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, 1997
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
______________________MIDAMERICA 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
(continued)
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 20,
1998 was approximately $247,431,000.
The number of shares outstanding of the registrant's common stock
as of February 20, 1998 was 9,890,490.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the
year ended December 31, 1997, 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 16, 1998, are incorporated by
reference into Part III.
TABLE OF CONTENTS
PART I
Item No. Page
1. BUSINESS . . . . . . . . . . . . . . . . . . . 3
2. PROPERTIES . . . . . . . . . . . . . . . . . . 13
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . 13
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . 13
EXECUTIVE OFFICERS OF REGISTRANT . . . . . . . 13
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS . . . . . . . 16
6. SELECTED FINANCIAL DATA . . . . . . . . . . . 16
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 16
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK . . . . . . . . . . . . . . 16
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . 16
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . 16
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . 17
11. EXECUTIVE COMPENSATION . . . . . . . . . . . . 17
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . . . 17
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K. . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . .19-20
PART I
ITEM 1. BUSINESS OF MIDAMERICA BANCORP
MidAmerica 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, Bank of Louisville (the
"Bank"), is 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. On March 25, 1983, when the Bank became a wholly-owned
subsidiary of the Company, the name was changed to Mid-America
Bank of Louisville and Trust Company. On March 17, 1998, the
name of the Bank was changed to Bank of Louisville.
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 MidAmerica 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, MidAmerica Gift Certificate Company, is engaged in
the issuance and sale of gift certificates.
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.
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 ranked fourth in terms of total deposits. On
December 31, 1997, there were fifteen commercial banks and trust
companies in Jefferson County, including the Bank.
Employees
As of December 31, 1997, the Company and subsidiaries employed
583 persons on a full-time basis and 88 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 laws and
policies include, for example, statutory maximum legal lending
rates, consumer protection laws, domestic monetary policies of
the Federal Reserve Board, United States fiscal policy, and
dividend, capital adequacy and liquidity constraints imposed by
bank regulatory agencies.
In the future, legislation may be enacted or regulation imposed
to further regulate banking and financial services or to limit
finance charges or other fees or charges earned in such
activities. There can be no assurance whether any such
legislation or regulation will place additional limitations on
the Company's operations or adversely affect its earnings.
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 merging with
another bank holding company or 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 directly supervises the Bank and its 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.
Federal law imposes certain restrictions on transactions between
the Company and its nonbank subsidiaries, on the one hand, and
the Bank and the Savings Bank, on the other. With certain
exceptions, federal law also imposes limitations on, and requires
collateral for, extensions of credit by the Bank and the Savings
Bank to their non-bank affiliates, including the Company.
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. 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. FIRREA also substantially
enhanced the enforcement powers available to federal banking
regulators, and added a "cross-guarantee" provision under which
an insured depository institution controlled by a holding company
can be assessed for losses incurred by the FDIC in connection
with assistance provided to, or the failure of, any other insured
depository institution controlled by the same holding company.
Also, under Federal Reserve Board policy, the Company is expected
to act as a source of financial strength to the Bank and to
commit resources to support the Bank in circumstances where it
might not do so, absent such policy.
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. Among other things, federal
banking regulators are required to take prompt corrective action
in respect of depository institutions that do not meet minimum
capital requirements. The FDIC Improvement Act identifies the
following capital tiers for financial institutions: well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
The FDIC Improvement Act imposes progressively more restrictive
constraints on operations, management and capital distributions,
depending on the capital category in which an institution is
classified. At December 31, 1997, the Bank and the Savings Bank
were "well capitalized" under the applicable regulatory
guidelines. A bank's capital category however, is determined
solely for the purpose of applying the prompt corrective action
rules and may not constitute an accurate representation of the
bank's overall financial condition or prospects.
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 removes state law barriers to interstate
bank acquisitions and permits 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 became operative on June 1, 1997, subject to the right
of any state, prior to that time, to adopt legislation to
accelerate interstate branching or prohibit it completely. The
Act's interstate branching provisions 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.
Effective June 1, 1997, Kentucky banks are permitted to merge
with out-of-state banks to create interstate branches inside or
outside Kentucky. Kentucky does not permit de novo branching by
banks into and out of Kentucky. The Savings Bank is generally
permitted to open a de novo branch in any 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 22 of the Company's annual report to shareholders for
the year ended December 31, 1997, 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, 1997. 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, 1997. 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, 1997
and 1996 are shown in the schedule captioned "Interest Income and Interest
Expense Volume and Rate Changes for the Years 1997 and 1996 Tax Equivalent
Basis" included on page 23 of the Company's annual report to shareholders for
the year ended December 31, 1997, which is incorporated herein by reference.
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO
BOOK VALUE December 31
(In Thousands) -------------------------------------
1997 1996 1995
Securities Available for Sale -------- -------- --------
<S> <C> <C> <C>
U.S. Treasury and U.S. government agencies... $156,654 $148,300 $222,882
Collateralized mortgage obligations.......... 185,474 100,754 14,412
States and political subdivisions............ 53,272 41,604
Corporate obligations........................ 1,765 28,825 28,107
Equity securities ........................... 17,556 16,635 15,672
-------- -------- --------
$414,721 $336,118 $292,374
======== ======== ========
<CAPTION>
December 31
-------------------------------------
1997 1996 1995
Securities Held to Maturity -------- -------- --------
<S> <C> <C> <C>
U.S. Treasury and U.S. government agencies... $108,078 $75,455 $69,226
Corporate obligations........................ 100 100 100
-------- -------- --------
$108,178 $75,555 $69,326
======== ======== ========
</TABLE>
<PAGE>
SECURITIES
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELDS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
(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 $113,972 6.00% $42,682 6.50% -- -- -- --
Collateralized mortgage obligations 34,322 7.08% 137,122 6.75% 14,030 6.77% -- --
States and political
subdivisions 160 5.88% 2,037 6.64% 1,949 8.17% 49,126 8.27%
Corporate obligations -- -- 1,765 8.02% -- -- -- --
Equity securities -- -- -- -- -- -- 17,556 7.04%
-------- -------- -------- --------
$148,454 6.25% $183,606 6.71% $15,979 6.94% $66,682 7.95%
======== ======== ======== ========
<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 $100,057 5.74% $8,021 6.73% -- -- -- --
Corporate obligations 100 5.25% -- -- -- -- -- --
-------- -------- -------- --------
$100,157 5.74% $8,021 6.73% -- -- -- --
======== ======== ======== ========
</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% adjusted for the impact of disallowed interest expense.
LOAN PORTFOLIO
(In Thousands)
<TABLE>
<CAPTION>
December 31
-------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial and financial $425,424 $386,647 $345,167 $299,375 $254,374
Real estate - construction and development 65,513 55,738 61,398 61,083 59,581
Real estate - mortgage 329,086 294,746 284,074 291,198 296,870
Consumer 71,052 67,051 57,926 47,740 46,743
-------- -------- -------- -------- --------
$891,075 $804,182 $748,565 $699,396 $657,568
======== ======== ======== ======== ========
</TABLE>
The loan portfolio includes domestic loans only as the Company has no
foreign loans. The Company has no other category of loans whose
<PAGE>
<TABLE>
<CAPTION>
SELECTED LOAN MATURITIES AND
SENSITIVITY TO INTEREST RATES
DECEMBER 31, 1997
(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 $82,041 $158,784 $184,599 $425,424
Real estate - construction and development 24,304 31,234 9,975 65,513
Real estate - mortgage 138,180 86,395 104,511 329,086
Consumer 41,017 18,773 11,262 71,052
-------- -------- -------- --------
$285,542 $295,186 $310,347 $891,075
======== ======== ======== ========
Predetermined rates $99,637 $190,776 $257,494 $547,907
Floating rates 185,905 104,410 52,853 343,168
-------- -------- -------- --------
$285,542 $295,186 $310,347 $891,075
======== ======== ======== ========
</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
15 and 37, respectively, of the Company's annual report to
shareholders for the year ended December 31, 1997, which is
incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars In Thousands)
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year.................... $9,167 $9,318 $7,045 $6,578 $6,020
Charge-offs:
Commercial and financial.................... 296 661 569 115 48
Real estate - construction and development.. 2,888 28
Real estate - mortgage...................... 98 115 305 139 262
Consumer.................................... 227 249 283 211 266
--------- --------- --------- --------- ---------
Total charge-offs......................... 621 1,025 4,045 493 576
--------- --------- --------- --------- ---------
Recoveries:
Commercial and financial.................... 53 231 44 10 7
Real estate - construction and development.. 462
Real estate - mortgage...................... 225 120 61 125 99
Consumer.................................... 85 109 166 113 176
--------- --------- --------- --------- ---------
Total recoveries.......................... 363 460 271 248 744
--------- --------- --------- --------- ---------
Net charge-offs (recoveries).................. 258 565 3,774 245 (168)
--------- --------- --------- --------- ---------
Provision for loan losses..................... 300 414 6,047 712 390
--------- --------- --------- --------- ---------
Balance, end of year.......................... $9,209 $9,167 $9,318 $7,045 $6,578
========= ========= ========= ========= =========
Average loans, net of unearned income.........$817,262 $767,755 $707,898 $679,100 $615,070
========= ========= ========= ========= =========
Net charge-offs (recoveries)
to average loans, net of unearned income.... 0.03% 0.07% 0.53% 0.04% (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 11 and 12 of the Company's annual report to shareholders for the year
ended December 31, 1997, incorporated herein by reference, for a discussion
of factors affecting loan loss experience during 1997.
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars In Thousands)
1997 1996 1995 1994 1993
--------------------- --------------------- --------------------- --------------------- ---------------------
% 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........ $5,926 47.75% $6,068 48.08% $5,022 46.11% $3,651 42.80% $3,614 38.68%
Real estate -
construction
and development.. 1,343 7.35% 1,576 6.93% 2,932 8.20% 1,773 8.73% 1,235 9.06%
Real estate -
mortgage......... 654 36.93% 498 36.65% 437 37.95% 445 41.64% 378 45.15%
Consumer.......... 1,286 7.97% 1,025 8.34% 927 7.74% 1,176 6.83% 1,351 7.11%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$9,209 100.00% $9,167 100.00% $9,318 100.00% $7,045 100.00% $6,578 100.00%
========== ========== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MATURITY SCHEDULE OF TIME DEPOSITS OF $100,000 AND OVER
DECEMBER 31, 1997
(In Thousands)
Certificate
Of Deposits Other Total
---------- ---------- ----------
<S> <C> <C> <C>
Three months or less.............................. $23,010 $10,502 $33,512
Over three through six months..................... 8,115 -- 8,115
Over six through twelve months.................... 11,277 -- 11,277
Over twelve months................................ 24,259 -- 24,259
---------- ---------- ----------
$66,661 $10,502 $77,163
========== ========== ==========
</TABLE>
RETURN ON EQUITY AND ASSETS
Selected ratios for the years 1997, 1996 and 1995 are included on page 1 of
the Company's annual report to shareholders for the year ended December 31,
1997 and are incorporated herein by reference.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
(Dollars In Thousands)
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 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal funds purchased:
Balance at year end............................. -- $4,000 $3,050
Average during the year......................... $1,595 4,249 3,730
Maximum amount outstanding at any month end..... 4,050 5,350 5,100
Weighted average rate during the year........... 5.35% 5.34% 5.93%
Weighted average rate on December 31............ -- 6.94% 5.99%
1997 1996 1995
---------- ---------- ----------
Securities sold under agreements to repurchase:
Balance at year end............................. $284,500 $285,948 $227,166
Average during the year......................... 257,149 252,577 148,758
Maximum amount outstanding at any month end..... 346,635 320,174 227,166
Weighted average rate during the year........... 5.08% 5.01% 5.51%
Weighted average rate on December 31............ 5.33% 5.05% 5.40%
</TABLE>
ITEM 2. PROPERTIES
The Bank maintains a main office, warehouse, operations center
and 30 branches in Jefferson County, Kentucky. The Bank owns 21
branch offices, leases 7 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 40 automatic
teller machines, at various locations in its traditional customer
base of Jefferson County, Kentucky. The Savings Bank owns its
main office facility and its branch location and operates two
automatic teller machines in Oldham County, Kentucky. See
footnote G to the consolidated financial statements on page 38 of
the Company's annual report to shareholders for the year ended
December 31, 1997, 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 48 of the Company's annual
report to shareholders for the year ended December 31, 1997, 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, 1997, 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, and Marlyn
