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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to ____________
Commission File Number 1-10602
______________________MID-AMERICA BANCORP____________________
(Exact name of registrant as specified in its charter)
Kentucky 61-1012933
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 West Broadway
Louisville, Kentucky 40202
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code:(502) 589-3351
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock AMEX
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if the disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-
affiliates (shareholders other than directors, executive officers
and principal shareholders) of the registrant as of February 18,
1999 was approximately $214,707,000.
The number of shares outstanding of the registrant's common stock
as of February 18, 1999 was 10,267,019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the
year ended December 31, 1998, 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 22, 1999, are incorporated by
reference into Part III.
TABLE OF CONTENTS
PART I
Item No. Page
1. BUSINESS . . . . . . . . . . . . . . . . . . . 3
2. PROPERTIES . . . . . . . . . . . . . . . . . . 12
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . 12
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . 12
EXECUTIVE OFFICERS OF REGISTRANT . . . . . . . 12
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS . . . . . . . 15
6. SELECTED FINANCIAL DATA . . . . . . . . . . . 15
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 15
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK . . . . . . . . . . . . . . 15
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . 15
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
PART I
ITEM 1. BUSINESS OF MID-AMERICA BANCORP
Incorporated on May 7, 1982, Mid-America Bancorp (the "Company")
is a Kentucky corporation registered as a bank holding company
pursuant to the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). The Company is registered with, and subject to, the
supervision of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board").
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; participating in small business loan and student
loan programs; 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; and serving as escrow agent on bond issues.
The Company also operates a number of other subsidiaries,
including Mid-America Bank, FSB, a federal savings bank ("Savings
Bank"), which was organized and chartered during 1993. The
Savings Bank is located in Pewee Valley and LaGrange, Kentucky,
in Oldham County, and competes on the local level with other
commercial banks and financial institutions in Oldham County,
Kentucky for all types of deposits and loans. Another
subsidiary, Mid-America Gift Certificate Company, is engaged in
the issuance and sale of gift certificates throughout the United
States. The gift certificate company took over this line of
business when the Company sold its money order subsidiary in
January 1998.
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.
Employees
As of December 31, 1998, the Company and subsidiaries employed
580 persons on a full-time basis and 82 on a part-time basis.
Supervision And Regulation
The Company and its subsidiaries are subject to an extensive
system of banking laws and regulations that are intended
primarily for the protection of the customers and depositors of
the Companys subsidiaries rather than shareholders of the
Company. These laws and regulations govern such areas as
permissible activities, reserves, loans and investments, and
rates of interest that can be charged on loans. The Company and
its subsidiaries also are subject to general U.S. federal laws
and regulations and to the laws and regulations of the states in
which they conduct their business. Set forth below are brief
descriptions of selected laws and regulations applicable to the
Company and its subsidiaries. The references are not intended to
be complete and are qualified in their entirety by reference to
the statutes and regulations. Changes in applicable law or
regulation may have a material effect on the business of the
Company.
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.
Enacted in August 1989, the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") contains 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.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(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, 1998, 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.
Now fully phased in, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Act") removed 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 an 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.
Kentucky banks are permitted to merge with out-of-state banks to
create interstate branches inside or outside Kentucky. Kentucky
banks are also permitted to acquire a branch in another state if
permitted by law of the other state. Kentucky does not permit de
novo branching by out-of-state banks into Kentucky, and it does
not permit an out-of-state bank to acquire a bank in Kentucky
that has been in existence less than five years. The Savings
Bank is generally permitted to open a de novo branch in any
state.
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 16 of the Company's annual report to shareholders for
the year ended December 31, 1998, 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, 1998. 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, 1998. 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, 1998
and 1997 are shown in the schedule captioned "Interest Income and Interest
Expense Volume and Rate Changes for the Years 1998 and 1997 Tax Equivalent
Basis" included on page 17 of the Company's annual report to shareholders for
the year ended December 31, 1998, which is incorporated herein by reference.
