UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM lO-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to ____________
Commission File Number 1-10602
MID-AMERICA BANCORP
(Exact name of registrant as specified in its charter)
Kentucky 61-1012933
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 West Broadway
Louisville, Kentucky 40202
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (502) 589-3351
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock AMEX
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if the disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates
(shareholders other than directors, executive officers
and principal shareholders) of the registrant as of February 11,
1997 was approximately $136,925,000.
The number of shares outstanding of the registrant's common stock
as of February 11, 1997 was 9,452,026.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the year
ended December 31, 1996 are incorporated by reference into Parts I
and II.
Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held April 17, 1997 are incorporated by
reference into Part III.
TABLE OF CONTENTS
PART I
Item No. Page
1. BUSINESS . . . . . . . . . . . . . . . . . . . 3
2. PROPERTIES . . . . . . . . . . . . . . . . . . 12
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . 12
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . 12
EXECUTIVE OFFICERS OF REGISTRANT . . . . . . . 12
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS . . . . . . . 15
6. SELECTED FINANCIAL DATA . . . . . . . . . . . 15
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 15
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . 15
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . 15
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . 16
11. EXECUTIVE COMPENSATION . . . . . . . . . . . . 16
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . . . 16
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 16
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K. . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . .18-19
PART I
ITEM 1. BUSINESS OF MID-AMERICA BANCORP
Mid-America Bancorp (the "Company") is a Kentucky corporation
registered as a bank holding company pursuant to the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and as a savings
and loan holding company pursuant to the Home Owners' Loan Act.
The Company is registered with, and subject to, the supervision of
the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and the Office of Thrift Supervision ("OTS").
The Company's banking subsidiary, Mid-America Bank of Louisville
and Trust Company (the "Bank"), represents the Company's primary
subsidiary. The Bank was established as a Kentucky banking
corporation on October 14, 1925, under the name "Morris Plan
Industrial Bank." On July 2, 1946 the Bank's name was changed to
"Bank of Louisville." The Bank merged with "Royal Bank and Trust
Company" in 1963 under the name Bank of Louisville-Royal Bank and
Trust Co. The Bank's name was changed to Bank of Louisville and
Trust Company on March 26, 1980. The present name of the Bank was
adopted on March 25, 1983, when the Bank became a wholly-owned
subsidiary of the Company.
The Bank is engaged in a wide range of commercial, trust, and
personal banking activities including the usual acceptance of
deposits for checking, savings and time deposit accounts; making of
real estate, construction, commercial, home improvement and
consumer loans; issuance of letters of credit; rental of safe
deposit boxes; providing financial counseling for institutions and
individuals; serving as executor of estates and as trustee under
trusts and under various pension and employee benefit plans;
serving as escrow agent on bond issues; serving as stock transfer
agent, exchange agent, dividend disbursing agent, and registrar
with respect to corporate securities; and participation in small
business loan and student loan programs.
The Company also operates a number of other subsidiaries, including
Mid-America Bank, FSB, a federal savings bank ("Savings Bank"),
which was organized and chartered during 1993. The Savings Bank is
located in Pewee Valley and LaGrange, Kentucky in Oldham County,
and competes on the local level with other commercial banks and
financial institutions in Oldham County, Kentucky for all types of
deposits and loans. Another subsidiary, Mid-America Money Order
Company, is engaged in the issuance and sale throughout the United
States of retail money orders and similar consumer-type payment
instruments having a face value of not more than $2,000. As of
December 31, 1996, Mid-America Money Order Company was licensed to
issue money orders in all 50 states, the District of Columbia, the
U.S. Virgin Islands and Puerto Rico.
Competition
Competition for banking and related financial services is active in
Jefferson County, Kentucky and other geographic areas served by the
Company's subsidiaries. The Company's subsidiaries compete with
other financial institutions including savings and loan
associations, finance companies, mortgage banking companies, credit
unions, insurance companies, brokerage firms, mutual funds, and
other commercial banks. In addition, large regional banks continue
to increase competition in the Company's trade territories through
the acquisition of local financial institutions, the establishment
of loan production offices and the solicitation of customers for
credit cards and related services. At present, both price and
product range are critically important in maintaining and expanding
financial relationships.
On December 31, 1996, the Bank ranked fifth among banks and trust
companies in the City of Louisville and in Jefferson County,
Kentucky, in terms of total assets and in terms of total deposits.
On December 31, 1996 there were thirteen commercial banks and trust
companies in Jefferson County, including the Bank.
Employees
As of December 31, 1996, the Company and subsidiaries employed 583
persons on a full-time basis and 94 on a part-time basis.
Government Policies
As a financial institution holding company, the earnings of the
Company are affected by state and federal laws and by policies of
various federal and state regulatory agencies. These policies
include, for example, statutory maximum legal lending rates,
domestic monetary policies of the Federal Reserve Board, United
States fiscal policy, and capital adequacy and liquidity
constraints imposed by bank regulatory agencies.
Supervision And Regulation
The Company is a registered bank holding company under the BHC Act,
and is subject to supervision, regulation and examination by the
Federal Reserve Board. Under the BHC Act, a bank holding company
is, with limited exceptions, prohibited from (I) acquiring direct
or indirect ownership or control of any voting shares of any
company which is not a bank or (ii) engaging in any activity other
than managing or controlling banks. Notwithstanding this
prohibition, a bank holding company may engage in or own shares of
a company that engages solely in activities which the Federal
Reserve Board has determined to be so closely related to banking,
or managing or controlling banks, as to be a proper incident
thereto.
As a registered bank holding company, the Company is required to
file with the Federal Reserve Board annual reports and other
information regarding its business operations and the business
operations of its subsidiaries. It is also subject to examination
by the Federal Reserve Board and is required to obtain Federal
Reserve Board approval prior to acquiring, directly or indirectly,
ownership or control of any voting shares of any bank, if, after
such acquisition, it would own or control, directly or indirectly,
more than five percent of the voting stock of such bank unless it
already owns a majority of the voting stock of such bank.
The Bank is subject to regulation and supervision, of which regular
bank examinations are a part, by the Kentucky Department of
Financial Institutions, Division of Banking. The Federal Deposit
Insurance Corporation ("FDIC") currently insures the deposits of
the Bank to a maximum of $100,000 per depositor. For this
protection, the Bank pays a semi-annual statutory assessment and is
subject to the rules and regulations of the FDIC pertaining to
deposit insurance. On July 13, 1989, the Bank became a member bank
in the Federal Reserve System. The Federal Reserve Board retains
direct supervision of state chartered member banks and their
affiliates through periodic examinations, the expense of which is
borne by the Bank.
The Savings Bank is subject to regulation and supervision, of which
regular examinations are a part, by the OTS. The FDIC currently
insures the deposits of the Savings Bank to a maximum of $100,000
per depositor.
Eton Life Insurance Company, a wholly-owned subsidiary of the
Company, is regulated by the Kentucky Department of Insurance and
is subject to Kentucky statutes and regulations governing domestic
underwriters of credit life, accident, and health insurance.
The enactment in August 1989 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") placed the savings
and loan insurance fund under the control of the FDIC, created the
OTS in the U.S. Treasury Department and created the Resolution
Trust Corporation to act as receiver to liquidate failed thrift
institutions. FIRREA further expanded the power of bank holding
companies to allow for the acquisition of savings associations and
to operate them as separate thrift subsidiaries. FIRREA enhanced
the ability of bank holding companies to expand through thrift
acquisitions beyond their present geographic interstate banking
region. The tandem restrictions placed upon thrift subsidiaries of
bank holding companies have been removed allowing linkage of
deposit-taking activities and solicitation of deposits and loans on
behalf of affiliate companies. FIRREA led to many structural
changes in competition for loans, deposits and other services,
affected collateral valuation methods, and the acquisition of
financial institutions.
In addition to FIRREA, in December 1991 the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "FDIC
Improvement Act") was enacted. The FDIC Improvement Act dealt with
the recapitalization of the Bank Insurance Fund, deposit insurance
reform, including requiring the FDIC to establish a risk-based
premium assessment system, and a number of other regulatory and
supervisory matters.
In 1994 the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Act") was signed into law. When fully phased in,
the Act will remove state law barriers to interstate bank
acquisitions and will permit the consolidation of interstate
banking operations. Under the Act, effective September 29, 1995,
adequately capitalized and managed bank holding companies may
acquire banks in any state, subject to Community Reinvestment Act
compliance, compliance with federal and state antitrust laws and
deposit concentration limits, and subject to any state laws
restricting the acquisition of a bank that has not been in
existence for a minimum time period (up to five years). Effective
September 29, 1995, the Act also permits any bank that is
controlled by a bank holding company to act as agent for any
affiliated financial institution in deposit and loan transactions,
regardless of whether the institutions are located in the same or
different states. The Act's interstate branching provisions will
become operative on June 1, 1997, although any state can, prior to
that time, adopt legislation to accelerate interstate branching or
prohibit it completely. The Act's interstate branching provisions
will permit banks to merge across state lines and, if state laws
permit de novo branching, to establish a new branch as its initial
entry into a state.
<PAGE>
The following tables set forth selected statistical information with respect to
the Company and should be read in conjunction with the Company's consolidated
financial statements.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The schedule captioned "Average Balances and Yields/Rates Tax Equivalent
Basis" included on page 17 of the Company's annual report to shareholders for
the year ended December 31, 1996, which is incorporated herein by reference,
shows, for each major category of interest earning asset and interest bearing
liability, the average amount outstanding, the interest earned or expensed on
such amount and the average rate earned or expensed for each of the years in
the three-year period ended December 31, 1996. The schedule also shows the
average rate earned on all interest earning assets and the average rate
expensed on all interest bearing liabilities, the net interest spread and the
net interest margin (net interest income divided by total average interest
earning assets) for each of the years in the three-year period ended December
31, 1996. Nonaccrual loans outstanding were included in calculating the rate
earned on loans. Total interest income includes the effects of taxable
equivalent adjustments using a tax rate of 35%.
The changes in interest income and interest expense resulting from
changes in volume and changes in rates for the years ended December 31, 1996
and 1995 are shown in the schedule captioned "Interest Income and Interest
Expense Volume and Rate Changes for the Years 1996 and 1995 Tax Equivalent
Basis" included on page 18 of the Company's annual report to shareholders for
the year ended December 31, 1996, which is incorporated herein by reference.
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO
BOOK VALUE December 31
(In Thousands) -------------------------------------
1996 1995 1994
Securities Available for Sale -------- -------- --------
<S> <C> <C> <C>
U.S. Treasury and U.S. government agencies... $148,300 $222,882 $105,181
Collateralized mortgage obligations.......... 100,754 14,412 1,858
States and political subdivisions............ 41,604 11,301
Corporate obligations........................ 28,825 28,107 9,915
Equity securities ........................... 16,635 15,672 14,528
-------- -------- --------
$336,118 $292,374 $131,482
======== ======== ========
<CAPTION>
December 31
-------------------------------------
1996 1995 1994
Securities Held to Maturity -------- -------- --------
<S> <C> <C> <C>
U.S. Treasury and U.S. government agencies... $75,455 $69,226 $189,223
States and political subdivisions............ -- -- 7,877
Corporate obligations........................ 100 100 16,863
Equity securities and other.................. -- -- 350
-------- -------- --------
$75,555 $69,326 $214,313
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITIES
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELDS
DECEMBER 31, 1996
(Dollars In Thousands) Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
------------------ ------------------ ------------------ ------------------
Securities Available for Sale Amount Yield Amount Yield Amount Yield Amount Yield
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
government agencies $51,425 5.40% $96,875 6.43% -- -- -- --
Collateralized mortgage obligations 6,038 5.70% 66,843 6.23% 27,873 6.67% -- --
States and political
subdivisions 50 5.77% 2,210 6.94% 1,621 8.50% 37,723 8.67%
Corporate obligations 2,015 6.18% 1,690 6.50% 4,426 5.95% 20,694 5.92%
Equity securities -- -- 250 7.75% -- -- 16,385 6.85%
-------- -------- -------- --------
$59,528 5.45% $167,868 6.36% $33,920 6.66% $74,802 7.51%
======== ======== ======== ========
<CAPTION>
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
------------------ ------------------ ------------------ ------------------
Securities Held to Maturity Amount Yield Amount Yield Amount Yield Amount Yield
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
government agencies $69,961 5.47% $5,494 6.90% -- -- -- --
Corporate obligations -- -- 100 5.25% -- -- -- --
-------- -------- -------- --------
$69,961 5.47% $5,594 6.78% -- -- -- --
======== ======== ======== ========
</TABLE>
The calculation of the weighted average yield is based on the average tax
equivalent yield, weighted by the respective costs of the securities.
The weighted average yields on states and political subdivisions securities
are computed on a tax equivalent basis using a marginal federal tax rate
of 35%.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
(In Thousands)
December 31
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial and financial $386,647 $345,167 $299,375 $254,374 $223,426
Real estate - construction and development 55,738 61,398 61,083 59,581 52,214
Real estate - mortgage 294,746 284,074 291,198 296,870 262,362
Consumer 67,051 57,926 47,740 46,743 45,265
-------- -------- -------- -------- --------
$804,182 $748,565 $699,396 $657,568 $583,267
======== ======== ======== ======== ========
</TABLE>
The loan portfolio includes domestic loans only as the Company has no
foreign loans. The Company has no other category of loans whose
concentration exceeds 10% of total loans.
<PAGE>
<TABLE>
<CAPTION>
SELECTED LOAN MATURITIES AND
SENSITIVITY TO INTEREST RATES
DECEMBER 31, 1996
(In Thousands)
Loan Maturities
---------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
---------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and financial $87,547 $126,577 $172,523 $386,647
Real estate - construction and development 32,806 15,421 7,511 55,738
Real estate - mortgage 111,926 61,712 121,108 294,746
Consumer 42,369 15,240 9,442 67,051
-------- -------- -------- --------
$274,648 $218,950 $310,584 $804,182
======== ======== ======== ========
Predetermined rates $74,819 $134,965 $228,839 $438,623
Floating rates 199,829 83,985 81,745 365,559
-------- -------- -------- --------
$274,648 $218,950 $310,584 $804,182
======== ======== ======== ========
</TABLE>
For amortizing loans, scheduled repayments are reported in the
maturity category in which the payment is due. Demand loans and
overdrafts are reported in the within one year category.
NON-PERFORMING LOANS
Information with respect to the Company's non-performing loans is
included in the section captioned "Non-Performing Assets" and
footnote E to the consolidated financial statements included on pages
13 and 32, respectively, of the Company's annual report to
shareholders for the year ended December 31, 1996, which is
incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars In Thousands)
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year.................... $9,318 $7,045 $6,578 $6,020 $5,523
Charge-offs:
Commercial and financial.................... 661 569 115 48 88
Real estate - construction and development.. 2,888 28
Real estate - mortgage...................... 115 305 139 262 134
Consumer.................................... 249 283 211 266 282
--------- --------- --------- --------- ---------
Total charge-offs......................... 1,025 4,045 493 576 504
--------- --------- --------- --------- ---------
Recoveries:
Commercial and financial.................... 231 44 10 7 8
Real estate - construction and development.. 462
Real estate - mortgage...................... 120 61 125 99 197
Consumer.................................... 109 166 113 176 146
--------- --------- --------- --------- ---------
Total recoveries.......................... 460 271 248 744 351
--------- --------- --------- --------- ---------
Net charge-offs (recoveries).................. 565 3,774 245 (168) 153
--------- --------- --------- --------- ---------
Provision for loan losses..................... 414 6,047 712 390 650
--------- --------- --------- --------- ---------
Balance, end of year.......................... $9,167 $9,318 $7,045 $6,578 $6,020
========= ========= ========= ========= =========
Average loans, net of unearned income.........$767,755 $707,898 $679,100 $615,070 $534,525
========= ========= ========= ========= =========
Net charge-offs (recoveries)
to average loans, net of unearned income.... 0.07% 0.53% 0.04% (0.03%) 0.03%
========= ========= ========= ========= =========
</TABLE>
The allowance for loan losses is maintained at a level adequate to absorb
estimated probable credit losses. Management determines the adequacy of the
allowance based upon reviews of individual credits, evaluation of the risk
characteristics of the loan portfolio, including the impact of current
economic conditions on the borrowers' ability to repay, past collection and
loss experience and such other factors, which, in management's judgment,
deserve current recognition. The allowance for loan losses is increased by
charges to operating earnings and reduced by charge-offs, net of recoveries.
See "Provision for Loan Losses and Allowance for Loan Losses" included on
pages 10 and 11 of the Company's annual report to shareholders for the year
ended December 31, 1996, incorporated herein by reference, for a discussion
of factors affecting loan loss experience during 1996.