Y. Smith, is employed pursuant to an employment agreement.
Year From
Name Age Position Held Which Held
Bertram W. Klein 67 Chairman of the Board, 1985
and member of the Executive
Committee
R. K. Guillaume 54 Vice Chairman, Chief 1995
Executive Officer,
Director and member of
Executive Committee
Orson Oliver 54 President, Director and 1985
member of the Executive
Committee
Paul E. Henry 62 Executive Vice President 1989
and member of the Executive
Committee
William J. Hornig 48 Executive Vice President 1995
and member of the Executive
Committee
David N. Klein 41 Executive Vice President 1991
and member of the Executive
Committee
Richard B. Klein 39 Executive Vice President 1991
and member of the Executive
Committee
Donald R. LaMar 47 Executive Vice President, 1995
member of Executive Committee
and President of MidAmerica
Gift Certificate Company
David C. Meece 44 Executive Vice President 1995
and member of Executive
Committee
Gail W. Pohn 59 Executive Vice President 1993
and member of the Executive
Committee
Robert H. Sachs 58 Executive Vice President 1993
and member of the Executive
Committee
Steven A. Small 44 Executive Vice President, 1993
Chief Financial Officer
and member of the Executive
Committee
Marlyn Y. Smith 61 Executive Vice President 1995
and member of 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 MidAmerica Bancorp's Stock
and Related Security Holder Matters" included on page 27 of the
Company's annual report to shareholders for the year ended
December 31, 1997, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information captioned "Summary of Financial Data" included on
page 25 of the Company's annual report to shareholders for the
year ended December 31, 1997, 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 10 through 21 of the
Company's annual report to shareholders for the year ended
December 31, 1997, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information captioned "Interest Rate Sensitivity Management
(Market Risk)" included on pages 17 and 18 of the Company's
annual report to shareholders for the year ended December 31, 1997,
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 29 through
54 in the Company's annual report to shareholders for the year
ended December 31, 1997, are incorporated herein by reference:
Independent Auditors' Report
Consolidated balance sheets - December 31, 1997 and 1996
Consolidated statements of income -
years ended December 31 1997, 1996 and 1995
Consolidated statements of changes in shareholders' equity -
years ended December 31, 1997, 1996 and 1995
Consolidated statements of cash flows -
years ended December 31, 1997, 1996 and 1995
Notes to consolidated financial statements
The information captioned "Quarterly Financial Data" included on
page 26 of the Company's annual report to shareholders for the
year ended December 31, 1997, 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 1998 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 1998 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 1998 Annual Meeting of Shareholders is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing under the headings "OTHER
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 1998 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 the 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 26 through 28 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.
MIDAMERICA BANCORP
March 23, 1998 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 23, 1998
Bertram W. Klein
/s/ R.K. Guillaume Vice Chairman and March 23, 1998
R.K. Guillaume Chief Executive Officer
/s/ Orson Oliver President and Director March 23, 1998
Orson Oliver
/s/ Steven A. Small Executive Vice March 23, 1998
Steven A. Small President & Chief
Financial Officer
/s/ Leslie D. Aberson Director March 23, 1998
Leslie D. Aberson
/s/ Robert P. Adelberg Director March 23, 1998
Robert P. Adelberg
Director March 23, 1998
Stanley L. Atlas
/s/ William C. Ballard, Jr. Director March 23, 1998
William C. Ballard, Jr.
/s/ James E. Cain Director March 23, 1998
James E. Cain
/s/ Martha Layne Collins Director March 23, 1998
Martha Layne Collins
/s/ David Jones, Jr. Director March 23, 1998
David Jones, Jr.
/s/ Peggy Ann Markstein Director March 23, 1998
Peggy Ann Markstein
Director March 23, 1998
Donald G. McClinton
/s/ Jerome J. Pakenham Director March 23, 1998
Jerome J. Pakenham
/s/ John S. Palmore Director March 23, 1998
John S. Palmore
/s/ Woodford R. Porter, Sr. Director March 23, 1998
Woodford R. Porter, Sr.
/s/ Benjamin K. Richmond Director March 23, 1998
Benjamin K. Richmond
/s/ Bruce J. Roth Director March 23, 1998
Bruce J. Roth
/s/ Raymond L. Sales Director March 23, 1998
Raymond L. Sales
/s/ Henry C. Wagner Director March 23, 1998
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, 1997
Commission file number 1-10602
________________
MIDAMERICA BANCORP
INDEX TO EXHIBITS
3(a) Articles of Restatement of Articles of Incorporation
of MidAmerica 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 MidAmerica 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) MidAmerica 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 incorporated by reference
to the Company's annual report on form 10-K
for the year ended December 31, 1995.(*)
10. (c) Employment Agreement between the Company and
R. K. Guillaume incorporated by reference 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 MidAmerica 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) MidAmerica Bancorp 1991 Incentive Stock Option
Plan. Exhibit 28 to Registration Statement No.
33-42989 is incorporated by reference herein.(*)
10. (l) MidAmerica Bancorp 1996 Management Incentive
Compensation Plan incorporated by reference to
the Company's annual report on Form 10-K for
the year ended December 31, 1996.(*)
10. (m) Employment Agreement between the Company and
William J. Hornig incorporated by reference 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 MidAmerica
Bancorp incorporated by reference 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, 1997.
21. Subsidiaries of the Company.
23. Consent of independent auditors.
27. Financial Data Schedule.
99. Additional Exhibits
Form 11-K
<TABLE>
<CAPTION>
Statements re computation of per share earnings Exhibit 11
(In Thousands Except for Per Share Data)
Year ended December 31
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BASIC NET INCOME PER SHARE
Weighted average common stock outstanding....... 9,799 9,679 9,636
========= ========= =========
Net income...................................... $17,915 $15,029 $8,066
========= ========= =========
Basic net income per share...................... $1.83 $1.55 $0.84
========= ========= =========
DILUTED NET INCOME PER SHARE
Weighted average common stock outstanding....... 9,799 9,679 9,636
Common equivalent shares for stock options using
the treasury stock method................... 171 70 64
--------- --------- ---------
Weighted average shares outstanding............. 9,970 9,749 9,700
========= ========= =========
Net income...................................... $17,915 $15,029 $8,066
========= ========= =========
Diluted net income per share.................... $1.80 $1.54 $0.83
========= ========= =========
</TABLE>
All share and per share information has been adjusted for the 3% stock
dividend declared in November 1997.
Comparative Summary
<TABLE>
<CAPTION>
Dollars In Thousands, Except Per Share Amounts 1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
AT YEAR END
Total assets $1,509,579 $1,420,933 $1,313,987
Total deposits 878,829 825,257 784,957
Loans, net of unearned income 891,075 804,182 748,565
Total shareholders' equity 155,709 140,638 132,950
FOR THE YEAR
Net income $17,915 $15,029 $8,066
Cash dividends declared 7,441 6,491 5,741
PER SHARE DATA
Book value $15.76 $14.49 $13.78
Market value 33.63 18.44 17.00
Cash dividends declared 0.76 0.67 0.59
Basic net income 1.83 1.55 0.84
SELECTED RATIOS
Return on average total assets 1.30% 1.14% 0.69%
Return on average shareholders' equity 12.15 11.13 6.26
Cash dividend payout ratio 41.53 43.23 70.24
Average shareholders' equity to average total assets 10.73 10.28 10.99
Allowance for loan losses to loans, net of unearned income 1.03 1.14 1.25
</TABLE>
MANAGEMENT'S DISCUSSION and ANALYSIS
OF
FINANCIAL CONDITION and RESULTS OF OPERATIONS
This discussion analyzes the results of operations and
financial condition for MidAmerica Bancorp and subsidiaries (the
Company), including its primary subsidiary, Bank of Louisville (the
Bank). It should be read in conjunction with the consolidated
financial statements and related notes presented on pages 30 to 54
.
1997 COMPARED TO 1996
Net income for 1997 was $17,915,000 or $1.80 on a diluted per
share basis compared with $15,029,000 or $1.54 on a diluted per
share basis for 1996. Basic net income per share was $1.83 in 1997
and $1.55 in 1996. For 1997, return on average total assets (ROA)
was 1.30% and return on average equity (ROE) was 12.15%, compared
with ROA of 1.14% and ROE of 11.13% in 1996.
The principal factors that contributed to the increase in net
income in 1997 compared to 1996 included the following:
*Increased net interest income on a tax-equivalent basis
of $4,921,000, resulting primarily from increases in
average earning assets. Average earning assets increased
$68 million or 5.4% in 1997.
*Increases in the core components of non-interest income,
which include fees from the trust department, deposits,
bank cards and ATMs. Money order fees declined due to
lower volume subsequent to the sale of approximately one-
third of the money order subsidiary's agent base in 1996.
The agent base sale resulted in a $1.8 million gain in
1996, that contributed to the decline in other non-
interest income in 1997.
*Other operating expenses during 1997 declined in the
aggregate as a result of Company-wide expense control
efforts. The Company's efficiency ratio improved to
61.3% in 1997 from 64.7% in 1996.
The discussion that follows explains in more detail the factors
affecting 1997 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 22.
In 1997, net interest income on a tax equivalent basis
increased $4,921,000 or 9% to $59,298,000. Net interest income was
primarily impacted by the increase in average earning assets.
Slightly higher average interest rates in 1997 than in 1996 also
contributed to the increase in net interest income. The average
yield on earning assets increased from 8.25% in 1996 to 8.35% in
1997, which was accompanied by a constant overall average rate on
interest bearing liabilities of 4.80% for both 1997 and 1996. The
net interest spread was 3.55% in 1997 compared to 3.45% in 1996.
The net yield on earning assets increased in 1997 to 4.54% compared
to 4.39% in 1996. The net yield on earning assets in 1997 was
favorably impacted by the redeployment of earning assets from lower
yielding short-term instruments, to higher yielding loans and
securities, and the majority of growth in funding sources being
attributed to non-interest bearing liabilities, capital and savings
deposits. The average prime rate in 1997 was 8.44% compared to
8.27% in 1996. The average rate on five year U.S. Treasury
securities was 6.21% in 1997 compared to 6.17% in 1996.
Average earning assets increased approximately $68 million or
5.4% in 1997 to $1.308 billion. Average loans increased
approximately $50 million or 6.4% to $817 million. Approximately
two-thirds of the average loan growth related to retail loan
products at promotional rates below 8%. The lower rate retail loan
growth contributed to the decline in the average loan yield from
9.65% in 1996 to 9.56% in 1997. Also, there was an increase in the
average securities portfolio of approximately $45 million and a
shift in the composition of the securities portfolio to higher
yielding obligations of states and political subdivisions and
collateralized mortgage obligations.
The growth in average earning assets was supported by a $41
million increase in average interest bearing deposits and a $22
million increase in average non-interest bearing sources of funds,
primarily gift certificates and money orders 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 1997. Repurchase agreements, a short-term
higher yielding collateralized instrument used by individual and
corporate customers with large amounts of investable funds,
averaged $257 million during 1997, and continue to be a significant
funding source. Average non-interest bearing deposits, other
liabilities and capital were approximately 25% of average earning
assets in 1997 and 1996.
The changes in interest income attributable to volume and rate
changes are summarized in the table on page 23.
