintained at a level management believes is
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 that 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.
15
<PAGE> 16
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
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) THREE MONTHS ENDED MARCH 31
1999 1998 CHANGE
---------- ---------- --------
<S> <C> <C> <C>
Balance, December 31 $ 21,651 $ 19,887 $ 396
Additions through acquisitions 1,857 --- 1,857
Provision for loan losses 164 612 (448)
Loan loss recoveries 492 407 85
Loans charged off (548) (623) (75)
---------- ---------- --------
BALANCE, MARCH 31 $ 23,616 $ 20,283 $ 3,333
========== ========== ========
Average loans, net of unearned income $1,484,831 $1,205,514 $279,317
Provision for loan losses to average loans (1) 0.04% 0.20% (0.16%)
Net loan charge-offs (recoveries) to average loans (1) 0.02% 0.07% (0.05%)
Allowance for loan losses to end of period loans 1.62% 1.72% (0.10%)
Allowance for loan losses to nonperforming loans 954.2% 650.5% 303.7%
</TABLE>
(1) Amounts annualized
The provision for loan losses decreased $448,000 or 73.2% to $164,000 for the
quarter ended March 31, 1999 compared to the same period last year. The decrease
for the current quarter primarily resulted from of a decrease in nonperforming
assets from $4,511,000 on March 31, 1998 to $4,142,000 on March 31, 1999 and an
overall improvement in the quality of the loan portfolio.
The provision for loan losses as a percentage of average loans totaled 0.04%
(annualized) compared to 0.20% (annualized) for the quarter ended March 31,
1998. This decrease reflected the continued improvement in the quality of loans
as discussed more completely under "Asset Quality".
Net loan charge-offs (loan charge-offs less recoveries) to average loans
decreased to 0.02% (annualized) from 0.07% (annualized) for the quarter ended
March 31, 1998, as a result of a reduced level of charge-offs.
The allowance for loan losses was 1.62% of total loans on March 31, 1999, as
compared to the December 31, 1998 level of 1.53% and the March 31, 1998 level of
1.72%.
NON-INTEREST INCOME
The following table sets forth the components of non-interest income for the
three months ended March 31, 1999 and 1998:
(Amounts in thousands, except percentages)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
------- ------- ------
1999 1998 CHANGE
<S> <C> <C> <C>
Commissions and fees on fiduciary activities $ 1,339 $ 1,259 $ 80
Service charges on deposit accounts 2,166 1,799 367
Other service charges, commissions and fees 1,324 1,404 (80)
Security gains (losses), net 2,597 125 2,472
Gains on sales of loans (net) 425 268 157
Other income 1,124 96 1,028
------- ------- ------
TOTAL $ 8,975 $ 4,951 $4,024
======= ======= ======
</TABLE>
16
<PAGE> 17
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
NON-INTEREST INCOME (CONTINUED)
Non-interest income totaled $8,975,000 for the three-month period ended March
31, 1999. This amount represents an increase of $4,024,000 or 81.3%, when
compared to 1998 period totals. Included in the non-interest income totals for
the current quarter is approximately $193,000 from Peoples Bancorp of
Winchester, which merged with Area in January 1999 (see Note 6). The merger was
accounted for as a pooling-of-interests; however, due to the relative size of
Peoples Bancorp of Winchester's financial condition and results of operations to
that of Area, the historical financial statements of Area have not been restated
to reflect this combination. Commissions and fees on fiduciary activities
increased $80,000 or 6.4% to $1,339,000 in the first quarter of 1999 largely as
a result of increases in the value of assets managed and successful new business
development efforts. Service charges on deposit accounts increased $367,000 or
20.4% to $2,166,000 when compared to the first quarter of 1998, due primarily to
increases in deposits subject to service charges and selective fee increases.
Other service charges, commissions and fees decreased $80,000 or 5.7% to
$1,324,000 from the first quarter of 1998. The decrease for the quarter largely
resulted from a change in accounting for credit card activity fees. Excluding
this change, other service charges, commissions and fees would have grown
$206,000 or 14.7% as a result of increases in ATM fees, commissions earned on
official checks and loan servicing fees. Gains (net) on the sale of securities
available for sale totaled $2,597,000 compared to $125,000 for the first three
months of 1998. The gains during the current quarter largely resulted from gains
realized on the sale of equity securities and resulted from Area's ongoing
management of its equity securities portfolio. Gains on sales of loans increased
$157,000 to $425,000 during the three-month period ended March 31, 1999. The
increase for the quarter primarily resulted from increased sales of fixed-rate
mortgage loans which were originated during the first quarter and held for sale.