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars In Thousands)
1996 1995 1994 1993 1992
--------------------- --------------------- --------------------- --------------------- ---------------------
% Of % Of % Of % Of % Of
Allocation Loans In Allocation Loans In Allocation Loans In Allocation Loans In Allocation Loans In
Of Each Of Each Of Each Of Each Of Each
Allowance Category Allowance Category Allowance Category Allowance Category Allowance Category
For Loan To Total For Loan To Total For Loan To Total For Loan To Total For Loan To Total
Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
financial........ $6,068 48.08% $5,022 46.11% $3,651 42.80% $3,614 38.68% $2,598 38.31%
Real estate -
construction
and development.. 1,576 6.93% 2,932 8.20% 1,773 8.73% 1,235 9.06% 424 8.95%
Real estate -
mortgage......... 498 36.65% 437 37.95% 445 41.64% 378 45.15% 1,515 44.98%
Consumer.......... 1,025 8.34% 927 7.74% 1,176 6.83% 1,351 7.11% 1,483 7.76%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$9,167 100.00% $9,318 100.00% $7,045 100.00% $6,578 100.00% $6,020 100.00%
========== ========== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MATURITY SCHEDULE OF TIME DEPOSITS OF $100,000 AND OVER
DECEMBER 31, 1996
(In Thousands)
Certificate
Of Deposits Other Total
---------- ---------- ----------
<S> <C> <C> <C>
Three months or less.............................. $16,845 $10,109 $26,954
Over three through six months..................... 8,248 -- 8,248
Over six through twelve months.................... 21,420 -- 21,420
Over twelve months................................ 26,837 -- 26,837
---------- ---------- ----------
$73,350 $10,109 $83,459
========== ========== ==========
</TABLE>
RETURN ON EQUITY AND ASSETS
Selected ratios for the years 1996, 1995 and 1994 are included on page 2 of
the Company's annual report to shareholders for the year ended December 31,
1996 and are incorporated herein by reference.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Federal funds purchased and securities sold under agreements
to repurchase generally represent overnight borrowing
transactions. The detail of these short-term borrowings for
the years 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
(Dollars In Thousands)
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal funds purchased:
Balance at year end............................. $4,000 $3,050 $5,800
Average during the year......................... 4,249 3,730 5,574
Maximum amount outstanding at any month end..... 5,350 5,100 11,325
Weighted average rate during the year........... 5.34% 5.93% 3.79%
Weighted average rate on December 31............ 6.94% 5.99% 5.99%
1996 1995 1994
---------- ---------- ----------
Securities sold under agreements to repurchase:
Balance at year end............................. $285,948 $227,166 $213,101
Average during the year......................... 252,577 148,758 149,465
Maximum amount outstanding at any month end..... 320,174 227,166 213,101
Weighted average rate during the year........... 5.01% 5.51% 3.97%
Weighted average rate on December 31............ 5.05% 5.40% 5.77%
</TABLE>
ITEM 2. PROPERTIES
The Bank maintains a main office, warehouse, operations center and
30 branches in Jefferson County, Kentucky. The Bank owns 20 branch
offices, leases 8 branch offices, its operations center and the
main office, and owns the buildings but leases the land with regard
to 2 branches. The Bank also operates 39 automatic teller
machines, at various locations in its traditional customer base of
Jefferson County, Kentucky. The Savings Bank owns the building but
leases the land for its main office facility, owns its branch
location and operates two automatic teller machines in Oldham
County, Kentucky. See footnote G to the consolidated financial
statements on page 33 of the Company's annual report to
shareholders for the year ended December 31, 1996, which is
incorporated herein by reference, for additional information on
premises, equipment and lease commitments.
ITEM 3. LEGAL PROCEEDINGS
The information in footnote O to the Company's consolidated
financial statements included on page 41 of the Company's annual
report to shareholders for the year ended December 31, 1996, is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF REGISTRANT.
Listed below are the names and ages as of December 31, 1996, of the
Company's executive officers, positions held, and the year from
which held. The Company's executive officers are elected annually
by the Board of Directors and each, except Bertram W. Klein, Paul
E. Henry, Donald R. LaMar, David C. Meece, Marlyn Y. Smith, and
Thomas L. Weber, is employed pursuant to an employment agreement.
Year From
Name Age Position Held Which Held
Bertram W. Klein 66 Chairman of the Board, 1985
and member of the Executive
Committee
R. K. Guillaume 53 Vice Chairman, Chief Executive 1995
Officer and member of
Executive Committee
Orson Oliver 53 President, Director and 1985
member of the Executive
Committee
Paul E. Henry 61 Executive Vice President 1989
and member of the Executive
Committee
William J. Hornig 47 Executive Vice President 1995
and member of the Executive
Committee
David N. Klein 40 Executive Vice President 1991
and member of the Executive
Committee
Richard B. Klein 38 Executive Vice President 1991
and member of the Executive
Committee
Donald R. LaMar 46 Executive Vice President, 1995
member of Executive Committee
and President of Mid-America
Money Order Company
David C. Meece 43 Executive Vice President 1995
and member of Executive
Committee
Gail W. Pohn 58 Executive Vice President 1993
and member of the Executive
Committee
Robert H. Sachs 57 Executive Vice President 1993
and member of the Executive
Committee
Steven A. Small 43 Executive Vice President, 1993
Chief Financial Officer
and member of the Executive
Committee
Marlyn Y. Smith 60 Executive Vice President 1995
and member of Executive
Committee
Thomas L. Weber 64 Executive Vice President 1984
and member of the Executive
Committee
Mr. Guillaume joined the Company and the Company's subsidiary bank
in October 1995. From 1993 to September 1995, Mr. Guillaume was a
Director and the President of Liberty National Bank and Trust
Company of Louisville and Liberty National Bancorp, Inc (now Bank
One, Kentucky). Prior to 1993, he was Executive Vice President of
these entities.
Mr. Hornig joined the Company and the Company's subsidiary bank in
April 1995 as Executive Vice President - Human Resources. From
October 1992 to March 1995, Mr. Hornig was Senior Vice President -
Human Resources of First Colonial Bank Shares Corporation, a
non-affiliate of the Company. Prior to 1992, Mr. Hornig was Director
of Human Resources for Arthur J. Gallagher & Company.
Mr. Pohn joined the Company and the Company's subsidiary bank in
1993. Prior to joining the Company, from 1981 to 1993, he was
Senior Vice President, Chief Counsel and Secretary for National
City Bank, Kentucky (and its predecessor), a non-affiliate of the
Company.
Mr. Sachs joined the Company and the Company's subsidiary bank in
1993. From 1990 to 1993, Mr. Sachs was the President of Legal
Services Management, Inc., a consultant to corporations and law
firms regarding the effective management and delivery of legal
services. From 1989 to 1990 he was Vice President of Law and
Corporate Secretary to BATUS Inc., a $13 billion management and
holding company for the U.S. interests of BAT Industries, plc, a
large publicly held UK conglomerate. Prior to that, Mr. Sachs was
Vice President and General Counsel, Product Litigation, to Brown &
Williamson Tobacco Corporation.
Mr. Small, a CPA, joined the Company and the Company's subsidiary
bank in 1993. Prior to joining the Company, from 1986 to 1993, he
was a partner of KPMG Peat Marwick, Certified Public Accountants,
and worked primarily in serving financial institution clients of
that firm.
Mr. LaMar joined the Company's bank subsidiary in 1985. He was
elected to his current position in 1995. From 1987 to 1994 he was
Senior Vice President, Operations Support.
Mr. Meece joined the Company's subsidiary bank in 1985. He was
elected to his current position in 1995. From 1992 to 1994 he was
Senior Vice President, Advanced Systems Development. Prior to
1992, Mr. Meece was Vice President, Information System Support
Services.
Mrs. Smith joined the Company's subsidiary bank in 1965. She was
elected to her current position in 1995. From 1987 to 1994 she was
Senior Vice President, Loan Services.
All other executive officers have served the Company or the Bank in
the executive officer capacities identified above for more than
five years.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS
The information captioned "Market for Mid-America Bancorp's Stock
and Related Security Holder Matters" included on page 22 of the
Company's annual report to shareholders for the year ended
December 31, 1996, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information captioned "Summary of Financial Data" included on
page 20 of the Company's annual report to shareholders for the year
ended December 31, 1996 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and
Results of Operations included on pages 9 through 19 of the
Company's annual report to shareholders for the year ended December
31, 1996 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and
report of independent auditors included on pages 24 through 44 in
the Company's annual report to shareholders for the year ended
December 31, 1996 are incorporated herein by reference:
Independent Auditors' Report
Consolidated balance sheets - December 31, 1996 and 1995
Consolidated statements of income -
years ended December 31 1996, 1995, and 1994
Consolidated statements of changes in shareholders' equity -
years ended December 31, 1996, 1995 and 1994
Consolidated statements of cash flows -
years ended December 31, 1996, 1995 and 1994
Notes to consolidated financial statements
The information captioned "Quarterly Financial Data" included on
page 21 of the Company's annual report to shareholders for the year
ended December 31, 1996 is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Item 10. Directors and Executive Officers of Registrant.
The information appearing under the heading "EXECUTIVE
OFFICERS OF REGISTRANT" appearing in Part I of this Form 10-K and
the information appearing under the headings "ELECTION OF
DIRECTORS" and "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934" in the Company's definitive Proxy Statement
filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934 in connection with the Company's 1997 Annual Meeting of
Shareholders are incorporated herein by reference.
Item 11. Executive Compensation.
The information appearing under the heading "EXECUTIVE
COMPENSATION" in the Company's definitive Proxy Statement filed
pursuant to Regulation 14A under the Securities Exchange Act of
1934 in connection with the Company's 1997 Annual Meeting of
Shareholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information appearing under the headings "PRINCIPAL
SHAREHOLDERS" and "ELECTION OF DIRECTORS" in the Company's
definitive Proxy Statement filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934 in connection with the
Company's 1997 Annual Meeting of Shareholders is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information appearing under the headings "CERTAIN
TRANSACTIONS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION" in the Company's definitive Proxy Statement filed
pursuant to Regulation 14A under the Securities Exchange Act of
1934 in connection with the Company's 1997 Annual Meeting of
Shareholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
a-l Financial Statements
See Part II, Item 8 for a listing of all financial
statements and report of independent auditors which
is incorporated herein by reference.
a-2 Financial Statement Schedules
All schedules normally required by Form lO-K are
omitted since they are either not applicable or the
required information is shown in the financial
statements or the notes thereto.
a-3 Exhibits
The exhibits filed as part of this report on Form
10-K are listed on the Exhibit Index appearing on
pages 23 through 25 of this annual report on Form
10-K, which are incorporated herein by reference.
b Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MID-AMERICA BANCORP
March 17, 1997 BY: /s/ Bertram W. Klein
Bertram W. Klein
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated.
/s/ Bertram W. Klein Chairman of the Board March 17, 1997
Bertram W. Klein
/s/ R.K. Guillaume Vice Chairman and Chief March 17, 1997
R.K. Guillaume Executive Officer
/s/ Orson Oliver President and Director March 17, 1997
Orson Oliver
/s/ Steven A. Small Executive Vice March 17, 1997
Steven A. Small President & Chief
Financial Officer
/s/ Leslie D. Aberson Director March 17, 1997
Leslie D. Aberson
/s/ Robert P. Adelberg Director March 17, 1997
Robert P. Adelberg
/s/ Stanley L. Atlas Director March 17, 1997
Stanley L. Atlas
/s/ William C. Ballard, Jr. Director March 17, 1997
William C. Ballard, Jr.
/s/ James E. Cain Director March 17, 1997
James E. Cain
/s/ Martha Layne Collins Director March 17, 1997
Martha Layne Collins
/s/ Peggy Ann Markstein Director March 17, 1997
Peggy Ann Markstein
/s/ Donald G. McClinton Director March 17, 1997
Donald G. McClinton
/s/ Jerome J. Pakenham Director March 17, 1997
Jerome J. Pakenham
/s/ John S. Palmore Director March 17, 1997
John S. Palmore
Director March 17, 1997
Woodford R. Porter, Sr.
/s/ Benjamin K. Richmond Director March 17, 1997
Benjamin K. Richmond
/s/ Bruce J. Roth Director March 17, 1997
Bruce J. Roth
/s/ Raymond L. Sales Director March 17, 1997
Raymond L. Sales
/s/ Henry C. Wagner Director March 17, 1997
Henry C. Wagner
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
EXHIBITS
filed with
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 1-10602
________________
MID-AMERICA BANCORP
INDEX TO EXHIBITS
3(a) Articles of Restatement of Articles of Incorporation
of Mid-America Bancorp filed with the Secretary
of State of Kentucky on May 4, 1989; as amended by
Articles of Amendment filed with the Secretary of
State of Kentucky on April 19, 1993 and March 13,
1995 are incorporated by reference to Exhibit 3
(a) to the Company's annual report on Form 10-K
for the year ended December 31, 1994.
(b) By-Laws of Mid-America Bancorp.
4. Amended and Restated Articles of Incorporation
and By-Laws are incorporated by reference to
Exhibits 3 (a) and 3 (b) to the Company's annual
report on Form 10-K for the year ended December
31, 1995.
10. Material Contracts
10. (a) Mid-America Bancorp Non-Employee Directors
Deferred Compensation Plan. Exhibit 10(a)
to the Company's annual report on Form 10-K
for the year ended December 31, 1994 is
incorporated by reference herein.(*)
10. (b) Employment Agreement between the Company
and Orson Oliver dated, November 8, 1995. (*)
10. (c) Employment Agreement between the Company and
R. K. Guillaume dated October 2, 1995 is
incorporated by reference herein to Exhibit
10 (n) to the Company's quarterly report on
Form 10-Q for the quarter ended September 30,
1995. (*)
10. (d) Employment Agreement between the Company
and David N. Klein incorporated by reference
to the Company's annual report of Form 10-K
for the year ended December 31, 1995.(*)
10. (e) Employment Agreement between the Company
and Richard B. Klein incorporated by reference
to the Company's annual report of Form 10-K
for the year ended December 31, 1995.(*)
10. (f) Employment Agreement between the Company
and Robert Sachs incorporated by reference
to the Company's annual report on Form 10-K
for the year ended December 31, 1995.(*)
10. (g) Employment Agreement between the Company
and Gail Pohn incorporated by reference
to the Company's annual report on Form 10-K
for the year ended December 31, 1995.(*)
10. (h) Employment Agreement between the Company
and Steven Small incorporated by reference
to the Company's annual report on Form 10-K
for the year ended December 31, 1995.(*)
10. (i) Agreement and General Release between the
Company and Stanley L. Atlas dated,
October 26, 1993. Exhibit 10 (h) to the
Company's annual report on Form 10-K for the
year ended December 31, 1993 is incorporated by
reference herein.(*)
10. (j) Amended and Restated Mid-America Bancorp
Incentive Stock Option Plan is incorporated
herein by reference to Post-Effective Amendment
Number 1 to Form S-8 Registration Statement No.
2-92270.(*)
10. (k) Mid-America Bancorp 1991 Incentive Stock Option
Plan. Exhibit 28 to Registration Statement No.
33-42989 is incorporated by reference herein.(*)
10. (l) Mid-America Bancorp 1996 Management Incentive
Compensation Plan.(*)
10. (m) Employment Agreement between the Company and
William J. Hornig dated April 1, 1995, is
incorporated by reference herein to Exhibit
10 (l)to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1995. (*)
10. (n) 1995 Incentive Stock Option plan of Mid-America
Bancorp, is incorporated by reference herein to
Exhibit 10 (m) to the Company's quarterly
report on Form 10-Q for the quarter ended June
30, 1995. (*)
* Management contract or compensatory plan or
arrangement required to be filed as an exhibit
pursuant to Item 14 of this report.
11. Statement re Computation of per share earnings.
13. Selected portions of the annual report to
shareholders for the year ended December 31, 1996.
21. Subsidiaries of the Company.
23. Consent of independent auditors.
27. Financial Data Schedule.
99. Additional Exhibits
Form 11-K
Exhibit 10(l)
MID-AMERICA BANCORP
1996 MANAGEMENT INCENTIVE COMPENSATION PLAN
INTRODUCTION
This 1996 Management Incentive Compensation
Plan (the "Plan") is designed to aid in
increasing the profitability and growth of
Mid-America Bancorp in a manner consistent with
our strategic plan. It will be a useful tool in
attracting and retaining people of outstanding
ability and encouraging excellence in the
performance of individual responsibilities, by
remaining competitive and rewarding those
members of management who contribute to the
success of Mid-America Bancorp.
ARTICLE I
DEFINITIONS
Section 1 As used herein, the following words and phrases
shall have the meanings below unless the context clearly indicates
otherwise:
(a) "Award Cycle" or "Award Period" means three (3) consecutive
fiscal years for proposes of the three-year award and one (1)
fiscal year for purposes of the annual award.
(b) "Board" means the Board of Directors of Mid-America Bancorp,
Inc.
(c) "Earnings Per Share' means, effective for all fiscal years
considered for Award Cycles ending on or after December 31, 1995,
fully diluted Earnings Per Share based on Income Before Securities
Transactions. Results for 1995 for all award calculations will be
restated to exclude the affect of the HFH Bankruptcy and other
unusual items, as follows: EPS - $1.44; ROA - 1.13%, and ROE -
10.29%. Results of all other prior years will be as published,
adjusted for securities transactions.
(d) "Income Before Securities Transactions" (IBST) shall mean net
after tax income before securities transactions and related income
tax effect.
(e) "Return on Average Assets" (ROAA) shall be IBST for the Award
Cycle divided by average assets for the Award Cycle.
(f) "Return on Equity" (ROE) shall be IBST for the Award Cycle
divided by average equity for the Award Cycle.
(g) "Salary" or "Salaries" shall mean the base salary in effect
for each participant on the last day of the Award Cycle.
ARTICLE II
ADMINISTRATION OF THE PLAN
Section 2.1. The Management Committee of the Board shall have
ultimate responsibility for the administration the Plan, and shall
adopt such rules and regulations of general application as are
necessary or beneficial to that administration. The Committee shall
have the right to interpret the Plan, set performance targets from
year to year, determine the Effective Date, and approve all
employees who are to participate in the Plan. The Committee may
delegate day-to-day administration of the Plan to the Human
Resource Committee of Mid-America.
Section 2.2. Mid-America shall maintain an account for each
participant who elects to defer payment of all or part of his or
her incentive compensation. Such account shall be credited with
deferred incentive compensation and a monthly interest credit and
shall be debited for any payment to the participant or the
participant's beneficiary. The monthly interest credit shall be the
same rate as the investment portion of the Money Management
Account. The maintenance of a participant's account does not confer
on a participant, his or her beneficiary or estate title to any
specific assets of Mid-America. All incentive compensation payable
under the Plan shall be paid from the general assets of Mid-America.
