<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 2000
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: (270) 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 July 31, 2000: 16,320,956
1
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AREA BANCSHARES CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Unaudited consolidated balance sheets, June 30, 2000,
December 31, 1999 and June 30, 1999 3
Unaudited consolidated statements of income, three
and six months ended June 30, 2000 and 1999 4
Unaudited consolidated statements of comprehensive income,
three and six months ended June 30, 2000 and 1999 5
Unaudited consolidated statements of shareholders'
equity, year ended December 31, 1999 and six months
ended June 30, 2000 6
Unaudited consolidated statements of cash flows for
the six months ended June 30, 2000 and 1999 7
Notes to unaudited consolidated financial statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Results of operations 14
Financial position 25
Liquidity 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 31
</TABLE>
2
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31 JUNE 30
2000 1999 1999
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 101,160 $ 98,598 $ 89,618
Interest bearing deposits with banks 4,947 6,010 6,528
Federal funds sold -- -- 10,611
Securities:
Available for sale (amortized cost of $379,221,
$325,884 and $350,866) 396,369 363,627 392,662
Held to maturity (fair value of $156,371,
$129,028, and $127,227) 154,792 129,089 124,643
----------- ----------- -----------
TOTAL SECURITIES 551,161 492,716 517,305
----------- ----------- -----------
Mortgage loans held for sale 7,770 8,682 10,239
Loans, net of unearned discount 1,924,262 1,631,396 1,521,306
Less allowance for loan losses 27,456 23,055 23,553
----------- ----------- -----------
NET LOANS 1,896,806 1,608,341 1,497,753
----------- ----------- -----------
Premises and equipment, net 50,367 44,986 45,235
Goodwill and other intangible assets 68,161 32,969 34,892
Other assets 54,268 48,219 46,275
----------- ----------- -----------
TOTAL ASSETS $ 2,734,640 $ 2,340,521 $ 2,258,456
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 310,635 $ 264,951 $ 238,148
Interest-bearing 1,744,583 1,446,831 1,485,504
----------- ----------- -----------
TOTAL DEPOSITS 2,055,218 1,711,782 1,723,652
----------- ----------- -----------
Federal funds purchased 50,137 74,362 74,563
Securities sold under agreements to repurchase 110,198 118,408 109,818
Notes payable to the U.S. Treasury 28,147 14,934 15,842
Advances from the Federal Home Loan Bank 133,363 130,210 35,158
Other borrowings 62,125 135 256
Accrued expenses and other liabilities 23,449 23,726 30,618
----------- ----------- -----------
TOTAL LIABILITIES 2,462,637 2,073,557 1,989,907
----------- ----------- -----------
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 June 30, 2000,
16,316,848 December 31, 1999, 16,512,809 and
June 30, 1999, 16,856,596 28,109 28,449 29,050
Paid-in capital 35,632 35,632 35,632
Retained earnings 197,568 178,911 177,611
Deferred compensation on restricted stock (393) (455) (562)
ESOP and MRP loan obligations (95) (95) (216)
Accumulated other comprehensive income 11,182 24,522 27,034
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 272,003 266,964 268,549
----------- ----------- -----------
Commitments and contingent liabilities
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,734,640 $ 2,340,521 $ 2,258,456
=========== =========== ===========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $43,136 $31,627 $81,705 $62,873
Interest bearing deposits with banks 93 89 185 192
Federal funds sold 8 240 425 965
Taxable securities 6,177 4,799 11,534 9,535
Tax exempt securities 2,393 1,966 4,649 3,924
------- ------- ------- -------
TOTAL INTEREST INCOME 51,807 38,721 98,498 77,489
------- ------- ------- -------
Interest expense:
Interest on deposits 19,180 14,868 36,029 30,564
Interest on borrowings 5,707 2,229 10,865 4,566
------- ------- ------- -------
TOTAL INTEREST EXPENSE 24,887 17,097 46,894 35,130
------- ------- ------- -------
Net interest income 26,920 21,624 51,604 42,359
Provision for loan losses 314 192 636 356
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 26,606 21,432 50,968 42,003
------- ------- ------- -------
Non-interest income:
Commissions and fees on fiduciary activities 1,507 1,367 2,863 2,706
Service charges on deposit accounts 3,216 2,205 5,997 4,371
Other service charges, commissions and fees 2,189 1,510 4,130 2,834
Security gains (losses), net 7,396 17,786 15,604 20,383
Gains on sales of loans, net 151 334 273 759
Other non-interest income 669 111 1,634 1,235
------- ------- ------- -------
TOTAL NON-INTEREST INCOME 15,128 23,313 30,501 32,288
------- ------- ------- -------
Non-interest expenses:
Salaries and employee benefits 10,128 8,546 20,027 17,636
Net occupancy expense 1,513 1,322 2,884 2,605
Furniture and equipment expense 1,821 1,567 3,468 3,057
Federal deposit insurance 104 69 182 137
Data processing expense 1,449 1,366 2,947 2,870
Other non-interest expenses 8,517 5,531 15,754 10,387
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSES 23,532 18,401 45,262 36,692
------- ------- ------- -------
Income before income tax expense 18,202 26,344 36,207 37,599
Income tax expense 6,499 8,846 11,622 11,823
------- ------- ------- -------
NET INCOME $11,703 $17,498 $24,585 $25,776
======= ======= ======= =======
Per common share:
Net income-basic $ 0.72 $ 1.03 $ 1.50 $ 1.52
-diluted $ 0.71 $ 1.02 $ 1.48 $ 1.50
Cash dividends $ 0.06 $ 0.05 $ 0.115 $ 0.09
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
2000 1999
<S> <C> <C>
Net income $ 11,703 $ 17,498
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period (4,906) (5,925)
Less reclassification adjustment for gains (losses)
included in net income 4,234 11,561
-------- --------
Other comprehensive income (9,140) (17,486)
-------- --------
COMPREHENSIVE INCOME $ 2,563 $ 12
======== ========
<CAPTION>
SIX MONTHS ENDED JUNE 30
2000 1999
<S> <C> <C>
Net income $ 24,585 $ 25,776
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period (4,364) 8,745
Less reclassification adjustment for gains (losses)
included in net income 8,976 13,249
-------- --------
Other comprehensive income (13,340) (4,504)
-------- --------
COMPREHENSIVE INCOME $ 11,245 $ 21,272
======== ========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DEFERRED ACCUMULATED
COMMON COMMON COMPENSATION ESOP AND OTHER
STOCK- STOCK- PAID-IN RETAINED ON RESTRICTED MRP LOAN COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS STOCK OBLIGATIONS INCOME TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 15,669,729 $ 24,397 $ 35,632 $ 147,474 $(612) $(216) $ 31,538 $238,213
Net income 38,259 38,259
Common Stock Issued 1,299,969 4,845 8,784 13,629
Cash dividends declared ($0.20
per share) (3,355) (3,355)
Repurchase of common stock (564,994) (979) (13,468) (14,447)
Stock options exercised,
including tax benefits 110,832 190 1,270 1,460
Amortization of deferred
compensation on restricted stock 100 100
Net restricted stock forfeited (2,727) (4) (53) 57 --
Repayment of ESOP loan obligations 121 121
Change in other comprehensive
income (loss), net of tax (7,016) (7,016)
----------- -------- -------- --------- ----- ----- -------- --------
Balance, December 31, 1999 16,512,809 28,449 35,632 178,911 (455) (95) 24,522 266,964
Net income 24,585 24,585
Cash dividends declared ($0.115
per share) (1,878) (1,878)
Repurchase of common stock (206,629) (358) (4,188) (4,546)
Stock options exercised,
including tax benefits 10,668 18 138 156
Amortization of deferred
compensation on restricted stock 62 62
Change in other comprehensive
income (loss), net of tax (13,340) (13,340)
----------- -------- -------- --------- ----- ----- -------- --------
Balance, June 30, 2000 16,316,848 $ 28,109 $ 35,632 $ 197,568 $(393) $ (95) $ 11,182 $272,003
=========== ======== ======== ========= ===== ===== ======== ========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,585 $ 25,776
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for loan losses 636 356
Depreciation, amortization and accretion, net 7,126 3,095
Gain on sales of securities and loans, net (15,877) (21,142)
Loss (gain) on sales of other real estate owned (36) 2
Gain on disposals of equipment (53) (25)
Deferred income taxes 3,888 3,043
Purchases of mortgage loans held for sale (2,854) (70,968)
Proceeds from sales of mortgage loans held for sale 24,692 75,337
Other, net (3,372) 4,746
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 38,735 20,220
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in interest bearing deposits with banks 1,063 1,906
Proceeds from sales of securities available for sale 88,666 9,580
Proceeds from sales of securities held to maturity -- --
Proceeds from maturities of securities available for sale 84,246 116,624
Proceeds from maturities of securities held to maturity 4,383 26,597
Calls of securities available for sale -- 3,200
Calls of securities held to maturity 829 1,576
Purchases of securities available for sale (133,278) (166,540)
Purchases of securities held to maturity (6,498) (7,694)
Decrease in federal funds sold and securities
purchased under agreements to resell 27,250 25,517
Loans originated, net of principal collected on loans (95,579) (8,736)
Purchases of premises and equipment, net (1,516) (5,252)
Cash and cash equivalents from acquisitions -- 7,249
Purchase of banks, net of cash and due from banks (52,563) --
Proceeds from sale of property, plant and equipment 190 230
Proceeds from sales of other real estate owned 214 478
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (82,593) 4,735
--------- ---------
</TABLE>
CONTINUED
7
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits $ 15,467 $(114,411)
Increase (decrease) in federal funds purchased (25,195) 73,456
Decrease in securities sold under agreements to repurchase (8,210) (3,673)
Increase in notes payable to the U.S. Treasury 13,213 14,788
Decrease in advances from the Federal Home Loan Bank (4,577) (7,977)
Increase (decrease) in other borrowings 61,990 (15,559)
Proceeds from issuance of common stock and stock options exercised 156 39
Repurchase of common stock (4,546) (3,048)
Cash dividends paid (1,878) (1,606)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES 46,420 (57,991)
--------- ---------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 2,562 (33,036)
CASH AND DUE FROM BANKS, JANUARY 1 98,598 122,654
--------- ---------
CASH AND DUE FROM BANKS, JUNE 30 $ 101,160 $ 89,618
========= =========
Cash flow information:
Income tax payments $ 6,500 $ 7,400
Interest payments $ 44,065 $ 35,238
Non-cash transactions:
Loans transferred to other assets $ 268 $ 1,132
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
8
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000 AND 1999
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 1999 annual report to shareholders.