Other income totaled $1,124,000 during the first quarter of 1999 compared to
$96,000 during the same period in 1998. The increase was $1,028,000 and
primarily the result of an insurance settlement received during the current
quarter totaling $945,000 from a loss occurring in 1994.
NON-INTEREST EXPENSES
The following table sets forth the components of non-interest expenses for the
three months ended March 31, 1999 and 1998:
(Amounts in thousands, except percentages)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
------- -------- ------
1999 1998 CHANGE
<S> <C> <C> <C>
Salaries and employee benefits $ 9,090 $ 7,512 $ 1,578
Net occupancy expenses 1,283 937 346
Furniture and equipment expense 1,490 1,043 447
Federal deposit insurance 68 24 44
Data processing expense 1,504 805 699
Advertising and community relations 767 505 262
Insurance and taxes 552 506 46
Professional fees 652 833 (181)
Amortization of intangibles 876 511 365
Other 2,009 2,250 (241)
------- -------- ------
TOTAL $18,291 $ 14,926 $3,365
======= ======== ======
</TABLE>
17
<PAGE> 18
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
NON-INTEREST EXPENSES (CONTINUED)
Non-interest expenses totaled $18,291,000 during the three-month period ended
March 31, 1999. This amount represents an increase of $3,365,000 or 22.5% during
the current quarter compared to the same period in 1998. Included in the
non-interest expenses for the current quarter is approximately $1,208,000 from
Peoples Bancorp of Winchester, which merged with Area in January 1999 (see Note
6). The merger was accounted for as a pooling-of-interests; however, due to the
relative size of Peoples Bancorp of Winchester's financial condition and results
of operations to that of Area, the historical financial statements of Area have
not been restated to reflect this combination. Excluding the non-interest
expenses related to Peoples, total non-interest expenses increased $2,157,000 or
14.5% from the first quarter of 1998. Salaries and employee benefits increased
$1,578,000 or 21.0% to $9,090,000 in the first quarter of 1999. Excluding
salaries and employee benefits related to Peoples, the increase would have been
$1,100,000 or 14.6%. This increase was the result of merit increases and the
creation of additional positions to staff Area for future growth. Net occupancy
expenses increased $346,000 or 36.9% to $1,283,000. Modernizing several
facilities and adding five new branches accounted for this increase. Furniture
and equipment expenses totaled $1,490,000 compared to $1,043,000 during the
first quarter of 1998. The increase was $447,000 or 42.9%. Excluding Peoples,
the increase was $267,000 or 25.6% and occurred largely as a result of
depreciation of equipment used to become Year 2000 ready. Data processing
expenses totaled $1,504,000 during the current quarter compared to $805,000 for
the same period in 1998. The increase was $699,000 or 86.8%. Included as part of
this increase was $256,000 of costs to convert Peoples data processing system to
Area's system. Excluding this one-time cost, data processing costs increased
$443,000 or 55.0% as a result of continued enhancements to Area's data
processing capabilities and expenses associated with modifying computer
application systems for the Year 2000. Advertising and community relations
increased $262,000 or 51.9% to $767,000 during the current quarter. Costs
associated with selective advertising campaigns and a new customer information
system were responsible for this increase. Professional fees declined $181,000
or 21.7% to $652,000 during the first quarter of 1999 primarily as a result of
reduced acquisition activities. Amortization of intangibles increased $365,000
or 71.4% to $876,000 as a result of the amortization of intangibles associated
with the acquisition of NationsBank of Kentucky, N.A. (see Note 6). Other
non-interest expenses decreased $241,000 or 10.7% to $2,009,000 in the current
quarter largely as a result of credit card expenses declining $179,000. This
decrease was the result of netting related credit card income and expenses by
Area's provider as discussed in "Non-Interest Income" above.