To the extent that any person acquires a right to receive
payments under the Plan, such right shall be no greater than the
right of an unsecured creditor of Mid-America.
Section 2.3. Any determination or action of the Committee shall
be final, conclusive and binding on all participants and their
beneficiaries, heirs, personal representatives, executors and
administrators. The Committee shall have the right to correct
calculation errors resulting in an excess payment of incentive
compensation by reducing by the amount of that excess any
subsequent payments yet to be made under the Plan.
Section 2.4. The Board, in its sole discretion, may amend, modify
or terminate the Plan at any time.
ARTICLE III
PARTICIPANT ELIGIBILITY
Section 3.1. Participation in the Plan is limited to the
following groups:
Group I, consisting of Executive Vice Presidents and above;
Group II, consisting of Senior Vice Presidents, and
Group III, consisting of Vice Presidents,
provided, however, that a Senior Vice President or a Vice President
may not be eligible to participate in this Plan if such person
participates in other incentive compensation plans offerred by
Mid-America that the Committee has determined disqualify such person
from participation hereunder.
Section 3.2.
(a) To receive payment of an incentive award, a participant
must be an active employee of the Company on the date of such
payment. A participant who leaves full-time employment or is
terminated prior to the date of such payment will forfeit any
incentive compensation for that period and for all subsequent
periods.
(b) The Committee may, in its discretion, award full or
partial incentive compensation based on the level of achievement in
relation to goals established for the entire Award Period to a
participant who dies, retires, becomes totally disabled, or is
granted a leave of absence either during an Award Period or
thereafter, but prior to the date of payment of the award.
Section 3.3. A person entering an eligible Group after the
beginning of an Award Period, but no later than six months from the
start of such Period, shall participate in the Plan for that
Period. If a person becomes eligible at a date later than six
months into an Award Period, such person shall not be a participant
under this Plan until the first day of the next succeeding Award
Period. Notwithstanding the foregoing, the Committee shall have the
discretion to begin the participation period at an earlier date.
Section 3.4. Eligible employees must have a current performance
evaluation rating of 3 or higher in order to be a participant in
the Plan. Eligible employees given written reprimands cannot
participate with respect to the year in which the reprimand was
given. Eligible employees given an advisory memorandum cannot
participate in Fund B of the annual award with respect to the year
in which the memorandum was given.
ARTICLE IV
PAYMENT TO PARTICIPANTS
Section 4.1. Incentive compensation awarded under the Plan shall
be paid to the participants no later than three months after the
close of the Award Period.
Section 4.2. A participant may elect to defer payment of all or
part (but not less than $1,OOO) of his or her incentive
compensation until after termination of employment with Mid-America
or another date so long as the participant elects such deferred
payment in writing, using the form attached hereto as Attachment A,
at least ten days prior to the beginning of each Award Period
during which the compensation is to be earned.
Section 4.3. Payment of deferred incentive compensation shall be
in ten (10) equal annual installments. The first payment shall be
made within twelve (12) months following the fiscal year of
termination of employment or on such other date as the participant
may have elected. However, a participant may request, subject to
approval by the Committee, that his or her deferred payments be
made in a lump sum or in annual installments over a period of less
than ten (10) years. Such request must be made in writing as part
of the deferral election for that Award Period. Lump sum payments
shall be paid within twelve (12) months following the close of the
Award Period during which the participant terminates.
Section 4.4. A lump sum payment shall be equal to the account
value comprised of deferred amounts plus monthly interest credits.
An annual installment payment shall be determined by dividing the
account value at the time of the first installment by the number of
installments to be paid. Monthly interest credits earned on the
unpaid balance shall be paid at the time of the last installment.
Section 4.5. In the event a participant dies prior to full
payment of all deferred amounts, the participant's beneficiary
shall be paid all amounts deferred and credited to his or her
account. A participant may file with the Committee a designation
of beneficiary on a form provided by the Committee (Attachment B).
Such designation may be revoked or changed by the participant so
long as such change is filed with the Committee. If no beneficiary
has been designated or survives the participant, any earned but
unpaid deferred amounts shall be paid to the participant's
surviving spouse, or if there is no surviving spouse, then in equal
proportions to the participant's surviving children. If the
participant is not survived by a spouse or children, then the
deferred amounts shall be paid to the estate of the participant.
ARTICLE V
DETERMINATION OF AWARD and AWARD FUNDS
Section 5.1. For each Group, there is an annual award and a
three-year award. A portion of each annual award is set aside to
allow for recognition of individual performance contributions as
more fully set forth below in Section 5.4.
(a) The annual award is based upon the annual increase in
Earnings Per Share for the Award Period over the previous
period.
(b) The three-year award is based on (i) the three-year
average increase in Earnings Per Share, (ii) the three-year
average Return on Average Assets, and (iii) the
three-year average Return on Equity.
Section 5.2. The award funds for each Group will be calculated by
multiplying the aggregate salaries of the individuals in that Group
by a target percentage determined annually by the Committee for
each award component. The 1996 target award percentages are shown
in Schedule A, below.
SCHEDULE A
1996 PERCENTAGE AWARD FOR TARGETED PERFORMANCE
AWARD
COMPONENT GROUP I GROUP II GROUP III
Annual EPS 12.0% 4.0% 1.0%
3 year EPS 3.0% 1.0% 0.3750%
3 year ROAA 4.5% 1.5% 0.5625%
3 year ROE 4.5% 1.5% 0.5625%
Section 5.3 The actual amount of an award fund shall be
calculated according to a schedule comparing the relevant
increases or results for the Award Period to a predetermined
performance standard. When an increase or result is above or below
the target performance standard, the actual award fund is adjusted
upward or downward from the target award.
Section 5.4. The annual award fund will be divided into a
corporate award and an individual award as follows in order to
allow for recognition of individual performance contributions. The
individual measure of performance shall be a discretionary award
(FUND B) according to a predetermined schedule. All or part of the
discretionary fund shall be distributed according to an assessment
of individual contribution to the goals of Mid-America. The
assessments will be conducted by the Committee in consultation with
appropriate managers. Individual awards can range from zero to an
amount equal to 150% of the target award. For example, if an
increase in EPS of 10% generates a Fund B award pool equal to 1% of
participant's salaries, an individual can receive from 0% - 1.50%,
but the group total is limited to 1% of covered salaries.
Therefore, if one person receives a Fund B award in excess of 1%,
another person must receive less than 1%.
GROUP I GROUP II GROUP III
Corporate Financial Performance - FUND A 100% 75% 50%
Individual Performance - FUND B 0% 25% 50%
Group I participants shall receive an award
based solely on the annual increase in EPS
(FUND A), while Group II and Group III
participants shall receive an award based on
the annual increase in EPS (FUND A) and an
evaluation of the participant's individual
performance (FUND B).
Section 5.5. The amount of the various awards to be paid and the
allocation to participants will be in accordance with the Tables I
through IV attached to this Plan. These tables reflect the decision
of the Committee with respect to performance standards for 1996 and
are subject to change in subsequent periods.
TABLE I
ANNUAL INCENTIVE COMPENSATION AWARD
GROUP I
Corporate Target Award Fund (A = 100%) 12%
Individual Target Award Fund (B = 0%) 0%
Total Target Award Fund 12%
Performance
Standard Individual
Award as a
Increase in Award Fund % of Base
EPS Over as a % of Salary
Previous Year Target Award Fund A
11.50% or greater 150% 18.00%
10.50 - 11.49% 125% 15.00%
9.50 - 10.49% Target 100% 12.00%
8.50 - 9.49% 80% 9.60%
7.50 - 8.49% 60% 7.20%
6.50 - 7.49% 30% 3.60%
TABLE I
ANNUAL INCENTIVE COMPENSATION AWARD
GROUP II
Corporate Target Award Fund (A = 75%) 3%
Individual Target Award Fund (B = 25%) 1%
Total Target Award Fund 4%
Performance
Standard
Increase in Award Fund Schedule of Awards
EPS Over as a % of Expressed as a Percent of Salary
Previous Year Target Awar Fund A Fund B Total
11.50% or greater 150% 4.50% 1.50% 6.00%
10.50 - 11.49% 125% 3.75% 1.25% 5.00%
9.50 - 10.49% Target 100% 3.00% 1.00% 4.00%
8.50 - 9.49% 80% 2.40% 0.80% 3.20%
7.50 - 8.49% 60% 1.80% 0.60% 2.40%
6.50 - 7.49% 30% 0.90% 0.30% 1.20%
TABLE I
ANNUAL INCENTIVE COMPENSATION AWARD
GROUP III
Corporate Target Award Fund (A = 50%) 0.5%
Individual Target Award Fund (B = 50%) 0.5%
Total Target Award Fund 1.0%
Performance
Standard
Increase in Award Fund Schedule of Awards
EPS Over as a % of Expressed as a Percent of Salary
Previous Year Target Awar Fund A Fund B Total
11.50% or greater 150% 0.75% 0.75% 1.50%
10.50 - 11.49% 125% 0.63% 0.63% 1.25%
9.50 - 10.49% Target 100% 0.50% 0.50% 1.00%
8.50 - 9.49% 80% 0.40% 0.40% 0.80%
7.50 - 8.49% 60% 0.30% 0.30% 0.60%
6.50 - 7.49% 30% 0.15% 0.15% 0.30%
LONGER-TERM PLAN AWARD SCHEDULES
TABLE II
Award Based on Average Increase in Earnings Per Share
3 Year Average Percent of Total Award Expressed as a
Increase in Longer-Term Percent of Salary
Earnings Per Share Target Award Group I Group II Group III
11.50% or greater 150% 4.50% 1.50% 0.563%
10.50 - 11.49% 125% 3.75% 1.25% 0.469%
9.50 - 10.49% Target 100% 3.00% 1.00% 0.375%
8.50 - 9.49% 80% 2.40% 0.80% 0.300%
7.50 - 8.49% 60% 1.80% 0.60% 0.225%
6.50 - 7.49% 30% 0.90% 0.30% 0.113%
TABLE III
Award Based on Average Return on Equity
3 Year Average Percent of Total Award Expressed as a
Return on Longer-Term Percent of Salary
Equity Target Award Group I Group II Group III
12.50% or greater 150% 6.75% 2.25% 0.844%
11.50 - 12.49% 125% 5.63% 1.88% 0.703%
11.00 - 11.49% Target 100% 4.50% 1.50% 0.563%
10.50 -10.99% 80% 3.60% 1.20% 0.450%
10.00 -10.49% 60% 2.70% 0.90% 0.338%
9.50 - 9.99% 40% 1.80% 0.60% 0.225%
9.00 - 9.49% 20% 0.90% 0.30% 0.113%
TABLE IV
Award Based on Return on Average Assets
3 Year Average Percent of Total Award Expressed as a
Return on Longer-Term Percent of Salary
Average Assets Target Award Group I Group II Group III
1.25% or greater 150% 6.75% 2.25% 0.844%
1.15 - 1.24% 125% 5.63% 1.88% 0.703%
1.10 - 1.14% Target 100% 4.50% 1.50% 0.563%
1.05 - 1.09% 80% 3.60% 1.20% 0.450%
1.01 -1.04% 60% 2.70% 0.90% 0.338%
.98 - 1.00% 40% 1.80% 0.60% 0.225%
.96 - .97% 20% 0.90% 0.30% 0.113%
<TABLE>
<CAPTION>
Statements re computation of per share earnings Exhibit 11
(In Thousands Except for Per Share Data)
Year ended December 31
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
PRIMARY NET INCOME PER SHARE
Weighted average common stock outstanding....... 9,398 9,355 9,330
Common equivalent shares for stock options using
the treasury stock method................... 101 89 113
--------- --------- ---------
Weighted average shares outstanding............. 9,499 9,444 9,443
========= ========= =========
Net income...................................... $15,029 $8,066 $12,612
========= ========= =========
Primary net income per share.................... $1.58 $0.85 $1.34
========= ========= =========
FULLY DILUTED NET INCOME PER SHARE
Weighted average common stock outstanding....... 9,398 9,355 9,330
Common equivalent shares for stock options using
the treasury stock method................... 167 132 113
--------- --------- ---------
Weighted average shares outstanding............. 9,565 9,487 9,443
========= ========= =========
Net income...................................... $15,029 $8,066 $12,612
========= ========= =========
Fully diluted net income per share.............. $1.57 $0.85 $1.34
========= ========= =========
</TABLE>
All share and per share information has been adjusted for the 3% stock
dividend declared in November 1996.
Comparative Summary
<TABLE>
<CAPTION>
Dollars In Thousands, Except Per Share Amounts 1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
AT YEAR END
Total assets $1,420,933 $1,313,987 $1,213,990
Total deposits 825,257 784,957 732,620
Loans, net of unearned income 804,182 748,565 699,396
Total shareholders' equity 140,638 132,950 125,052
FOR THE YEAR
Net income $15,029 $8,066 $12,612
Cash dividends declared $6,491 $5,741 $5,559
Weighted average shares outstanding 9,565 9,487 9,443
PER SHARE DATA
Book value $14.92 $14.19 $13.39
Market value 19.00 17.50 16.00
Cash dividends declared 0.69 0.61 0.59
Net income 1.57 0.85 1.34
SELECTED RATIOS
Return on average total assets 1.14% 0.69% 1.11%
Return on average shareholders' equity 11.13 6.26 10.36
Cash dividend payout ratio 43.95 71.76 44.03
Average shareholders' equity to average total assets 10.28 10.99 10.71
Allowance for loan losses to loans, net of unearned income 1.14 1.25 1.01
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION and ANALYSIS
OF
FINANCIAL CONDITION and RESULTS OF OPERATIONS
This discussion analyzes the results of operations and
financial condition for Mid-America Bancorp and subsidiaries (the
Company), including its primary subsidiary, Mid-America Bank of
Louisville and Trust Company (the Bank). It should be read in
conjunction with the consolidated financial statements and related
notes presented on pages 25 to 44.
1996 COMPARED TO 1995
Net income for 1996 was $15,029,000 or $1.57 per share
compared with $8,066,000 or $.85 per share for 1995. For 1996,
return on average total assets (ROA) was 1.14% and return on
average equity (ROE) was 11.13%, compared with 1995 when the ROA
was .69% and ROE was 6.26%.
The principal factors that contributed to the increase in net
income in 1996 compared to 1995 included the following:
*Increased net interest income on a tax-equivalent basis
of $4,964,000 resulting primarily from increases in
earning assets. The impact of lower interest rates in
1996 than in 1995 did not have a negative impact on net
interest income.
*A decrease in the provision for loan losses of
$5,633,000. In 1995 there was a significant provision
for loan losses related to a group of non-performing real
estate development loans to one borrower.
*Securities gains of $129,000 in 1996, compared to
securities losses of $665,000 in 1995.
*A $1.8 million gain on the sale of part of the money
order agent base of Mid-America Money Order Company, a
wholly-owned subsidiary of the Company.
*An increase in non-interest income, excluding securities
transactions and the money order gain, of approximately
6%.
*An increase in salaries and benefits of 16% arising
primarily from staffing changes in the fourth quarter of
1995, annual salary increases effective in April 1996
that averaged 4% and increases in certain benefit costs.
*An increase in other operating expenses, excluding
salaries and benefits and expenses in 1995 related to the
aforementioned group of problem real estate loans, of
less than 1%.
The discussion that follows explains in more detail the factors
affecting 1996 operating results and changes in financial
condition.
NET INTEREST INCOME
Net interest income is the difference between interest income
on earning assets and interest expense incurred for funding sources
used to support earning assets. Earning assets include primarily
loans and securities. The primary sources used to fund these
assets include deposits, purchased and borrowed funds, and capital.
The net interest spread is the difference between the average rate
of interest earned on earning assets on a tax equivalent basis and
the average rate of interest expensed on interest bearing
liabilities. The net yield on earning assets is net interest
income on a tax equivalent basis as a percent of the average
balance of earning assets. Detailed information on the average
balances of earning assets and funding sources, interest rates, and
the net yield on earning assets is shown in the table on page 17.
In 1996, net interest income on a tax equivalent basis
increased $4,964,000 or 10% to $54,377,000. Net interest income
was favorably impacted by increases in average earning assets. The
impact of lower interest rates in 1996 than in 1995 did not have a
negative impact on net interest income. The securities portfolio's
yield increased as interest rates on securities purchased in 1996
exceeded the rates on matured and sold securities, which mitigated
the effect of lower rates on the loan portfolio. The average
yield on earning assets decreased from 8.45% in 1995 to 8.25% in
1996, which was accompanied by a decrease in the average rate on
interest bearing liabilities from 4.84% in 1995 to 4.80% in 1996.
The net interest spread was 3.45% in 1996 compared to 3.61% in
1995. The net yield on earning assets decreased in 1996 to 4.39%
compared to 4.54% in 1995. The net yield on earning assets in 1996
was negatively impacted by an increase of approximately $104
million on an average basis in securities sold under agreements to
repurchase (repurchase agreements) that are not considered a core
funding source and, accordingly, have been matched primarily with
lower yielding short-term assets. The average prime rate in 1996
was 8.27% compared to 8.83% in 1995.
Average earning assets increased approximately $153 million or
14% in 1996 to $1.240 billion. The increase was centered in loans,
which increased approximately $60 million or 8.5% to $768 million
and short-term assets (federal funds sold and securities purchased
under agreements to resell) which increased $85 million to $144
million. Also there was a minor increase in the average securities
portfolio of approximately $7 million. The Company has been able
to employ the growth in core funding sources in loans, as loan
demand was strong. Non-core funding growth, previously discussed,
contributed to the growth in short-term assets.