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $300,000 in 1997 compared to
$414,000 for 1996. During 1997, the Company had net charge-offs of
$258,000 or 0.03% of average loans, compared to $565,000 or 0.07%
of average loans in 1996. The level of non-performing loans at
December 31, 1997, 0.28% of total loans, is at its lowest level in
five years. The provision for loan losses was determined with
consideration given to the low level of charge-off experience and
non-performing loans, and the results of detailed loan review
procedures. Management believes that the loan portfolio continues
to be in excellent condition.
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, 1997, the allowance
for loan losses was 1.03% of loans outstanding and 373% of non-
performing loans.
During 1997, the commercial and financial loan category
increased $39 million or 10%. 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 loss for this category of
loans over the last five years has been approximately $1.4 million.
Mortgage and other retail loan products increased $38 million or
11% in 1997, 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 increased since last year,
while the underlying loan composition in this category remains
diversified between residential and commercial properties.
The table on page 11 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 1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $9,167 $9,318 $7,045
Provision for loan losses 300 414 6,047
Net loan charge-offs (258) (565) (3,774)
---------------------------------------------
Balance, December 31 $9,209 $9,167 $9,318
=============================================
Average loans $817,262 $767,755 $707,898
Loans at year-end 891,075 804,182 748,565
Non-performing loans at year-end 2,466 4,349 15,143
Impaired loans at year-end 1,670 3,424 14,328
Provision for loan losses to average loans 0.04% 0.05% 0.85%
Net charge-offs to average loans 0.03 0.07 0.53
Allowance for loan losses to average loans 1.13 1.19 1.32
Allowance for loan losses to year-end loans 1.03 1.14 1.25
</TABLE>
NON-INTEREST INCOME
Excluding the decline in gift certificate and money order fees
and the money order agent base sale gain discussed below, non-
interest income increased 17% in 1997. Two components of non-interest
income, gift certificate and money order fees, and other
non-interest income both declined in 1997 as a result of the sale
of approximately one-third of the money order subsidiary's agent
base in 1996 at a gain of $1.8 million. As a result of this sale,
gift certificate and money order fees declined 28% or $1.1 million
and other income declined in 1997 due to the absence of the $1.8
million gain. The change in the aggregate level of non-interest
income in 1997, a 9% decline, was impacted by these matters.
Despite these declines there were positive growth trends in the
core sources of non-interest income.
Service charges on deposit accounts, the largest component of
non-interest income, were $5.1 million in 1997, an increase of 11%
over 1996. During 1997, the Company's redesigned consumer
transaction account product base was regularly promoted and the
retail customer account base increased approximately 4%, with a
corresponding increase in local market share. This increase in
retail volume, and mid-year regular fee adjustments contributed to
the increase in service charges on deposit accounts.
Trust income was approximately $1.4 million in 1997, an
increase of $212,000 or 18%, compared to 1996. Personal and
corporate trust income increased 28% to $1.1 million and caused the
overall increase in trust income, as the securities transfer
portion of trust income declined 13% to $245,000 in 1997. The
increase in personal and corporate trust income is primarily
attributed to the expansion of the Personal Trust and Investment
Group in May 1997, when four locally recognized trust officers and
three of their assistants joined the Company. As of December 31,
1997, this new trust group had added approximately $180 million to
trust assets under management, with annualized fees of
approximately $800,000. The Company plans to discontinue its
securities transfer operation in the first half of 1998.
Considering the expenses attributed to this function, the absence
of these fees is not anticipated to adversely impact future net
income.
Gift certificate and money order fees were $2.7 million in
1997, a 28% decline compared to 1996. The decline is attributed to
the previously discussed agent base sale in 1996. Subsequent to
the end of 1997, on January 8, 1998, the Company completed the
previously announced sale of its money order subsidiary to
MoneyGram Payment Systems, Inc. (MoneyGram) for $15.6 million in
cash, a $5 million premium over book value. Also, the Company
entered into a four year processing agreement to continue
processing money order transactions for MoneyGram. Under the
provisions of the sales contract and the processing agreement, a
gain of $436,000 was recognized in January, 1998; $4.6 million of
the premium was deferred and will be amortized to income in 1998
and the following three years to provide for normal processing fees
over the term of the processing agreement. The Company may
recognize an additional gain in 1998 of up to $475,000 if certain
other conditions are met. The Company retained the mall/retail
gift certificate program of the money order subsidiary and will
continue to develop this rapidly expanding business through its new
subsidiary, Mid America Gift Certificate Company. Gift certificate
and money order fees and interest income related to the disposed
business were $2.4 million and $2.0 million, respectively, in 1997,
and the money order subsidiary, excluding the mall gift certificate
program, had net earnings in 1997 of approximately $850,000. The
recurring impact of the sale and future processing activities is
expected to provide an increase to future net income levels.
Other non-interest income in 1997, excluding the money order
gain in 1996, increased $878,000. Income from the Company's debit
and credit card products increased $137,000 or 16% in 1997 as a
result of an expanded cardholder and merchant base. ATM fees
increased $261,000 or 66% in 1997 as a result of non-customer
surcharge fees that began in the fourth quarter of 1996. Credit
life and A & H insurance premiums and commissions increased
$251,000 or 32% as a result of the increase in retail loan
activity.
Net securities gains of $59,000 in 1997 included gross
securities gains of $146,000 and gross securities losses of
$87,000. 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 1997.
OTHER OPERATING EXPENSES
Other operating expenses declined $155,000 in 1997 on a
previous year base of $44 million. The company-wide focus on
expense control produced significant results in 1997, as the
increased level of business activity was achieved with less overall
costs. Some categories of expenses, such as advertising and
printing and supply costs, associated with business expansion
efforts did increase, but these increases were offset by decreased
expenses in other areas.
Salaries and benefits, the largest component of other
operating expenses, increased just $35,000 or 0.1% to $25,885,000
in 1997. The net change in salaries and benefits in 1997 is related
to several factors. The salary component increased $305,000 or
1.5%. Annual salary merit increases that averaged 5% were
effective in April, 1997. Lower personnel levels in 1997 offset
the merit increase and increases attributed to higher paid new
personnel. There was a decrease in average full-time equivalent
employees (FTE) from 658 during 1996 to 623 during 1997. The
decrease in FTE relates to the Company's efforts to increase
productivity, increase efficiency and reduce costs. Most of the
decrease was accomplished through attrition, however some positions
were eliminated with related severance costs of approximately
$325,000 in 1996. Pension costs increased as a result of a
$298,000 settlement loss arising from a lump sum payment to settle
obligations of the Company's non-qualified excess benefit plan.
Health insurance costs decreased $448,000 in 1997.
Occupancy, and furniture and equipment expenses both reflected
minor changes in 1997 compared to 1996. Occupancy expense of $3.1
million increased $143,000 in 1997 as a result of expenses
associated with two banking center locations that opened in late
1996. Furniture and equipment expenses of $4.6 million declined
$68,000 in 1997 compared to 1996. A portion of the decrease in
furniture and equipment expenses in 1997 was related to
depreciation and maintenance of the money order machines that were
sold in late 1996. 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.
The other expenses category of other operating expenses
includes advertising and marketing, operating supplies,
professional fees, taxes other than income taxes and other
expenses. The aggregate amount of other operating expenses
decreased $265,000 in 1997 compared to 1996. Advertising and
marketing expenses of $1,562,000 increased $300,000 or 24% in 1997
compared to 1996, as the Company continued to increase its level of
regular advertising for loan and deposit product promotions in
1997. The Company plans to continue this increased level of
advertising and promotion in its efforts to increase market share.
Operating supplies expenses increased $520,000 in 1997, which
includes $185,000 of costs associated with forms and logo design in
connection with the Company's image change program, along with
costs associated with increased supplies usage for the larger
customer base and increased promotional activity. Professional
fees decreased $602,000 in 1997 compared to 1996 with consulting
fees decreasing $751,000. In 1996, the Company was involved with
a Bank-wide consulting project involving improved productivity, fee
revenue maximization and expense reductions. Legal fees increased
$100,000, as the level of legal fees associated with the
disposition of other real estate owned increased. Bank, property
and other taxes increased $104,000 in 1997 as a result of the
increase in the basis for the Kentucky bank tax which increased the
related expense approximately $140,000. Real estate taxes declined
slightly as the level of other real estate owned declined. Other
expenses, which decreased $587,000 in 1997 compared to 1996,
included declines in money order losses and money order agent
rebates of $436,000.
INCOME TAXES
The effective tax rates were 31.0%, 32.7%, and 29.5%, for
1997, 1996, and 1995, 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.
BALANCE SHEET
Total assets were $1.509 billion at December 31, 1997,
compared with $1.421 billion one year ago. Total assets averaged
$1.374 billion during 1997, an increase of approximately $59
million, or 4.5% over 1996. Average earning assets increased
approximately $68 million or 5.4% to $1.308 billion in 1997.
Increased loan volume and increases in the securities portfolio
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, 1997, securities available for sale totaled
approximately $415 million. These securities had net unrealized
holding gains during 1997 of approximately $2.8 million that
resulted in an increase in shareholders' equity of approximately
$1.8 million on a net of tax basis. During 1997, the Company
continued restructuring the composition of its available for sale
securities portfolio to extend the average life and increase the
yield of the portfolio. This activity was coordinated with overall
balance sheet management issues. In connection with this activity,
U.S. Treasury and U.S. government agency securities increased
approximately $8 million, while obligations of states and political
subdivisions, and CMOs, increased approximately $12 million and $85
million, respectively. The CMOs in the portfolio aggregate
approximately $185 million and have an estimated weighted average
life of 3.1 years. The cash flows from the CMOs are relatively
predictable and stable.
Securities classified as held to maturity were $108 million at
December 31, 1997, and had net unrealized gains of $143,000. These
securities, with a weighted average life of 0.22 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 $891
million at December 31, 1997, an increase of approximately $87
million or 11% compared to December 31, 1996. Average loans
increased approximately $50 million or 6.4%, to $817 million in
1997 from $767 million in 1996.
Commercial and financial, and construction and development
loans increased approximately $49 million or 11% to $491 million at
December 31, 1997, 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, wholesalers of durable goods, and permanent
financing on commercial real estate. Construction and development
loans are principally for the development of residential housing
tracts, office buildings and shopping centers.
Residential real estate mortgage loans were approximately $329
million at December 31, 1997, up approximately $34 million or 12%
from a year ago. The Bank's primary retail loan product promotions
in 1997 related to home equity financing at promotional rates less
than 8%. These attractive interest rates stimulated high levels of
demand and contributed to the growth. The Company has emphasized
home equity financing which contributes to this concentration in
the loan portfolio. Real estate mortgages are principally in the
metropolitan Louisville, Kentucky area. This geographic market has
not experienced significant inflation or deflation in real estate
prices.
Consumer loans, excluding real estate mortgage loans,
increased approximately $4 million or approximately 6% in 1997 to
$71 million. In late 1997, the Company started an indirect auto
lending program with one area auto dealer that contributed $3.7
million in new volume in four months. Several other dealers are
being evaluated for this program.
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, 1997, non-performing assets totaled $18,652,000 compared with
$13,926,000 at December 31, 1996. Information with respect to non-
performing loans and assets is presented in the table below.
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, 1997, there were
loans of approximately $6 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.
The level of non-performing loans decreased from $4.3 million
at the end of 1996 to approximately $2.5 million at the end of
1997. Of these non-performing loans at December 31, 1997, $1.7
million are classified as impaired. Management has carefully
evaluated its risk, including consideration of underlying
collateral values based on current market conditions, with respect
to non-performing and potential problem loans. No significant
losses are expected from non-performing or potential problem loans
as of December 31, 1997.