INCOME TAX EXPENSE
Income tax expense totaled $2,977,000 for the three-month period ended March 31,
1999 compared to $2,444,000 for the same period in 1998. The higher level of
income tax expense for the current three-month period resulted from higher
pre-tax earnings. The effective tax rate was 26.5% compared to 29.4% for the
first quarter of 1998. The reduction in the effective tax rate during the
current period primarily resulted from a $330,000 deferred tax benefit recorded
as a result of the merger with Peoples Bancorp of Winchester (see Note 6).
Peoples was a Subchapter "S" corporation prior to the merger. At the time of the
merger, Peoples converted to a "C" corporation, and a net deferred tax benefit
was recorded for its cumulative temporary differences. Without this benefit, the
effective tax rate would have been 29.4%. The effective tax rate differs from
the marginal income tax rate of 35% in both 1999 and 1998, primarily as a result
of tax-exempt income and amortization of goodwill.
YEAR 2000
What is commonly referred to as "Year 2000"or "Y2K" presents potential problems
that have received much publicity and may affect many computer systems currently
in use. In these cases, the computer systems record years in a two-digit format
that may lead to misinterpretation between year 2000 and year 1900. The result
could lead to, among other things, business interruptions and errors in
computations that use dates. The potential costs and uncertainties associated
with Year 2000 will depend not only on the computer hardware and software
currently in use at a specific company, but also the degree to which that
company's suppliers and customers have addressed their individual Year 2000
issues.
18
<PAGE> 19
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
YEAR 2000 (CONTINUED)
In August 1997 management established a formal program to address Year 2000
issues. The program is comprised of five phases: (1) awareness; (2) assessment;
(3) remediation; (4) testing; and (5) validation. phases. Additionally, the
program has full management support and has a project manager. The following is
a brief discussion of each phase:
The awareness phase involved defining the Year 2000 problems and establishing an
overall strategy. Area defines Year 2000 compliance as accurately processing
date/time data including calculations involving dates occurring in years 2000
and beyond. The awareness phase began in August 1997 and is complete.
The assessment phase defined the size and complexity of the problems and the
resources necessary to address Year 2000 issues. During this phase, Area
comprehensively reviewed all computer systems and applications to determine
which ones could be adversely affected by Year 2000. Area's data processing for
its banking affiliates is performed primarily by a third party vendor.
Consequently, Area depends upon this vendor for its mission-critical data
processing. As of December 31, 1998, this vendor had informed Area that the
vendor had made all reprogramming changes necessary to be Year 2000 ready. In
addition, Area has reviewed Year 2000 issues with its other major business
relationships, defined as those that may have a significant financial and/or
operational impact on Area. Included with this review have been customers,
vendors, counterparties, other non-Area banks, utilities and various
intermediaries. Area has determined that there are two primary sources of third
party risks within this group that may result in financial losses. The first is
loan customers (primarily business related) of Area's affiliated banks that may
experience financial difficulties as a result of not being year 2000 compliant
which increases the potential for delays in receiving payments and/or loan
charge-offs. Major borrowers have been reviewed using a Year 2000 credit risk
assessment and no material issues were noted. The other third party risk is from
Area's vendors and non-information technology systems including alarm systems,
elevators, HVAC and cash vaults. All mission-critical vendors have been
contacted and have indicated that they were Year 2000 ready at December 31,
1998. As of December 31, 1998, the assessment phase was completed.
The purpose of the remediation phase is to ensure all date routines have been
corrected to properly address Year 2000 issues. As a result of Area's reliance
upon third party vendors for a portion of its mission-critical functions, Area
is working closely with these vendors. As of March 31, 1999, the remediation
phase was approximately 99% complete and is expected to be finished in second
quarter of 1999.
The testing phase encompasses actual testing of the new/renovated systems to
ensure readiness. An independent consultant will assist management in conducting
this phase. The testing phase was approximately 95% completed as of March 31,
1999, and is expected to be completed by June 30, 1999.
The final phase, validation, involves testing the new/renovated software and
systems with actual data. This phase was approximately 90% complete as of March
31, 1999, and is expected to be completed by June 30, 1999.
Total cost to date, which includes consultants, software and hardware, has been
approximately $3,400,000. Management estimates that the remaining cost to ensure
Year 2000 readiness should not exceed $200,000. Significant portions of these
costs are not incremental, but represent the redeployment of existing staff and
information technology. However, there has been an opportunity cost associated
with Year 2000 readiness because the staff involved would normally be spending
their time on other projects. Finally, approximately $3,000,000 of the estimated
cost of $3,600,000 is for capital expenditures that will be depreciated over
their useful lives.