As noted in the footnotes to its annual report on Form 10-K, Area
utilizes interest rate swaps, which are derivative financial
instruments, for hedging purposes to reduce exposure to adverse
changes in interest rates. All of the interest rate swaps are accounted
for as "hedges" and relate to specific assets or liabilities or groups
of assets or liabilities.
NOTE 2. BUSINESS COMBINATIONS (COMPLETED MERGERS AND ACQUISITIONS)
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, loans of $99,219,000 and
deposits of $146,199,000. Peoples Bancorp of Winchester 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 were not been restated to
reflect this combination.
On October 4, 1999 Area and The Eifler Group announced the signing of
definitive agreements providing for the cash purchase of The Eifler
Group's investment business. Under terms of the agreements, The Eifler
Group became part of Area Services, Inc., a wholly owned subsidiary
of Area. The Eifler Group manages Area's non-deposit investment product
line under the name Area Investment Services.
On January 31, 2000 Area acquired Peoples Bank of Murray, Murray,
Kentucky; Dees Bank of Hazel, Hazel, Kentucky; Bank of Lyon County,
Eddyville, Kentucky; and Bank of Livingston County, Tiline, Kentucky
("Western Kentucky Group"). Area paid $77,750,000 in cash and the
assumption of $449,000 in liabilities (total $78,199,000) for these
banking companies. On January 31, 2000, total assets of these four
affiliated banking companies were $383,349,000, total loans were
$220,030,000, total deposits were $327,969,000 and total capital was
$43,971,000. The transaction was accounted for as a purchase
transaction, accordingly, the results of operations of these banks
have been included in the unaudited financial statements since the date
of acquisition. In conjunction with the acquisition, approximately
$34,228,000 of intangibles were recorded and will be amortized over a
10 to 20-year period.
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NOTE 2. BUSINESS COMBINATIONS (COMPLETED MERGERS AND ACQUISITIONS) CONTINUED
The following is a summary unaudited balance sheet as of January 31,
2000, the date of acquisition, for the Western Kentucky Group:
WESTERN KENTUCKY GROUP (1)
SUMMARY BALANCE SHEET
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31
2000
<S> <C>
ASSETS
Cash and due from banks $ 25,237
Federal funds sold 27,250
Investment securities 101,144
Loans, net of unearned discount 220,030
Less allowance for loan losses 4,368
--------
Net loans 215,661
Other assets 14,057
---------
TOTAL ASSETS $ 383,349
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing deposits $ 55,790
Interest-bearing deposits 272,179
---------
Total deposits 327,969
Borrowed funds 8,700
Other liabilities 2,709
---------
Total liabilities 339,378
Shareholders' equity 43,971
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 383,349
=========
</TABLE>
(1) Includes Peoples Bank of Murray, Dees Bank of Hazel,
Bank of Lyon County and Bank of Livingston County.
10
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NOTE 3. 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 give 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 SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Amounts in thousands, except per share data)
NET INCOME, BASIC AND DILUTED $11,703 $17,498 $24,585 $25,776
======= ======= ======= =======
Average shares outstanding 16,351 16,916 16,382 16,916
Effect of dilutive securities 182 248 184 249
------- ------- ------- -------
Average shares outstanding including dilutive securities 16,533 17,164 16,566 17,165
======= ======= ======= =======
NET INCOME PER SHARE, BASIC $ 0.72 $ 1.03 $ 1.50 $ 1.52
======= ======= ======= =======
NET INCOME PER SHARE, DILUTIVE $ 0.71 $ 1.02 $ 1.48 $ 1.50
======= ======= ======= =======
</TABLE>
NOTE 4. SECURITIES
The amortized cost and approximate market values of securities as of
June 30, 2000 and December 31, 1999 are as follows:
AVAILABLE FOR SALE
(Amounts in thousands)
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $174,420 $ 65 $2,243 $172,242
Mortgage-backed securities 162,254 633 1,913 160,974
Obligations of state and political subdivisions 25,588 315 141 25,762
Equity and other securities 16,959 21,040 608 37,391
-------- ------- ------ --------
BALANCE AT JUNE 30, 2000 $379,221 $22,053 $4,905 $396,369
======== ======= ====== ========
</TABLE>
During the first six months of 2000, the after-tax net unrealized gain
reported as a separate component of equity (accumulated other
comprehensive income) decreased from $24,522,000 on December 31, 1999
to $11,182,000 on June 30, 2000, thus decreasing shareholders' equity.
The decrease was largely the result of the sale of securities and
the decrease in market value of Area's fixed income portfolio as a
result of rising interest rates.
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $206,729 $ 43 $2,325 $204,447
Mortgage-backed securities 72,941 221 1,026 72,136
Obligations of state and political subdivisions 24,083 115 379 23,819
Equity and other securities 22,131 41,435 341 63,225
-------- ------- ------ --------
BALANCE AT DECEMBER 31, 1999 $325,884 $41,814 $4,071 $363,627
======== ======= ====== ========
</TABLE>
11
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AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NOTE 4. SECURITIES (CONTINUED)
The increases from December 31, 1999 to June 30, 2000 in the amortized
cost from $325,884,000 to $379,221,000 and market value from
$363,627,000 to $396,369,000 for securities available for sale was
primarily the result of securities added as a result of the
acquisition on January 31, 2000 of the Western Kentucky Group (see
Note 2 above). Excluding this acquisition, amortized cost total would
have declined $22,277,000 from December 31, 1999 to June 30, 2000
while the market value total would have declined $42,872,000 during
this period.
<TABLE>
<CAPTION>
HELD TO MATURITY
(Amounts in thousands) AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
JUNE 30, 2000
Obligations of state and political subdivisions $ 154,792 $ 2,399 $ 820 $ 156,371
========== ========= ========= ==========
DECEMBER 31, 1999
Obligations of state and political subdivisions $ 129,089 $ 2,015 $ 2,076 $ 129,028
========== ========= ========= ==========
</TABLE>
The increases from December 31, 1999 to June 30, 2000 in the amortized
cost from $129,089,000 to $154,792,000 and market value from
$129,028,000 to $156,371,000 for securities held to maturity was
primarily the result of securities added as a result of the acquisition
on January 31, 2000 of the Western Kentucky Group (see Note 2 above).
Excluding this acquisition, amortized cost total would have increased
$3,407,000 from December 31, 1999 to June 30, 2000 while the market
value total would have increased $5,013,000 during this period
NOTE 5. 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 specified
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 (as amended by SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133") by January 1, 2001, 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.
In June 2000 the Financial Accounting Standards Board issued SFAS
No. 138, (Accounting for Certain Derivative Instruments and Certain
Hedging Activities - and Amendment to SFAS No. 133) which provides
guidance with respect to certain implementation issues to SFAS No. 133.
12
<PAGE> 13
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NOTE 6. INTANGIBLES
As of June 30, 2000, intangibles totaled $68,161,000 compared to
$32,969,000 on December 31, 1999. The increase was the result of
$34,228,000 of intangibles added as a result of the Western Kentucky
Group acquisition (see Note 2 above). The excess cost over fair value
of net assets acquired in purchase business combinations (goodwill)
of $55,826,000 and $30,007,000 net of accumulated amortization as of
June 30, 2000 and December 31, 1999, respectively, is being amortized
over a 10-20 year period on a straight-line basis. Other intangible
assets consist of the book value of core deposits purchased of
approximately $11,697,000 and $2,249,000, net of accumulated
amortization, as of June 30, 2000 and December 31, 1999, respectively,
which is being amortized by an accelerated method over ten years and
the book value of a purchased bank charter of $638,000 and $713,000
as of June 30, 2000 and December 31, 1999, respectively, which is
being amortized over a 10-year period on a straight-line basis.
Amortization expense for the three-month period ended June 30, 2000
and 1999 was $2,235,000 and $861,000, respectively. Amortization
expense for the six-month period ended June 30, 2000 and 1999 was
$3,473,000 and $1,737,000, respectively.
NOTE 7. SEGMENT INFORMATION
Area provides a broad range of financial services to individuals,
corporations and others through its seventeen banks located throughout
Kentucky. These services include receiving deposits, making various
types of loans, providing trust and brokerage services and safe
deposit facilities. Operations are managed and financial performance
reviewed and evaluated by the President, Chief Executive Officer at
the subsidiary bank level. All subsidiary banks are considered by
management to comprise only one operating segment.