Other real estate held for sale at December 31, 1997,
aggregated $16.2 million and was principally comprised of
properties acquired in settlement of real estate development loans
in April, 1996, and a completed condominium project acquired in
settlement of loans in November, 1997. The carrying value of real
estate development property has been substantially reduced through
sales from the original carrying value of $15.2 million, to $6.4
million at December 31, 1997. In January 1998, the Company sold a
portion of this property for $1.2 million which reduced its
carrying value by $588,000 and resulted in a gain of $624,000. The
Company has contracts for additional property sales expected to
close in 1998, that will further reduce carrying value by $400,000
and result in gains of approximately $600,000. In addition to
these contracts, the Company has granted options covering carrying
value of $2.1 million of this development property. Sales efforts
on the remaining development property are expected to accelerate in
the second half of 1998 after a fronting highway is widened to four
lanes. These real estate development properties had previously
been adjusted to fair value based on appraisals in 1995, and
current contracts and market conditions support existing carrying
values. The condominium project involves 34 completed and readily
marketable units and 7.5 acres of adjacent developed land. This
riverfront development has a carrying value of $8.7 million. No
losses were recorded on the related loan before it was transferred
to other real estate held for sale as existing unit sales prices
and appraisals support the carrying value. 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.
During 1997, other real estate acquired in settlement of loans
aggregated $9.4 million, including the $8.7 million condominium
project discussed above, and sales of other real estate aggregated
$3.6 million.
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
Dollars In Thousands
December 31
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis $1,678 $3,424 $14,301 $2,705 $2,695
Loans contractually past due ninety days or more
as to interest or principal payments 788 925 842 806 1,177
-------- -------- -------- -------- --------
Total non-performing loans 2,466 4,349 15,143 3,511 3,872
Other real estate held for sale 16,186 9,577 1,085 2,385 2,970
-------- -------- -------- -------- --------
Total non-performing assets $18,652 $13,926 $16,228 $5,896 $6,842
======== ======== ======== ======== ========
Non-performing loans to total loans 0.28% 0.54% 2.02% 0.50% 0.59%
Non-performing assets to total assets 1.24 0.98 1.24 0.49 0.59
Allowance for loan losses to non-performing loans 373.44 210.78 61.53 200.66 169.89
</TABLE>
DEPOSITS
Total deposits increased approximately $54 million to $879
million on December 31, 1997, compared to $825 million on December
31, 1996. Deposits also increased on an average basis during 1997,
increasing approximately $46 million or 6% to $819 million. During
1997, the Company continued 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 savings account products were developed and product
and rate advertising campaigns were consistently used. Average
interest bearing deposits for the year increased $41 million or 6%
from $670 million to $711 million. Over half the increase related
to savings products that are priced to be competitive with broker
money market rates. Average non-interest bearing deposits
increased approximately 5% to $108 million. Large certificates of
deposit on an average basis increased approximately 2% to $67
million during 1997. Included in large certificates of deposit at
December 31, 1997 and 1996, are ten year retail brokered
certificates of deposit of approximately $10 million, issued in
1994.
ADVANCES FROM THE FEDERAL HOME LOAN BANK
Federal Home Loan Bank (FHLB) advances decreased from $69
million at the end of 1996, to $63 million at the end of 1997, as
no new term advances were used during 1997. The Company has used
this source of fixed rate funds to match its fixed rate mortgage
loan products.
MONEY ORDERS AND SIMILAR PAYMENT INSTRUMENTS OUTSTANDING
Gift certificates and money orders outstanding at December 31,
1997, were $105 million, up approximately $28 million compared to
the end of 1996. The mall gift certificate portion of the December
31, 1997 balance was $72 million, an increase of 71% or $30 million
over last December. This increase relates to the 47% increase in
mall gift certificate agents in 1997. On an average basis, the
combined gift certificate and money order balances decreased
approximately $5 million to $57 million in 1997 compared to 1996.
The sale of the program agent base in 1996 contributed to this
decline. The December 31, 1997, balance of gift certificates and
money orders outstanding, subject to the previously discussed 1998
sale of the money order subsidiary, was approximately $33 million,
which approximated the average of such balances during 1997. Gift
certificates outstanding will continue to be a significant source
of non-interest bearing funds for the Company.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $15 million to $155.7 million
at December 31, 1997. Average shareholders' equity increased $12
million to $147 million and was 10.7% of average total assets for
1997. The Company's primary source of capital is net income, net
of dividends paid. Shareholders' equity was impacted by the
appreciation of securities available for sale, which increased
shareholders' equity during 1997 by $1.8 million. Shareholders'
equity was also increased $2.7 million in 1997 through proceeds and
tax benefits from exercised stock options.
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, 1997,
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.
YEAR 2000
In 1996, the Company initiated an entity-wide program to
prepare its computer systems and applications for the year 2000.
The Company's program has five major phases with the awareness and
assessment phases virtually complete as of December 31, 1997, and
the renovation, validation and implementation phases in various
stages of completion. The project is on schedule for testing by
the end of 1998 and completion by the second quarter of 1999. The
Company's task force managing this program reports to a Board level
oversight committee. The Company expects to incur internal staff
costs as well as consulting, new hardware and software expenses,
and other expenses related to this program. A significant portion
of these costs are not incremental costs to the Company, but rather
will represent the redeployment of existing information technology
resources. The cost of this program over the next three years is
expected to be $4.9 million, including $2.7 million of incremental
costs spread over the same period.
INTEREST RATE SENSITIVITY MANAGEMENT (MARKET RISK)
The primary objective of interest rate risk management is to
control the effects that interest rate fluctuations have on net
interest revenue and net income. Interest rate risk is measured
using net interest margin simulation and asset/liability
sensitivity analyses. Simulation tools serve as the primary means
to gauge interest rate exposure. The Company has no market risk
sensitive instruments held for trading purposes.
Modeling techniques that are used to estimate the impact of
changes in interest rates on net interest income are a more
relevant method of measuring interest rate risk than the static
interest rate sensitivity gap table shown on page 24, which
provides the relationship between maturing and repricing assets and
liabilities. Assumptions regarding the replacement of maturing
assets and liabilities are made to simulate the impact of future
changes in rates and/or changes in balance sheet composition. The
effect of changes in future interest rates on the mix of assets and
liabilities may cause actual results to differ from simulated
results. In addition, certain financial instruments provide
customers a certain degree of flexibility. For instance, customers
have migrated from lower cost deposit products to higher cost
products. Also, customers may choose to refinance fixed rate loans
when interest rates decrease. While the Company's simulation
analysis considers these factors, the extent to which customers
utilize the ability to exercise their financial options may cause
actual results to differ from the simulation. Further, the
simulation does not contemplate any actions the Company could
undertake in response to changes in interest rates.
The table below illustrates the simulation analysis of the
impact of a 50 or 100 basis point upward or downward movement in
interest rates on net interest income and earnings per share. This
analysis was done assuming that interest-earning asset levels at
December 31, 1997, adjusted for the money order subsidiary sale and
the seasonally high volume of gift certificates outstanding,
remained constant and that the level of loan fees remains
unchanged. The impact of the rate movements was developed by
simulating the effect of rates changing immediately from the
December 31, 1997, levels and remaining at those levels thereafter.
Interest Rate Simulation Sensitivity Analysis
Movements in interest rates from
December 31, 1997, rates
Increase Decrease
Simulated impact in the next 12 months
compared with December 31, 1997: +50 bp +100 bp -50 bp -100 bp
Net interest income
increase(decrease)(in 1000's) $(617) $(547) $(97) $68
Net income per share increase(decrease) $(0.04) $(0.04) $(0.01) $0.01
The anticipated impact on net interest income under each of the
above scenarios is consistent with the Company's cumulative
liability-sensitive gap position at the one-year repricing period
as shown in the interest rate sensitivity gap table on page 24.
The interest rate sensitivity gap table shows the repricing
characteristics of the Company's interest-earning assets and
supporting funds at December 31, 1997. The data are based on
contractual repricing or maturities and, where applicable,
management's assumptions as to the estimated repricing
characteristics of certain assets and supporting funds. At
December 31, 1997, the Company had a liability-sensitive interest
rate risk position at the one-year repricing period. Generally, a
liability-sensitive gap indicates that rising interest rates could
negatively affect net interest income, and falling rates could
positively affect net interest income. Assets and liabilities with
similar contractual repricing characteristics, however, may not
reprice to the same degree. As a result, the Company's static
interest rate sensitivity gap position does not necessarily predict
the impact of changes in general levels of interest rates on net
interest income.
The measurement of interest rate risk is meaningful only when
all related on-and off-balance-sheet items are aggregated and the
net positions are identified. Financial instruments that the
Company uses to manage interest rate sensitivity include: U.S.
government and agency securities, municipal securities, mortgage-
backed securities, fixed rate advances from the Federal Home Loan
Bank, and interest rate swaps. The cumulative gap at the one-year
repricing period, before the utilization of off-balance-sheet
instruments (interest rate swaps), was asset-sensitive $107.6
million, or 7.1% of total assets, at December 31, 1997. However,
because the Company did not want to accept the level of interest
rate risk presented by its naturally asset-sensitive balance sheet,
it entered into interest rate swaps that resulted in a net
reduction of $150 million in this cumulative asset sensitive
position. These instruments reduced the cumulative gap at the one-
year repricing period to a liability-sensitive amount of $42.3
million, or 2.80% of total assets.
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 and repurchase
agreements base, FHLB advances and purchased funds. The Company's
short-term investments, which include federal funds sold, and
security maturities and cash flows within one year, are
approximately 19% of total assets. These short-term investments
are approximately 78% of non-core liabilities, which consist of
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,
was approximately 13% at December 31, 1997, and averaged 11% during
1997. In the opinion of management, incremental funding sources
are sufficient to meet known or reasonably anticipated funding
requirements.
During 1997, financing and operating activities adequately
supported the investing activities of the Company. Investing
activities, primarily loans to customers and securities
transactions, were funded by decreased short-term investments (cash
equivalents), increased deposits, increased gift certificates and
money orders outstanding and operating activities.
The liquidity of the holding company is impacted primarily by
the ability of its principal subsidiary, the Bank, to pay
dividends. During 1997, the Bank paid $2.6 million of dividends to
the holding company. Additionally, the holding company has $7
million of cash available at December 31, 1997. Certain regulatory
restrictions limit the amount of dividends the Bank may pay. As
of January 1, 1998, the Bank could pay dividends of $7.3 million
without regulatory approval. Additional information about these
restrictions is contained in Note M to the consolidated financial
statements.
1996 COMPARED TO 1995
Net income for 1996 was $15,029,000 or $1.54 on a diluted per
share basis compared with $8,066,000 or $0.83 on a diluted per
share basis for 1995. Basic net income per share was $1.55 in 1996
and $0.84 in 1995. For 1996, ROA was 1.14% and ROE was 11.13%,
compared with ROA of 0.69% and ROE of 6.26% in 1995.
NET INTEREST INCOME
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 were 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 was
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 gift certificates and money orders 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 averaged
$253 million during 1996. 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 23.
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $414,000 in 1996 compared to
$6,047,000 in 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 was 0.54% of total loans.
During 1995, the Company recorded a provision for loan losses of
$5.7 million attributed 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.
At December 31, 1996, the allowance for loan losses was 1.14%
of loans outstanding compared to 1.25% at the end of 1995.
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 the $1.8 million gain related to the sale of the
money order subsidiary's agent base. 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 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 reversed the Company's experience in recent 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. 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.
Gift certificate and 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. Aside from this sale,
the money order subsidiary continued to expand its remaining agent
base (9%) and increase items issued (10%) in 1996. The money order
subsidiary provided non-interest bearing funds which averaged
approximately $62 million for 1996. The money order subsidiary 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 ATM network, and $234,000 of gains on the
disposition of other real estate owned.
Net securities gains of $129,000 in 1996, included gross
securities gains of $1,241,000 and gross securities losses of
$1,112,000.