<TABLE>
<CAPTION>
SECURITIES PORTFOLIO
BOOK VALUE December 31
(In Thousands) -------------------------------------
1998 1997 1996
Securities Available for Sale -------- -------- --------
<S> <C> <C> <C>
U.S. Treasury and U.S. government agencies... $160,415 $156,654 $148,300
Collateralized mortgage obligations.......... 146,970 185,474 100,754
States and political subdivisions............ 54,738 53,272 41,604
Corporate obligations........................ 4,652 1,765 28,825
Equity securities ........................... 18,992 17,556 16,635
-------- -------- --------
$385,767 $414,721 $336,118
======== ======== ========
<CAPTION>
December 31
-------------------------------------
1998 1997 1996
Securities Held to Maturity -------- -------- --------
<S> <C> <C> <C>
U.S. Treasury and U.S. government agencies... $83,998 $108,078 $75,455
Corporate obligations........................ -- 100 100
-------- -------- --------
$83,998 $108,178 $75,555
======== ======== ========
</TABLE>
<PAGE>
SECURITIES
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELDS
DECEMBER 31, 1998
<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 $146,078 5.47% $14,337 6.24% -- -- -- --
Collateralized mortgage obligations 65,229 3.22% 81,741 4.95% -- -- -- --
States and political
subdivisions 3,003 6.94% 1,388 7.65% 9,687 8.09% 40,660 8.34%
Corporate obligations 3,130 5.50% 1,522 6.78% -- -- -- --
Equity securities -- -- -- -- -- -- 18,992 6.83%
-------- -------- -------- --------
$217,440 4.81% $98,988 5.20% $9,687 8.09% $59,652 7.83%
======== ======== ======== ========
<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 $80,449 5.14% $3,549 5.19% -- -- -- --
-------- -------- -------- --------
$80,449 5.14% $3,549 5.19% -- -- -- --
======== ======== ======== ========
</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
--------- ----------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial and financial $457,682 $427,826 $386,647 $345,167 $299,375
Real estate - construction and development 77,349 65,513 55,738 61,398 61,083
Real estate - mortgage 336,365 329,086 294,746 284,074 291,198
Consumer 133,625 68,650 67,051 57,926 47,740
-------- -------- -------- -------- --------
$1,005,021 $891,075 $804,182 $748,565 $699,396
======== ======== ======== ======== ========
</TABLE>
The loan portfolio includes domestic loans only as the Company has no
foreign loans. The Company has no other category of loans whose
concentration exceeds 10% of total loans.
<PAGE>
<TABLE>
<CAPTION>
SELECTED LOAN MATURITIES AND
SENSITIVITY TO INTEREST RATES
DECEMBER 31, 1998
(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 $99,698 $163,014 $194,970 $457,682
Real estate - construction and development 23,808 43,809 9,732 77,349
Real estate - mortgage 143,127 93,782 99,456 336,365
Consumer 54,889 71,611 7,125 133,625
-------- -------- -------- --------
$321,522 $372,216 $311,283 $1,005,021
======== ======== ======== ========
Predetermined rates $136,235 $242,200 $275,855 $654,290
Floating rates 185,287 130,016 35,428 350,731
-------- -------- -------- --------
$321,522 $372,216 $311,283 $1,005,021
======== ======== ======== ========
</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
9 and 31, respectively, of the Company's annual report to
shareholders for the year ended December 31, 1998, which is
incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars In Thousands)
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year.................... $9,209 $9,167 $9,318 $7,045 $6,578
Charge-offs:
Commercial and financial.................... 646 296 661 569 115
Real estate - construction and development.. 2,888 28
Real estate - mortgage...................... 289 98 115 305 139
Consumer.................................... 420 227 249 283 211
--------- --------- --------- --------- ---------
Total charge-offs......................... 1,355 621 1,025 4,045 493
--------- --------- --------- --------- ---------
Recoveries:
Commercial and financial.................... 51 53 231 44 10
Real estate - construction and development..