In addition to the $104 million increase in repurchase
agreements, the growth in average earning assets was supported by
a $24 million increase in average interest bearing deposits and a
$21 million increase in average non-interest bearing sources of
funds, primarily money orders and similar payment instruments
outstanding, demand deposits, and shareholders' equity. Average
advances from the Federal Home Loan Bank decreased approximately $6
million as there were no new advances in 1996. Repurchase
agreements, a short-term higher yielding collateralized instrument
used by individual and corporate customers with large amounts of
investable funds, averaged $253 million during 1996, and continue
to be a significant funding source. Average non-interest bearing
deposits, other liabilities and capital were 25% of average earning
assets in 1996 compared to 27% in 1995.
The changes in interest income attributable to volume and rate
changes are summarized in the table on page 18.
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $414,000 in 1996 compared to
$6,047,000 for 1995. During 1996, the Company had net charge-offs
of $565,000, compared to $3,774,000 in 1995, and a significant
decrease in the level of non-performing loans. The level of non-
performing loans at December 31, 1996, .54% of total loans, is
consistent with the Company's historical levels prior to 1995.
During 1995 the Company recorded a provision for loan losses of
$5.7 million attributed primarily to losses associated with a group
of loans totaling approximately $14.8 million to a Louisville-based
real estate development firm. These loans were classified by
management in 1995 as impaired and non-accrual and adjusted to fair
value based on appraisals of the underlying real estate collateral.
During 1995, charge-offs related to these loans aggregated $2.9
million. The allowance for loan losses related to this problem
real estate loan situation and related loans at the end of 1995 of
$1.9 million was established to cover a subordinated unsecured loan
to the developer and an unsecured loan to an airline charter
service controlled by the real estate developer. During 1996,
favorable developments lead to the pay-off of the subordinated loan
and the airline charter service loan became fully collateralized;
accordingly, at December 31, 1996 there is not a specific
allocation of the allowance for loan losses related to this problem
loan situation from 1995. See "Non-Performing Assets".
The allowance for loan losses is maintained at a level
sufficient to absorb estimated probable credit losses in the loan
portfolio, considering non-performing loans and overall economic
conditions. In evaluating the allowance for loan losses,
management considers its evaluation of the risk characteristics of
the loan portfolio, including the impact of current economic
conditions on the borrowers' ability to repay, past collection
experience and such other factors which, in management's judgement,
deserve current recognition. At December 31, 1996, the allowance
for loan losses was 1.14% of loans outstanding compared to 1.25% at
the end of 1995.
During 1996, the growth in the loan portfolio was primarily in
the commercial and financial loan category which increased $41
million or 12% from December 31, 1995 to December 31, 1996. While
these loans are generally larger, the Company limits its risk
exposure for these, as well as other categories of loans, by
following conservative underwriting practices. The Company's
aggregate net losses for this category of loans over the last 5
years have been approximately $1.2 million. Mortgage and other
retail loan products also increased in 1996, while not adding any
appreciable risk to the loan portfolio. These loans are generally
on a secured basis and delinquencies and losses continue to be
minimal. Real estate construction and development loans have
declined since last year, while the underlying loan composition in
this category remains diversified between residential and
commercial properties.
The table on page 10 is a summary of the Company's loan loss
experience for each of the last three years.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
Dollars In Thousands 1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $9,318 $7,045 $6,578
Provision for loan losses 414 6,047 712
Net loan charge-offs (565) (3,774) (245)
---------------------------------------------
Balance, December 31 $9,167 $9,318 $7,045
=============================================
Average loans $767,755 $707,898 $679,100
Loans at year-end 804,182 748,565 699,396
Non-performing loans at year-end 4,349 15,143 3,511
Impaired loans at year end (1) 3,424 14,328 -
Provision for loan losses to average loans 0.05% 0.85% 0.10%
Net charge-offs to average loans 0.07 0.53 0.04
Allowance for loan losses to average loans 1.19 1.32 1.04
Allowance for loan losses to year-end loans 1.14 1.25 1.01
(1) Impaired loan designation not required prior to 1995.
</TABLE>
NON-INTEREST INCOME
Non-interest income increased $3.3 million or 30% in 1996
compared to 1995. The substantial increase in 1996 is partially
attributed to a $1.8 million gain related to the sale of part of
the money order business of Mid-America Money Order Company (MOC).
Western Union Financial Services, Inc., exercised a contractual
option to purchase part of the money order business from MOC. The
purchase of this business by Western Union involved approximately
one-third of MOC's agent base and volume. However, the Company
does not expect the profit level of MOC to decline in the same
proportion as the lost volume because this portion of the agent
base accounted for the lowest profit margin segment in the MOC
portfolio and the sale will permit some cost reductions. In
addition to this transaction, the Company had securities gains in
1996 aggregating $129,000 compared to securities losses of $665,000
in 1995. Excluding the money order gain and securities gains and
losses from each period, non-interest income increased
approximately 6% in 1996, compared to 1995.
Service charges on deposits, the largest component of non-interest
income, were $4.6 million in 1996, an increase of 1.6%
over 1995. During 1996, the Company was able to slightly increase
its number of transaction accounts, however there was a shift to
packaged and fixed fee accounts which generally generate lower fees
per account. During 1996, the Company redesigned its consumer
transaction account product base and increased the level of regular
advertising for these products. These efforts have reversed the
Company's experience in recent past years, where the number of
transaction accounts had been declining.
Trust income increased $182,000 or 19% in 1996 when compared
to 1995. The 26% growth in personal and corporate trust revenues
caused the overall increase in trust income, as the stock transfer
portion of trust income of $282,000 was relatively unchanged from
1995. The increase in personal and corporate trust revenues is
attributed to on-going business development efforts and a Bank-wide
referral incentive program.
Money order fees were $3.8 million in 1996, a 2% decline
compared to 1995. The decline is attributed to the previously
discussed agent base sale to Western Union. Aside from this sale,
MOC continued to expand its remaining agent base (9%) and increase
items issued (10%) in 1996. MOC provides the Company with a unique
source of non-interest income, as well as a non-interest bearing
source of funds, which averaged approximately $62 million for 1996.
MOC had net income, excluding the gain on the agent base sale, of
$1,240,000 in 1996, compared to $826,000 in 1995.
Other non-interest income, excluding the money order gain,
increased $550,000. The increase is attributed to income on the
Company's new debit card product of $167,000, increased ATM fees of
$108,000 resulting from a new surcharge fee from non-customer usage
of the Company's 39 machine ATM network, and $234,000 of gains on
the disposition of other real estate owned.
Net securities gains of $129,000, included gross securities
losses of $1,112,000 and gross securities gains of $1,241,000. In
connection with the Company's efforts to extend maturities,
increase yields, and change the composition of its securities
portfolio, numerous sales and reinvestment transactions were
undertaken during 1996.
OTHER OPERATING EXPENSES
Other operating expenses increased $2,733,000 or 6.5% to
$44,577,000 from $41,844,000 in 1995. This increase was primarily
associated with increases in personnel costs, expenses related to
an increased level of advertising, and expenses related to a bank-
wide consulting project directed at improved productivity, fee
revenue maximization and expense reductions. Excluding the
increase in salaries and benefits and 1995 expenses related to the
aforementioned problem real estate loans, the aggregate of the
other components of other operating expenses increased only
$172,000 or less than 1%.
Salaries and benefits increased $3,561,000 or 16% to
$25,850,000. The increase in salaries and benefits in 1996 is
related to several factors as follows:
*Annual salary increases that averaged 4% were effective
in April 1996.
*The addition of a Vice-Chairman and Chief Executive
Officer and several senior commercial and real estate
lending officers in the fourth quarter of 1995, whereas
a full year salary impacted 1996 compared to a quarter or
less impact in 1995.
*An increase in average full-time equivalent employees
(FTE) from 648 during 1995 to 658 in 1996. Even though
average FTE increased, the Company has reduced FTE from
a high in July 1996 of 677 FTE to 630 FTE at the end of
1996. The decrease in FTE relates to the Company's
efforts to increase productivity, increase efficiency and
reduce costs. Most of the decrease has been accomplished
through attrition, however some positions were eliminated
with a related severance cost of approximately $325,000.
*The implementation of a new performance bonus program
available to senior officers (vice president and above)
that increased benefits in 1996 compared to 1995. No
bonus expense existed in 1995 due to the decline in net
income in 1995.
*An increase in pension costs attributed to the increased
salary base and a lower discount rate for actuarial
calculations.
Occupancy, and furniture and equipment expenses both reflected
minor decreases in 1996 compared to 1995. Occupancy expense of
$2.9 million declined $14,000 and furniture and equipment expenses
of $4.7 million declined $184,000 in 1996 compared to 1995.
Management monitors and controls the level of capital expenditures
and this control limits the level of increase in depreciation and
maintenance from year to year. Each capital project is subject to
rigorous cost/benefit analysis. In 1996, a portion of the decrease
in furniture and equipment expenses was related to depreciation and
maintenance of the money order machines that were sold to Western
Union.
The other expenses category of other operating expenses
includes advertising and marketing, operating supplies,
professional fees, taxes other than income taxes, deposit insurance
and other expenses. Other operating expenses decreased $630,000
in 1996 compared to 1995. Excluding 1995 expenses related to the
aforementioned group of problem real estate loans, other expenses
increased $370,000 or 3.5% in 1996. Advertising and marketing
expenses of $1,262,000 increased $558,000 or 79% in 1996 compared
to 1995, as the Company increased its level of regular advertising
for loan and deposit product promotions in 1996. The Company plans
to continue this increased level of advertising and promotion in
its efforts to increase retail market share. Operating supplies
expenses declined in 1996 partially as a result of the installation
of a new inventory and requisitioning system that controlled usage
and order levels and a paper and forms reduction program made
possible by utilization of a new document imaging system.
Additionally, supplies expenses at MOC declined $186,000 as a
result of the lower agent base subsequent to the Western Union
transaction. Professional fees increased $659,000 in 1996 compared
to 1995, with legal fees declining $386,000 as the level of legal
fees associated with the group of problem real estate loans
previously discussed declined after the bankruptcy settlement in
early 1996. Professional fees were also impacted by $870,000 of
expenses related to the previously mentioned consulting project and
a separate consulting project related to the Company's teller
automation program scheduled for implementation in the first half
of 1997. Bank, property and other taxes increased $251,000 or 18%
as a result of the change in the basis for the Kentucky bank tax
which increased the related expenses approximately $200,000.
Deposit insurance costs declined $835,000 in 1996 compared to 1995,
as the FDIC decreased the rate of deposit insurance during the last
half of 1995. Other expenses, which decreased approximately
$784,000 in 1996 compared to 1995, included a decreased level of
funding for the Company's charitable trust ($187,000), increased
travel and entertainment ($65,000) and the absence of expenses in
1995 related to certain legal matters ($500,000).
INCOME TAXES
The effective tax rates were 32.7%, 29.5%, and 31.3%, for
1996, 1995, and 1994, respectively. The difference between the
statutory and the effective tax rates was principally attributable
to the tax-exempt status of interest income on obligations of
states and political subdivisions and certain loans. These tax
free sources of income were a smaller proportion of the increased
level of income before tax in 1996 and caused the higher effective
tax rate.
BALANCE SHEET
Total assets were $1.421 billion at December 31, 1996,
compared with $1.314 billion one year ago. Total assets averaged
$1.314 billion during 1996, an increase of approximately $143
million, or 12% over 1995. Average earning assets increased
approximately $153 million or 14% to $1.240 billion in 1996.
Increased loan volume and securities purchased under agreements to
resell accounted for a substantial portion of the increase in
earning assets.
SECURITIES
The Company's securities portfolio includes obligations of the
U.S. Government and its agencies, collateralized mortgage
obligations (CMOs), obligations of various states and political
subdivisions, corporate debt securities, and equity securities
(Federal Reserve Bank and Federal Home Loan Bank stock). At
December 31, 1996, securities available for sale totaled
approximately $336 million. These securities had unrealized
holding losses during 1996 of approximately $2.5 million that
resulted in a decrease in shareholders' equity of approximately
$1.6 million on a net of tax basis. During 1996, the Company
restructured the composition of its securities portfolio to extend
the average life and increase the yield of the portfolio. This
activity was coordinated with overall balance sheet management
issues and was further designed to minimize the impact of interest
rate changes on the securities portfolio. In connection with this
activity, U.S. Treasury and Agency securities were decreased
approximately $68 million, while obligations of state and political
subdivision, and CMOs increased approximately $30 million and $86
million, respectively. The CMOs in the portfolio aggregate
approximately $101 million and have an estimated weighted average
life of 3.6 years. The cash flows for the CMOs are relatively
predictable and stable.
Securities classified as held to maturity were $75 million at
December 31, 1996 and had net unrealized gains of $196,000. These
securities, with a weighted average life of .28 years, were
purchased with the intent to hold to maturity.
The securities portfolio is utilized for pledging requirements
on certain borrowings and public and fiduciary deposits, and
provides liquidity from scheduled maturities.
LOANS
Total loans and leases, net of unearned income, were $804
million at December 31, 1996, an increase of approximately $56
million or 7% compared to December 31, 1995. Average loans
increased approximately $60 million or 8%, to $768 million in 1996
from $708 million in 1995.
Real estate mortgage loans were approximately $295 million at
December 31, 1996, up approximately 4% from a year ago. The
Company has been a market leader in home equity financing which
contributes to this concentration in the loan portfolio. Real
estate mortgages are principally in the metropolitan Louisville,
Kentucky area. This market has not experienced significant
inflation or deflation in real estate prices.
Commercial and financial loans increased $41 million to
approximately $387 million, as the Company continues to emphasize
lending to businesses in the community. The significant categories
of commercial and financial borrowers are health services,
religious organizations, bank holding companies, wholesalers of
durable goods, and permanent financing on commercial real estate.
During 1996, construction and development loans decreased
approximately $6 million to approximately $56 million. Excluding
the impact of the previously discussed group of problem real estate
loans that were transferred to other real estate during 1996, this
category of loans increased approximately $6 million during 1996 as
demand for this type of financing in the Company's market remained
strong. These loans are principally for the development of
residential housing tracts, office buildings and shopping centers.
Consumer loans increased approximately $9 million or
approximately 16% in 1996 to $67 million. The Company emphasized
consumer lending in 1996 with a new marketing approach, increased
advertising, and competitively priced products.
The Company has no foreign loans and lends principally within
its metropolitan area.
NON-PERFORMING ASSETS
Non-performing assets include non-accrual loans, loans 90 days
or more past due and other real estate held for sale. At December
31, 1996, non-performing assets totaled $13,926,000 compared with
$16,228,000 at December 31, 1995. Information with respect to non-
performing loans and assets is presented in the table above.
The accrual of interest on loans is discontinued when it is
determined that the collection of interest or principal is
doubtful, or generally when a default of interest or principal has
existed for 90 days or more, unless the loan is fully secured and
in the process of collection. At December 31, 1996, there were
loans of approximately $11.7 million for which payments were
current or less than 90 days past due where borrowers are currently
experiencing financial difficulties. These loans are subject to
management review and are considered in determining the adequacy of
the allowance for loan losses.
In 1996, the level of non-performing loans decreased from
$15.1 million at the end of 1995 to approximately $4.3 million at
the end of 1996. Of these non-performing loans at December 31,
1996, $3.4 million are classified as impaired. In April 1996, the
Company obtained from bankruptcy court, title to properties related
to $11.9 million of non-performing loans at December 31, 1995. The
carrying value of these properties and other properties acquired
from the bankruptcy court and transferred to other real estate
owned was approximately $15.2 million. At December 31, 1996, the
carrying value of these properties has been reduced to $9.4 million
as a result of property sales. The Company has a contract for
additional property sales expected to close in March 1997 that will
further reduce the carrying value by approximately $500,000. Also,
the Company has a sales contract for a portion of these properties
with a carrying value of approximately $1.5 million, that is
contingent on zoning changes which are not expected to be resolved
until the middle of 1997. These properties had previously been
adjusted to fair value based on appraisals and current contracts
support appraised values. Management intends to continue to
provide for the orderly development and marketing of these
properties in a manner designed to maximize the value thereof to
the Company.
Management has carefully evaluated its risk, including
consideration of underlying collateral values based on current
market conditions, with respect to non-accrual loans, loans past
due 90 days or more, and potential problem loans.
Other real estate held for sale increased to $9.6 million at
December 31, 1996. During 1996, other real estate acquired in
settlement of loans aggregated $12.5 million, including the $11.9
million discussed above, and sales of other real estate aggregated
$7.7 million.
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
Dollars In Thousands December 31
-------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis $3,424 $14,301 $2,705 $2,695 $4,453
Loans contractually past due ninety days or more
as to interest or principal payments 925 842 806 1,177 1,376
-------- -------- -------- -------- --------
Total non-performing loans 4,349 15,143 3,511 3,872 5,829
Other real estate held for sale 9,577 1,085 2,385 2,970 3,561
-------- -------- -------- -------- --------
Total non-performing assets $13,926 $16,228 $5,896 $6,842 $9,390
======== ======== ======== ======== ========
Non-performing loans to total loans 0.54% 2.02% 0.50% 0.59% 1.00%
Non-performing assets to total assets 0.98 1.24 0.49 0.59 0.90
Allowance for loan losses to non-performing loans 210.78 61.53 200.66 169.89 103.28
</TABLE>
At December 31, 1996, loans classified as impaired aggregated $3,424,000 and
included all non-accrual loans. At December 31, 1995, impaired loans
aggregated $14,328,000.
DEPOSITS
Total deposits increased approximately $40 million to $825
million on December 31, 1996, compared to $785 million at December
31, 1995. Deposits also increased on an average basis during 1996,
increasing approximately $27 million to $773 million. During 1996,
the Company undertook several measures to increase its deposit
balances: Consumer checking products were redesigned, simplified
and repriced, commercial cash management services were enhanced and
expanded, new high rate/high minimum balance transaction and saving
account products were developed and product and rate advertising
campaigns were consistently used. Average interest bearing
deposits for the year increased from $646 million to $670 million.