OTHER OPERATING EXPENSES
Other operating expenses in 1996 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 marketing, and
expenses related to the bank-wide consulting project. 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 in 1996 increased $3,561,000 or 16% to
$25,850,000. The increase in salaries and benefits in 1996 is
related to several factors. In April 1996, annual salary increases
that averaged 4% were effective. Also, in 1996, the Company
implemented 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. Also contributing to the increase,
was a full year salary impact in 1996 compared to a quarter's
impact in 1995 for the Vice-Chairman and Chief Executive Officer
and several senior commercial and real estate lending officers who
joined the Company in the fourth quarter of 1995. Further, an
increase in average FTE from 648 during 1995 to 658 in 1996
contributed to the increase.
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. In
1996, a portion of the decrease in furniture and equipment expenses
was related to depreciation and maintenance of the money order
machines of the sold agent base.
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. 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 the money order subsidiary declined $186,000
as a result of the lower agent base subsequent to the agent base
sale. 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. 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).
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued
FASB Statement No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-
purpose financial statements. This statement is effective for
interim and annual periods beginning in 1998.
Also, during 1997, the Financial Accounting Standards Board
issued FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires
reporting of certain information about operating segments in
complete sets of financial statements and in condensed financial
statements of interim periods issued to shareholders. This
statement is effective in 1998. In the initial year of
application, this statement is not required to be applied to
interim periods.
During 1996, the Financial Accounting Standards Board issued
FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125," an amendment of FASB
Statement No. 125. Statement No. 125 established, among other
things, new criteria for determining whether a transfer of
financial assets should be accounted for as a sale or as a pledge
of collateral in a secured borrowing. Statement 125 also
established new accounting requirements for pledged collateral. As
issued, Statement 125 was effective for transactions occurring
after December 31, 1996. Statement 127 deferred the effective date
of Statement 125 for repurchase agreements and similar
transactions, to transactions occurring after December 31, 1997.
Management believes the effects of FASB Statements No. 125 and 127
on such transactions will not be significant to its financial
position or results of operations.
CAUTIONARY STATEMENT
The preceding discussion contains statements relating to
future results of the Company that are considered "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from
those expressed or implied as a result of certain risks and
uncertainties, including, but not limited to, changes in political
and economic conditions, interest rate fluctuations, competitive
product and pricing pressures within the Company's market, fixed
income market fluctuations, unforeseen changes in the financial
condition of personal and corporate customers, inflation,
technological change, changes in law, changes in fiscal, monetary,
regulatory and tax policies, monetary fluctuations, as well as
other risks and uncertainties detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
Dollars In Thousands Non-interest
December 31, 1997 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 $406,612 $29,660 $30,071 $225,629 $197,425 $1,678 $891,075
Securities 195,229 31,102 38,264 143,873 114,431 522,899
Federal funds sold 16,900 16,900
Other assets 78,705 78,705
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 618,741 60,762 68,335 369,502 311,856 80,383 1,509,579
----------- ----------- ----------- ----------- ----------- ----------- -----------
SOURCES OF FUNDS
Deposits:
Demand deposits 57,619 134,449 192,068
Savings deposits 20,641 93,155 113,796
Time deposits 87,969 64,685 116,583 150,818 12,818 432,873
Securities sold under
agreements to repurchase 278,071 6,429 284,500
Advances from the Federal Home
Loan Bank 3,908 1,403 2,867 26,109 28,878 63,165
Other liabilities and non-interest
bearing deposits 267,468 267,468
Shareholders' equity 155,709 155,709
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total sources of funds 448,208 66,088 125,879 176,927 269,300 423,177 1,509,579
----------- ----------- ----------- ----------- ----------- ----------- -----------
Asset / liability gap 170,533 (5,326) (57,544) 192,575 42,556 (342,794)
----------- ----------- ----------- ----------- ----------- -----------
Interest rate swap contracts affecting
interest rate sensitivity (150,000)
----------- ----------- ----------- ----------- ----------- -----------
INTEREST SENSITIVITY GAP 20,533 (5,326) (57,544) 192,575 42,556 (342,794)
----------- ----------- ----------- ----------- ----------- -----------
CUMULATIVE INTEREST SENSITIVITY GAP $20,533 $15,207 ($42,337) $150,238 $192,794
=========== =========== =========== =========== ===========
CUMULATIVE INTEREST SENSITIVITY GAP
AS A PERCENT OF TOTAL ASSETS 1.36% 1.01% -2.80% 9.95% 12.77%
RATE-SENSITIVE ASSETS TO RATE-
SENSITIVE LIABILITIES 1.05X 0.92X 0.54X 2.09X 1.16X
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND YIELDS/RATES TAX EQUIVALENT BASIS
Dollars In Thousands 1997 1996 1995
----------------------------- ----------------------------- -----------------------------
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 $130,501 $8,146 6.27% $197,404 $12,066 6.13% $259,137 $13,903 5.36%
States and political
subdivisions 49,364 4,086 8.51 25,771 2,040 7.92 11,742 958 8.18
Corporate and other 192,927 12,104 6.31 104,688 6,414 6.14 49,653 3,076 6.18
Federal funds sold 19,261 1,071 5.56 31,294 1,700 5.43 40,177 2,389 5.95
Securities purchased under
agreements to resell 98,342 5,399 5.49 113,110 6,059 5.36 18,740 1,105 5.90
Loans, net of unearned income 817,262 78,169 9.56 767,755 74,077 9.65 707,898 70,433 9.95
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total earning assets 1,307,657 108,975 8.35% 1,240,022 102,356 8.25% 1,087,347 91,864 8.45%
NON-EARNING ASSETS:
Allowance for loan losses (8,979) (9,250) (7,564)
Cash and due from banks 26,010 30,708 44,494
Other 49,058 52,858 47,452
----------- ----------- -----------
Total assets $1,373,746 $1,314,338 $1,171,729
=========== =========== ===========
INTEREST BEARING LIABILITIES:
Deposits:
Demand deposits $196,705 5,739 2.92% $201,053 5,940 2.95% $204,927 6,356 3.10%
Savings deposits 105,199 3,525 3.35 81,854 2,221 2.71 79,282 2,077 2.62
Certificates of deposit
$100,000 and over 66,927 4,056 6.06 65,319 4,044 6.19 61,970 4,002 6.46
Other time deposits 341,988 19,115 5.59 321,550 18,457 5.74 300,001 16,810 5.60
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total interest bearing deposits 710,819 32,435 4.56 669,776 30,662 4.58 646,180 29,245 4.53
Federal funds purchased and
securities sold under
agreements to repurchase 258,744 13,159 5.09 256,826 12,887 5.02 152,488 8,420 5.52
Advances from the Federal Home
Loan Bank 66,359 4,083 6.15 72,303 4,430 6.13 78,526 4,786 6.09
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total interest bearing liabilities 1,035,922 49,677 4.80% 998,905 47,979 4.80% 877,194 42,451 4.84%
NON-INTEREST BEARING LIABILITIES:
Demand deposits 107,955 103,000 99,207
Other 82,440 77,348 66,540
----------- ----------- -----------
Total liabilities 1,226,317 1,179,253 1,042,941
SHAREHOLDERS' EQUITY 147,429 135,085 128,788
Total liabilities and ----------- ----------- -----------
shareholders' equity $1,373,746 $1,314,338 $1,171,729
=========== =========== ===========
NET INTEREST INCOME $59,298 $54,377 $49,413
======== ======== ========
NET INTEREST SPREAD 3.55% 3.45% 3.61%
NET YIELD ON EARNING ASSETS 4.54% 4.39% 4.54%
======== ======== ========
</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 1997 AND 1996 TAX EQUIVALENT BASIS
In Thousands Net Change Due to Due to Net Change Due to Due to
1997/1996 Volume Rate 1996/1995 Volume Rate
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
Interest Income:
Securities $3,816 $2,805 $1,011 $2,583 $407 $2,176
Federal funds sold (629) (668) 39 (689) (496) (193)
Securities purchased under
agreements to resell (660) (808) 148 4,954 5,064 (110)
Loans, net of unearned income 4,092 4,740 (648) 3,644 5,823 (2,179)
-----------------------------------------------------------------------
Total interest income 6,619 6,069 550 10,492 10,798 (306)
Interest Expense:
Deposits:
Demand deposits (201) (127) (74) (416) (118) (298)
Savings deposits 1,304 715 589 144 68 76
Certificates of deposit
$100,000 and over 12 98 (86) 42 211 (169)
Other time deposits 658 1,151 (493) 1,647 1,229 418
Federal funds purchased and
securities sold under
agreements to repurchase 272 97 175 4,467 5,297 (830)
Advances from the Federal Home
Loan Bank (347) (366) 19 (356) (381) 25
-----------------------------------------------------------------------
Total interest expense 1,698 1,568 130 5,528 6,306 (778)
-----------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME $4,921 $4,501 $420 $4,964 $4,492 $472
=======================================================================
</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>
SUMMARY OF FINANCIAL DATA
In Thousands, Except Per Share Amounts
Years Ended December 31
1997 1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $107,196 $100,785 $90,595 $79,652 $71,302
Total interest expense 49,677 47,979 42,451 34,593 30,752
-----------------------------------------------------------------
Net interest income 57,519 52,806 48,144 45,059 40,550
Provision for loan losses 300 414 6,047 712 390
-----------------------------------------------------------------
Net interest income after
provision for loan losses 57,219 52,392 42,097 44,347 40,160
Non-interest income 13,173 14,527 11,191 11,599 10,942
Other operating expenses 44,422 44,577 41,844 37,592 34,276
-----------------------------------------------------------------
Income before income taxes 25,970 22,342 11,444 18,354 16,826
Income tax expense 8,055 7,313 3,378 5,742 5,253
-----------------------------------------------------------------
Net income $17,915 $15,029 $8,066 $12,612 $11,573
=================================================================
Per common share:
Net income:
Basic $1.83 $1.55 $0.84 $1.31 $1.21
Diluted 1.80 1.54 0.83 1.30 1.20
Cash dividends declared 0.76 0.67 0.59 0.57 0.56
<CAPTION>
December 31
1997 1996 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, net of unearned income $891,075 $804,182 $748,565 $699,396 $657,568
Total assets 1,509,579 1,420,933 1,313,987 1,213,990 1,169,023
Total deposits 878,829 825,257 784,957 732,620 729,449
Total shareholders' equity 155,709 140,638 132,950 125,052 119,590
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
In Thousands, Except 1997 1996 1995
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 $26,391 $26,620 $26,606 $27,579 $24,559 $25,023 $25,307 $25,896 $22,104 $22,787 $22,103 $23,601
Total interest
expense 12,497 12,384 12,162 12,634 11,728 11,942 11,908 12,401 10,458 10,676 10,484 10,833
Provision for
loan losses --- --- --- 300 --- 104 303 7 102 127 5,718 100
Net interest income ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
after provision for
loan losses 13,894 14,236 14,444 14,645 12,831 12,977 13,096 13,488 11,544 11,984 5,901 12,668
Non-interest income 3,348 3,020 3,236 3,569 4,221 3,031 3,971 3,304 2,762 2,854 2,936 2,639
Other operating
expenses 10,692 10,586 11,348 11,796 10,684 10,433 11,789 11,671 10,208 10,187 11,260 10,189
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes 6,550 6,670 6,332 6,418 6,368 5,575 5,278 5,121 4,098 4,651 (2,423) 5,118
Income taxes 2,033 2,065 2,007 1,950 2,051 1,868 1,800 1,594 1,278 1,440 (947) 1,607
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) $4,517 $4,605 $4,325 $4,468 $4,317 $3,707 $3,478 $3,527 $2,820 $3,211 ($1,476) $3,511
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Per common share
Net income (loss)
Basic $0.46 $0.47 $0.44 $0.45 $0.45 $0.38 $0.36 $0.36 $0.29 $0.33 ($0.16) $0.37
Diluted $0.46 $0.46 $0.43 $0.44 $0.45 $0.38 $0.36 $0.36 $0.29 $0.33 ($0.16) $0.36
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
MARKET FOR MIDAMERICA BANCORP'S STOCK AND
RELATED SECURITY HOLDER MATTERS
MidAmerica Bancorp's common stock is traded on the American Stock
Exchange (AMEX) under the symbol MAB. As of December 31, 1997, the
total number of registered holders of the Company's common stock was
1,035 and the market price of the Company's common stock was $ 33.625.