Real estate - mortgage...................... 33 225 120 61 125
Consumer.................................... 100 85 109 166 113
--------- --------- --------- --------- ---------
Total recoveries.......................... 184 363 460 271 248
--------- --------- --------- --------- ---------
Net charge-offs (recoveries).................. 1,171 258 565 3,774 245
--------- --------- --------- --------- ---------
Provision for loan losses..................... 972 300 414 6,047 712
--------- --------- --------- --------- ---------
Balance, end of year.......................... $9,010 $9,209 $9,167 $9,318 $7,045
========= ========= ========= ========= =========
Average loans, net of unearned income.........$925,522 $817,262 $767,755 $707,898 $679,100
========= ========= ========= ========= =========
Net charge-offs (recoveries)
to average loans, net of unearned income.... 0.13% 0.03% 0.07% 0.53% 0.04%
========= ========= ========= ========= =========
</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 5 and 6 of the Company's annual report to shareholders for the year
ended December 31, 1998, incorporated herein by reference, for a discussion
of factors affecting loan loss experience during 1998.
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars In Thousands)
1998 1997 1996 1995 1994
--------------------- --------------------- --------------------- --------------------- ---------------------
% 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........ $5,020 45.53% $5,926 47.75% $6,068 48.08% $5,022 46.11% $3,651 42.80%
Real estate -
construction
and development.. 588 7.70% 1,343 7.35% 1,576 6.93% 2,932 8.20% 1,773 8.73%
Real estate -
mortgage......... 715 33.47% 654 36.93% 498 36.65% 437 37.95% 445 41.64%
Consumer.......... 2,687 13.30% 1,286 7.97% 1,025 8.34% 927 7.74% 1,176 6.83%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$9,010 100.00% $9,209 100.00% $9,167 100.00% $9,318 100.00% $7,045 100.00%
========== ========== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
The aggregate allocation of the allowance for loan losses for the commercial
and financial, and real estate - construction and development categories of
loans declined $1.7 million in 1998 to $5.6 million. The decline in the
allowance allocated was attributed to improved local economic conditions, low
risk loans being added to the portfolio, such as a $26 million loan to a major
church organization, and a decline in the level of loans internally classified.
As a result of the new volume and risks associated with the indirect loan
concentration, arising from the Bank's expanded indirect automobile lending
program, the allowance for loan losses allocated to consumer loans increased
$1.4 million to $2.7 million at December 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
MATURITY SCHEDULE OF TIME DEPOSITS OF $100,000 AND OVER
DECEMBER 31, 1998
(In Thousands)
Certificates
Of Deposit Other Total
---------- ---------- ----------
<S> <C> <C> <C>
Three months or less.............................. $25,219 $22,136 $47,355
Over three through six months..................... 18,480 - 18,480
Over six through twelve months.................... 13,301 - 13,301
Over twelve months................................ 13,772 - 13,772
---------- ---------- ----------
$70,772 $22,136 $92,908
========== ========== ==========
</TABLE>
RETURN ON EQUITY AND ASSETS
Selected ratios for the years 1998, 1997 and 1996 are included on the inside
front cover of the Company's annual report to shareholders for the year ended
December 31, 1998 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 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal funds purchased:
Balance at year end............................. $12,090 $ -- $4,000
Average during the year......................... 8,534 1,595 4,249
Maximum amount outstanding at any month end..... 27,735 4,050 5,350
Weighted average rate during the year........... 5.20% 5.35% 5.34%
Weighted average rate on December 31............ 5.36% -- 6.94%
1998 1997 1996
---------- ---------- ----------
Securities sold under agreements to repurchase:
Balance at year end............................. $276,454 $284,500 $285,948
Average during the year......................... 246,585 257,149 252,577
Maximum amount outstanding at any month end..... 330,308 346,635 320,174
Weighted average rate during the year........... 4.99% 5.08% 5.01%
Weighted average rate on December 31............ 4.48% 5.33% 5.05%
</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 automated
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 32 of
the Company's annual report to shareholders for the year ended
December 31, 1998, 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 40 of the Company's annual
report to shareholders for the year ended December 31, 1998, 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, 1998, 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 68 Chairman of the Board of 1985
the Company and the Bank.