Management is currently completing a detailed contingency plan that will address
the most reasonably likely scenarios of disruptions caused by Year 2000. The
precise plans utilized will depend upon the exact problems that develop.
Disruptions could range from discrete application-specific problems that can be
resolved to systematic failures affecting the banking industry or other
industries as a whole. Area can not identify every disruption that may affect it
but has identified certain critical problems that may arise.
19
<PAGE> 20
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
MARCH 31, 1999 AND 1998
YEAR 2000 (CONTINUED)
The following table presents each phase and its percentage completion on March
31, 1999 along with the estimated percentage completion on June 30, 1999 and
December 31,1999:
MANAGEMENT ESTABLISHED YEAR 2000 FORMAL PROGRAM
PERCENT COMPLETE
<TABLE>
<CAPTION>
PHASE DESCRIPTION 3-31-99 (ACTUAL) 6-30-99 (EST)
--------------- -------------
<S> <C> <C> <C>
1 Awareness 100% 100%
2 Assessment 99% 100%
3 Remediation 99% 100%
4 Testing 95% 100%
5 Validation 90% 100%
</TABLE>
B. FINANCIAL POSITION
Total assets increased $106,818,000 or 5.0% to $2,239,183,000 from
December 31, 1998 and increased $367,856,000 or 19.7% from March 31,
1998. Excluding the merger with Peoples Bancorp of Winchester (see note
6), assets decreased approximately $48,047,000 or 2.3% from year-end.
Excluding the acquisition of NationsBank of Kentucky, N.A. and the
merger with Peoples Bancorp of Winchester (see Note 6), assets grew
approximately $73,191,000 or 3.9% from March 31, 1998. Assets averaged
$2,251,909,000 in the quarter ended March 31, 1999 compared to
$1,803,214,000 during the same period in 1998. The growth from March
31, 1998 to March 31, 1999 was $448,695,000 or 24.9%. Earning assets
totaled $2,056,695,000 on March 31, 1999, an increase of $130,453,000
or 6.8% over December 31, 1998 and $306,492,000 or 17.5% over March 31,
1998.
SHORT-TERM INVESTMENTS AND SECURITIES
Short-term investments, which include interest-bearing deposits with
banks and federal funds sold, totaled $19,336,000 on March 31, 1999, a
decrease of $3,098,000 from year-end balances of $22,434,000 and a
decrease of $7,414,000 from March 31, 1998.
Securities represent 26.8% of earning assets. They totaled $550,201,000
on March 31, 1999, an increase of $91,458,000 or 19.9% from December
31, 1998 and $114,428,000 or 26.3% from March 31, 1998. The change for
the first three months of 1999 largely resulted from securities
acquired in the merger with Peoples Bancorp of Winchester (see Note 6)
and increases in U.S. Treasury and federal agency securities resulting
from utilizing excess funds created by deposit growth exceeding loan
growth during this period. The held-to-maturity and available-for-sale
portfolios as of March 31, 1999 consisted of 47.9% in U.S. and other
government agency securities, 11.2% in mortgage-backed securities,
25.6% in state and municipal securities and 15.3% in equity and other
securities. The comparable distributions at December 31, 1998 were
41.3%, 15.0%, 30.0% and 13.7%, respectively.
LOANS
Loans, including loans held for sale increased $41,352,000 or 2.9% to
$1,468,127,000 during the three months ended March 31, 1999 and
$271,745,000 or 22.7% from March 31, 1998. Excluding the merger with
Peoples Bancorp of Winchester (see note 6), loans declined
approximately $56,979,000 or 3.9% during the first three months of
1999. Loans, including loans held for sale, represent the largest
category of earning assets, comprising 71.4% of earning assets as of
March 31, 1999, 74.0% as of December 31, 1998 and 68.1% as of March 31,
1998.