Bank of Louisville is the stock transfer agent, dividend disbursing
agent, and registrar for the common stock of the Company.
The tables below represent the high and low market prices reported for
MidAmerica 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
--------------------------
1997 Cash Dividends Declared High Low
- --------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $ .185 $20.38 $17.94
2nd Quarter .185 25.13 19.19
3rd Quarter .185 32.06 22.56
4th Quarter .205 35.75 28.63
<CAPTION>
Market Price
--------------------------
1996 Cash Dividends Declared High Low
- --------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $ .141 $18.06 $15.31
2nd Quarter .160 17.25 14.69
3rd Quarter .160 16.13 15.44
4th Quarter .209 18.56 15.75
</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 in accordance with 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
MidAmerica Bancorp:
We have audited the accompanying consolidated balance sheets of
MidAmerica Bancorp and subsidiaries as of December 31, 1997
and 1996, 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, 1997. 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 MidAmerica Bancorp and subsidiaries as of December 31,
1997 and 1996, and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting
principles.
/s/KPMG Peat Marwick LLP
Louisville, Kentucky
January 23, 1998
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
In Thousands, Except Share and Per Share Amounts
December 31
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $29,002 $30,884
Federal funds sold 16,900 20,200
Securities purchased under agreements to resell - 110,000
Securities available for sale, amortized cost
of $409,497 (1997) and $333,681 (1996) 414,721 336,118
Securities held to maturity, market value of $108,321 (1997) and $75,751 (1996) 108,178 75,555
Loans, net of unearned income 891,075 804,182
Allowance for loan losses (9,209) (9,167)
--------- ---------
Loans, net 881,866 795,015
Premises and equipment 21,757 21,451
Other assets 37,155 31,710
--------- ---------
Total assets $1,509,579 $1,420,933
========= =========
LIABILITIES
Deposits:
Non-interest bearing $140,092 $127,703
Interest bearing 738,737 697,554
--------- ---------
Total deposits 878,829 825,257
Securities sold under agreements to repurchase 284,500 285,948
Federal funds purchased - 4,000
Advances from the Federal Home Loan Bank 63,165 69,042
Gift certificates and money orders outstanding 104,609 76,533
Accrued expenses and other liabilities 22,767 19,515
--------- ---------
Total liabilities 1,353,870 1,280,295
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 -
9,878,803 shares (1997); 9,425,803 shares (1996) 27,399 26,144
Additional paid-in capital 115,182 104,932
Retained earnings 9,773 8,093
Net unrealized gains on securities available for sale 3,395 1,585
Pension liability adjustment (40) (116)
--------- ---------
Total shareholders' equity 155,709 140,638
--------- ---------
Total liabilities and shareholders' equity $1,509,579 $1,420,933
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
In Thousands, Except Per Share Amounts
Years Ended December 31
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $77,820 $73,220 $69,499
Interest and dividends on:
Taxable securities 20,249 18,480 16,979
Tax exempt securities 2,656 1,326 623
Interest on federal funds sold 1,072 1,700 2,389
Interest on securities purchased under agreements to resell 5,399 6,059 1,105
---------- ---------- ----------
Total interest income 107,196 100,785 90,595
INTEREST EXPENSE
Interest on deposits 32,434 30,662 29,245
Interest on federal funds purchased and
securities sold under agreements to repurchase 13,160 12,887 8,420
Interest on Federal Home Loan Bank advances 4,083 4,430 4,786
---------- ---------- ----------
Total interest expense 49,677 47,979 42,451
---------- ---------- ----------
NET INTEREST INCOME 57,519 52,806 48,144
PROVISION FOR LOAN LOSSES 300 414 6,047
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 57,219 52,392 42,097
NON-INTEREST INCOME
Income from trust department 1,363 1,151 969
Service charges on deposit accounts 5,078 4,582 4,509
Gift certificate and money order fees 2,709 3,782 3,857
Securities gains (losses) 59 129 (665)
Other 3,964 4,883 2,521
---------- ---------- ----------
Total non-interest income 13,173 14,527 11,191
OTHER OPERATING EXPENSES
Salaries and employee benefits 25,885 25,850 22,289
Occupancy expense 3,100 2,957 2,971
Furniture and equipment expenses 4,607 4,675 4,859
Other 10,830 11,095 11,725
---------- ---------- ----------
Total other operating expenses 44,422 44,577 41,844
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 25,970 22,342 11,444
INCOME TAX EXPENSE 8,055 7,313 3,378
---------- ---------- ----------
NET INCOME $17,915 $15,029 $8,066
========== ========== ==========
Weighted average shares outstanding
BASIC 9,799 9,679 9,636
DILUTED 9,970 9,749 9,700
========== ========== ==========
NET INCOME PER COMMON SHARE
BASIC $1.83 $1.55 $0.84
DILUTED $1.80 $1.54 $0.83
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
In Thousands, Except Share and Per Share Amounts
Years Ended December 31, 1997, 1996 and 1995
Common Common Additional Net Unrealized Pension Total
Stock Stock Paid-in Retained Gains (Losses) Liability Shareholders'
Shares Amount Capital Earnings on Securities Adjustment Equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 8,803,759 $24,421 $95,608 $7,086 ($2,063) $ --- $125,052
Net income 8,066 8,066
Cash dividends declared,
($0.59 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,
($0.67 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)
--------------------------------------------------------------------------------------
Balance, December 31, 1996 9,425,803 26,144 104,932 8,093 1,585 (116) 140,638
Net income 17,915 17,915
Cash dividends declared,
($0.76 per share) (7,441) (7,441)
Stock dividend declared 287,159 795 7,999 (8,794) ---
Stock options exercised,
including related tax benefits 165,841 460 2,251 2,711
Net unrealized securities gains 1,810 1,810
Pension liability adjustment 76 76
--------------------------------------------------------------------------------------
Balance, December 31, 1997 9,878,803 $27,399 $115,182 $9,773 $3,395 ($40) $155,709
======================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
Years Ended December 31
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $17,915 $15,029 $8,066
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 4,256 3,408 4,341
Provision for loan losses 300 414 6,047
Federal Home Loan Bank stock dividends (1,060) (962) (874)
Loss (gain) on sales of securities (59) (129) 665
Gain on sale of money order agent base --- (1,797) ---
Loss (gain) on other real estate (74) (234) 8
Deferred taxes 580 217 (957)
Decrease (increase) in interest receivable (524) 218 (874)
Decrease (increase) in other assets 959 1,435 (7,077)
Increase in accrued expenses and other liabilities 1,231 4,413 1,394
---------- ---------- ----------
Net cash provided by operating activities 23,524 22,012 10,739
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (212,434) (182,245) (153,272)
Proceeds from maturities of securities available for sale 96,250 58,022 40,739
Proceeds from sales of securities available for sale 45,181 82,726 105,003
Purchases of securities held to maturity (106,781) (63,403) (145,837)
Proceeds from maturities of securities held to maturity 70,000 57,325 144,048
Proceeds from sale of money order agent base --- 1,797 ---
Proceeds from sales of premises and equipment 257 904 195
Net purchases of premises and equipment (3,407) (4,909) (4,271)
Proceeds from sales of other real estate 3,570 7,924 1,688
Net increase in customer loans (96,540) (68,652) (52,802)
---------- ---------- ----------
Net cash used in investing activities (203,904) (110,511) (64,509)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 53,572 40,300 52,337
Net increase (decrease) in securities sold
under agreements to repurchase (1,448) 58,782 14,065
Net increase (decrease) in federal funds purchased (4,000) 950 (2,750)
Repayment of advances from the Federal Home Loan Bank (5,877) (6,067) (6,395)
Increase (decrease) in gift certificates and
money orders outstanding 28,076 (2,876) 31,591
Stock options exercised 2,316 823 310
Dividends paid (7,441) (6,491) (5,741)
---------- ---------- ----------
Net cash provided by financing activities 65,198 85,421 83,417
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (115,182) (3,078) 29,647
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 161,084 164,162 134,515
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $45,902 $161,084 $164,162
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MidAmerica Bancorp is a bank and savings and loan holding
company whose primary subsidiary is Bank of
Louisville (the Bank). Other subsidiaries
include MidAmerica Bank, FSB and MidAmerica Gift
Certificate Company. The Company is primarily engaged in commercial
and personal banking activities and trust services. 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 MidAmerica 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 holding 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. Loans are not reclassified as accruing until
principal and interest payments are brought current and future
payments appear reasonably certain.
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.
Loans are classified as impaired when it is probable that
the Company 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. Generally, impaired loans are also in non-accrual status.
In certain instances, however, the Company may continue to
accrue interest on an impaired loan. The Company does not
apply the impairment criteria to individual loans which are
part of a large group of smaller-balance homogeneous loans,
such as residential and consumer loans. Such loans are
collectively evaluated for impairment.
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.
Interest Rate Swap Contracts -- The Company uses interest rate
swap contracts to manage its sensitivity to interest rate risk.
Interest income is accrued over the life of the swap agreements.
The fair market value of these instruments is not included in
the consolidated financial statements.
Net Income Per Common Share -- Effective December 31, 1997, the
Company adopted FASB Statement No. 128, "Earnings Per Share",
which requires the computation and disclosure of basic and
diluted net income per share. Prior periods' net income per share
amounts have been restated to reflect the adoption of FASB
Statement No. 128. Basic net income per common share is
determined by dividing net income by the weighted average number
of shares of common stock outstanding. Diluted net income per
share is determined by dividing net income by the weighted
average number of shares of common stock outstanding plus the
weighted average number of shares that would be issued upon
exercise of dilutive options assuming proceeds are used to
repurchase shares pursuant to the treasury stock method.
Recently Issued Financial Accounting Standards -- During 1997,
the Financial Accounting Standards Board issued FASB Statement
No. 130, "Reporting Comprehensive Income." This statement
establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose
financial statements. This statement is effective in 1998.
Also, during 1997, the Financial Accounting Standards Board issued
FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires
reporting of certain information about operating segments in
complete sets of financial statements and in condensed
financial statements of interim periods issued to shareholders.
This statement is effective in 1998.
<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 1997, 1996 and 1995, cash paid for income taxes
amounted to $5,668,000, $8,056,000 and $5,046,000,
respectively, and cash paid for interest was $49,750,000,
$46,939,000 and $41,183,000, respectively. Loans transferred
to other assets were $9,389,000 in 1997, $12,470,000 in 1996,
and $158,000 in 1995. 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. Securities purchased under agreements to resell averaged
$98,342,000 during 1997 with an average yield of 5.49% and averaged
$113,110,000 during 1996 with an average yield of 5.36%. The maximum
month-end balance outstanding during 1997 and 1996 was $140 million and
$145 million, respectively.