Member of the Bank Executive
Committee.
R. K. Guillaume 55 Vice Chairman, Chief 1995
Executive Officer and
Director of the Company
and the Bank. Member of
the Bank Executive Committee.
Orson Oliver 55 President and Director 1985
of the Company and the Bank.
Member of the Bank Executive
Committee.
David N. Klein 42 Chief Operating Officer, 1998
and Executive Vice President
of the Company and the Bank.
Member of the Bank Executive
Committee.
Steven A. Small 45 Treasurer of the Company 1993
and Executive Vice President,
Chief Financial Officer and
member of the Executive
Committee of the Bank.
Paul E. Henry 63 Executive Vice President 1989
and member of the Executive
Committee of the Bank.
William J. Hornig 49 Executive Vice President 1995
and member of the Executive
Committee of the Bank.
Richard B. Klein 40 Executive Vice President 1991
and member of the Executive
Committee of the Bank.
Donald R. LaMar 48 Executive Vice President and 1995
member of Executive Committee
of the Bank and President of
Mid-America Gift Certificate
Company.
David C. Meece 45 Executive Vice President 1995
and member of Executive
Committee of the Bank.
Gail W. Pohn 60 Executive Vice President 1993
and member of the Executive
Committee of the Bank.
Robert H. Sachs 58 Executive Vice President 1993
and member of the Executive
Committee of the Bank until
retirement on December 31, 1998.
Marlyn Y. Smith 62 Executive Vice President 1995
and member of Executive
Committee of the Bank.
Mr. David Klein, Executive Vice President of the Bank since 1991,
was named Chief Operating Officer and Executive Vice President of
the Company and the Bank in 1998.
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'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. 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.
Ms. 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 21 of the
Company's annual report to shareholders for the year ended
December 31, 1998, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information captioned "Summary of Financial Data" included on
page 19 of the Company's annual report to shareholders for the
year ended December 31, 1998, 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 4 through 15 of the
Company's annual report to shareholders for the year ended
December 31, 1998, 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 12 and 13 of the Company's annual
report to shareholders for the year ended December 31, 1998, 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 22 through
46 in the Company's annual report to shareholders for the year
ended December 31, 1998, are incorporated herein by reference:
Independent Auditors' Report
Consolidated balance sheets - December 31, 1998 and 1997
Consolidated statements of income -
years ended December 31 1998, 1997 and 1996
Consolidated statements of changes in shareholders' equity -
years ended December 31, 1998, 1997 and 1996
Consolidated statements of comprehensive income-
years ended December 31, 1998, 1997 and 1996
Consolidated statements of cash flows -
years ended December 31, 1998, 1997 and 1996
Notes to consolidated financial statements
The information captioned "Quarterly Financial Data" included on
page 20 of the Company's annual report to shareholders for the
year ended December 31, 1998, 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 "PROPOSAL 1 - ELECTION
OF DIRECTORS" and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE 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 1999 Annual Meeting of
Shareholders to be held April 22, 1999, are incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the headings PROPOSAL 1
ELECTION OF DIRECTORS - INFORMATION CONCERNING THE BOARD OF
DIRECTORS and "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 1999 Annual Meeting of Shareholders to be held April
22, 1999, 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 1999 Annual Meeting of Shareholders to be held April
22, 1999, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the headings "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and OTHER
TRANSACTIONS 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 1999 Annual Meeting of
Shareholders to be held April 22, 1999, 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 24 through 26 of this annual report on Form
10-K, which are incorporated herein by reference.
b Reports on Form 8-K
There were no reports filed on Form 8-K during
the fourth quarter of 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MID-AMERICA BANCORP
March 22, 1999 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 22, 1999
Bertram W. Klein
/s/ R.K. Guillaume Chief Executive Officer March 22, 1999
R.K. Guillaume and Director
/s/ Orson Oliver President and Director March 22, 1999
Orson Oliver
/s/ Steven A. Small Treasurer March 22, 1999
Steven A. Small (Principal Accounting
Officer)
/s/ Leslie D. Aberson Director March 22, 1999
Leslie D. Aberson
/s/ Robert P. Adelberg Director March 22, 1999
Robert P. Adelberg
/s/ William C. Ballard, Jr. Director March 22, 1999
William C. Ballard, Jr.