20
<PAGE> 21
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, 1999 AND 1998
LOANS (CONTINUED)
The following table presents the major categories of loans including
loans held for sale:
(Amounts in thousands)
<TABLE>
<CAPTION>
MARCH 3 DECEMBER 31 MARCH 31
1999 1998 1998
<S> <C> <C> <C>
Commercial $ 517,493 $ 503,173 $ 325,078
Real estate 753,351 731,620 667,502
Consumer installment and other loans 197,283 191,982 203,802
---------- ---------- ----------
Total $1,468,127 $1,426,775 $1,196,382
========== ========== ==========
</TABLE>
DEPOSITS
Deposits totaled $1,756,815,000 on March 31, 1999, an increase of
$64,951,000 or 3.8% from December 31, 1998 and $299,485,000 or 20.6%
from March 31, 1998. Excluding deposits acquired as a result of the
merger with Peoples Bancorp of Winchester (see Note 6), deposits
declined approximately $74,047,000 or 4.4% from December 31, 1998 to
March 31, 1999. Non-interest-bearing deposits declined $15,186,000 or
6.0% to $236,764,000 from year-end totals, while interest-bearing
deposits increased $80,137,000 or 5.6% to $1,520,051,000 during this
period. Average deposits increased $376,156,000 or 26.7% in the three
months ended March 31, 1999 compared to the same period in 1998.
Average non-interest bearing deposits increased $89,762,000 or 61.2%
during the first quarter compared to the same period last year while
average interest bearing deposits increased $286,394,000 or 22.7%.
BORROWED FUNDS
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 $2,167,000 or 1.3% to $172,893,000 from $170,726,000 on December 31,
1998 while decreasing $14,647,000 or 7.8% from March 31, 1998.
Repayment of Federal Home Loan Bank advances accounted for
substantially all of the year-to-date decrease. Increased deposits that
were not invested in loans or securities provided the funds to repay
these advances.
CAPITAL RESOURCES
Shareholders' equity totaled $272,402,000 at March 31, 1999, an
increase of $34,189,000 or 14.4% from December 31, 1998 and $68,004,000
or 33.3% since March 31, 1998. Out of net income of $8,278,000 during
the first three months of 1999, $7,515,000 was retained after paying
dividends to shareholders of $763,000. Additional sources of
shareholders' equity growth during the first quarter of 1999 were
increases of $12,982,000 in other comprehensive income as a result of
increases in the market value of the equity securities portfolio and
$13,628,000 of additional common stock issued in the merger with
Peoples Bancorp of Winchester (see Note 6).
The shareholders' equity-to-asset ratio was 12.17% at March 31, 1999
compared to 11.17% on December 31, 1998 and 10.92% as of March 31,
1998.
Book value per share was $16.05, $15.20 and $13.08 at March 31, 1999,
December 31, 1998 and March 31, 1998, respectively
21
<PAGE> 22
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, 1999 AND 1998
CAPITAL RESOURCES (CONTINUED)
A summary of the regulatory capital ratios is shown below:
<TABLE>
<CAPTION>
REGULATORY CAPITAL REQUIREMENTS
MARCH 31 DECEMBER 31 WELL MINIMUM
1999 1998 CAPITALIZED REQUIRED
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Leverage Ratio 8.51% 8.29% 5.00% 4.00%
Tier I Risk Based Capital Ratio 12.04% 11.82% 6.00% 4.00%
Total Risk Based Capital Ratio 14.36% 13.08% 10.00% 8.00%
</TABLE>
ASSET QUALITY
At March 31, 1999, the allowance for loan losses was $23,616,000 or
1.62% of quarter-end loans, as compared to 1.53% of loans at December
31, 1998 and 1.72% as of March 31, 1998. The ratio of the allowance
for loan losses to non-performing assets increased to 570.2% at March
31, 1999, compared with 513.2% at December 31, 1998 resulting from an
increase in the allowance for loan losses and a slight reduction in
total nonperforming assets. Non-performing assets consist of
non-accrual loans, loans past due ninety days or more that are still
accruing interest, restructured loans, and other real estate owned.
Currently, year-to-date net charge-offs (loan charge-offs less
recoveries) are at 0.02% (annualized) of average year-to-date loans
compared to 0.07% (annualized) during the same period in 1998.
Management maintains the allowance for loan losses at a level that is
sufficient to absorb the losses that, in the reasonable opinion and
judgment of management, are known and inherent in the loan portfolio.
Management's evaluation includes an analysis of the overall quality
of the loan portfolio, historical loan loss experience, loan
delinquency trends and the economic conditions within Area's markets.
Area bases additional allocations for the allowance on specifically
identified potential loss situations.