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 June 30, 2000, Area directly controlled
sixteen affiliated commercial banks and indirectly controlled one
additional commercial bank through the ownership of a holding company,
all of which are located in Kentucky. Of the banks controlled by Area,
four are national banks and thirteen are state banks. Area and its
subsidiaries engage in retail and commercial banking. 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.
On January 20, 2000, Area announced that it would undertake a
consolidation of its operations during 2000. Area expects to
consolidate the operations and charters of its affiliate banks
(other than Vine Street Trust, Lexington, Ky) to gain operating
efficiencies and raise brand awareness by adopting the common name
of "Area Bank." Preliminary estimates of the annual savings from the
consolidation are approximately $4,600,000 pre-tax. Preliminary
estimates of the one-time costs associated with the consolidation are
approximately $3,700,000 pre-tax. These costs will be incurred starting
in the second quarter of 2000 and will be completed by the end of the
second quarter of 2001. The expected annual savings of approximately
$4,600,000 will not begin to be fully realized until the third quarter
of 2001.
The discussion that follows is intended to provide additional insight
into Area's financial condition and results of operations which
includes the merger with Peoples Bancorp of Winchester on January 4,
1999, the acquisition of the Eifler Group on October 4, 1999 and the
acquisition of the Western Kentucky Group on February 1, 2000 (see
Note 2 in the accompanying unaudited financial statements for details
of these transactions). Where considered significant, the impact of
these transactions on Area's results of operations and financial
condition is discussed. This discussion should be read with the
consolidated financial statements and accompanying notes presented in
Item 1 of Part I of this Form 10-Q.
13
<PAGE> 14
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
FORWARD LOOKING STATEMENTS
Various 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, various
statements in 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 June 30, 2000 was $11,703,000 versus
$17,498,000 in the same period of 1999. Diluted earnings per share for the
second quarter of 2000 were $0.71 compared to $1.02 for the same period in
1999. The decrease during the current quarter compared to the second
quarter of 1999 was $5,795,000 or 33.1% for net income and $0.31 or 30.4%
per diluted share. Area's net income for the second quarter of 2000
produced an annualized return on average assets of 1.73% and an annualized
return on average equity of 17.22% compared to prior year ratios of 3.13%
(annualized) and 25.66% (annualized), respectively. The reduced earnings
during the quarter compared to the second quarter of 1999 were largely the
result of a decrease in security gains from $17,786,000 ($11,561,000
after-taxes) in the second quarter of 1999 to $7,396,000 ($4,234,000
after-taxes), offset by an increase in net interest income on a taxable
equivalent basis totaling $5,537,000 and by an increase in non-interest
income excluding security gains of $2,205,000 or 39.9%. These net positive
effects to earnings were in turn partially off-set by a $5,131,000 or
27.9% increase in non-interest expenses. The gains on the sale of
securities during the second quarter of both 2000 and 1999 reflect Area's
ongoing strategy to improve the performance of its investment portfolio
through repositioning portions of the portfolio as market conditions
change.
The current quarter includes the results of operations of the Western
Kentucky Group (see Note 2 in the accompanying unaudited financial
statements) for the entire quarter. The table on the following page
provides a summary income statement for Area and the Western Kentucky
Group for the three months ended June 30, 2000:
14
<PAGE> 15
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
A. RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data) THREE MONTHS ENDED JUNE 30, 2000
WESTERN KY
AREA GROUP TOTAL
---- ----- -----
<S> <C> <C> <C>
Interest income $ 44,087 $ 7,720 $51,807
Interest expense 21,464 3,423 24,887
-------- ------- -------
Net interest income 22,623 4,297 26,920
Provision for loan losses 278 36 314
-------- ------- -------
Net interest income after provision for loan losses 22,345 4,261 26,606
Non-interest income 14,513 615 15,128
Non-interest expenses 20,310 3,222 23,532
-------- ------- -------
Income before income tax expense 16,548 1,654 18,202
Income tax expense 5,857 642 6,499
-------- ------- -------
NET INCOME $ 10,691 $ 1,012 $11,703
======== ======= =======
Per common share:
Net income-basic $ 0.65 $ 0.07 $ 0.72
Net income-diluted $ 0.65 $ 0.06 $ 0.71
</TABLE>
Year-to-date earnings were $24,585,000 compared to $25,776,000 for
the first two quarters of 1999. Diluted earnings per share totaled
$1.48 for the first half of 2000 compared to $1.50 during the same
period in 1999. The year-to-date decreases were $1,191,000 or 4.6%
for net income and $0.02 or 1.3% per diluted share. Net income for
the first six months of the year resulted in a return on average
assets of 1.88% (annualized) compared to 2.31% (annualized) during
the first six months of 1999 and a return on average equity of
18.72% (annualized) versus 19.63% (annualized) in the first half of
1999. Earnings for the six months ended June 30, 2000 reflected a
decrease in security gains from $20,383,000 ($13,249,000 after-taxes)
in the first six months of 1999 to $15,604,000 ($8,976,000
after-taxes) in the first half of 2000, an increase in net interest
income on a taxable equivalent basis of $9,659,000 or 21.7% and an
increase of $2,992,000 or 25.1% in non-interest income (excluding
security gains). An increase of $8,570,000 or 23.4% in non-interest
expenses partially offset these increases in earnings.
The year-to-date period includes the results of operations of the
Western Kentucky Group (see Note 2) from February 1, 2000 as a result
of the acquisition having been accounted for as a purchase
transaction. The table that follows provides a summary income
statement for Area and the Western Kentucky Group for the six months
ended June 30, 2000:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data) SIX MONTHS ENDED JUNE 30, 2000
WESTERN KY
AREA GROUP TOTAL
---- ----- -----
<S> <C> <C> <C>
Interest income $ 86,305 $12,193 $ 98,498
Interest expense 41,266 5,628 46,894
-------- ------- --------
Net interest income 45,039 6,565 51,604
Provision for loan losses 561 75 636
-------- ------- --------
Net interest income after provision for loan losses 44,478 6,490 50,968
Non-interest income 29,401 1,100 30,501
Non-interest expenses 39,964 5,298 45,262
-------- ------- --------
Income before income tax expense 33,915 2,292 36,207
Income tax expense 11,950 (392) 11,622
-------- ------- --------
NET INCOME $ 21,965 $ 2,620 $ 24,585
======== ======= ========
Per common share:
Net income-basic $ 1.34 $ 0.16 $ 1.50
Net income-diluted $ 1.32 $ 0.16 $ 1.48
</TABLE>
15
<PAGE> 16
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
A. RESULTS OF OPERATIONS (CONTINUED)
Area believes that a meaningful comparison of the results of operations
excludes nonrecurring items. As shown in the following table, during the
current quarter security gains in the amount of $4,234,000 after-tax
($7,396,000 pre-tax) were recorded compared to second quarter 1999
security gains of $11,561,000 after-tax ($17,786,000 pre-tax). Core
operating income during the second quarter of 2000 and 1999, which is net
income adjusted for these items, totaled $7,469,000 or $0.45 per diluted
share and $5,937,000 or $0.35 per diluted share, respectively. Core
operating net income increased $1,532,000 or 25.8% while core operating
diluted earnings per share increased $0.10 or 28.6% from the second
quarter of 1999.
During the first six months of 2000, security gains in the amount of
$8,976,000 after-tax ($15,604,000 pre-tax) were recorded, a gain totaling
$93,000 after-tax ($143,000 pre-tax) on the sale of fixed assets was
recognized and merger-related adjustments were made which enhanced income
by $1,031,000 after-tax ($897,000 pre-tax) in connection with the
acquisition of the Western Kentucky Group (see Note 2 in the accompanying
unaudited financial statements). The favorable merger-related adjustments
were the result of a book tax benefit totaling $1,279,000 as a result of
converting these banks from "S" corporation status to "C" corporation
status which were partially offset by after-tax merger-related expenses of
$248,000. During the first half of 1999 security gains totaling
$13,249,000 after-tax ($20,383,000 pre-tax) were recorded, a favorable
insurance settlement of $615,000 after-tax ($945,000 pre-tax) was
recognized and merger-related adjustments of $122,000 after-tax which
enhanced net income were recorded. Core operating income during the first
six months of 2000 and 1999 totaled $14,485,000 or $0.87 per diluted share
and $11,790,000 or $0.69 per diluted share, respectively. Core operating
net income increased $2,695,000 or 22.9% while core operating diluted
earnings per share increased $0.18 or 26.1% from the first six months of
1999.
<TABLE>
<CAPTION>
CORE OPERATING NET INCOME THREE MONTHS ENDED SIX MONTHS ENDED
(Amounts in thousands, except percentages) JUNE 30 JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income as reported $ 11,703 $ 17,498 $ 24,585 $ 25,776
Add or (deduct) net of taxes:
Security transactions (4,234) (11,561) (8,976) (13,249)
Insurance settlement -- -- -- (615)
Gain on the sale of fixed assets -- -- (93) --
Merger/acquisition-related adjustments -- -- (1,031) (122)
-------- -------- -------- --------
CORE OPERATING NET INCOME $ 7,469 $ 5,937 $ 14,485 $ 11,790
======== ======== ======== ========
CORE OPERATING BASIC EARNINGS PER SHARE $ 0.46 $ 0.35 $ 0.88 $ 0.70
CORE OPERATING DILUTED EARNINGS PER SHARE $ 0.45 $ 0.35 $ 0.87 $ 0.69
</TABLE>
As shown in the following table, return on average assets was 1.73%
(annualized) in the second quarter of 2000 compared to 3.13% (annualized)
during the same period of 1999 and 1.88% (annualized) in the first half of
2000 versus 2.31% (annualized) in the first two quarters of 1999. Core
operating return on average assets (excluding the items discussed above)
totaled 1.10% (annualized) during the quarter ended June 30, 2000 compared
to 1.06% (annualized) for the same period in 1999 and 1.11% (annualized)
in the first half of 2000 compared to 1.06% in the same period of 1999.