During 1996, in addition to the inflow of new money for our
competitively priced time deposits, there was a continued shift of
interest bearing demand deposits to higher rate savings and time
deposits. Average non-interest bearing deposits increased
approximately 4% to $103 million. Large certificates of deposit on
an average basis increased approximately 5% to $65 million during
1996, from $62 million during 1995. Included in large certificates
of deposit at December 31, 1996 and 1995, are retail brokered
certificates of deposit of approximately $10 million issued in June
1994.
ADVANCES FROM THE FEDERAL HOME LOAN BANK
Federal Home Loan Bank advances decreased from $75 million at
the end of 1995 to $69 million at the end of 1996, as no new
advances were used during 1996. Prior to 1995, the Company used
this source of fixed rate funds to match its fixed rate mortgage
loan products when interest rates were at lower levels in the early
1990's.
MONEY ORDERS AND SIMILAR PAYMENT INSTRUMENTS OUTSTANDING
Money orders and similar payment instruments outstanding at
December 31, 1996 were $77 million, down approximately $3 million
compared to the end of 1995. The sale of the program agent base to
Western Union caused this decline. On an average basis, these
items increased approximately $6 million to $62 million in 1996
compared to 1995. Money orders and similar payment instruments
outstanding continue to be a significant source of non-interest
bearing funds for the Company.
INTEREST SENSITIVITY MANAGEMENT
Interest rate risk at any time interval may be measured in
absolute dollars by examining the gap position, or difference
between interest-sensitive assets and liabilities. A positive gap,
which arises when interest-sensitive assets exceed interest-
sensitive liabilities in designated time frames, will result in a
greater proportion of assets than liabilities repricing with
changes in market interest rates. A positive gap is normally
advantageous when market rates are rising. A negative gap, where
interest-sensitive liabilities exceed interest-sensitive assets, is
normally advantageous when market interest rates are declining.
Asset/ liability management strategies attempt to control exposure
to these interest rate risks.
The Company began using interest rate swap contracts as part
of its overall asset/liability management process during 1995.
Interest rate swaps are agreements with a counterparty to exchange
periodic interest payments that are calculated on a notional
principal amount. At December 31, 1996, the Company had interest
rate swap contracts with notional amounts totaling $150 million,
with a weighted average maturity of 3.2 years. Under these
contracts the Company pays the floating prime rate, 8.25% at
December 31, 1996, and receives a weighted average fixed rate of
8.56%.
The interest sensitivity of the Company's earning assets and
interest bearing liabilities at December 31, 1996 is shown on the
table on page 19. This gap table reflects the rate sensitive
position at the end of the year and is not necessarily reflective
of positions throughout the year. The carrying amount of interest
sensitive assets and liabilities and the notional amounts of
interest rate swaps are presented in the periods in which they next
reprice to market rates or mature. Variable rate assets and
liabilities are distributed based on the repricing frequency of the
instrument. In managing interest sensitivity, the Company
determines the repricing characteristics of non-maturity deposits
based on historical responses to changes in market interest rates.
Accordingly, the gap table presents 30% of interest bearing demand
and 20% of savings deposits in the 0 to 90 Days category with the
remainder in the over 5 Years category. The cumulative negative
gap position in the less than one year category of (.24%) at
December 31, 1996, has been reduced from a positive gap of 6.76% at
the end of last year as management has used on-and off-balance-
sheet management strategies to reduce the Company's exposure to
interest rate changes.
Gap alone does not accurately quantify the effects of changes
in interest rates on interest income, since changes in interest
rates do not occur simultaneously or equally to all assets or
liabilities in a category. Management supplements traditional gap
analyses with computer simulation modeling to estimate the
financial impact of rate changes.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $7.7 million to $140,638,000 at
December 31, 1996. Average shareholders' equity increased $6
million to $135 million and was 10.3% of average total assets for
1996. The Company's primary source of capital is net income, net
of dividends paid. Shareholders' equity was impacted by the
depreciation of securities available for sale, which reduced
shareholders' equity during 1996 by $1.6 million.
Bank regulators monitor capital adequacy under risk based
capital guidelines which place assets and certain off-balance-sheet
activities in various categories of risk with varying weights.
Also, a minimum leverage ratio, based on shareholders' equity as a
percentage of total assets, is required. As of December 31, 1996
and 1995, the Company's capital ratios exceeded required minimums
and placed the Company in the "Well Capitalized" category. Refer
to Note M to the consolidated financial statements for regulatory
capital information.
LIQUIDITY MANAGEMENT
Liquidity management represents the Company's ability to
generate cash or otherwise obtain funds at a reasonable price to
satisfy commitments to borrowers as well as the demands of
depositors. Funds are available from a number of sources,
including the securities portfolio, the core deposit base and the
ability to attract large deposits and repurchase agreements. The
Company's short-term investments, which include federal funds sold,
securities purchased under agreements to resell and securities
maturing within one year, are approximately 20% of total assets.
Short-term investments are approximately 81% of non-core
liabilities, which consist of federal funds purchased, securities
sold under agreements to repurchase and large certificates of
deposit. The Company's net short-term non-core fund dependence, a
measure of non-core liabilities, net of short-term investments,
supporting loans and the securities portfolio, averaged
approximately 8.9% during 1996. In the opinion of management,
incremental funding sources are sufficient to meet known or
reasonably anticipated funding requirements.
During 1996, financing and operating activities adequately
supported the investing activities of the Company. Investing
activities, primarily loans to customers and securities
transactions, have been funded by increased deposits, securities
sold under agreements to repurchase and operating activities,
including net income and increases in money orders and similar
payment instruments outstanding.
The liquidity of the holding company is impacted primarily by
the ability of its principal subsidiary, the Bank, to pay
dividends. During 1996, the Bank paid $19.3 million of dividends
to the holding company. Dividends above historical levels were
paid to the holding company in 1996 to minimize state based bank
taxes in the future. Certain regulatory restrictions limit the
amount of dividends the Bank may pay. Additional information about
these restrictions is in Note M to the consolidated financial
statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1996, The Financial Accounting Standards Board issued
FASB Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The
Statement provides consistent standards for distinguishing
transfers of assets that are sales from transfers that are secured
borrowings. The Statement requires that liabilities incurred by
transferors as part of a transfer be measured at fair value and
that any retained interest in transferred assets be measured by
allocating the previous carrying amount between the assets sold and
retained interest based upon their relative fair values at the date
of the transfer. The Statement also requires that debtors
reclassify financial assets pledged as collateral and that secured
parties recognize those assets and their obligations to return them
in certain circumstances in which the secured party has taken
control of those assets.
Certain provisions of Statement No. 125 have been deferred for
one year, to after December 31, 1997, by the issuance of FASB
Statement No. 127, "Deferral of the Effective Dates for Certain
Provisions of FASB Statement No. 125." Management believes the
potential effects of FASB Statement No. 125 will not be significant
to its financial position or results of operations.
1995 COMPARED TO 1994
Net income for 1995 was $8,066,000 or $.85 per share compared
with $12,612,000 or $1.34 per share for 1994. The decrease in 1995
was attributed primarily to an increase in the provision for loan
losses from $712,000 in 1994 to $6,047,000 in 1995. This increased
provision for loan losses related primarily to a group of non-
performing loans to a Louisville-based real estate development
firm. For 1995, return on average total assets (ROA) was .69% and
return on average equity (ROE) was 6.26%, compared with 1994 when
the ROA was 1.11% and ROE was 10.36%.
NET INTEREST INCOME
In 1995, net interest income on a tax equivalent basis
increased $3,358,000 to $49,413,000. Net interest income was
favorably impacted by increases in average earning assets and
higher average interest rates. The average yield on earning
assets increased from 7.60% in 1994 to 8.45% in 1995, with a
similar increase in the average rate on interest bearing
liabilities from 3.94% in 1994 to 4.84% in 1995. The shift to
higher interest rates, interacting with the timing of repricing and
the shift in composition of earning assets and interest bearing
liabilities during the year, resulted in a net interest spread of
3.61% in 1995 compared to 3.66% in 1994. The net yield on earning
assets increased in 1995 to 4.54% compared to 4.34% in 1994. The
average prime rate in 1995 was 8.83% compared to 7.14% in 1994.
Average earning assets increased approximately $28 million or
3% in 1995 to $1.087 billion. The increase was centered in loans,
which increased approximately $29 million or 4% to $708 million.
Also there was a slight increase in the average securities
portfolio of approximately $6 million. Changes in the composition
and amounts of earning assets arose in part from management's
response to the interest rate environment in 1995, where such
changes were necessary to maintain a proper match among assets and
liabilities, while increasing the yield on investable funds.
The growth in average earning assets was supported by a $6.6
million increase in average interest bearing deposits and increases
in non-interest bearing sources of funds, primarily money orders
and similar payment instruments outstanding and demand deposits, of
$28 million. Average advances from the Federal Home Loan Bank
decreased approximately $4 million as no new advances were taken in
1995. Repurchase agreements decreased 2% in 1995, while continuing
to be a significant funding source. Non-interest bearing deposits,
other liabilities and capital were 27% of earning assets in 1995
compared to 24.5% in 1994.
The changes in interest income attributable to volume and rate
changes are summarized in the table on page 18.
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $6,047,000 in 1995 compared
to $712,000 for 1994. During 1995, the Company had net charge-offs
of $3,774,000, compared to $245,000 in 1994, and an increase in the
level of non-performing loans. During the third quarter of 1995,
the Company recorded a provision for loan losses of $5.7 million
attributed primarily to losses associated with the aforementioned
group of loans totaling approximately $14.8 million to a
Louisville-based real estate development firm. These loans were
classified by management as impaired and non-accrual and adjusted
to fair value based on appraisals of the underlying real estate
collateral. During 1995, charge-offs related to these loans
aggregated $2.9 million.
At December 31, 1995, the allowance for loan losses was 1.25%
of loans outstanding compared to 1.01% at the end of 1994.
NON-INTEREST INCOME
Non-interest income decreased $408,000 or 3.5% in 1995
compared to 1994. Money order fees were $3.9 million, an increase
of $524,000 or 15.7% compared to 1994. During 1995, the agent base
of MOC increased 16% to 3306 agent sites, which contributed to the
27% increase in items issued. MOC had net income of $826,000 in
1995, compared to $562,000 in 1994, with such increase attributed
to increased fee revenue and increased interest income.
Service charges on deposits were $4.5 million in 1995, down
1.4% from 1994. During 1995, the Company had an increase in the
number of transaction and savings accounts, however most of the
increase related to packaged and fixed fee accounts which generally
generate lower fees per account.
Total trust income declined 14.5% during 1995 when compared to
1994. Personal and corporate trust revenues increased 7.8% in 1995
as business development activities started to yield new customers.
The stock transfer portion of trust income declined 43% to $281,000
in 1995 due to a declining customer base and the absence of non-
recurring special project fees that were realized in 1994.
In December 1995, the Company realized a loss of $636,000 on
the sale of approximately $90 million of its available for sale
securities. The proceeds from these sales were reinvested in
securities that extended the overall life and rate of return of the
securities portfolio. Other sales during the year added net losses
of $29,000. There were no other individually significant
components of other non-interest income and such components did not
fluctuate significantly between 1995 and 1994.
OTHER OPERATING EXPENSES
Other operating expenses increased $4,252,000 or 11.3% to
$41,844,000 from $37,592,000 in 1994. This increase was primarily
associated with increases in personnel costs, expenses related to
technology improvements and maintenance, facilities remodeling and
expansion, and the group of problem real estate loans previously
discussed.
Salaries and benefits increased $1,751,000 or 8.5% to
$22,289,000. This increase was attributed to several factors,
including annual salary adjustments that were effective at the
beginning of the year, an increase in average FTE from 639 in 1994
to 648 in 1995, and the addition of several senior commercial and
real estate lending officers and a new Vice-Chairman and Chief
Executive Officer in the fourth quarter of 1995. A decline in a
portion of salaries and benefits in 1995 of approximately $350,000
related to management bonuses in 1994 and the absence of such
bonuses in 1995. Another factor influencing salaries and benefits
was an increase in health insurance costs of approximately $405,000
due to higher claim levels.
Occupancy and furniture and equipment expenses both increased
in 1995 compared to 1994. Occupancy expense, up $349,000 or 13.3%
in 1995, was impacted primarily by increased rent expense related
to expanded space at the Company's main office facility, and at the
money order company subsidiary's office location, and increased
amortization and maintenance expenses associated with leasehold
improvements at these locations. Furniture and equipment expenses
increased $633,000 or 15% in 1995 compared to 1994 and reflected
increased depreciation and routine maintenance associated with
technology equipment additions/upgrades and additional money order
equipment.
Other operating expenses increased $1.5 million or 14.9% in
1995 compared to 1994. Printing and supplies expenses increased
$431,000 in 1995 compared to 1994, with approximately $300,000 of
the increase related to the money order company subsidiary forms
and other supplies usage that accompanied the sales volume
increase. Professional fees increased $654,000 in 1995 compared to
1994, with $500,000 of the increase attributed to legal fees
associated with the problem real estate loan situation previously
discussed. Deposit insurance costs declined $794,000 in 1995
compared to 1994 as the FDIC decreased the rate of deposit
insurance during 1995. Other expenses, which increased
approximately $1.3 million in 1995 compared to 1994, included
increased advertising and marketing expenses ($108,000), increased
donations ($336,000), money order company subsidiary collection
losses ($215,000) and expenses related to certain legal matters
($500,000).
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND YIELDS/RATES TAX EQUIVALENT BASIS
Dollars In Thousands 1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Average Yields/ Average Yields/ Average Yields/
Balance Interest Rates Balance Interest Rates Balance Interest Rates
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Securities:
U.S. Treasury and
government agencies $197,404 $12,066 6.13% $259,137 $13,903 5.36% $260,077 $11,301 4.32%
States and political
subdivisions 25,771 2,040 7.92 11,742 958 8.18 6,390 525 8.22
Corporate and other 104,688 6,414 6.14 49,653 3,076 6.18 47,713 2,808 5.87
Federal funds sold 31,294 1,700 5.43 40,177 2,389 5.95 32,155 1,409 4.38
Securities purchased under
agreements to resell 113,110 6,059 5.36 18,740 1,105 5.90 33,767 1,345 3.98
Loans, net of unearned income 767,755 74,077 9.65 707,898 70,433 9.95 679,100 63,260 9.32
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total earning assets 1,240,022 102,356 8.25% 1,087,347 91,864 8.45% 1,059,202 80,648 7.60%
NON-EARNING ASSETS:
Allowance for loan losses (9,250) (7,564) (6,649)
Cash and due from banks 30,708 44,494 47,814
Other 52,858 47,452 36,198
----------- ----------- -----------
Total assets $1,314,338 $1,171,729 $1,136,565
=========== =========== ===========
INTEREST BEARING LIABILITIES:
Deposits:
Demand deposits $201,053 5,940 2.95% $204,927 6,356 3.10% $240,828 6,166 2.56%
Savings deposits 81,854 2,221 2.71 79,282 2,077 2.62 85,852 2,161 2.52
Certificates of deposit
$100,000 and over 65,319 4,044 6.19 61,970 4,002 6.46 31,272 1,654 5.29
Other time deposits 321,550 18,457 5.74 300,001 16,810 5.60 281,621 13,515 4.80
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total interest bearing deposits 669,776 30,662 4.58 646,180 29,245 4.53 639,573 23,496 3.67
Federal funds purchased and
securities sold under
agreements to repurchase 256,826 12,887 5.02 152,488 8,420 5.52 155,039 6,147 3.96
Advances from the Federal Home
Loan Bank 72,303 4,430 6.13 78,526 4,786 6.09 82,373 4,950 6.01
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total interest bearing liabilities 998,905 47,979 4.80% 877,194 42,451 4.84% 876,985 34,593 3.94%
NON-INTEREST BEARING LIABILITIES:
Demand deposits 103,000 99,207 95,575
Other 77,348 66,540 42,300
----------- ----------- -----------
Total liabilities 1,179,253 1,042,941 1,014,860
SHAREHOLDERS' EQUITY 135,085 128,788 121,705
Total liabilities and ----------- ----------- -----------
shareholders' equity $1,314,338 $1,171,729 $1,136,565
=========== =========== ===========
NET INTEREST INCOME $54,377 $49,413 $46,055
======== ======== ========
NET INTEREST SPREAD 3.45% 3.61% 3.66%
NET YIELD ON EARNING ASSETS 4.39% 4.54% 4.34%
======== ======== ========
</TABLE>
Tax exempt income is calculated on a tax equivalent basis using a tax rate of
35%. The yields on securities are based on amortized historical cost, excluding
FASB Statement No.115 adjustments to fair value. Non-accrual loans and loan fees
are included in the computation of loan yields. The Company has no deposits from
foreign depositors.
<PAGE>
<TABLE>
<CAPTION>
INTEREST INCOME AND INTEREST EXPENSE
VOLUME AND RATE CHANGES FOR THE YEARS 1996 AND 1995 TAX EQUIVALENT BASIS
In Thousands Net Change Due to Due to Net Change Due to Due to
1996/1995 Volume Rate 1995/1994 Volume Rate
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
Interest Income:
Securities $2,583 $407 $2,176 $3,303 $304 $2,999
Federal funds sold (689) (496) (193) 980 403 577
Securities purchased under
agreements to resell 4,954 5,064 (110) (240) (737) 497
Loans, net of unearned income 3,644 5,823 (2,179) 7,173 2,753 4,420
-----------------------------------------------------------------------
Total interest income 10,492 10,798 (306) 11,216 2,723 8,493
Interest Expense:
Deposits:
Demand deposits (416) (118) (298) 190 (1,000) 1,190
Savings deposits 144 68 76 (84) (170) 86
Certificates of deposit
$100,000 and over 42 211 (169) 2,348 1,916 432
Other time deposits 1,647 1,229 418 3,295 923 2,372
Federal funds purchased and
securities sold under
agreements to repurchase 4,467 5,297 (830) 2,273 (103) 2,376
Advances from the Federal Home
Loan Bank (356) (381) 25 (164) (233) 69
-----------------------------------------------------------------------
Total interest expense 5,528 6,306 (778) 7,858 1,333 6,525
-----------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME $4,964 $4,492 $472 $3,358 $1,390 $1,968
=======================================================================
</TABLE>
The volume/rate variance is allocated to the volume and rate categories based
upon the absolute value of volume and rate variances before the allocation.