The allocation of the allowance for loan losses is an estimate of the
portion which will be used to cover future charge-offs in each loan
category, but does not preclude any portion of the allowance
allocated to one type of loan from being used to cushion losses of
another loan type. This allocation is determined by the estimated
loss within each loan pool as well as any specific allocations that
may be assigned to specific loans within the same portfolio section
with the remainder being assigned to the unallocated category.
A continuous and comprehensive loan review program is maintained by
Area for each affiliate bank. The purpose of this program is to
provide periodic review and inspection of loans to ensure the safety,
liquidity and profitability of the loan portfolio. Area's loan review
department is entrusted with the responsibility to identify
foreseeable problems, measure compliance with established loan and
operating policies and provide objective loan portfolio appraisals to
the Board of Directors and management.
The following schedule shows the dollar amount of assets at March 31,
1999, December 31, 1998 and March 31, 1998, which were nonaccrual
loans, loans contractually past due ninety days or more as to
interest or principal payments and still accruing, other real estate
owned and in-substance foreclosures:
<TABLE>
<CAPTION>
(In thousands) MARCH 31 DECEMBER 31 MARCH 31
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Nonaccrual loans $1,418 $1,787 $2,093
Loans contractually past due 90 days or more as to
interest or principal and still accruing 1,057 757 1,025
------ ------ ------
TOTAL NONPERFORMING AND RESTRUCTURED LOANS 2,475 2,544 3,118
Other real estate owned 1,667 1,675 1,393
------ ------ ------
TOTAL NONPERFORMING ASSETS $4,142 $4,219 $4,511
====== ====== ======
</TABLE>
22
<PAGE> 23
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, 1999 AND 1998
C. LIQUIDITY
Deposits have historically provided Area with a major source of stable
and relatively low-cost funding. Secondary sources of liquidity include
federal funds purchased, securities sold under agreements to
repurchase, notes payable to the U.S. Treasury, advances from the
Federal Home Loan Bank and other borrowings.
As of March 31, 1999, 78.5% of total assets were funded by core
deposits while 7.7% were funded with secondary sources of liquidity
discussed above, compared to 79.3% and 8.0%, respectively, as of
December 31, 1998.
The net loan-to-deposit ratio decreased from 82.2% on December 31, 1998
to 81.5% on March 31, 1999 as a result of an increase in total deposits
exceeding the increase in loans during the period.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Area's March 31, 1999 analysis of the impact of changes in interest
rates on net interest income over the next 12 months indicates no
significant changes in the Area's exposure to interest rate changes
since December 31, 1998. The table below illustrates the simulation
analysis of the impact of a 50 (.50%) and 100 (1.00%) basis point
upward and downward movement in interest rates. The impact of the rate
movement was simulated as if rates changed immediately from March 31,
1999 levels, and remained constant at those levels thereafter:
INTEREST RATE SIMULATION SENSITIVITY ANALYSIS
(In thousands, except per share data)
<TABLE>
<CAPTION>
CHANGE IN INTEREST RATES FROM MARCH 31, 1999 RATES
INCREASE DECREASE
SIMULATED PRE-TAX IMPACT IN THE NEXT 12 MONTHS +100BP +50BP -50BP -100BP
------ ----- ----- ------
<S> <C> <C> <C> <C>
Net interest income (taxable equivalent) increase (decrease) $(2,621) $(1,561) $ 737 $1,234
Net income per share-basic increase (decrease) $ (0.10) $ (0.06) $0.03 $ 0.07
Net income per share-diluted increase (decrease) $ (0.10) $ (0.06) $0.03 $ 0.07
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Pursuant to Rule 14a-4(c)(1) promulgated under to Securities
Exchange Act of 1934, as amended, shareholders desiring to
present a proposal for consideration at the 2000 Annual
Meeting of Shareholders must notify Area in writing at its
principal office at P.O. Box 786, Owensboro, Kentucky
42302-0786 of the contents of such proposal no later than
November 1, 1999. Failure to timely submit such a proposal
will enable the proxies appointed by management to exercise
their discretionary voting authority when the proposal is
raised at the Annual Meeting of Shareholders without any
discussion of the matter in the proxy statement.