Return on average equity was 17.22% (annualized) during the quarter ended
June 30, 2000 compared to 25.66% (annualized) during the second quarter of
1999 and 18.72% (annualized) in the first six months of 2000 compared to
19.63% (annualized) in the first half of 1999. Core operating return on
average equity (excluding the items discussed above) was 10.99%
(annualized) in the quarter ended June 30, 2000 compared to 8.71%
(annualized) during the second quarter of 1999 and 11.03% (annualized) for
the first half of 2000 versus 8.98% in the same period of 1999.
16
<PAGE> 17
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
A. RESULTS OF OPERATIONS (CONTINUED)
The following table provides selected operating data, per share data,
selected ratios and average balances for the three- and six-month periods
ended June 30, 2000 and 1999:
(Amounts in thousands, except percentages and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Net income $ 11,703 $ 17,498 $ (5,795) $ 24,585 $ 25,776 $ (1,191)
Core operating net income (1) 7,469 5,937 1,532 14,485 11,790 2,695
PER SHARE DATA
Basic earnings per share 0.72 1.03 (0.31) 1.50 1.52 (0.02)
Core operating basic earnings
per share (1) 0.46 0.35 0.11 0.88 0.70 0.18
Diluted earnings per share 0.71 1.02 (0.31) 1.48 1.50 (0.02)
Core operating diluted earnings
per share (1) 0.45 0.35 0.10 0.87 0.69 0.18
Cash dividends per share 0.06 0.05 0.01 0.115 0.095 0.02
Book value at June 30 16.67 15.93 0.74 16.67 15.93 0.74
Market price at June 30 22.31 27.13 (4.82) 22.31 27.13 (4.82)
SELECTED RATIOS AND DATA
Return on average assets (2) 1.73% 3.13% (1.40%) 1.88% 2.31% (0.43%)
Core operating return on average
assets (1)(2) 1.10% 1.06% 0.04% 1.11% 1.06% 0.05%
Return on average equity (2) 17.22% 25.66% (8.44%) 18.72% 19.63% (0.91%)
Core operating return on average
equity (1)(2) 10.99% 8.71% 2.28% 11.03% 8.98% 2.05%
Efficiency ratio 54.25% 39.98% 14.27% 53.45% 47.77% 5.68%
Efficiency ratio (1) 65.40% 65.17% 0.23% 65.10% 65.56% (0.46%)
Net interest margin (2) 4.51% 4.43% 0.08% 4.47% 4.33% 0.14%
Equity-to-assets 9.95% 11.89% (1.94%) 9.95% 11.89% (1.94%)
Allowance for loan losses to loans 1.43% 1.55% (0.12%) 1.43% 1.55% (0.12%)
Allowance for loan losses to
under-performing assets 360.2% 1,374.2% (1,014.0%) 360.2% 1,374.2% (1,014.0%)
Nonperforming loans to total loans 0.36% 0.11% 0.25% 0.36% 0.11% 0.25%
AVERAGE BALANCES
Total assets $ 2,719,521 $ 2,242,668 $ 476,853 $2,630,914 $ 2,247,263 $ 383,651
Earning assets 2,517,111 2,055,774 461,337 2,437,853 2,075,151 362,702
Shareholders' equity 273,400 273,486 (86) 264,098 264,758 (660)
</TABLE>
(1) Excludes items presented in the Core Operating Net Income table above.
(2) Percentages annualized.
17
<PAGE> 18
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
CORE OPERATING CASH BASED EARNINGS
Area believes it is important to also disclose cash based core operating
net income, which excludes nonrecurring items and intangible asset
amortization. Although Area believes these calculations are helpful in
understanding the performance of Area, cash based core operating net
income 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 table presents the cash based core operating net
income and various cash based performance ratios:
(Amounts in thousands, except percentages and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Core operating net income (1) $7,469 $5,937 $1,532 $14,485 $11,790 $2,695
Add back:
Goodwill and other intangible amortization 2,235 861 1,374 3,473 1,737 1,736
Less: tax effect 462 153 309 647 307 340
------ ------ ------ ------- ------- ------
1,773 708 1,065 2,826 1,430 1,396
------ ------ ------ ------- ------- ------
CASH BASED CORE OPERATING NET INCOME $9,242 $6,645 $2,597 $17,311 $13,220 $4,091
====== ====== ====== ======= ======= ======
</TABLE>
(1) Excludes items presented in the Core Operating Net Income table above.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Per share data
Cash based core operating basic earnings per share $ 0.57 $ 0.39 $ 0.18 $ 1.06 $ 0.78 $ 0.28
Cash based core operating diluted earnings per share 0.56 0.39 0.17 1.04 0.77 0.27
Performance ratios (annualized)
Cash based core operating return on tangible assets 1.39% 1.21% 0.18% 1.35% 1.21% 0.14%
Cash based core operating return on tangible equity 17.79% 11.19% 6.60% 16.60% 11.61% 4.99%
Cash based core operating efficiency ratio 59.19% 62.12% (2.93%) 60.07% 63.00% (2.93%)
</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 $5,537,000 or
24.4% to $28,247,000 during the quarter ended June 30, 2000. The Western
Kentucky Group (see Note 2 in the accompanying unaudited financial
statements) accounted for $4,458,000 of this increase. Area's net interest
margin (which is computed by dividing net interest income on a fully
taxable equivalent basis by average earning assets) increased from 4.43%
during the quarter ended June 30, 1999 to 4.51% during the current
quarter. The average rate on interest earning assets increased from 7.77%
during the second quarter of 1999 to 8.49% in the current quarter. In
addition to the effect that rising national interest rates have had on
adjustable rate earning assets, the increase in the average rate on
earning assets was largely the result of a shift in the composition of
average earning assets towards loans. As a partial offset, the average
rate on interest bearing liabilities increased from 4.04% to 4.73% largely
as a result of rising interest rates since mid-1999. These changes
resulted in an increase of 0.03% to 3.76% in the net interest spread for
the current quarter versus the same period in 1999.
18
<PAGE> 19
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NET INTEREST INCOME (CONTINUED)
For the six months ended June 30, 2000, net interest income, on a tax
equivalent basis, increased $9,659,000 or 21.7% to $54,182,000 over the
same period in 1999. The Western Kentucky Group (see Note 2) accounted for
$6,834,000 of this increase. The net interest margin was 4.47% for the
year-to-date period, an increase of 0.14% from 4.33% recorded during the
first six months of 1999. The increase in the net interest margin was the
result of an increase of 0.60% to 8.34% in the yield on earning assets
during the current period and a smaller increase of 0.48% to 4.61% in the
rate paid on interest bearing liabilities. Strong average loan growth
generated both internally as well as through the acquisitions discussed in
Note 2 and rising rates which impacted earning assets earning assets more
positively than interest paying liabilities were primarily responsible for
the increase in the net interest margin in both the year-to-date period
and the current quarter compared to similar periods in 1999.
The following presents the components of net income on a taxable
equivalent basis:
<TABLE>
<CAPTION>
(Amounts in thousands) THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income $51,807 $38,721 $ 13,086 $ 98,498 $77,489 $ 21,009
Taxable-equivalent adjustment 1,327 1,086 241 2,578 2,164 414
------- ------- ------- -------- ------- --------
Interest income-taxable equivalent 53,134 39,807 13,327 101,076 79,653 21,423
Interest expense 24,887 17,097 7,790 46,894 35,130 11,764
------- ------- ------- -------- ------- --------
Net interest income-taxable equivalent 28,247 22,710 5,537 54,182 44,523 9,659
Provision for loan losses 314 192 122 636 356 280
Non-interest income 15,128 23,313 (8,185) 30,501 32,288 (1,787)
Non-interest expenses 23,532 18,401 5,131 45,262 36,692 8,570
------- ------- ------- -------- ------- --------
Income before income taxes 19,529 27,430 (7,901) 38,785 39,763 (978)
Income taxes 6,499 8,846 (2,347) 11,622 11,823 (201)
Taxable-equivalent adjustment 1,327 1,086 241 2,578 2,164 414
------- ------- ------- -------- ------- --------
NET INCOME $11,703 $17,498 $ 5,795 $ 24,585 $25,776 $ (1,191)
======= ======= ======== ======== ======= ========
</TABLE>
The following table summarizes the fully-taxable equivalent interest
spread, which is the difference between the average yield on earning
assets and the average rate on interest bearing liabilities as well as the
net interest margin, which is the fully-taxable equivalent net interest
income divided by the average earning assets for the three and six-months
ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
(Amounts in thousands, except percentages)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Average rate on earning assets (1) 8.49% 7.77% 0.72% 8.34% 7.74% 0.60%
Average rate on interest
bearing liabilities (1) 4.73% 4.04% 0.69% 4.61% 4.13% 0.48%
Net interest spread (1) 3.76% 3.73% 0.03% 3.73% 3.61% 0.12%
Net interest margin (1) 4.51% 4.43% 0.08% 4.47% 4.33% 0.14%
Average earning assets $ 2,517,111 $ 2,055,774 $ 461,337 $ 2,437,853 $ 2,075,151 $ 362,702
Average interest bearing liabilities 2,116,716 1,698,489 418,227 2,045,511 1,713,828 331,683
</TABLE>
(1) Amounts annualized
19
<PAGE> 20
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
PROVISION FOR LOAN LOSSES
The allowance for loan losses is maintained at a level management believes
is adequate to absorb estimated losses inherent in the portfolio.