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
Dollars In Thousands Non-interest
December 31, 1996 0-90 91-180 181-365 1-5 Over 5 Bearing
Days Days Days Years Years Funds Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned income $395,708 $14,189 $57,134 $177,326 $156,401 $3,424 $804,182
Securities 102,488 31,028 35,661 183,862 58,634 411,673
Federal funds sold 20,200 20,200
Securities purchased under
agreements to resell 110,000 110,000
Other assets 74,878 74,878
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 628,396 45,217 92,795 361,188 215,035 78,302 1,420,933
----------- ----------- ----------- ----------- ----------- ----------- -----------
SOURCES OF FUNDS
Deposits:
Demand deposits 60,104 140,237 200,341
Savings deposits 18,795 730 75,179 94,704
Time deposits 69,193 77,406 97,715 145,238 12,957 402,509
Securities sold under
agreements to repurchase 276,440 9,508 285,948
Federal funds purchased 4,000 4,000
Advances from the Federal Home
Loan Bank 1,457 1,479 2,941 27,481 35,684 69,042
Other liabilities and non-interest
bearing deposits 223,751 223,751
Shareholders' equity 140,638 140,638
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total sources of funds 429,989 88,393 101,386 172,719 264,057 364,389 1,420,933
----------- ----------- ----------- ----------- ----------- ----------- -----------
Asset / liability gap 198,407 (43,176) (8,591) 188,469 (49,022) (286,087)
----------- ----------- ----------- ----------- ----------- -----------
Interest rate swap contracts affecting
interest rate sensitivity (150,000)
----------- ----------- ----------- ----------- ----------- -----------
INTEREST SENSITIVITY GAP 48,407 (43,176) (8,591) 188,469 (49,022) (286,087)
----------- ----------- ----------- ----------- ----------- -----------
CUMULATIVE INTEREST SENSITIVITY GAP $48,407 $5,231 ($3,360) $185,109 $136,087
=========== =========== =========== =========== ===========
CUMULATIVE INTEREST SENSITIVITY GAP
AS A PERCENT OF TOTAL ASSETS 3.41% 0.37% (0.24%) 13.03% 9.58%
RATE-SENSITIVE ASSETS TO RATE-
SENSITIVE LIABILITIES 1.11X 0.51X 0.92X 2.09X 0.81X
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL DATA
In Thousands, Except Per Share Amounts Years Ended December 31
-----------------------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $100,785 $90,595 $79,652 $71,302 $70,487
Total interest expense 47,979 42,451 34,593 30,752 35,299
-----------------------------------------------------------------
Net interest income 52,806 48,144 45,059 40,550 35,188
Provision for loan losses 414 6,047 712 390 650
-----------------------------------------------------------------
Net interest income after
provision for loan losses 52,392 42,097 44,347 40,160 34,538
Non-interest income 14,527 11,191 11,599 10,942 11,357
Other operating expenses 44,577 41,844 37,592 34,276 32,252
-----------------------------------------------------------------
Income before income taxes 22,342 11,444 18,354 16,826 13,643
Income tax expense 7,313 3,378 5,742 5,253 4,122
-----------------------------------------------------------------
Net income $15,029 $8,066 $12,612 $11,573 $9,521
=================================================================
Per common share:
Net income:
Primary $1.58 $0.85 $1.34 $1.23 $1.04
Fully Diluted $1.57 $0.85 $1.34 $1.23 $1.04
Cash dividends declared 0.69 0.61 0.59 0.58 0.49
<CAPTION>
December 31
-----------------------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, net of unearned income $804,182 $748,565 $699,396 $657,568 $583,267
Total assets 1,420,933 1,313,987 1,213,990 1,169,023 1,041,649
Total deposits 825,257 784,957 732,620 729,449 689,377
Total shareholders' equity 140,638 132,950 125,052 119,590 112,629
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
In Thousands, Except 1996 1995 1994
Per Share Amounts --------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth First Second Third Fourth
-------------------------------- -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest
income $24,559 $25,023 $25,307 $25,896 $22,104 $22,787 $22,103 $23,601 $18,310 $19,507 $20,325 $21,510
Total interest
expense 11,728 11,942 11,908 12,401 10,458 10,676 10,484 10,833 7,881 8,351 8,931 9,430
Provision for
loan losses --- 104 303 7 102 127 5,718 100 100 102 150 360
Net interest income ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
after provision for
loan losses 12,831 12,977 13,096 13,488 11,544 11,984 5,901 12,668 10,329 11,054 11,244 11,720
Non-interest income 4,221 3,031 3,971 3,304 2,762 2,854 2,936 2,639 2,691 2,707 2,829 3,372
Other operating
expenses 10,684 10,433 11,789 11,671 10,208 10,187 11,260 10,189 9,284 9,594 9,624 9,090
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes 6,368 5,575 5,278 5,121 4,098 4,651 (2,423) 5,118 3,736 4,167 4,449 6,002
Income taxes 2,051 1,868 1,800 1,593 1,278 1,440 (947) 1,607 1,089 1,279 1,371 2,003
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) $4,317 $3,707 $3,478 $3,527 $2,820 $3,211 ($1,476) $3,511 $2,647 $2,888 $3,078 $3,999
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Per common share
Net income (loss)
Primary $0.45 $0.39 $0.37 $0.37 $0.30 $0.34 ($0.16) $0.37 $0.28 $0.30 $0.33 $0.43
Fully Diluted $0.45 $0.39 $0.37 $0.37 $0.30 $0.34 ($0.16) $0.37 $0.28 $0.30 $0.33 $0.43
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
MARKET FOR MID-AMERICA BANCORP'S STOCK AND
RELATED SECURITY HOLDER MATTERS
Mid-America Bancorp's common stock is traded on the American Stock
Exchange (AMEX) under the symbol MAB. As of December 31, 1996, the total
number of holders of the Company's common stock was 1,016 and the
market price of the Company's common stock was $ 19.00
Mid-America Bank of Louisville and Trust Company is the stock transfer
agent, dividend disbursing agent, and registrar for the common stock of
Mid-America Bancorp.
The tables below represent the high and low market prices reported for
Mid-America Bancorp's common stock and the cash dividends declared
on common stock, in each quarter of the last two years. Per share data has
been adjusted to reflect the effect of stock dividends during the periods
presented.
<TABLE>
<CAPTION>
Market Price
--------------------------
1996 Cash Dividends Declared High Low
- --------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $ .145 $18.63 $15.75
2nd Quarter .165 17.75 15.13
3rd Quarter .165 16.63 15.88
4th Quarter .215 19.13 16.25
<CAPTION>
Market Price
--------------------------
1995 Cash Dividends Declared High Low
- --------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $ .14 $16.00 $14.75
2nd Quarter .14 16.38 14.63
3rd Quarter .14 18.00 14.88
4th Quarter .19 18.00 16.00
</TABLE>
<PAGE>
Management's Statement on Financial Reporting
The Management of the Company is responsible for the integrity and objectivity
of the financial information presented in this Annual Report. Management has
prepared the consolidated financial statements according to generally accepted
accounting principles, which involve the use of estimates and judgements where
appropriate.
To meet its responsibility, Management maintains a comprehensive system of
internal control to assure proper authorization of transactions, safeguarding
of assets and reliability of financial records. This system can provide only
reasonable, not absolute, assurance that errors and irregularities can be
prevented or detected. The concept of reasonable assurance is based on the
recognition that the cost of a system of internal control must be related to
the benefits derived.
The Audit Committee of the Board of Directors reviews the systems of internal
control and financial reporting. The Committee meets and consults regularly
with Management, the internal auditors, and the independent auditors to review
the scope and results of their work.
The accounting firm of KPMG Peat Marwick LLP has performed an independent
audit of the Company's consolidated financial statements. The firm's report
appears on the following page.
/s/Bertram W. Klein /s/R. K. Guillaume /s/Steven A. Small
Bertram W. Klein R. K. Guillaume Steven A. Small
Chairman of the Board Chief Executive Officer Chief Financial Officer and
Executive Vice President
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Mid-America Bancorp:
We have audited the accompanying consolidated balance sheets of Mid-America
Bancorp and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Mid-America Bancorp and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115, "Accounting For Certain Investments
in Debt and Equity Securities", in 1994.
/s/KPMG Peat Marwick LLP
Louisville, Kentucky
January 24, 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
In Thousands, Except Share and Per Share Amounts December 31
----------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $30,884 $50,962
Federal funds sold 20,200 38,200
Securities purchased under agreements to resell 110,000 75,000
Securities available for sale, amortized cost
of $333,681 (1996) and $287,470 (1995) 336,118 292,374
Securities held to maturity, market value of $75,751 (1996) and $69,766 (1995) 75,555 69,326
Loans, net of unearned income of $15,916 (1996) and $23,304 (1995) 804,182 748,565
Allowance for loan losses (9,167) (9,318)
--------- ---------
Loans, net 795,015 739,247
Premises and equipment 21,451 20,265
Other assets 31,710 28,613
--------- ---------
Total assets $1,420,933 $1,313,987
========= =========
LIABILITIES
Deposits:
Non-interest bearing $127,703 $132,931
Interest bearing 697,554 652,026
--------- ---------
Total deposits 825,257 784,957
Securities sold under agreements to repurchase 285,948 227,166
Federal funds purchased 4,000 3,050
Advances from the Federal Home Loan Bank 69,042 75,109
Money orders and similiar payment instruments outstanding 76,533 79,409
Accrued expenses and other liabilities 19,515 11,346
--------- ---------
Total liabilities 1,280,295 1,181,037
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized-750,000 shares; none issued ---- ----
Common stock, no par value; stated value $2.77 per share;
authorized-12,000,000 shares; issued and outstanding -
9,425,803 shares (1996); 9,091,642 shares (1995) 26,144 25,218
Additional paid-in capital 104,932 99,991
Retained earnings 8,093 4,554
Net unrealized securities gains, net of taxes 1,585 3,187
Pension liability adjustment, net of taxes (116) -
--------- ---------
Total shareholders' equity 140,638 132,950
--------- ---------
Total liabilities and shareholders' equity $1,420,933 $1,313,987
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
In Thousands, Except Per Share Amounts Years Ended December 31
----------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $73,220 $69,499 $62,448
Interest on securities:
U.S. Treasury and agencies 12,066 13,903 11,301
States and political subdivisions 1,326 623 341
Corporate and other 6,414 3,076 2,808
Interest on federal funds sold 1,700 2,389 1,409
Interest on securities purchased under agreements to resell 6,059 1,105 1,345
---------- ---------- ----------
Total interest income 100,785 90,595 79,652
INTEREST EXPENSE
Interest on deposits 30,662 29,245 23,496
Interest on federal funds purchased and
securities sold under agreements to repurchase 12,887 8,420 6,147
Interest on Federal Home Loan Bank advances 4,430 4,786 4,950
---------- ---------- ----------
Total interest expense 47,979 42,451 34,593
---------- ---------- ----------
NET INTEREST INCOME 52,806 48,144 45,059
PROVISION FOR LOAN LOSSES 414 6,047 712
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 52,392 42,097 44,347
NON-INTEREST INCOME
Income from trust department 1,151 969 1,133
Service charges on deposit accounts 4,582 4,509 4,572
Money order fees 3,782 3,857 3,333
Securities gains (losses), net 129 (665) (4)
Other 4,883 2,521 2,565
---------- ---------- ----------
Total non-interest income 14,527 11,191 11,599
OTHER OPERATING EXPENSES
Salaries and employee benefits 25,850 22,289 20,538
Occupancy expense 2,957 2,971 2,622
Furniture and equipment expenses 4,675 4,859 4,226
Other 11,095 11,725 10,206
---------- ---------- ----------
Total other operating expenses 44,577 41,844 37,592
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 22,342 11,444 18,354
INCOME TAX EXPENSE 7,313 3,378 5,742
---------- ---------- ----------
NET INCOME $15,029 $8,066 $12,612
========== ========== ==========
Weighted average shares outstanding
Primary 9,499 9,444 9,443
Fully Diluted 9,565 9,487 9,443
========== ========== ==========
NET INCOME PER COMMON SHARE
PRIMARY $1.58 $0.85 $1.34
FULLY DILUTED $1.57 $0.85 $1.34
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
-------------------------------------------------------------------------------------
Common Stock Additional Net Unrealized Pension Total
In thousands, ---------------------- Paid-in Retained Securities Liability Shareholders'
Except Share and Per Share Amounts Shares Amount Capital Earnings Gains (Losses) Adjustment Equity
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 8,510,125 $23,607 $91,535 $4,448 $ - $ - $119,590
Net income 12,612 12,612
Cash dividends declared,
($0.59 per share) (5,559) (5,559)
Stock dividend declared 255,960 709 3,706 (4,415) ---
Stock options exercised,
including related tax benefits 37,674 105 367 472
Net unrealized securities losses (2,063) (2,063)
-------------------------------------------------------------------------------------
Balance, December 31, 1994 8,803,759 24,421 95,608 7,086 (2,063) - 125,052
Net income 8,066 8,066
Cash dividends declared,
($0.61 per share) (5,741) (5,741)
Stock dividend declared 264,330 732 4,125 (4,857) ---
Stock options exercised,
including related tax benefits 23,553 65 258 323
Net unrealized securities gains 5,250 5,250
-------------------------------------------------------------------------------------
Balance, December 31, 1995 9,091,642 25,218 99,991 4,554 3,187 - 132,950
Net income 15,029 15,029
Cash dividends declared,
($0.69 per share) (6,491) (6,491)
Stock dividend declared 273,935 759 4,240 (4,999) ---
Stock options exercised,
including related tax benefits 60,226 167 701 868
Net unrealized securities losses (1,602) (1,602)
Pension liability adjustment (116) (116)
-------------------------------------------------------------------------------------
Balance, December 31, 1996 9,425,803 $26,144 $104,932 $8,093 $1,585 ($116) $140,638
=====================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands Years Ended December 31
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,029 $8,066 $12,612
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 3,408 4,341 5,357
Provision for loan losses 414 6,047 712
FHLB stock dividend (962) (874) (690)
Loss (gain) on sales of securities (129) 665 4
Gain on sale of money order agent base (1,797) - -
Loss (gain) on sales of other real estate (234) 8 (93)
Deferred taxes 217 (957) 485
Decrease (increase) in interest receivable 218 (874) (2,193)
Decrease (increase) in other assets 1,435 (7,077) (1,642)
Increase (decrease) in money orders and similar payment
instruments outstanding (2,876) 31,591 11,841
Increase in accrued expenses and other liabilities 4,413 1,394 643
---------- ---------- ----------
Net cash provided by operating activities 19,136 42,330 27,036
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (182,245) (153,272) (30,977)
Proceeds from maturities of securities available for sale 58,022 40,739 15,806
Proceeds from sales of securities available for sale 82,726 105,003 3,000
Purchases of securities held to maturity (63,403) (145,837) (72,621)
Proceeds from maturities of securities held to maturity 57,325 144,048 67,935
Proceeds from sale of money order agent base 1,797 - -
Proceeds from sales of premises and equipment 904 195 136
Net purchases of premises and equipment (4,909) (4,271) (3,864)
Proceeds from sales of other real estate 7,924 1,688 1,289
Net increase in customer loans (68,652) (52,802) (42,721)
---------- ---------- ----------
Net cash used in investing activities (110,511) (64,509) (62,017)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 40,300 52,337 3,171
Net increase in securities sold
under agreements to repurchase 58,782 14,065 29,813
Net increase (decrease) in federal funds purchased 950 (2,750) (6,700)
Advances from the Federal Home Loan Bank - - 11,646
Repayment of advances from the Federal Home Loan Bank (6,067) (6,395) (10,248)
Stock options exercised 823 310 436
Dividends paid (6,491) (5,741) (5,559)
---------- ---------- ----------
Net cash provided by financing activities 88,297 51,826 22,559
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,078) 29,647 (12,422)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 164,162 134,515 146,937
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $161,084 $164,162 $134,515
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mid-America Bancorp is a bank and savings and loan holding company
whose primary subsidiary is Mid-America Bank of Louisville and
Trust Company (the Bank). Other subsidiaries include Mid-America
Bank, FSB and Mid-America Money Order Company. Mid-America
Bancorp is primarily engaged in commercial and personal banking
activities and trust services. Although much less significant to
operations and financial condition, Mid-America Bancorp, through
its money order subsidiary, is engaged in the issuance and sale of
retail money orders and similar payment instruments throughout the
United States. Banking activities are conducted predominantly in
Jefferson County, Kentucky and surrounding communities.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of Consolidation -- The consolidated financial
statements include the accounts of Mid-America Bancorp and its
wholly-owned subsidiaries (the Company). Significant intercompany
accounts have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform with current
classifications.
Securities -- Debt securities are classified as securities held to
maturity and carried at amortized cost if management has the
positive intent and ability to hold the securities to maturity.
Securities purchased with the intention of recognizing short-term
profits are placed in a trading account and are carried at market
value with unrealized gains or losses reported in income.
Securities not classified as securities held to maturity or trading
and which may be sold in response to or in anticipation of changes
in interest rates or based on other factors are designated as
securities available for sale and are carried at fair value with
unrealized gains or losses, net of tax effects, reflected in
shareholders' equity. Amortization of premiums and accretion of
discounts are recorded on the interest method. The specific
identification method is used in determining gains and losses on
the sale of securities.