/s/ James E. Cain Director March 22, 1999
James E. Cain
/s/ Martha Layne Collins Director March 22, 1999
Martha Layne Collins
/s/ Wendell H. Ford Director March 22, 1999
Wendell H. Ford
/s/ David Jones, Jr. Director March 22, 1999
David Jones, Jr.
/s/ Peggy Ann Markstein Director March 22, 1999
Peggy Ann Markstein
/s/ Donald G. McClinton Director March 22, 1999
Donald G. McClinton
/s/ Jerome J. Pakenham Director March 22, 1999
Jerome J. Pakenham
/s/ John S. Palmore Director March 22, 1999
John S. Palmore
/s/ Woodford R. Porter, Sr. Director March 22, 1999
Woodford R. Porter, Sr.
/s/ Benjamin K. Richmond Director March 22, 1999
Benjamin K. Richmond
/s/ Bruce J. Roth Director March 22, 1999
Bruce J. Roth
/s/ Raymond L. Sales Director March 22, 1999
Raymond L. Sales
/s/ Henry C. Wagner Director March 22, 1999
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, 1998
Commission file number 1-10602
________________
MIDAMERICA BANCORP
INDEX TO EXHIBITS
3(a) Restated 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, March 13, 1995, March 5, 1998 and
January 11, 1999.
(b) By-Laws of MidAmerica Bancorp are incorporated by
reference to Exhibit 3(b) to the Companys annual
report on Form 10-K for the year ended December 31,
1995.
4. Amended and Restated Articles of Incorporation,
By-Laws, and Shareholder Rights Agreement,
dated February 23, 1998, between MidAmerica
Bancorp and Mid-America Bank of Louisville and
Trust Company are incorporated by reference to
Exhibit 3 (a) to this report, Exhibit 3 (b) to
the Company's annual report on Form 10-K for
the year ended December 31, 1995, and Exhibit
4 to the Companys report on Form 8-K dated
February 23, 1998, respectively.
10. Material Contracts
10.(a) MidAmerica Bancorp Non-Employee Directors
Deferred Compensation Plan incorporated
by reference to Exhibit 10(a) to the Company's
annual report on Form 10-K for the year
ended December 31, 1994.(*)
10.(b) Employment Agreement between the Company
and Orson Oliver incorporated by reference
to Exhibit 10 (b) of 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
Exhibit 10 (n)of 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 Exhibit 10 (d) of 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 Exhibit 10 (e) of 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 Exhibit 10 (f) of the Companys 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 Exhibit 10 (g) of 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 Exhibit 10 of the Company's quarterly report
on Form 10-Q for the quarter ended June 30,1998.(*)
10.(i) Agreement and General Release between the
Company and Stanley L. Atlas dated,
October 26, 1993, incorporated by reference
to Exhibit 10 (h) of the Company's annual
report on Form 10-K for the year ended
December 31, 1993.(*)
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 is incorporated by reference to Exhibit
28 to Registration Statement No. 33-42989(*)
10.(l) MidAmerica Bancorp 1996 Management Incentive
Compensation Plan incorporated by reference to
Exhibit 10 (l) of 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
Exhibit 10 of the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1998.(*)
10.(n) 1995 Incentive Stock Option plan of MidAmerica
Bancorp incorporated by reference to Exhibit 10(m)
of 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, 1998.
21. Subsidiaries of the Company.
23. Consent of independent auditors.
27. Financial Data Schedule.
99. Additional Exhibits
Form 11-K
OFFICER'S CERTIFICATE FOR ARTICLES OF AMENDMENT
AND RESTATEMENT TO THE ARTICLES OF INCORPORATION
OF MID-AMERICA BANCORP
I hereby certify that:
I. I am the duly elected and acting President of
Mid-America Bancorp (the "Corporation").