<PAGE>
D. SECURITIES
The amortized cost and market value of securities available for sale follows:
<TABLE>
<CAPTION>
In Thousands December 31, 1997 December 31, 1996
--------------------------------------- ---------------------------------------
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 $156,040 $647 $33 $156,654 $147,230 $1,240 $170 $148,300
Collateralized mortgage obligations 183,792 2,008 326 185,474 100,308 594 148 100,754
States and political subdivisions 50,352 2,920 -- 53,272 40,697 1,022 115 41,604
Corporate obligations 1,757 8 -- 1,765 28,811 15 1 28,825
Equity securities 17,556 -- -- 17,556 16,635 -- -- 16,635
--------------------------------------- ---------------------------------------
$409,497 $5,583 $359 $414,721 $333,681 $2,871 $434 $336,118
======================================= =======================================
</TABLE>
<TABLE>
<CAPTION>
The amortized cost and market value of securities held to maturity follows:
In Thousands December 31, 1997 December 31, 1996
--------------------------------------- ---------------------------------------
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 $108,078 $148 $5 $108,221 $75,455 $217 $21 $75,651
Corporate obligations 100 -- -- 100 100 -- -- 100
--------------------------------------- ---------------------------------------
$108,178 $148 $5 $108,321 $75,555 $217 $21 $75,751
======================================= =======================================
</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, 1997 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 $148,210 $148,454 $100,157 $100,157
Due after one year through five years 181,887 183,606 8,021 8,164
Due after five years through ten years 15,527 15,979 -- --
Due after ten years 46,317 49,126 -- --
----------------------------- -----------------------------
$391,941 $397,165 $108,178 $108,321
============================= =============================
</TABLE>
Gross realized gains and losses on sales of securities available for sale
respectively, in 1996, and $25,000 and $690,000, respectively, in 1995.
Securities with a book value of $332,415,000 and $246,142,000 at December
31,1997 and 1996, 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
1997 1996
------------ ------------
<S> <C> <C>
Commercial and financial $425,424 $386,647
Real estate - construction and development 65,513 55,738
Real estate - residential mortgages 329,086 294,746
Consumer 71,052 67,051
------------ ------------
$891,075 $804,182
============ ============
</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, 1997 and 1996, the recorded investment in impaired loans,
was $1.670 and $3.424 million, respectively. All impaired loans are on a
nonaccrual basis. Included in impaired loans at December 31, 1997 is
$766,000 of impaired loans for which the related allowance for loan
losses is $150,000. 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. The average recorded investment in impaired loans
during 1997 and 1996 was approximately $2.617 and $5.343 million, respectively.
For the years ended December 31, 1997, 1996 and 1995, the Company recognized
interest income on impaired loans of $129,000, $109,000 and $89,000,
respectively, using the cash basis method of income recognition. Interest
income of $198,000, $330,000 and $1,506,000 would have been recognized on
impaired loans in 1997, 1996 and 1995, respectively, 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
1997 1996 1995
------------------------------
<S> <C> <C> <C>
Balance, January 1 $9,167 $9,318 $7,045
Loans charged-off (621) (1,025) (4,045)
Recoveries 363 460 271
------------------------------
Net loans charged-off (258) (565) (3,774)
Provision for loan losses 300 414 6,047
------------------------------
Balance, December 31 $9,209 $9,167 $9,318
==============================
</TABLE>
<PAGE>
G. PREMISES AND EQUIPMENT AND LEASE COMMITMENTS
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
In Thousands
December 31
1997 1996
----------------------
<S> <C> <C>
Land $4,872 $4,643
Buildings and leasehold improvements 13,410 13,532
Furniture and equipment 23,370 21,460
----------------------
41,652 39,635
Less accumulated depreciation and amortization 19,895 18,184
----------------------
$21,757 $21,451
======================
</TABLE>
At December 31, 1997, 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.
Rental expense was $1,145,000, $1,134,000, and $1,183,000 for 1997,
1996 and 1995, respectively.
Minimum rental commitments under noncancelable leases in future years are
as follows:
<TABLE>
<CAPTION>
In Thousands
Year Ending December 31
<S> <C>
1998 $938
1999 $891
2000 $888
2001 $882
2002 $959
Thereafter $3,778
================================================
</TABLE>
<PAGE>
H. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
In Thousands
Years ended December 31
1997 1996 1995
---------------------------
<S> <C> <C> <C>
Income taxes applicable to operations:
Current:
Federal $7,196 $6,848 $4,280
State 279 248 55
---------------------------
7,475 7,096 4,335
Deferred 580 217 (957)
---------------------------
Total applicable to operations 8,055 7,313 3,378
Charged (credited) to components of shareholders' equity:
Net unrealized securities gains (losses) 976 (863) 2,827
Stock options exercised (395) (48) (13)
Pension liability adjustment 41 (63) --
---------------------------
Total income taxes $8,677 $6,339 $6,192
===========================
</TABLE>
The provision for income taxes in the consolidated statements of income
is reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------
<S> <C> <C> <C>
Tax at federal statutory rate 35.0% 35.0% 35.0%
Tax exempt interest income (4.5) (4.6) (7.3)
Non-deductible expenses 0.6 1.5 2.7
Other, net (0.1) 0.8 (0.9)
---------------------------
31.0% 32.7% 29.5%
===========================
</TABLE>
Other liabilities include deferred income taxes of $2,064,000 and $442,000
at December 31, 1997 and 1996, 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
December 31
1997 1996
------------------
<S> <C> <C>
Deferred tax liabilities:
Lease accounting $1,703 $1,290
Depreciation 1,173 1,533
Mark-to-market adjustments related to securities 1,709 708
Other 479 198
------------------
Total deferred tax liabilities 6,532 4,826
------------------
Deferred tax assets:
Allowance for loan losses 3,295 3,281
Deferred compensation 264 245
Other 553 457
------------------
Total deferred tax assets 4,468 4,384
------------------
Net deferred tax liability $2,064 $442
==================
</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,
1997 and 1996.
<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
$77,163,000 and $73,710,000 at December 31, 1997 and 1996,
respectively. Also included in deposits are retail brokered
certificates of deposit aggregating approximately $10 million at
December 31, 1997 and 1996.
At December 31, 1997, the scheduled maturities of certificates of
deposit are as follows:
In Thousands
Year of Maturity
1998 $269,237
1999 94,256
2000 22,842
2001 26,353
2002 7,367
2003 and thereafter 12,818
---------
$432,873
=========
<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, 1997 December 31, 1996
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 $276,570 $280,292 $278,071 5.32% $275,506 $276,460 $276,141 5.04%
31 to 90 Days
U.S. Treasury and
government agencies - - - - 295 301 300 4.80
Over 90 Days but less than 180 Days
U.S. Treasury and
government agencies 6,993 7,001 6,429 5.52 10,204 10,213 9,507 5.33
------------ ------------ ------------ --------- ------------ ------------ ------------ ---------
$283,563 $287,293 $284,500 5.33% $286,005 $286,974 $285,948 5.05%
============ ============ ============ ========= ============ ============ ============ =========
</TABLE>
1997 1996
------------ ------------
Average balance during the year $257,149 $252,577
Average interest rate during the year 5.08% 5.01%
Maximum month-end balance during the year $346,635 $320,174
<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
Weighted
Average
Interest
Year of Maturity Amount Rate
--------------------------------------------------------
<S> <C> <C>
1998 $2,529 5.99 %
2000 258 5.77
2002 4,137 6.42
2008 - 2012 29,525 6.18
2013 - 2014 4,892 7.10
------------ -----------
$63,165 6.16 %
============ ===========
</TABLE>
Scheduled principal repayments on advances from the FHLB are $8,178,000,
$5,997,000, $6,566,000, $6,740,000, and $6,806,000 for 1998 through 2002,
respectively, and $28,878,000 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
1997 1996
----------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$7,438 (1997) and $7,603 (1996) $7,967 $8,117
======================
Plan assets at market value, primarily debt and equity mutual funds $10,012 $10,880
Projected benefit obligation for service rendered to date 11,563 11,511
----------------------
Projected benefit obligation in excess of plan assets (1,551) (631)
Unrecognized net loss from past experience different
from that assumed 1,390 1,212
Unrecognized prior service cost 36 39
Unrecognized net asset at January 1, 1986 being recognized over
approximately 16 years (657) (837)
----------------------
Accrued pension costs ($782) ($217)
======================
</TABLE>
Net pension expense for 1997, 1996, and 1995 included the following components:
<TABLE>
<CAPTION>
In Thousands
Years ended December 31
1997 1996 1995
---------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period ($659) ($740) ($472)
Interest cost on projected benefit obligation (828) (819) (715)
Actual return on plan assets 1,500 537 1,622
Amortization and deferral - net (578) 428 (604)
---------------------------------
Net pension expense ($565) ($594) ($169)
=================================
</TABLE>
A discount rate of 7.00 % in 1997 and 7.75 % in 1996 and a rate of increase in
future compensation levels of 4.25% in 1997 and 5.00% in 1996 were used in
determining the actuarial present value of the projected benefit obligation.
The expected long-term rate of return on assets was 7.00% in 1997 and 8.00% in
1996 and 1995.
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 accumulated benefit
obligation of $149,000 at December 31, 1997 and $1,157,000 at December 31,
1996. The plan had a projected benefit obligation of $414,000 at December 31,
1997 and $1,429,000 at December 31, 1996. In 1997, a portion of this plan's
obligations were settled by a lump sum payment of $1.1 million resulting in
the recognition of a settlement loss of $298,000. Expenses of the plan,
including the settlement loss in 1997, were approximately $427,000 in 1997,
$173,000 in 1996 and $186,000 in 1995.
The Company also offers a defined contribution employee stock ownership plan.
The Company's contribution to this plan was $585,000, $560,000, and $476,000
for 1997, 1996, and 1995, 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 1997, 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
1997 1996 1995
---------------------------------
<S> <C> <C> <C>
Net income As Reported $17,915 $15,029 $8,066
Pro forma 17,841 14,978 7,630
Basic net income As Reported $1.83 $1.55 $0.84
per share Pro forma 1.82 1.55 0.79
Diluted net As Reported $1.80 $1.54 $0.83
income per share Pro forma 1.79 1.54 0.79
</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 1997, 1996 and 1995, respectively: dividend
yields of 3.63%, 3.89% and 4.00%; expected volatility of 16%, 16% and 16%;
risk-free interest rates of 6.64%, 6.09% and 7.56%; and expected lives of
6.50, 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 are exercisable ratably over a four year period. Options
granted under the plans prior to 1997 were exercisable one year after the date
of the grant. Shares available for future grants were 947,134 at December 31,
1997.
A summary of the status of the Company's incentive stock option plans as of
December 31, 1997, 1996, and 1995 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 725,992 $14.19 768,029 $14.00 630,745 $13.48
Granted 120,448 20.10 26,523 17.19 225,101
Expired (4,946) 15.41 (7,198) 15.51 (62,080) 12.82
Exercised (174,884) 13.90 (61,362) 12.86 (25,737) 12.16
Outstanding at December 31 ----------- ----------- -----------
666,610 $15.33 725,992 $14.19 768,029 $14.00
=========== =========== ===========
Exercisable at December 31 546,162 699,469 542,928
=========== =========== ===========
Weighted-average fair value
of options granted $3.81 $3.09
=========== ===========
</TABLE>
The following table summarizes information about incentive stock options
outstanding at December 31, 1997:
<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>
$ 9.41 to 13.00 120,187 2.9 years $10.75 120,187 $10.75
13.01 to 17.00 388,199 6.0 years 15.07 388,199 15.07
17.01 to 21.89 158,224 8.2 years 19.44 37,776 17.34
----------- -----------
$ 9.41 to 21.89 666,610 6.0 years 15.33 546,162 14.27
=========== ===========
</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, 1998, the aggregate amount of retained earnings
available for distribution to the Company by subsidiaries, excluding the
subsequently sold money order subsidiary, without prior approval was
approximately $7.6 million. 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 $10,458,000 at December 31, 1997, 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, 1997.