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 as well
as 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.
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 JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ 27,540 $ 23,616 $ 3,924 $ 23,055 $ 21,651 $ 1,404
Additions through acquisitions -- -- -- 4,323 1,857 2,466
Provision for loan losses 314 192 122 636 356 280
Loan loss recoveries 253 453 (200) 569 945 (376)
Loans charged off (651) (708) (57) (1,127) (1,256) (129)
----------- ----------- --------- ----------- ----------- ---------
ENDING BALANCE $ 27,456 $ 23,553 $ 3,903 $ 27,456 $ 23,553 $ 3,903
=========== =========== ========= =========== =========== =========
Average loans, net of unearned income $ 1,909,330 $ 1,511,706 $ 397,624 $ 1,837,154 $ 1,498,343 $ 338,811
Provision for loan losses to average
loans (1) 0.07% 0.05% 0.02% 0.07% 0.05% 0.02%
Net loan charge-offs to average loans (1) 0.08% 0.07% 0.01% 0.06% 0.04% 0.02%
Allowance for loan losses to end of
period loans 1.43% 1.55% (0.12%) 1.43% 1.55% (0.12%)
Allowance for loan losses to under-
performing assets 360.2% 1,374.2% (1,014.0%) 360.2% 1,374.2% (1,014.0%)
</TABLE>
(1) Amounts annualized
The provision for loan losses totaled $314,000 during the quarter ended
June 30, 2000 compared to $192,000 during the same period last year.
During the six months ended June 30, 2000, the provision for loan losses
increased $280,000 or 78.7% to $636,000 when compared to the first six
months of 1999. The provision amounts for both the quarter and
year-to-date periods are very low compared to Area's historical levels and
there is no assurance that these levels will not increase in the future.
The provision for loan losses as a percentage of average loans totaled
0.07% (annualized) during the quarter ended June 30, 2000 compared to
0.05% (annualized) for the quarter ended June 30, 1999. For the six-month
period ended June 30, 2000, the provision for loan losses as a percentage
of average loans increased to 0.07% (annualized) from 0.05% (annualized)
during the same period in 1999. Even though the percentages increased
during the current quarter and year-to-date period compared to the same
periods in 1999, both percentages are low compared to Area's historical
levels and there is no assurance that these levels will not increase in
the future.
Net loan charge-offs (loan charge-offs less recoveries) to average loans
during the current quarter increased slightly to 0.08% (annualized) from
0.07% (annualized) during the quarter ended June 30, 2000 primarily as a
result of a reduction in recoveries in the quarter. Net loan charge-offs
increased to 0.06% during the six months ended June 30, 2000 compared to
0.04% in the same period in 1999. These percentages are low compared to
Area's historical levels and there is no assurance that these levels will
not increase in the future.
The allowance for loan losses was 1.43% of total loans on June 30, 2000,
as compared to the December 31, 1999 level of 1.41% and the June 30, 1999
level of 1.55%. The percentage of allowance for loan losses to total loans
has decreased since June 30, 1999 largely as a result of loan growth.
20
<PAGE> 21
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NON-INTEREST INCOME
The tables that follow set forth the components of non-interest income for
the three and six-month periods ended June 30, 2000 and 1999. The amounts
listed below for the three and six-month periods include adjustments for
the Western Kentucky Group (see Note 2 in the accompanying unaudited
financial statements) and for non-recurring non-interest income for
comparability purposes.
<TABLE>
<CAPTION>
NON-INTEREST INCOME THREE MONTHS ENDED JUNE 30
(Amounts in thousands)
WESTERN
TOTAL AREA KY GROUP AREA 2000,
2000 2000 NET (1) 1999 CHANGE
---- ---- ------- ---- ------
<S> <C> <C> <C> <C> <C>
Commissions and fees on fiduciary activities $ 1,507 $ -- $ 1,507 $ 1,367 $ 140
Service charges on deposit accounts 3,216 532 2,684 2,205 479
Other service charges, commissions and fees 2,189 111 2,078 1,510 568
Gains on sales of loans (net) 151 7 144 334 (190)
Other income 669 53 616 111 505
------- ----- ------- ------- --------
ADJUSTED NON-INTEREST INCOME 7,732 703 7,029 5,527 1,502
Non-recurring items:
Security gains (losses), net 7,396 (88) 7,484 17,786 (10,302)
Insurance settlement -- -- -- -- --
Gain on sale of fixed assets -- -- -- -- --
------- ----- ------- ------- --------
TOTAL $15,128 $ 615 $14,513 $23,313 $ (8,800)
======= ===== ======= ======= ========
</TABLE>
(1) Excludes Western Kentucky Group. See Note 2 in the accompanying
unaudited financial statements.
<TABLE>
<CAPTION>
NON-INTEREST INCOME SIX MONTHS ENDED JUNE 30
(Amounts in thousands)
WESTERN
TOTAL AREA KY GROUP AREA 2000,
2000 2000 NET (1) 1999 CHANGE
---- ---- ------- ---- ------
<S> <C> <C> <C> <C> <C>
Commissions and fees on fiduciary activities $ 2,863 $ -- $ 2,863 $ 2,706 $ 157
Service charges on deposit accounts 5,997 873 5,124 4,371 753
Other service charges, commissions and fees 4,130 221 3,909 2,834 1,075
Gains on sales of loans (net) 273 7 266 759 (493)
Other income 1,491 87 1,404 290 1,114
------- ------- ------- ------- -------
ADJUSTED NON-INTEREST INCOME 14,754 1,188 13,566 10,960 2,606
Non-recurring items:
Security gains (losses), net 15,604 (82) 15,686 20,383 (4,697)
Insurance settlement -- -- -- 945 (945)
Gain on sale of fixed assets 143 -- 143 -- 143
------- ------- ------- ------- -------
TOTAL $30,501 $ 1,106 $29,395 $32,288 $(2,893)
======= ======= ======= ======= =======
</TABLE>
(1) Excludes Western Kentucky Group. See Note 2 in the accompanying
unaudited financial statements.
21
<PAGE> 22
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NON-INTEREST INCOME (CONTINUED)
Non-interest income totaled $15,128,000 and $30,501,000 for the three-and
six-month periods ended June 30, 2000. These amounts represent decreases
of $8,185,000 or 35.1% and $1,787,000 or 5.5%, respectively, when compared
to 1999 period totals. Included in the non-interest income totals is
$615,000 for the current quarter and $1,106,000 for the current six-month
period from the Western Kentucky Group (see Note 2 in the accompanying
unaudited financial statements), which Area acquired on January 31, 2000.
For comparative purposes, non-interest income from the Western Kentucky
Group is excluded in the following analysis as a result of the acquisition
having been accounted for as a purchase transaction in which the
historical financial statements of Area were not restated. Also excluded
in the following analysis is $7,396,000 of non-recurring non-interest
income during the second quarter of 2000 and $17,786,000 in 1999 as well
as $15,747,000 during the first half of 2000 and $21,328,000 in the same
period of 1999. Excluding these items, adjusted non-interest income
increased $1,502,000 or 27.2% to $7,029,000 from $5,527,000 in the second
quarter of 1999 and increased $2,606,000 or 23.8% to $13,566,000 from
$10,960,000 in the first six months of 2000 compared to the same period in
1999. The following analysis compares adjusted non-interest income (see
"Area 2000, Net" column in the table above) which excludes the Western
Kentucky Group as well as non-recurring non-interest income in both the
second quarter and first six months of 2000 and 1999. Commissions and fees
on fiduciary activities increased $140,000 or 10.2% to $1,507,000 in the
second quarter of 2000 and $157,000 or 5.8% during the current six-month
period largely as a result of successful new business development efforts.
Service charges on deposit accounts increased $479,000 or 21.7% to
$2,684,000 and $753,000 or 17.2% to $5,124,000 for the three and six
months ended June 30, 2000, respectively, when compared to similar period
totals in 1999, due primarily to deposit growth in accounts subject to
service charges and increases in fees charged. Other service charges,
commissions and fees totaled $2,078,000 and $3,909,000 for the second
quarter of 2000 and year-to-date periods ended June 30, 2000. The
increases were $568,000 or 37.6% and $1,075,000 or 37.9%, respectively,
for the three and six-month periods ended June 30, 2000. The increases for
the current and year-to-date periods were largely the result of an
increase of $403,000 during the current quarter and $645,000 for the
year-to-date period in security brokerage commissions earned through the
Eifler Group (see Note 2 in the accompanying unaudited financial
statements). Gains on the sales of loans decreased $190,000 or 56.9% to
$144,000 in the second quarter of 2000 compared to the same period in 1999
and decreased $493,000 or 65.0% to $266,000 in the first half of the year
compared to the same period in 1999. Gains on the sales of loans were
favorably impacted during the second quarter and first six months of 1999
by lower interest rates and a strong refinancing market. Other income
totaled $616,000 during the three months ended June 30, 2000 compared to
$111,000 in the second quarter of 1999 and $1,404,000 during the first
half of 2000 versus $290,000 in the same period of 1999. These amounts
represent increases of $505,000 or 455.0% and $1,114,000 or 384.1% for the
second quarter and year-to-date periods, respectively. The increases
during the current quarter and year-to-date periods were primarily the
result of income earned from the sale of call options related to Area's
equity investment portfolio. The amount earned on call options in the
current three-month period was $310,000 while the amount earned during the
first six months of 2000 was $713,000. The recurrence of this income in
the future can not be assured since it depends upon the market value of
Area's equity investment portfolio and the value third parties place on
the ability to purchase equity securities owned by Area at fixed prices in
the future. Security gains (net) totaled $7,484,000 in the current quarter
compared to $17,786,000 in the same period of 1999 and $15,686,000
compared to $20,383,000 during the first six months of 2000 and 1999,
respectively. These gains on the sale of securities reflect Area's ongoing
strategy to improve the performance of its investment portfolio through
repositioning portions of the portfolio as market conditions change.