23
<PAGE> 24
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, 1999 AND 1998
OTHER INFORMATION (CONTINUED)
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
3.1 Articles of Incorporation of the Registrant, as
amended (Incorporated by reference to the exhibit
filed with the Registrant's Registration Statement on
Form S-8, File No. 333-38037.)
3.2 Bylaws of the Registrant, as amended (Incorporated by
reference to the exhibit filed with the Registrant's
Form 10/A1, filed with the Commission on June 30,
1995, File No. 0-26032.)
10.1* Form of Area Bancshares Corporation Restricted Stock
Plan Agreement (Incorporated by reference to the
exhibit filed with the Registrant's Form 10/A1, filed
with the Commission on June 30, 1995, File No.
0-26032.)
10.2* Area Bancshares Corporation 1994 Stock Option Plan
(Incorporated by reference to the exhibit filed with
the Registrant's Form 10/A1, filed with the
Commission on June 30, 1995, File No. 0-26032.)
10.3* Memorandum dated September 18, 1996 regarding
executive officer compensation (Incorporated by
reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q, dated September 30,
1996, File No.
0-26032.)
10.4* Cardinal Bancshares, Inc. 1989 Restricted Stock
Option Plan, as amended April 16, 1992 (Incorporated
by reference to the exhibit filed with Cardinal's
Registration Statement on Form S-1, File No.
33-48129.)
10.5* Cardinal Bancshares, Inc. 1994 Restricted Stock
Option Plan (Incorporated by reference to the exhibit
filed with Cardinal's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, File No.
0-20494.)
10.6* Cardinal Bancshares, Inc. 1992 Limited Stock Option
Plan (Incorporated by reference to the exhibit filed
with Cardinal's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992, File No.
0-20494.)
10.7* Cardinal Bancshares, Inc. 1992 First Federal Savings
Bank Restricted Stock Option Plan (Incorporated by
reference to the exhibit filed with Cardinal's
Registration Statement on Form S-1, File No.
33-48129.)
10.8* Cardinal Bancshares, Inc. 1993 Mutual Federal Savings
Bank Restricted Stock Option Plan (Incorporated by
reference to the exhibit filed with Cardinal's
Registration Statement on Form SB-2, File No.
33-60796.)
10.9* Amendment Number 1 to Cardinal Bancshares, Inc. 1992
Limited Stock Option Plan (Incorporated by reference
to the exhibit filed with Cardinal's Registration
Statement on Form SB-2, File No. 33-60796.)
10.10* Cardinal Bancshares, Inc. VST Financial Services,
Inc. Restricted Stock Plan and Escrow Agreement
(Incorporated by reference to the exhibit filed with
Cardinal's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992, File No.
0-20494.)
</TABLE>
24
<PAGE> 25
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, 1999 AND 1998
Item 6. Exhibits and Reports on Form 8-K (continued)
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
10.11* Letter Agreement between the Cardinal Bancshares,
Inc. and Michael Karlin dated December 13, 1993
(Incorporated by reference to the exhibit filed with
Cardinal's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, File No.
0-20494.)
10.12* Amendment, dated October 26, 1994, to Letter
Agreement between Cardinal Bancshares, Inc. and
Michael S. Karlin dated December 13, 1993
(Incorporated by reference to the exhibit filed with
Cardinal's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, File No. 0-20494.)
10.13* Second Amendment, dated December 30, 1994, to Letter
Agreement between Cardinal Bancshares, Inc. and
Michael S. Karlin dated December 13, 1993
(Incorporated by reference to the exhibit filed with
Cardinal's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, File No. 0-20494.)
10.14* Letter Agreement between Cardinal Bancshares, Inc.
and Vincent D. Dailey dated December 13, 1993
(Incorporated by reference to the exhibit filed with
Cardinal's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, File No.
0-20494.)
10.15* Amendment, dated December 30, 1994, to Letter
Agreement between Cardinal Bancshares, Inc. and
Vincent D. Dailey dated December 13, 1993
(Incorporated by reference to the exhibit filed with
Cardinal's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, File No. 0-20494.)
10.16* Stock Option Agreement dated December 13, 1993
between Cardinal Bancshares, Inc. and Michael S.
Karlin (Incorporated by reference to the exhibit
filed with Cardinal's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1993, File No.
0-20494.)
10.17* Stock Option Agreement dated December 13, 1993
between Cardinal Bancshares, Inc. and Vincent S.