Loans and Allowance for Loan Losses -- Loans are reported at the
principal balance outstanding, net of unearned income and deferred
loan fees. Interest on loans and amortization of unearned income
and deferred loan fees are computed by methods which result in
level rates of return. Generally, the accrual of interest on
loans, including impaired loans, is discontinued when it is
determined that the collection of interest or principal is
doubtful, or when a default of interest or principal has existed
for 90 days or more, unless such loan is well secured and in the
process of collection. Cash payments received on nonaccrual loans
generally are applied against principal, and interest income is
only recorded once principal recovery is reasonably assured.
The allowance for loan losses is maintained at a level adequate to
absorb estimated probable credit losses. Management determines the
adequacy of the allowance based upon reviews of individual credits,
evaluation of the risk characteristics of the loan portfolio,
including the impact of current economic conditions on the
borrowers' ability to repay, past collection and loss experience
and such other factors, which, in management's judgment, deserve
current recognition. The allowance for loan losses is increased by
charges to operating earnings and reduced by charge-offs, net of
recoveries.
Effective January 1, 1995, the Company adopted FASB Statement No.
114, "Accounting by Creditors for Impairment of a Loan", as amended
by FASB Statement No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures". Under these
standards, a loan is impaired when it is probable that the creditor
will be unable to collect contractual interest and principal
according to the terms of the loan agreement. The allowance for
loan losses related to impaired loans is based on discounted cash
flows at the loan's initial effective interest rate or the fair
value of collateral for collateral dependent loans.
Premises and Equipment -- Premises and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation is
computed over the estimated useful lives of the assets or lease
term, if shorter, on the straight line method.
Other Assets -- Included in other assets is real estate acquired in
settlement of loans which is carried at the lower of cost or fair
value minus estimated disposition costs. Any write-downs at the
date of acquisition are charged to the allowance for loan losses.
Expenses incurred in maintaining assets, subsequent write-downs to
reflect declines in value, and realized gains or losses are
reflected in operations.
Income Taxes -- The Company utilizes the asset and liability method of
accounting for income taxes. The amounts provided for income taxes
are based upon the amounts of current and deferred taxes payable or
refundable at the date of the financial statements as measured by the
provisions of enacted laws and tax rates.
Net Income Per Common Share -- Net income per common share is
determined by dividing net income by the weighted average number of
shares of common stock outstanding, adjusted for the effect of
stock options.
<PAGE>
B. CASH FLOWS
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, federal funds sold,
and securities purchased under agreements to resell. Certain activities of
the Company, such as the acquisition of property in exchange for
release of indebtedness, do not result in cash receipts or payments
and, therefore, are not presented in the consolidated statements of cash flows.
During 1996, 1995 and 1994, cash paid for income taxes
amounted to $8,056,000, $5,046,000 and $3,769,000,
respectively, and cash paid for interest was $46,939,000
$41,183,000 and $34,253,000, respectively. Loans transferred
to other assets were $12,470,000 in 1996, $158,000 in 1995,
and $648,000 in 1994. Securities held to maturity transferred to
securities available for sale amounted to $146,022,000
in 1995.
<PAGE>
C. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Company enters into purchases of U.S. Treasury and U.S. government agency
securities under agreements to resell such securities. The amounts advanced
under these agreements represent short-term loans and are reflected as a
receivable on the consolidated balance sheets. The securities are delivered
to third-party custodians' accounts designated by the Company under a written
custodial agreement that explicitly recognizes the Company's interest in these
securities. At December 31, 1996, these agreements matured in less than 7
days. Securities purchased under agreements to resell averaged $113,110,000
during 1996 with an average yield of 5.36% and averaged $18,740,000 during
1995 with an average yield of 5.90%. The maximum month-end balance
outstanding during 1996 and 1995 was $145 million and $75 million,
respectively.
<PAGE>
D. SECURITIES
The amortized cost and market value of securities available for sale follows:
<TABLE>
<CAPTION>
In Thousands December 31, 1996 December 31, 1995
--------------------------------------- ---------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
U.S. government agencies $147,230 $1,240 $170 $148,300 $218,667 $4,220 $5 $222,882
Collateralized mortgage obligations 100,308 594 148 100,754 14,267 164 19 14,412
States and political subdivisions 40,697 1,022 115 41,604 10,841 465 5 11,301
Corporate obligations 28,811 15 1 28,825 28,023 102 18 28,107
Equity securities 16,635 -- -- 16,635 15,672 -- -- 15,672
--------------------------------------- ---------------------------------------
$333,681 $2,871 $434 $336,118 $287,470 $4,951 $47 $292,374
======================================= =======================================
</TABLE>
<TABLE>
<CAPTION>
The amortized cost and market value of securities held to maturity follows:
In Thousands December 31, 1996 December 31, 1995
--------------------------------------- ---------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
U.S. government agencies $75,455 $217 $21 $75,651 $69,226 $464 $25 $69,665
Corporate obligations 100 -- -- 100 100 1 -- 101
--------------------------------------- ---------------------------------------
$75,555 $217 $21 $75,751 $69,326 $465 $25 $69,766
======================================= =======================================
</TABLE>
In December 1995, a one-time reassessment of the Company's securities held
to maturity was undertaken, as permitted by the Financial Acoounting Standards
Board's special report related to implementation of FASB Statement No. 115. In
connection with that reassessment, the Company transferred securities held to
maturity with an amortized cost of $146,022,000 to securities available for
sale in order to permit more responsiveness to changes in interest rates and
other balance sheet management factors. At the date of transfer, December 1,
1995, the securities held to maturity had net unrealized gains of $2,422,000.
A summary of debt securities at December 31, 1996 based on scheduled
maturities is shown in the table below. Actual maturities may differ
from scheduled maturities because issuers may have the right to call
or prepay obligations with or without prepayment penalties.
Collateralized mortgage obligations are assigned to maturity categories
based on estimated average life.
<TABLE>
<CAPTION>
In Thousands Securities Available for Sale Securities Held to Maturity
----------------------------- -----------------------------
Amortized Market Amortized Market
Cost Value Cost Value
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Due within one year $59,493 $59,528 $69,961 $70,020
Due after one year through five years 166,325 167,618 5,594 5,731
Due after five years through ten years 33,636 33,920 -- --
Due after ten years 57,592 58,417 -- --
----------------------------- -----------------------------
$317,046 $319,483 $75,555 $75,751
============================= =============================
</TABLE>
Gross realized gains and losses on sales of available for sale
and $690,000, respectively, in 1995, and $9,000 and $13,000, respectively,
in 1994. Securities with a book value of $246,142,000 and $228,046,000 at
December 31,1996 and 1995, respectively, were pledged to secure public
and trust deposits, repurchase agreements and for other purposes.
<PAGE>
E. LOANS
The composition of loans follows:
<TABLE>
<CAPTION>
In Thousands December 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Commercial and financial $386,647 $345,167
Real estate - construction and development 55,738 61,398
Real estate - residential mortgages 294,746 284,074
Consumer 67,051 57,926
------------ ------------
$804,182 $748,565
============ ============
</TABLE>
Loans outstanding and unfunded commitments are primarily concentrated in
the Company's market area which encompasses Jefferson County, Kentucky and
surrounding communities. The Company's credit exposure is diversified,
with secured and unsecured loans to consumers, small businesses and large
corporations. Although the Company has a diversified loan portfolio, the
ability of customers to honor loan commitments is based, in part, on the
economic stability of the geographic region and/or industry in which they
do business.
At December 31, 1996 and 1995, the recorded investment in impaired loans,
recognized in conformity with FASB Statement No. 114, was $3.424 and
$14.328 million, respectively. All impaired loans are on a nonaccrual
basis. Included in impaired loans at December 31, 1996 is $1.439
million of impaired loans for which the related allowance for loan losses
is $179,000, and $36,000 of impaired loans, that as a result of
charge-offs do not have an allowance for loan losses. Included in
impaired loans at December 31, 1995 is $11.460 million of impaired
loans for which the related allowance for loan losses is $1.930 million,
and $2.868 million of impaired loans that as a result of charge-offs do
not have an allowance for loan losses. The average recorded investment
in impaired loans during 1996 and 1995 was approximately $5.343 and
$6.989 million, respectively. For the years ended December 31, 1996 and
1995, the Company recognized interest income on impaired loans of
$109,000 and $89,000, respectively, using the cash basis method of income
recognition.
At December 31, 1994, the Company had nonaccrual loans of
approximately $2.7 million. The Company recorded $47,000 of interest income
on these loans in 1994 and would have recorded $208,000 of interest income
if these loans were performing under original terms.
<PAGE>
F. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
In Thousands 1996 1995 1994
------------------------------
<S> <C> <C> <C>
Balance, January 1 $9,318 $7,045 $6,578
Loans charged-off (1,025) (4,045) (493)
Recoveries 460 271 248
------------------------------
Net loans charged-off (565) (3,774) (245)
Provision for loan losses 414 6,047 712
------------------------------
Balance, December 31 $9,167 $9,318 $7,045
==============================
</TABLE>
<PAGE>
G. PREMISES AND EQUIPMENT AND LEASE COMMITMENTS
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
In Thousands December 31
---------------------------
1996 1995
---------------------------
<S> <C> <C>
Land $4,643 $4,658
Buildings and leasehold improvements 13,532 12,088
Furniture and equipment 21,460 20,213
---------------------------
39,635 36,959
Less accumulated depreciation and amortization 18,184 16,694
---------------------------
$21,451 $20,265
===========================
</TABLE>
At December 31, 1996, the Company was obligated under long-term
operating leases covering various premises and equipment. The Company's main
office and most branch office lease agreements contain renewal options.
Computer equipment leases are cancelable generally within a short period of
time and without substantial penalties.
Rental expense, net of insignificant amounts of sublease rental income, was
$1,134,000, $1,183,000 and $1,195,000 for 1996, 1995 and 1994, respectively.
Minimum rental commitments under noncancelable leases in future years are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------
In Thousands
<S> <C>
1997 $1,082
1998 $1,021
1999 $974
2000 $971
2001 $965
Thereafter $4,736
===============================================================
</TABLE>
<PAGE>
H. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
In Thousands 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income taxes applicable to operations:
Current:
Federal $6,848 $4,280 $5,243
State 248 55 14
--------- --------- ---------
7,096 4,335 5,257
Deferred 217 (957) 485
--------- --------- ---------
Total applicable to operations 7,313 3,378 5,742
Charged (credited) to components of stockholders' equity:
Net unrealized securities gains (losses) (863) 2,827 (1,110)
Stock options exercised (48) (13) (36)
Pension liability adjustment (63) -- --
--------- --------- ---------
Total income taxes $6,339 $6,192 $4,596
========= ========= =========
</TABLE>
The provision for income taxes in the consolidated statements of income
is reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax at federal statutory rate 35.0% 35.0% 35.0%
Tax exempt interest income (4.6) (7.3) (3.6)
Non-deductible expenses 1.5 2.7 1.4
Other, net 0.8 (0.9) (1.5)
--------- --------- ---------
32.7% 29.5% 31.3%
========= ========= =========
</TABLE>
Other liabilities include deferred income taxes of $442,000 and $703,000
at December 31, 1996 and 1995, respectively. The principal types of basis
differences between assets and liabilities for financial reporting and tax
return purposes which give rise to deferred taxes relate to the following:
<TABLE>
<CAPTION>
In Thousands 1996 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Lease accounting $1,290 $1,267
Depreciation 1,533 1,705
Mark-to-market adjustments related to securities 708 1,123
Other 1,295 1,031
--------- ---------
Total deferred tax liabilities 4,826 5,126
--------- ---------
Deferred tax assets:
Allowance for loan losses 3,281 3,334
Deferred compensation 245 263
Other 858 826
--------- ---------
Total deferred tax assets 4,384 4,423
--------- ---------
Net deferred tax liabilities $442 $703
========= =========
</TABLE>
Based upon historical and projected levels of taxable income, management
believes it is more likely than not that the Company will realize the
income tax benefits of its deductible temporary differences. Accordingly,
no valuation allowance for deferred tax assets was recorded at December 31,
1996 and 1995.
<PAGE>
I. DEPOSITS
Included in deposits are certificates of deposit and other time
deposits in denominations of $100,000 or more in the amounts of
$83,459,000 and $67,326,000 at December 31, 1996 and 1995,
respectively. Also included are retail brokered certificates of
deposit aggregating approximately $10 million at December 31, 1996
and 1995.
At December 31, 1996, the scheduled maturities of certificates of
deposit are as follows:
In Thousands
Year of Maturity
1997 $240,464
1998 99,673
1999 25,593
2000 16,466
2001 7,376
2002 and thereafter 12,937
---------
$402,509
=========
<PAGE>
J. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company enters into sales of securities under agreements to
repurchase which are treated as financings. The obligation to
repurchase securities sold is reflected as a liability and the
assets underlying the agreements remain in the respective
securities account. Information concerning securities sold
under agreements to repurchase is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Dollars In Thousands ------------------------------------------------ -------------------------------------------------
Asset Sold Repurchase Liability Asset Sold Repurchase Liability
------------------------- ---------------------- ------------------------- ----------------------
Weighted Weighted
Average Average
Carrying Market Interest Carrying Market Interest
Maturity/Type of Asset Amount Value Amount Rate Amount Value Amount Rate
------------ ------------ ------------ --------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Overnight to 30 Days
U.S. Treasury and
government agencies $275,506 $276,460 $276,141 5.04% $211,094 $213,857 $212,666 5.41%
31 to 90 Days
U.S. Treasury and
government agencies 295 301 300 4.80 14,517 14,556 14,500 5.28
Over 90 Days but less than 180 Days
U.S. Treasury and
government agencies 10,204 10,213 9,507 5.33 -- -- -- --
------------ ------------ ------------ --------- ------------ ------------ ------------ ---------
$286,005 $286,974 $285,948 5.05% $225,611 $228,413 $227,166 5.40%
============ ============ ============ ========= ============ ============ ============ =========
</TABLE>
1996 1995
------------ ------------
Average balance during the year $252,577 $148,758
Average interest rate during the year 5.01% 5.51%
Maximum month-end balance during the year $320,174 $227,166
<PAGE>
K. ADVANCES FROM THE FEDERAL HOME LOAN BANK
The Bank is a member of the Federal Home Loan Bank of Cincinnati (FHLB) and,
accordingly, is eligible to borrow from the FHLB. The Bank pledges certain
first mortgage loans as collateral for these advances. The aggregate balance
in these mortgages must equal 150% of the advances outstanding. Certain
information with respect to outstanding advances from the FHLB is summarized
below:
<TABLE>
<CAPTION>
Dollars In Thousands
December 31, 1996
--------------------------
Weighted
Average
Interest
Year of Maturity Amount Rate
--------------------------------------------------------
<S> <C> <C>
1997 $404 4.80 %
1998 2,683 5.97
2000 275 5.77
2007 - 2011 40,329 6.24
2012 - 2015 6,101 7.04
------------ -----------
$69,042 6.14 %
============ ===========
</TABLE>
Scheduled principal repayments on advances from the FHLB are $5,877,000,
$8,178,000, $5,997,000, $6,566,000, and $6,740,000 for 1997 through 2001,
respectively, and $35,684,000 thereafter.
<PAGE>
L. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and employee
compensation during the ten years of employment prior to retirement. The
Company's funding policy is to contribute annually the amount greater than or
equal to the funding requirements of ERISA, but not in excess of the maximum
deductible limit. Employer contributions are intended to provide not only
for benefits attributed to service to date, but also for those expected to be
earned in the future.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
In Thousands December 31
----------------------
1996 1995
----------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$7,603 (1996) and $6,773 (1995) $8,117 $7,146
======================
Plan assets at market value, primarily debt and equity mutual funds $10,880 $10,884
Projected benefit obligation for service rendered to date 11,511 10,432
----------------------
Plan assets in excess of (less than) projected benefit obligation (631) 452
Unrecognized net loss from past experience different 0 0
Unrecognized prior service cost 39 (55)
Unrecognized net asset at January 1, 1986 being recognized over
approximately 16 years (837) (1,018)
----------------------
(Accrued) prepaid pension cost ($217) $377
======================
</TABLE>
Net pension expense for 1996, 1995 and 1994 included the following components:
<TABLE>
<CAPTION>
In Thousands Years ended December 31
---------------------------------
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period ($740) ($472) ($506)
Interest cost on projected benefit obligation (819) (715) (655)
Actual return on plan assets 537 1,622 (297)
Amortization and deferral - net 428 (604) 1,366
---------------------------------
Net pension expense ($594) ($169) ($92)
=================================
</TABLE>
A discount rate of 7.75 % in 1996 and 7.25 % in 1995 and a rate of increase
in future compensation levels of 5.00 % were used in determining the
actuarial present value of the projected benefit obligation. The expected
long-term rate of return on assets was 8.00 %.
The Company does not have a significant commitment to pay post-retirement or
post-employment benefits other than pension benefits.
The Company also sponsors an unfunded non-qualified excess benefit plan
covering certain executive officers. The plan had an accrued unfunded
accumulated benefit obligation (ABO) of $1,157,000 at December 31, 1996 and
$833,000 at December 31, 1995. Expenses of the plan were approximately $173,000
in 1996, $186,000 in 1995 and $176,000 in 1994. The provisions of FASB
Statement No. 87, require the recognition of an additional minimum liability,
representing the excess of the unfunded ABO over previously recorded pension
cost liabilities. A corresponding amount is recognized as an intangible asset
except to the extent the additional liability exceeds prior service costs,
in which case the increase in the liability is charged directly to
stockholders' equity, net of taxes. As of December 31, 1996, $269,000 of
excess liability resulted in an intangible asset of $90,000 and a charge to
equity net of taxes, of $116,000.