NON-INTEREST EXPENSES
The tables on the following page set forth the components of non-interest
expenses for the three and six months ended June 30, 2000, and 1999. The
amounts listed below for the three-and six-month periods include
adjustments for the Western Kentucky Group (see Note 2 in the accompanying
unaudited financial statements) and non-recurring non-interest expenses
for comparability purposes.
22
<PAGE> 23
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NON-INTEREST EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
NON-INTEREST EXPENSES THREE MONTHS ENDED JUNE 30
(Amounts in thousands)
WESTERN
TOTAL AREA KY GROUP AREA 2000
2000 2000 NET (1) 1999 CHANGE
---- ---- ------- ---- ------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $10,128 $ 921 $ 9,207 $ 8,546 $ 661
Net occupancy expenses 1,513 56 1,457 1,322 135
Furniture and equipment expense 1,821 258 1,563 1,567 (4)
Federal deposit insurance 104 3 101 69 32
Data processing expense 1,449 185 1,264 1,366 (102)
Advertising and community relations 959 91 868 903 (35)
Insurance and taxes 1,106 152 954 716 238
Professional fees 1,486 75 1,411 569 842
Amortization of intangibles 2,235 1,277 958 861 97
Other 2,731 204 2,527 2,482 45
------- ------ ------- ------- -------
ADJUSTED NON-INTEREST EXPENSES 23,532 3,222 20,310 18,401 1,909
Non-recurring items:
Merger and acquisition expense -- -- -- -- --
------- ------ ------- ------- -------
TOTAL $23,532 $3,222 $20,310 $18,401 $ 1,909
======= ====== ======= ======= =======
</TABLE>
(1) Excludes Western Kentucky Group. See Note 2 in the accompanying
unaudited financial statements.
<TABLE>
<CAPTION>
NON-INTEREST EXPENSES SIX MONTHS ENDED JUNE 30
(Amounts in thousands)
WESTERN
TOTAL AREA KY GROUP AREA 2000,
2000 2000 NET (1) 1999 CHANGE
---- ---- ------- ---- ------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $20,027 $1,626 $18,401 $17,572 $ 829
Net occupancy expenses 2,884 120 2,764 2,605 159
Furniture and equipment expense 3,468 386 3,082 3,057 25
Federal deposit insurance 182 17 165 137 28
Data processing expense 2,947 485 2,462 2,614 (152)
Advertising and community relations 1,709 149 1,560 1,670 (110)
Insurance and taxes 2,157 258 1,899 1,268 631
Professional fees 2,883 283 2,600 1,221 1,379
Amortization of intangibles 3,473 1,556 1,917 1,737 180
Other 5,150 418 4,732 4,491 241
------- ------ ------- ------- -------
ADJUSTED NON-INTEREST EXPENSES 44,880 5,298 39,582 36,372 3,210
Non-recurring items:
Merger and acquisition expense 382 -- 382 320 62
------- ------ ------- ------- -------
TOTAL $45,262 $5,298 $39,964 $36,692 $ 3,272
======= ====== ======= ======= =======
</TABLE>
(1) Excludes Western Kentucky Group. See Note 2 in the accompanying
unaudited financial statements.
23
<PAGE> 24
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
NON-INTEREST EXPENSES (CONTINUED)
Non-interest expenses totaled $23,532,000 and $45,262,000 for the three
and six-month periods ended June 30, 2000. These amounts represent
increases of $5,131,000 or 27.9% and $8,570,000 or 23.4%, respectively,
when compared to 1999 period totals. Included in the non-interest expense
totals is $3,222,000 for the current quarter and $5,298,000 for the
current six-month period from the Western Kentucky Group (see Note 2 in
the accompanying unaudited financial statements), which Area acquired on
January 31, 2000. For comparative purposes, non-interest expenses from the
Western Kentucky Group is excluded in the following analysis as a result
of the acquisition having been accounted for as a purchase transaction in
which the historical financial statements of Area were not restated. Also
excluded in the following analysis is $382,000 of merger and acquisition
expenses in 2000 and $320,000 in 1999. Excluding these items, adjusted
non-interest expenses increased $1,909,000 or 10.4% to $20,310,000 from
$18,401,000 in the second quarter of 1999 and increased $3,210,000 or 8.8%
to $39,582,000 in the first six months of 2000 compared to $36,372,000
during the same period in 1999. The following analysis compares adjusted
non-interest expenses which exclude the Western Kentucky Group as well as
merger and acquisition expenses in both the second quarter and first six
months of 2000 and 1999. Salaries and benefits increased $661,000 or 7.7%
to $9,207,000 in the second quarter of 2000 and $829,000 or 4.7% during
the current six-month period largely as a result of merit increases and
the addition of staff that will be required to implement the consolidation
of operations as more fully discussed in Item 2 "General". Net occupancy
expenses increased $135,000 or 10.2% to $1,457,000 and $159,000 or 6.1% to
$2,764,000, respectively, for the three-and six-month periods ended June
30, 2000, when compared to similar period totals in 1999, due primarily to
expenses related to the modernization of several facilities. Furniture and
equipment expenses totaled $1,563,000 and $3,082,000 during the second
quarter of 2000 and year-to-date periods ended June 30, 2000. The current
quarter reflected a decrease of $4,000 or 0.3% while the year-to-date
period increased $25,000 or 0.8%. Data processing expenses totaled
$1,264,000 during the current quarter compared to $1,366,000 in the same
period in 1999 and totaled $2,462,000 during the six months ended June 30,
2000 versus $2,614,000 during the first half of 1999. The decreases,
$102,000 or 7.5% and $152,000 or 5.8% for the quarter and year-to-date
periods reflected a reduced level of expenses associated with modifying
computer application systems for Year 2000. Advertising and community
relations expense declined $35,000 or 3.9% to $868,000 during the current
quarter and $110,000 or 6.6% to $1,560,000 during the six months ended
June 30, 2000 when compared to the same periods in 1999. Decreases in
customer relations expense accounted for the majority of the decline for
both the current period and year-to-date periods. Insurance and taxes
totaled $954,000 during the current quarter compared to $716,000 during
the same period in 1999 and totaled $1,899,000 in the current six-month
period ended June 30, 2000 versus to $1,268,000 during the first half of
1999. The increases were $238,000 or 33.2% and $631,000 or 49.8% for the
three-month and six-month periods ended June 30, 2000 compared to the
similar periods in 1999. The increases were primarily the result of
increased state taxes on Area's banks. Professional fees increased
$842,000 or 148.0% and $1,379,000 or 112.9% during the current quarter and
year-to-date periods compared to similar periods in 1999. The increases
during both the current quarter and year-to-date periods were the result
of acquisition activities as discussed in Note 2 in the accompanying
unaudited financial statements and professional fees incurred in Area's
consolidation of its operations (see Item 2, "General"). Other
non-interest expenses totaled $2,527,000 during the current quarter
compared to $2,482,000 for the same period in 1999 and totaled $4,732,000
during the six months ended June 30, 2000 compared to $4,491,000 in the
same period in 1999. The current quarter reflected an increase of $45,000
or 1.8% and the year-to-date period reflected an increase of $241,000 or
5.4%. The year-to-date period increase was largely the result of increases
in correspondent bank charges, Federal Reserve service charges, other
miscellaneous losses and office supplies.
24
<PAGE> 25
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
INCOME TAX EXPENSE
Income tax expense totaled $6,499,000 and $11,622,000 for the three-and
six-month periods ended June 30, 2000 compared to $8,846,000 and
$11,823,000 during the same periods in 1999. Included with income tax
expense for the current six-month period are book tax benefits totaling
$1,279,000 in 2000 and $330,000 in 1999. These book tax benefits are the
result of converting acquired banks from "S" corporation tax status to "C"
corporation tax status. Income tax expense, excluding these benefits,
totaled $12,901,000 during the first six months of 2000 and $12,153,000 in
the same period of 1999. The reduced level of income tax expense for the
current three-month period was the result a reduced level of pre-tax
income. The effective tax rate was 35.7% and 32.1% (35.6% excluding the
benefit discussed above) during the three-and six-month periods ended June
30, 2000 compared to 33.6% and 31.4% (32.3% excluding the benefit
discussed above) during the same periods of 1999. The effective tax rate
differs from the marginal income tax rate of 35% in both 2000 and 1999 due
primarily to the effects of tax exempt interest and goodwill amortization.