Dailey (Incorporated by reference to the exhibit
filed with Cardinal's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1993, File No.
0-20494.)
10.18* Cardinal Bancshares, Inc. Affiliates' Employee Stock
Ownership Plan and Trust Agreement (Incorporated by
reference to the exhibit filed with Cardinal's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 0-20494.)
10.19* Cardinal Bancshares, Inc. Management Retention Plan
and Trust Agreement for the Benefit of Alliance
Savings Bank (Incorporated by reference to the
exhibit filed with Cardinal's Registration Statement
on Form SB-2, File No. 33-60796.)
13.1** 1998 Annual Report to Shareholders
21.1** Subsidiaries of Registrant
23.1** Consent of Independent Auditors
27.1 Financial Data Schedule (EDGAR version only)
</TABLE>
25
<PAGE> 26
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, 1999 AND 1998
Item 6. Exhibits and Reports on Form 8-K (continued)
*The indicated exhibit is a compensatory plan or arrangement.
**Previously filed.
b) Two reports on Form 8-K dated January 5, 1999 and February 23, 1999
were filed with the United States Securities and Exchange Commission
and reported the following information under "Item 5-Other Events":
On January 4, 1999, Area Bancshares Corporation of Owensboro, Kentucky
acquired 100% of the outstanding shares of common stock of Peoples
Bancorp of Winchester, Inc. in a merger transaction. In the
transaction, accounted for as a pooling-of-interests, Peoples'
shareholders received 17.333333 shares of Area common stock for each
one share of Peoples common stock held. Peoples' business is conducted
primarily through its bank subsidiary, Peoples Commercial Bank, which
is located in Winchester, Kentucky. As a result of the merger, Area
issued 1,300,000 shares of common stock with no long-term debt being
incurred. The physical assets of Peoples Commercial Bank will continue
to be used by it for general banking purposes.
On February 19, 1999, Area Bancshares Corporation reported the results
of operations for the first month following its merger with Peoples
Bancorp of Winchester, Inc. a $165 million bank holding company
headquartered in Winchester, Kentucky. The merger was effective January
4, 1999, and was accounted for as a pooling-of-interests. As a result
of the merger, Area issued 1,300,000 shares of common stock.
26
<PAGE> 27
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
(UNAUDITED)
MARCH 31, 1999 AND 1998
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: May 13, 1999 By: /S/ Thomas R. Brumley
------------- ------------------------------------------
Thomas R. Brumley
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1999 By: /S/ John A. Ray
-------------- ---------------------------------------------------
John A. Ray
Executive Vice President and Chief Operating Officer
(Principal Financial Officer)
Date: May 13, 1999 By: /S/ Gary R. White
-------------- ------------------------------------------------
Gary R. White
Vice President, Controller
(Principal Accounting Officer)
27
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 91,567
<INT-BEARING-DEPOSITS> 7,608
<FED-FUNDS-SOLD> 11,728
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 428,939
<INVESTMENTS-CARRYING> 360,464
<INVESTMENTS-MARKET> 127,337
<LOANS> 1,455,798
<ALLOWANCE> 23,616
<TOTAL-ASSETS> 2,239,183
<DEPOSITS> 1,756,815
<SHORT-TERM> 127,471
<LIABILITIES-OTHER> 42,160
<LONG-TERM> 40,335
29,250
0
<COMMON> 0
<OTHER-SE> 243,152
<TOTAL-LIABILITIES-AND-EQUITY> 2,239,183
<INTEREST-LOAN> 31,246
<INTEREST-INVEST> 6,694
<INTEREST-OTHER> 828
<INTEREST-TOTAL> 38,768
<INTEREST-DEPOSIT> 15,696
<INTEREST-EXPENSE> 2,337
<INTEREST-INCOME-NET> 20,735
<LOAN-LOSSES> 164
<SECURITIES-GAINS> 2,597
<EXPENSE-OTHER> 18,291
<INCOME-PRETAX> 11,255
<INCOME-PRE-EXTRAORDINARY> 11,255
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,278
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 7.71
<LOANS-NON> 1,418
<LOANS-PAST> 1,057
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,651
<CHARGE-OFFS> 548
<RECOVERIES> 492
<ALLOWANCE-CLOSE> 23,616
<ALLOWANCE-DOMESTIC> 23,616
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,885
</TABLE>