The Company also offers a defined contribution employee stock ownership plan.
The Company's contribution to this plan was $560,000, $476,000, and $441,000
for 1996, 1995 and 1994, respectively.
The Company has incentive stock option plans under which shares of common
stock have been reserved for the granting of stock options to certain key
employees of the Company. The Company applies APB Opinion No.25 and
related Interpretations in accounting for its plans. Accordingly, no
compensation expense has been recognized for these fixed stock option plans.
Had compensation cost for the Company's stock options granted in 1996 and 1995
been determined under the fair value approach described in FASB Statement No.
123, "Accounting for Stock-Based Compensation", the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
In Thousands Except Per Share Amounts Years ended December 31
----------------------
1996 1995
----------------------
<S> <C> <C>
Net income As Reported $15,029 $8,066
Pro forma 14,978 7,630
Primary earnings As Reported $1.58 $0.85
per share Pro forma 1.58 0.81
Fully diluted As Reported $1.57 $0.85
earnings per share Pro forma 1.57 0.80
</TABLE>
The fair values of the option grants are estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yields
of 3.89% and 4.00%; expected volatility of 16% and 16%; risk-free interest
rates of 6.09% and 7.56%; and expected lives of 6.50 and 6.43 years.
The plans provide that the option price shall not be less than the fair
market value of the stock at the effective date the options are granted,
and that the term of the options shall not be more than ten years from the
date of the grant. Options granted under the plans are exercisable one year
after date of the grant. Options granted after 1996 are exercisable ratably
over a four year period. Shares available for future grants were $1,024,541
at December 31, 1996.
A summary of the status of the Company's incentive stock option plans as of
December 31, 1996, 1995, and 1994 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 745,660 $14.42 612,374 $13.88 664,565 $13.73
Granted 25,750 17.71 218,545 15.37 --
Expired (6,988) 15.98 (60,272) 13.20 (2,247) 11.41
Exercised (59,575) 13.25 (24,987) 12.52 (49,944) 11.97
Outstanding at December 31 ----------- ----------- -----------
704,847 $14.62 745,660 $14.42 612,374 $13.88
=========== =========== ===========
Exercisable at December 31 679,097 527,115 612,374
=========== =========== ===========
Weighted-average fair value
of options granted $3.18 $3.29
=========== ===========
</TABLE>
The following table summarizes information about incentive stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ----------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Remaining Exercise Exercise
Prices Shares Life Price Shares Price
- -------------- --------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
$ 9.70 to 13.00 157,732 3.8 years $11.10 157,732 $11.10
13.01 to 16.00 327,488 7.0 years 14.86 327,488 14.86
16.01 to 18.24 219,627 6.8 years 16.79 193,877 16.67
----------- -----------
$ 9.70 to 18.24 704,847 6.3 years 14.62 679,097 14.50
=========== ===========
</TABLE>
Common stock received through the exercise of incentive stock options which
is sold by the optionee within two years of grant or one year of exercise
results in a tax deduction for the Company equivalent to the taxable gain
recognized by the optionee. For financial reporting purposes, the tax effect
of this deduction is accounted for as an increase in additional paid-in
capital rather than as a reduction of income tax expense.
<PAGE>
M. REGULATORY RESTRICTIONS ON DIVIDENDS AND CASH AND OTHER REGULATORY MATTERS
Under the Federal Reserve Act, prior approval of the Federal banking
authorities is required if dividends declared by the Company's banking
subsidiary in any year exceed its net profits for that year, as defined,
combined with retained net profits, as defined, for the two preceding years.
As of January 1, 1997, the aggregate amount of retained earnings available for
distribution to the Company by all subsidiaries without prior approval was
approximately $3,721,000. In addition to restrictions on the payment of
dividends, the Federal Reserve and the Commonwealth of Kentucky place certain
cash reserve requirements on deposits. The reserve requirements, which were
$9,217,000 at December 31, 1996, are met by holding a percentage of deposits
in vault cash or maintaining a balance directly with the Federal Reserve. The
Company was in compliance with all cash reserve requirements at
December 31, 1996.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material affect on the Company's and Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and the Bank must meet specific
capital guidelines that involve quantitative measures of the Company's and
the Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company's and the
Bank's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I Capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1996, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes
have changed the institution's category.
The Company's and the Bank's actual capital amounts and ratios are presented
in the following table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ------------------
Dollars In Thousands Amount Ratio Amount Ratio Amount Ratio
---------- ------- ---------- ------- ---------- -------
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets)
Consolidated $148,246 15.6% $76,022 > 8.0 % $95,028 >10.0 %
Bank $112,842 12.2% $73,775 > 8.0 % $92,219 >10.0 %
Tier I Capital
(to Risk Weighted Assets)
Consolidated $139,079 14.6% $38,011 > 4.0 % $57,017 > 6.0 %
Bank $103,704 11.3% $36,888 > 4.0 % $55,332 > 6.0 %
Tier I Capital
(to Average Assets)
Consolidated $139,079 10.6% $52,574 > 4.0 % $65,717 > 5.0 %
Bank $103,704 8.2% $50,487 > 4.0 % $63,108 > 5.0 %
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets)
Consolidated $138,888 16.0% $69,587 > 8.0 % $86,984 >10.0 %
Bank $119,188 14.3% $66,887 > 8.0 % $83,609 >10.0 %
Tier I Capital
(to Risk Weighted Assets)
Consolidated $129,570 14.9% $34,793 > 4.0 % $52,190 > 6.0 %
Bank $109,886 13.1% $33,444 > 4.0 % $50,165 > 6.0 %
Tier I Capital
(to Average Assets)
Consolidated $129,570 11.1% $46,869 > 4.0 % $58,586 > 5.0 %
Bank $109,886 9.7% $45,141 > 4.0 % $56,427 > 5.0 %
</TABLE>
<PAGE>
N. COMMON STOCK DIVIDENDS
The following table sets forth the Company's stock dividends to common
shareholders:
<TABLE>
<CAPTION>
Declaration Record Payable Stock Dividend
Date Date Date Percentage
- ---------- ---------- ---------- ----------
<S> <C> <C> <C>
November 18, 1996 December 3, 1996 December 13, 1996 3.0 %
November 20, 1995 December 4, 1995 December 15, 1995 3.0
November 21, 1994 December 12, 1994 December 29, 1994 3.0
</TABLE>
Per share information in the consolidated financial
statements reflects the adjusted number of shares.
<PAGE>
O. COMMITMENTS AND CONTINGENCIES
In the normal course of business, in order to meet the financing needs of
customers, the Company has outstanding commitments and contingent
liabilities. At December 31, 1996, the Company had $299,671,000 of
commitments to extend credit (of which $112,312,000 relates to home equity
lines of credit), substantially all of which are at varible rates,
including standby letters of credit of $10,921,000, which are not
reflected in the consolidated financial statements. The Company's exposure
to credit loss in the event of nonperformance by the other party to these
commitments is represented by the contractual amount of those instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Company upon
extension of credit is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, real estate and income-producing
commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to
support public and private borrowing arrangements, including commercial
paper, bond financing and similar transactions.
At December 31, 1996, there were various pending legal actions in which claims
for damages were asserted. In one such matter, the Bank is one of 13
defendants named in a lawsuit filed on December 10, 1993, by Kentucky Central
Life Insurance Company (in Rehabilitation) involving certain real estate
loans. Management, after discussion with legal counsel concerning the
adequacy of the Company's defenses, believes that this and other legal actions
will not have a material adverse effect upon the financial condition of the
Bank or the Company.
<PAGE>
P. OTHER NON-INTEREST INCOME AND OPERATING EXPENSES
Significant components of other non-interest income and other
operating expenses are set forth below:
<TABLE>
<CAPTION>
In Thousands 1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Other non-interest income:
Gain on sale of program agent base $1,797 $ - $ -
of money order subsidiary
Other 3,086 2,521 2,565
----------- ----------- -----------
$4,883 $2,521 $2,565
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
In Thousands 1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Other operating expenses:
Advertising and marketing $1,262 $704 $596
Operating supplies 1,601 2,080 1,649
Professional fees 2,212 1,553 899
Taxes-Bank, property and other 1,637 1,386 1,436
Deposit insurance 13 848 1,642
Other 4,370 5,154 3,984
----------- ----------- -----------
$11,095 $11,725 $10,206
=========== =========== ===========
</TABLE>
<PAGE>
Q. RELATED PARTY TRANSACTIONS
Loans to directors, executive officers and principal holders of the Company's
common stock and associates of such persons are presented below:
<TABLE>
<CAPTION>
In Thousands
<S> <C>
Balance, January 1, 1996 $4,574
New loans 13,234
Repayments (6,397)
Additions for changes in related party group 30
---------
Balance, December 31, 1996 $11,441
=========
</TABLE>
The above transactions were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for other
customers in the ordinary course of business.
The Company purchases services from companies controlled by certain members of
the Board of Directors and in prior years leased certain office space from a
retired director. Amounts paid were approximately $8,000, $15,000 and $629,000
for 1996, 1995 and 1994, respectively.
<PAGE>
R. FINANCIAL INSTRUMENTS - INTEREST RATE SWAP CONTRACTS
The Company manages its exposure to market risk, in part, by
using interest rate swap contracts to modify the existing interest
rate characteristics of its floating rate loan portfolio.
The notional amount of the interest rate swap contracts
represents only an agreed-upon amount on which calculations of
interest payments to be exchanged are based, and is significantly
greater than the amount at risk. Credit risk is measured as the
cost of replacing, at current market rates, contracts in an
unrealized gain position. Although the Company is exposed to
credit-related losses in the event of nonperformance by the
counterparty, based on management's assessment, as of
December 31, 1996, the counterparty was expected to meet its
obligations. In addition, the Company deals exclusively with
counterparties with high credit ratings, enters into bilateral
collateral arrangements and arranges master netting
agreements. These agreements include legal rights of setoff that
provide for the net settlement of the subject contracts with the
same counterparty in the event of default.
At December 31, 1996, the Company had entered into interest
rate swap contracts with notional amounts totaling $150 million,
with a weighted average maturity of 3.2 years. Under these
contracts the Company receives or pays the difference between
the floating prime rate and fixed rates stated in the contracts.
At December 31, 1996, the floating prime rate to be paid by the
Company was 8.25% and the weighted average fixed rate to be
received by the Company was 8.56%. At December 31, 1995 the
Company had interest rate swap contracts of $100 million, with
a weighted average maturity of 3.8 years, and a weighted
average fixed rate to be received by the Company of 8.728%.
Net receipts or payments under the contracts are recognized as
adjustments to interest income. Interest rate swap contracts
increased net interest income by $450,000 in 1996 and $21,000 in
1995. At December 31, 1996 and 1995, the aggregate fair value
of interest rate swap contracts, determined through market
quotes, was approximately ($1,019,000) and $2,444,000, respectively.
<PAGE>
S. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
In Thousands December 31, 1996 December 31, 1995
----------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $161,084 $161,084 $164,162 $164,162
Securities 411,673 411,869 361,700 362,140
Loans, net of allowance for loan losses 795,015 797,082 739,247 744,835
Financial liabilities:
Deposits 825,257 829,946 784,957 791,720
Short-term borrowings 289,948 289,948 230,216 230,216
Advances from the Federal Home Loan Bank 69,042 66,499 75,109 74,131
Money orders and similiar payment
instruments outstanding 76,533 76,533 79,409 79,409
Off-balance sheet financial instruments
Interest rate swaps --- (1,019) --- 2,444
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, Short-Term Investments, and Short-Term Borrowings--For those short-
term instruments, the carrying amount is a reasonable estimate of fair value.
Securities--For securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities or dealer quotes.
Loans--The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities,
reduced by the allowance for loan losses which represents the estimated
credit losses in the loan portfolio.
Deposits--The fair value of demand deposits, savings accounts, and money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
Advances from the Federal Home Loan Bank--Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate fair value of existing debt.
Money Orders and Similiar Payment Instruments Outstanding--The fair value of
these instruments, payable upon demand, is carrying value.
Interest Rate Swaps--The fair value of interest rate swaps is the estimated
amount, based on market quotes, that the Company would receive or pay to
terminate the agreement at the reporting date, taking into account current
interest rates and the remaining term of the agreements.
Commitments--The fair value of commitments to extend credit is estimated
using the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. There are no significant fair value
adjustments for commitments.
Limitations--The fair value estimates are made at a discrete point in time
based on relevant market information about the financial instruments.
Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgements
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
<PAGE>
T. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
<TABLE>
<CAPTION>
Condensed Balance Sheets
In Thousands December 31
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Assets:
Cash on deposit with bank subsidiary $12,295 $2,501
Investment in bank and thrift subsidiaries 108,677 116,899
Investment in other subsidiaries 16,203 13,785
Other assets 3,487 410
------------ ------------
Total assets $140,662 $132,961
============ ============
Liabilities and shareholders' equity:
Other liabilities $24 $11
Shareholders' equity 140,638 132,950
------------ ------------
Total liabilities and shareholders' equity $140,662 $132,961
============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
In Thousands Years Ended December 31
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash dividends from bank subsidiary $19,300 $6,000 $5,800
Interest income and other income 300 2 1
Other expenses (117) (210) (217)
------------ ------------ ------------
Income before income taxes and equity
in undistributed earnings of subsidiaries 19,483 5,792 5,584
Applicable income tax (expense) benefit (168) 64 56
------------ ------------ ------------
Income before equity in undistributed earnings of
subsidiaries 19,315 5,856 5,640
Equity in undistributed earnings of subsidiaries (4,286) 2,210 6,972
------------ ------------ ------------
Net income $15,029 $8,066 $12,612
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
In Thousands Years Ended December 31
---------------------------------------
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $15,029 $8,066 $12,612
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries 4,286 (2,210) (6,972)
(Increase) decrease in other assets (3,077) (328) 113
Increase (decrease) in other liabilities 58 (731) 731
--------- --------- ---------
Net cash provided by operating activities 16,296 4,797 6,484
--------- --------- ---------
Cash flows from investing activities:
Investment in subsidiaries (200) -- --
--------- --------- ---------
Cash flows used in financing activities:
Dividends paid (6,491) (5,741) (5,559)
Stock options exercised 823 310 436
---------- ---------- ---------
Net cash used in financing activities (5,668) (5,431) (5,123)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents 10,428 (634) 1,361
Cash and cash equivalents at beginning of year 1,867 2,501 1,140
---------- --------- ---------
Cash and cash equivalents at end of year $12,295 $1,867 $2,501
========== ========= =========
</TABLE>
SUBSIDIARIES OF REGISTRANT Exhibit 21
The subsidiaries of Mid-America Bancorp are listed below. Each of the
companies with the exception of Mid-America Bank, F.S.B., which is a Federal
Savings Bank organized under laws of the United States, is incorporated in the
state of Kentucky.
Mid-America Bank of Louisville and Trust Co.
Mid-America Money Order Company
Eton Life Insurance Company
Mid-America Data Processing Inc.
Mid-America Property Management Company
MABC Leasing Company
Mid-America Bank, F.S.B.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Mid-America Bancorp:
We consent to incorporation by reference in the Registration
Statements No. 2-92270, No. 2-99495, and No. 33-42989 on Forms S-8
of Mid-America Bancorp of our report dated January 24, 1997,
relating to the consolidated balance sheets of Mid-America Bancorp
and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the years in the three-year period ended
December 31, 1996, which report appears in the 1996 annual report
to shareholders, which is incorporated by reference in the December
31, 1996 Form 10-K of Mid-America Bancorp.
Our report refers to a change in the method of accounting for
certain debt and equity securities in 1994.
Louisville, Kentucky /s/ KPMG Peat Marwick LLP
March 24, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> YEAR
<CASH> 30,884
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 130,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 336,118
<INVESTMENTS-CARRYING> 75,555
<INVESTMENTS-MARKET> 75,751
<LOANS> 804,182
<ALLOWANCE> (9,167)
<TOTAL-ASSETS> 1,420,933
<DEPOSITS> 825,257
<SHORT-TERM> 289,948
<LIABILITIES-OTHER> 96,048
<LONG-TERM> 69,042
0
0
<COMMON> 26,144
<OTHER-SE> 114,494
<TOTAL-LIABILITIES-AND-EQUITY> 1,420,933
<INTEREST-LOAN> 73,220
<INTEREST-INVEST> 19,806
<INTEREST-OTHER> 7,759
<INTEREST-TOTAL> 100,785
<INTEREST-DEPOSIT> 30,662
<INTEREST-EXPENSE> 47,979
<INTEREST-INCOME-NET> 52,806
<LOAN-LOSSES> 414
<SECURITIES-GAINS> 129
<EXPENSE-OTHER> 44,577
<INCOME-PRETAX> 22,342
<INCOME-PRE-EXTRAORDINARY> 22,342
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,029
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.57
<YIELD-ACTUAL> 4.39
<LOANS-NON> 3,424
<LOANS-PAST> 925
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,710
<ALLOWANCE-OPEN> 9,318
<CHARGE-OFFS> 1,025
<RECOVERIES> 460
<ALLOWANCE-CLOSE> 9,167
<ALLOWANCE-DOMESTIC> 9,167
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
ADDITIONAL EXHIBITS Exhibit 99
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to _______
Commission File Number 1-10602
A. Full title of the plan and the address of the plan,
if different from that of the issuer named below.
The Bank of Louisville Employee Stock Ownership
Plan
B. Name of the issuer of the securities held pursuant
to the plan and the address of its principal
executive office.
Mid-America Bancorp
500 West Broadway
Louisville, Kentucky 40202
REQUIRED INFORMATION
Financial statements and schedules prepared in accordance with the
financial reporting requirements of ERISA will be filed under cover of
Form SE within 180 days of the Plan's year-end (December 31, 1996).