The increase in the effective income tax rate during 2000 is largely
attributable to an increase in goodwill amortization and an increase in
the amount of state taxes on security gains.
B. FINANCIAL POSITION
Total assets increased $394,119,000 or 16.8% to $2,734,640,000 from
December 31, 1999. Excluding the acquisition of the Western Kentucky
Group, which added $383,349,000 in assets (see Note 2 in the accompanying
unaudited financial statements), assets increased approximately
$10,770,000 or 0.5% from year-end. Assets averaged $2,719,521,000 in the
quarter ended June 30, 2000 compared to $2,242,668,000 during the same
period in 1999. The growth in average assets from the quarter ended June
30, 1999 to the quarter ended June 30, 2000 was $476,853,000 or 21.3%.
This growth was largely the result of the acquisition of the Western
Kentucky Group (see Note 2 in the accompanying unaudited financial
statements). Earning assets totaled $2,488,140,000 on June 30, 2000, an
increase of $349,336,000 or 16.3% over December 31, 1999 earning assets
which totaled $2,138,804,000. Excluding earning assets acquired as a
result of the acquisition of the Western Kentucky Group, earning assets
increased $912,000 or 0.04% from December 31, 1999 to June 30, 2000.
SHORT-TERM INVESTMENTS AND SECURITIES
Short-term investments, which include interest-bearing deposits with banks
and federal funds sold, totaled $4,947,000 on June 30, 2000, a decrease of
$1,063,000 from year-end balances.
Securities represented 22.2% of earning assets on June 30, 2000 and
totaled $551,161,000 on June 30, 2000, an increase of $58,445,000 or 11.9%
from $492,716,000 on December 31, 1999. Excluding $101,144,000 of
securities added as a result of the acquisition of the Western Kentucky
Group (see Note 2 to the accompanying unaudited financial statements), the
securities portfolio decreased $42,699,000 or 8.7% from December 31, 1999.
The cash obtained as a result of the reduction in the securities portfolio
was used to fund loans. The held-to-maturity and available-for-sale
portfolios as of June 30, 2000 consisted of 31.3% in U.S. and other
government agency securities, 29.2% in mortgage-backed securities, 32.8%
in state and municipal securities and 6.7% in equity and other securities.
The comparable distributions at December 31, 1999 were 41.5%, 14.6%, 31.0%
and 12.9%, respectively.
LOANS
Loans, including loans held for sale increased $291,954,000 or 17.8% to
$1,932,032,000 during the three months ended June 30, 2000 from
$1,640,078,000 on December 31, 1999. Excluding the acquisition of the
Western Kentucky Group which added $220,030,000 of loans (see Note 2 to
the accompanying unaudited financial statements), loans increased
$71,924,000 or 4.4% during the first six months of 2000. Loans, including
loans held for sale, represent the largest category of earning assets,
comprising 77.6% of earning assets as of June 30, 2000, 76.7% as of
December 31, 1999 and 74.1% as of June 30, 1999.
25
<PAGE> 26
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
LOANS (CONTINUED)
The following table presents the major categories of loans including loans
held for sale:
<TABLE>
<CAPTION>
(Amounts in thousands) JUNE 30 DECEMBER 31 JUNE 30
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Commercial $ 705,962 $ 580,521 $ 549,382
Real estate 965,496 820,995 760,754
Consumer installment and other loans 260,574 238,562 221,409
----------- ----------- ----------
TOTAL $ 1,932,032 $ 1,640,078 $1,531,545
=========== =========== ==========
</TABLE>
DEPOSITS
Deposits totaled $2,055,218,000 on June 30, 2000, an increase of
$343,436,000 or 20.1% from $1,711,782,000 on December 31, 1999. Excluding
$327,969,000 of deposits acquired as a result of the acquisition of the
Western Kentucky Group (see Note 2 to the accompanying unaudited financial
statements) deposits grew $15,467,000 or 0.9% from December 31, 1999 to
June 30, 2000. Non-interest bearing deposits (excluding $55,790,000 of
deposits acquired through the acquisition of the Western Kentucky Group)
declined $10,106,000 or 3.8% from December 31, 1999. The decrease in
non-interest bearing deposits from year-end totals was partially the
result of customers' desire to minimize their non-interest bearing
deposits. Interest-bearing deposits (excluding $272,179,000 deposits
acquired through the acquisition of the Western Kentucky Group) increased
$25,573,000 or 1.8%. Average deposits increased $300,730,000 or 17.1% to
$2,055,066,000 in the three months ended June 30, 2000 compared to the
same period in 1999 while increasing $203,404,000 or 11.5% to
$1,973,988,000 in the first half of 2000 compared to the same period of
1999. These increases were largely the result of the acquisition of the
Western Kentucky Group (see Note 2).
The following table summarizes the composition of deposits as of March 31,
2000, December 31, 1999 and March 31, 1999:
<TABLE>
<CAPTION>
(Amounts in thousands) JUNE 30 DECEMBER 31 JUNE 30
2000 1999 1999
---- ---- ----
<S> . <C> <C> <C>
Non-interest bearing demand $ 310,635 $ 264,951 $ 238,148
Interest bearing deposits:
Interest bearing demand 315,345 294,705 290,946
Savings 434,514 397,927 404,074
Certificates of deposit of $100,000
or more 192,317 180,964 155,202
Other time 802,407 573,235 635,282
----------- ----------- -----------
Total interest bearing deposits 1,744,583 1,446,831 1,485,504
----------- ----------- -----------
TOTAL DEPOSITS $ 2,055,218 $ 1,711,782 $ 1,723,652
=========== =========== ===========
</TABLE>
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
$45,921,000 or 13.6% to $383,970,000 from $338,049,000 on December 31,
1999. Excluding $62,095,000 of borrowed funds added as a result of the
acquisition of the Western Kentucky Group (see Note 2 in the accompanying
unaudited financial statements) borrowed funds declined $16,174,000 or
4.8%.
Other borrowings increased from $135,000 on December 31, 1999 to
$62,125,000 on June 30, 2000. This increase was largely the result of
funds borrowed for the acquisition of the Western Kentucky Group. Area
initially borrowed $75,000,000 on January 31, 2000 (the date of
acquisition) for the acquisition.
26
<PAGE> 27
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
CAPITAL RESOURCES
Shareholders' equity totaled $272,003,000 at June 30, 2000, an increase of
$5,039,000 or 1.9% from $266,964,000 on December 31, 1999. In addition, a
decrease totaling $13,340,000 or 54.4% to $11,182,000 in accumulated other
comprehensive income negatively impacted shareholders' equity. This
decrease in accumulated other comprehensive income occurred primarily as a
result of the sale of available for sale securities and a rise in interest
rates during the six months ended June 30, 2000 which caused a decrease in
the value of Area's fixed income investment securities.
The shareholders' equity-to-asset ratio was 9.95% at June 30, 2000
compared to 11.41% on December 31, 1999. The decrease was largely the
result of the acquisition of the Western Kentucky Group (see Note 2 to the
accompanying unaudited financial statements) which added approximately
$383,349,000 of assets.
Book value per share was $16.67, $16.17 and $15.93 at June 30, 2000,
December 31, 1999 and June 30, 1999, respectively.
During the second quarter of 2000, Area repurchased 46,700 shares of its
common stock in the open market at an average price of $19.99 per share,
bringing the total for the first six months of 2000 to 206,629 shares at
an average price of $22.00. All of these shares were repurchased under the
5% repurchase plan announced on August 26, 1999.
A summary of the regulatory capital ratios is shown below:
<TABLE>
<CAPTION>
REGULATORY CAPITAL REQUIREMENTS
JUNE 30 DECEMBER 31 WELL MINIMUM
2000 1999 CAPITALIZED REQUIRED
---- ---- ----------- --------
<S> <C> <C> <C> <C>
Leverage Ratio 6.84% 9.32% 5.00% 4.00%
Tier I Risk Based Capital Ratio 10.08% 12.60% 6.00% 4.00%
Total Risk Based Capital Ratio 11.32% 13.86% 10.00% 8.00%
</TABLE>
The decrease in the regulatory capital ratios from December 31, 1999 to
June 30, 2000 was the result of the purchase of the Western Kentucky Group
that resulted in the addition of $383,349,000 of assets and $34,228,000 of
intangible assets.
ASSET QUALITY
At June 30, 2000, the allowance for loan losses was $27,456,000 or 1.43%
of period-end loans, as compared to $23,055,000 or 1.41% of loans at
December 31, 1999. The ratio of the allowance for loan losses to
under-performing assets decreased to 360.2% as of June 30, 2000 compared
with 1,015.2% at December 31, 1999 and 1,374.2% on June 30, 1999 as a
result of an increase in under-performing assets. Under-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.
Under-performing assets totaled $7,622,000 on June 30, 2000 compared to
$2,271,000 on December 31, 1999. The increase was $5,351,000. Of this
increase, approximately $3,267,000 was added as a result of the
acquisition of the Western Kentucky Group (see note 2 to the accompanying
unaudited financial statements). Currently, year-to-date net charge-offs
(loan charge-offs less recoveries) are at 0.06% (annualized) of average
year-to-date loans compared to 0.04% (annualized) during the same period
in 1999. This ratio is at an historical low level and there can be no
assurance that net charge-offs will not increase in the future.
Management maintains the allowance for loan losses at a level that is
sufficient to absorb the estimated losses that, in the opinion and
judgment of management, are 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 also bases allocations
of the allowance on specifically identified probable loss situations.