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 impact on the Company's and the 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) 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, 1997, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1997, 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>
Dollars In Thousands To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------- ---------- ------- ---------- -------
As of December 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets)
Consolidated $161,484 14.7% $88,142 > 8.0 % $110,178 >10.0 %
Bank $126,624 11.9% $85,158 > 8.0 % $106,448 >10.0 %
Tier I Capital
(to Risk Weighted Assets)
Consolidated $152,275 13.8% $44,071 > 4.0 % $66,107 > 6.0 %
Bank $117,468 11.0% $42,579 > 4.0 % $63,869 > 6.0 %
Tier I Capital
(to Average Assets)
Consolidated $152,275 11.1% $54,950 > 4.0 % $68,687 > 5.0 %
Bank $117,468 8.8% $53,439 > 4.0 % $66,798 > 5.0 %
As of December 31, 1996:
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 %
</TABLE>
<PAGE>
N. NET INCOME PER SHARE AND COMMON STOCK DIVIDENDS
The following are the numerators and denominators for the basic and diluted
net income per share computations:
<TABLE>
<CAPTION>
In Thousands, Except Per Share Amounts
1997 1996 1995
---------------------------------- ---------------------------------- ----------------------------------
Net Income Shares Per Share Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $17,915 9,799 $1.83 $15,029 9,679 $1.55 $8,066 9,636 $0.84
========= ========= =========
Effect of Dilutive
Securities --- 171 --- 70 --- 64
--------- --------- --------- --------- --------- ---------
Diluted EPS $17,915 9,970 $1.80 $15,029 9,749 $1.54 $8,066 9,700 $0.83
========= ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
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 17, 1997 December 1, 1997 December 12, 1997 3.0
November 18, 1996 December 3, 1996 December 13, 1996 3.0
November 20, 1995 December 4, 1995 December 15, 1995 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, 1997, the Company had $322,698,000 of commitments to extend
credit (of which $119,629,000 relates to home equity lines of credit),
substantially all of which are at varible rates, 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, aggregating $18.5
million at December 31, 1997, 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, 1997, 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 or results
of operations 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
Years Ended December 31
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Other non-interest income:
Gain on sale of program agent base
of money order subsidiary $ - 1,797 $ -
Other 3,964 3,086 2,521
----------- ----------- -----------
$3,964 $4,883 $2,521
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Other operating expenses:
Advertising and marketing $1,562 $1,262 $704
Operating supplies 2,121 1,601 2,080
Professional fees 1,610 2,212 1,553
Taxes-Bank, property and other 1,741 1,637 1,386
Other 3,796 4,383 6,002
----------- ----------- -----------
$10,830 $11,095 $11,725
=========== =========== ===========
</TABLE>
In 1996, the Company recognized a $1.8 million gain related to the sale of a
part of the money order agent base of Mid America Money Order Company (MAMO).
Western Union Financial Services, Inc. exercised a contractual option to
purchase their program agent base from MAMO. This transaction involved
approximately one-third of MAMO's agent base and volume.
<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, 1997 $11,441
New loans and advances on lines of credit 10,312
Repayments (5,631)
---------
Balance, December 31, 1997 $16,122
=========
</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.
<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, 1997, 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, 1997, the Company had entered into interest
rate swap contracts with notional amounts totaling $150 million,
with a weighted average maturity of 2.2 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, 1997, the floating prime rate to be paid by the
Company was 8.50% and the weighted average fixed rate to be
received by the Company was 8.56%. At December 31, 1996 the
Company had interest rate swap contracts of $150 million, with
a weighted average maturity of 3.2 years, a weighted
average fixed rate to be received by the Company of 8.56%,
and a rate to be paid by the Company of 8.25%.
Interest rate swap contracts increased net interest income by
$176,000 in 1997, $450,000 in 1996 and $21,000 in 1995. At
December 31, 1997 and 1996, the aggregate fair value of
interest rate swap contracts, determined through market
quotes, was approximately $1,000 and ($1,019,000),
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, 1997 December 31, 1996
----------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $45,902 $45,902 $161,084 $161,084
Securities 522,899 523,042 411,673 411,869
Loans, net of allowance for loan losses 881,866 886,708 795,015 797,082
Financial liabilities:
Deposits 878,829 881,122 825,257 829,946
Short-term borrowings 284,500 284,500 289,948 289,948
Advances from the Federal Home Loan Bank 63,165 62,360 69,042 66,499
Gift certificates and money orders
outstanding 104,609 104,609 76,533 76,533
Off-balance sheet financial instruments
Interest rate swaps --- 1 --- (1,019)
</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.
Gift certificates and money orders 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. SUBSEQUENT EVENT
On January 8, 1998, the Company completed the previously announced
sale of Mid-America Money Order Company (MAMO), a wholly-owned
subsidiary, to MoneyGram Payment Systems, Inc. (MoneyGram) for
$15.6 million in cash, a $5 million premium over book value.
As a part of the agreement with MoneyGram, the Company will
provide data processing and banking services to MAMO for at least
four years. Under the provisions of the sales contract and the
processing agreement, a gain of $436,000 was recognized in
January, 1998; $4.6 million of the premium was deferred and
will be amortized to income in 1998 and the following three
years to provide for normal processing fees over the term of the
processing agreement. The Company may recognize an additional gain
in 1998 of up to $475,000 if certain other conditions are met.
At December 31, 1997, MAMO had assets of $43
million and outstanding gift certificates and money
orders of $32.5 million. Excluding the mall gift
certificate program, retained by the Company, MAMO
had fees and interest income of $4.4 million,
operating expenses of $3.1 million and net income of
$850,000 in 1997.
<PAGE>
U. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
<TABLE>
<CAPTION>
Condensed Balance Sheets
In Thousands
December 31
1997 1996
--------------------------
<S> <C> <C>
Assets:
Cash on deposit with bank subsidiary $7,016 $2,501
Investment in bank and thrift subsidiaries 124,364 108,677
Investment in other subsidiaries 22,470 16,203
Other assets 1,874 3,487
------------ ------------
Total assets $155,724 $140,662
============ ============
Liabilities and shareholders' equity:
Other liabilities $15 $24
Shareholders' equity 155,709 140,638
------------ ------------
Total liabilities and shareholders' equity $155,724 $140,662
============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
In Thousands
Years Ended December 31
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash dividends from bank subsidiary $2,550 $19,300 $6,000
Interest income and other income 697 300 2
Other expenses (233) (117) (210)
------------ ------------ ------------
Income before income taxes and equity
in undistributed earnings of subsidiaries 3,014 19,483 5,792
Applicable income tax (expense) benefit (167) (168) 64
------------ ------------ ------------
Income before equity in undistributed earnings of
subsidiaries 2,847 19,315 5,856
Equity in undistributed earnings of subsidiaries 15,068 (4,286) 2,210
------------ ------------ ------------
Net income $17,915 $15,029 $8,066
============ ============ ============
</TABLE>
<PAGE>
U. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
In Thousands
Years Ended December 31
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $17,915 $15,029 $8,066
Adjustment to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (15,068) 4,286 (2,210)
Decrease (increase) in other assets 2,008 (3,077) (328)
Increase (decrease) in other liabilities (9) 58 (731)
--------- --------- ---------
Net cash provided by operating activities 4,846 16,296 4,797
--------- --------- ---------
Cash flows from investing activities:
Investment in subsidiaries (5,000) (200) --
--------- --------- ---------
Cash flows used in financing activities:
Dividends paid (7,441) (6,491) (5,741)
Stock options exercised 2,316 823 310
--------- ---------- ---------
Net cash used in financing activities (5,125) (5,668) (5,431)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (5,279) 10,428 (634)
Cash and cash equivalents at beginning of year 12,295 1,867 2,501
--------- --------- ---------
Cash and cash equivalents at end of year $7,016 $12,295 $1,867
========= ========= =========
</TABLE>
SUBSIDIARIES OF REGISTRANT Exhibit 21
The subsidiaries of MidAmerica Bancorp are listed below. Each of the companies
with the exception of MidAmerica Bank, F.S.B., which is a Federal Savings Bank
organized under laws of the United States, is incorporated in the state of
Kentucky.
Bank of Louisville
MidAmerica Gift Certificate Company
Eton Life Insurance Company
MidAmerica Data Processing Inc.
MidAmerica Property Management Company
MABC Leasing Company
MidAmerica Bank, F.S.B.
Mid-America Money Order Company (sold January 8, 1998)
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
MidAmerica Bancorp:
We consent to incorporation by reference in the Registration
Statements No. 2-92270, No. 2-99495, No. 33-42989, and No. 333-
45091 on Forms S-8 of MidAmerica Bancorp of our report dated
January 23, 1998, relating to the consolidated balance sheets of
MidAmerica Bancorp and subsidiaries as of December 31, 1997 and
1996, 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, 1997, which report appears in
the 1997 annual report to shareholders, which is incorporated by
reference in the December 31, 1997 Form 10-K of MidAmerica Bancorp.
Louisville, Kentucky /s/ KPMG Peat Marwick LLP
March 23,1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> YEAR
<CASH> 29,002
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 414,721
<INVESTMENTS-CARRYING> 108,178
<INVESTMENTS-MARKET> 108,321
<LOANS> 891,075
<ALLOWANCE> (9,209)
<TOTAL-ASSETS> 1,509,579
<DEPOSITS> 878,829
<SHORT-TERM> 284,500
<LIABILITIES-OTHER> 127,376
<LONG-TERM> 63,165
0
0
<COMMON> 27,399
<OTHER-SE> 128,310
<TOTAL-LIABILITIES-AND-EQUITY> 1,509,579
<INTEREST-LOAN> 77,820
<INTEREST-INVEST> 22,905
<INTEREST-OTHER> 6,471
<INTEREST-TOTAL> 107,196
<INTEREST-DEPOSIT> 32,434
<INTEREST-EXPENSE> 49,677
<INTEREST-INCOME-NET> 57,519
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 59
<EXPENSE-OTHER> 44,422
<INCOME-PRETAX> 25,970
<INCOME-PRE-EXTRAORDINARY> 25,970
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,915
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.80
<YIELD-ACTUAL> 4.54
<LOANS-NON> 1,678
<LOANS-PAST> 788
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,074
<ALLOWANCE-OPEN> 9,167
<CHARGE-OFFS> 621
<RECOVERIES> 363
<ALLOWANCE-CLOSE> 9,209
<ALLOWANCE-DOMESTIC> 9,209
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<PERIOD-TYPE> YEAR YEAR
<CASH> 30,884 50,962
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 130,200 113,200
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 336,118 292,374
<INVESTMENTS-CARRYING> 75,555 69,326
<INVESTMENTS-MARKET> 75,751 69,766
<LOANS> 804,182 748,565
<ALLOWANCE> (9,167) (9,318)
<TOTAL-ASSETS> 1,420,933 1,313,987
<DEPOSITS> 825,257 784,957
<SHORT-TERM> 289,948 230,216
<LIABILITIES-OTHER> 96,048 90,755
<LONG-TERM> 69,042 75,109
0 0
0 0
<COMMON> 26,144 25,218
<OTHER-SE> 114,494 107,732
<TOTAL-LIABILITIES-AND-EQUITY> 1,420,933 1,313,987
<INTEREST-LOAN> 73,220 69,499
<INTEREST-INVEST> 19,806 17,602
<INTEREST-OTHER> 7,759 3,494
<INTEREST-TOTAL> 100,785 90,595
<INTEREST-DEPOSIT> 30,662 29,245
<INTEREST-EXPENSE> 47,979 42,451
<INTEREST-INCOME-NET> 52,806 48,144
<LOAN-LOSSES> 414 6,047
<SECURITIES-GAINS> 129 (665)
<EXPENSE-OTHER> 44,577 41,844
<INCOME-PRETAX> 22,342 11,444
<INCOME-PRE-EXTRAORDINARY> 22,342 11,444
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15,029 8,066
<EPS-PRIMARY> 1.55 0.84
<EPS-DILUTED> 1.54 0.83
<YIELD-ACTUAL> 4.39 4.54
<LOANS-NON> 3,424 14,301
<LOANS-PAST> 925 842
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 11,710 12,700
<ALLOWANCE-OPEN> 9,318 7,045
<CHARGE-OFFS> 1,025 4,045
<RECOVERIES> 460 271
<ALLOWANCE-CLOSE> 9,167 9,318
<ALLOWANCE-DOMESTIC> 9,167 9,318
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 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, 1997
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, 1997).