27
<PAGE> 28
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(UNAUDITED)
JUNE 30, 2000 AND 1999
ASSET QUALITY (CONTINUED)
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 June 30, 2000,
December 31, 1999 and June 30, 1999, represented by nonaccrual loans,
loans contractually past due ninety days or more as to interest or
principal payments and still accruing and other real estate owned:
<TABLE>
<CAPTION>
(In thousands) JUNE 30 DECEMBER 31 JUNE 30
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Nonaccrual loans $ 3,171 $ 1,078 $ 695
Loans contractually past due 90 days or more as to
interest or principal and still accruing 3,773 990 1,019
------- ------- -------
TOTAL UNDER-PERFORMING AND RESTRUCTURED LOANS 6,944 2,068 1,714
Other real estate owned 678 203 1,509
------- ------- -------
TOTAL UNDER-PERFORMING ASSETS $ 7,622 $ 2,271 $ 3,223
======= ======= =======
</TABLE>
C. LIQUIDITY
The purpose of liquidity management is to match the sources of funds with
anticipated customer borrowings as well as withdrawals and other
obligations. This is accomplished by balancing changes in demand for funds
with changes in the supply of funds. Liquidity to meet demand is provided
by maturing assets, the ability to attract deposits and borrowings from
third parties such as the Federal Home Loan Bank.
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 June 30, 2000, 75.2% of total assets were funded by core deposits
while 14.0% were funded with secondary sources of liquidity discussed
above, compared to 73.1% and 14.4%, respectively, as of December 31, 1999.
The net loan-to-deposit ratio decreased from 94.0% on December 31, 1999 to
92.3% on June 30, 2000 primarily as a result of the acquisition of the
Western Kentucky Group (see Note 2 to the accompanying unadudited
financial statements). The Western Kentucky Group had a net
loan-to-deposit ratio of 65.8% on the date of acquisition.
28
<PAGE> 29
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
JUNE 30, 2000 AND 1999
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial institutions, interest rate movements can have a
critical impact on net interest income, and hence net income. The
primary objective of interest rate risk management is to control and
monitor the effects of those fluctuations and their impact on net
income. Management considers interest rate risk to be the most
significant market risk.
Management views computer simulations as a more relevant measurement
of the impact of changes in interest rates on net interest income,
and hence net income, than other techniques that use interest rate
sensitivity gap analysis. Area uses a net income simulation model to
measure near-term (next 12 months) risk due to changes in interest
rates. The model incorporates substantially all of Area's assets and
liabilities, together with forecasted changes in the balance sheet
mix and assumptions that reflect the current interest rate environment.
Balance sheet changes are based on forecasted changes in loans,
securities and deposits as well as historical pricing spreads. The
model is updated at least quarterly with the current balance sheet
structure and the current forecast of expected balance sheet changes.
These assumptions are inherently uncertain and, as a result, the
model cannot precisely measure net income or exactly predict the
impact of fluctuations in interest rates on net interest income. Actual
results will differ from simulated results due to timing and amount
of interest rate changes as well as changes in market conditions and
management strategies. Management uses the model to simulate the effect
of immediate and sustained parallel shifts upward and downward in
the yield curve of 100 basis points (1.00%) and 200 basis points
(2.00%).
Area's interest rate risk management focuses on maintaining consistent
growth in net interest income within Board-approved policy limits.
Area's management monitors and manages interest rate risk to maintain
an acceptable level of change to net interest income as a result of
changes in interest rates.
The following table illustrates the simulation analysis, using the
methodology described above, of the impact of a 100 and 200 basis
point upward and downward movement in interest rates on net income and
earnings per share.
INTEREST RATE SIMULATION SENSITIVITY ANALYSIS
(In thousands, except per share data)
<TABLE>
<CAPTION>
CHANGE IN INTEREST RATES FROM JUNE 30, 2000 RATES
INCREASE DECREASE
-------- --------
+200BP +100BP -100BP -200BP
------ ------ ------ ------
<S> <C> <C> <C> <C>
SIMULATED IMPACT IN THE NEXT 12 MONTHS
Net income increase (decrease) $2,887 $2,041 $(2,107) $(4,551)
Net income per share-basic increase (decrease) 0.18 0.12 (0.13) (0.28)
Net income per share-diluted increase (decrease) 0.17 0.12 (0.13) (0.28)
</TABLE>
Given an immediate and sustained parallel shift upward of 200 basis
points to the yield curve used in the simulation model, it is estimated
that net income for Area would increase by $2,887,000 over the next
year. Estimated diluted earnings per share would increase by $0.17
over the same period. A 200 basis point immediate and sustained
parallel shift downward in the yield curve would decrease net income
by an estimated $4,551,000 over the next year while decreasing diluted
earnings per share $0.28. All of the above changes in net income are
within the policy guidelines established by the Board of Directors.
In order to assist in reducing the exposure to interest rate
fluctuations and manage liquidity, Area sells virtually all long-term
fixed-rate, single-family residential mortgages that are originated.
These loans are underwritten according to Federal Home Loan Mortgage
Corporation or Fannie Mae guidelines and are sold upon origination.
In addition to the use of core deposits, which fund the primary portion
of earning assets, Area's affiliate banks borrow from the Federal
Home Loan Bank to provide funds within time frames that are not
available or are only available at higher costs through retail sources.
Finally, management continually evaluates other interest rate risk
management opportunities, including the use of derivative financial
instruments. Management believes that hedging instruments currently
available are not cost effective, and therefore minimizes the use of
derivatives except in limited circumstances.
29
<PAGE> 30
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
JUNE 30, 2000 AND 1999
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on May 15, 2000.
Total shares that were eligible to vote were 16,339,552. The
matters that were voted upon included the following:
<TABLE>
<CAPTION>
PROPOSAL ONE: ELECTION OF DIRECTORS
NAME VOTED FOR VOTED AGAINST ABSTAINED FROM VOTING
---- --------- ------------- ---------------------
<S> <C> <C> <C>
Anthony G. Bittel 13,163,757 -- 54,778
Samuel A. B. Boone 13,182,284 -- 36,251
Thomas R. Brumley 13,182,284 -- 36,251
Cecile W. Garmon 13,182,284 -- 36,251
C. M. Gatton 13,182,284 -- 36,251
Gary H. Latham 13,182,284 -- 36,251
Raymond C. McKinney 13,182,284 -- 36,251
Ralph L. Oliver 13,182,142 -- 36,393
Allan R. Rhodes 13,164,707 -- 53,828
Jim R. Shelby 13,182,284 -- 36,251
David W. Smith, Jr. 13,181,934 -- 36,601
Thomas N. Thompson 13,182,284 -- 36,251
Damon S. Vitale 13,182,284 -- 36,451
Pollard White 13,164,829 -- 53,706
PROPOSAL TWO: APPROVAL OF THE 2000 STOCK OPTION AND EQUITY
INCENTIVE PLAN
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED FROM VOTING
--------- ------------- ---------------------
<S> <C> <C>
12,246,409 877,782 94,344
PROPOSAL THREE: RATIFICATION OF KPMG AS CORPORATE AUDITORS FOR
THE 2000 CALENDAR YEAR
<CAPTION>
VOTED FOR VOTED AGAINST ABSTAINED FROM VOTING
--------- ------------- ---------------------
<S> <C> <C>
13,171,392 10,667 36,476
</TABLE>
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 2001 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, 2000. 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.
Item 5. Other Information
Not applicable.
30
<PAGE> 31
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
JUNE 30, 2000 AND 1999
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) 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.)
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.)
</TABLE>
31
<PAGE> 32
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
JUNE 30, 2000 AND 1999
Item 6. Exhibits and Reports on Form 8-K (continued)
<TABLE>
<CAPTION>
(a) Exhibit No. Description of Exhibit
--------------- ----------------------
<S> <C>
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* 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.)
10.15* 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.)
10.16* 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.)
10.17* Area Bancshares Corporation 2000 Stock Option and Equity
Incentive Plan, dated March 20, 2000 (Incorporated by
reference to the exhibit filed with Area's Proxy Statement
(Schedule 14A) for the shareholders' meeting held on May 15,
2000.)
10.18* Form of Incentive Stock Option Award pursuant to the Area
Bancshares Corporation 2000 Stock Option and Equity Incentive
Plan.
10.19* Form of Non-Qualified Stock Option Award pursuant to the Area
Bancshares Corporation 2000 Stock Option and Equity Incentive
Plan.
10.20* Form of Area Bancshares Corporation Restricted Stock Agreement
(under the Area Bancshares Corporation 2000 Stock Option and
Equity Incentive Plan.)
*The indicated exhibit is a compensatory plan or arrangement.
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K. None.
32
<PAGE> 33
AREA BANCSHARES CORPORATION AND SUBSIDIARIES
JUNE 30, 2000 AND 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AREA BANCSHARES CORPORATION
Date: August 11, 2000 By: /s/ Thomas R. Brumley
------------------------ -----------------------------------
Thomas R. Brumley
President and Chief Executive
Officer
(Principal Executive Officer)
Date: August 11, 2000 By: /s/ Edward J. Vega
----------------------- -----------------------------------
Edward J. Vega
Senior Vice President-Chief
Financial Officer
(Principal Financial Officer)
Date: August 11, 2000 By: /s/ Gary R. White
----------------------- ----------------------------------
Gary R. White
Vice President, Controller
(Principal Accounting Officer)
33