II. The Corporation's Articles of Restatement of the
Articles of Incorporation of Mid-America Bancorp (the "Restated
Articles") are attached as Annex A to this Officer's Certificate
and contain amendments to the Articles of Incorporation
requiring shareholder approval.
III. As contemplated by KRS 271B.10-070(4)(b), the
information required by KRS 271B.10-060 is as follows:
(A) The name of the Corporation is Mid-America
Bancorp.
(B) The Restated Articles (1) delete the current
Articles VII, VIII, and IX of the Corporation's Articles of
Incorporation and (2) amend Articles VI, VII, and VIII of the
Corporation's Articles of Incorporation. The texts of Articles
VI, VII, and VIII, as hereby amended, are included as set out in
Articles VI, VII, and VIII in the Restated Articles.
(C) None of the amendments provides for an
exchange, reclassification, or cancellation of issued shares.
(D) The amendments were adopted by holders of
the Corporation's common stock, the Corporation's sole class of
issued and outstanding shares, at the Corporation's 1989 Annual
Meeting of Shareholders (the "1989 Annual Meeting") on April 10,
1989. There were 5,318,720 shares of common stock issued,
outstanding and entitled to vote at the 1989 Annual Meeting, of
which 4,222,224 shares were indisputably represented at the 1989
Annual Meeting. The Amendments were approved by a vote of
4,114,510 shares of common stock cast in favor of, and 76,544
shares of common stock cast against, the amendments, with 31,170
shares abstaining.
IN WITNESS WHEREOF, I have signed this certificate on
April 27, 1989.
/s/ Orson Oliver
Orson Oliver
President
ANNEX A
ARTICLES OF RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
MID-AMERICA BANCORP
Pursuant to KRS 271B.10-070(4), Articles of
Restatement of Articles of Incorporation of Mid-America Bancorp
(the "Corporation") are hereby adopted:
FIRST: The name of the Corporation is Mid-America
Bancorp.
SECOND: The Corporation's Restated Articles of
Incorporation are as follows:
ARTICLE I
The name of the Corporation is Mid-America Bancorp.
ARTICLE II
The purpose or purposes for which the Corporation is
organized are, subject to the restrictions imposed upon it by
applicable Federal and State laws and regulations governing bank
holding companies, the following:
1. To engage in any or all lawful business for which
corporations may be incorporated under the Kentucky Business
Corporation Act, and to exercise any and all powers that
corporations may now or hereafter exercise under the Kentucky
Business Corporation Act, whether or not specifically enumerated
herein.
2. To act as a bank holding company.
3. To purchase, take, receive, lease or otherwise
acquire, own, hold, improve, use or otherwise deal in and with
real and personal property, or any interest therein, wherever
situated.
4. To sell, convey, mortgage, pledge, lease, exchange,
transfer and otherwise dispose of all or any part of its
property and assets.
5. To act as agent, broker or attorney-in-fact for others
for any purpose whatsoever.
6. To purchase, take, receive, subscribe for and
otherwise acquire, own, hold, vote, use, employ, sell, mortgage,
lend, pledge, or otherwise dispose of, use and deal in and with,
shares and other interests in, and promissory notes, bills of
exchange, trade acceptances and other obligations of itself or
other corporations (whether domestic or foreign), associations,
partnerships or individuals, and direct or indirect obligations
of the United States or of any other government, state,
territory, governmental district or municipality, or a
governmental instrumentality.
7. To make contracts and guarantees and incur
liabilities, borrow money at such rates of interest as the
Corporation may determine, issue its notes, bonds and other
obligations and secure them by mortgage or pledge of all or any
of its property, franchises and income, and to issue its notes,
bonds and other evidences of indebtedness convertible into
common or preferred stock or other securities of the
Corporation.
8. To apply for, obtain, register, purchase, lease or
otherwise acquire, and to hold, use, pledge, lease, sell, assign
or otherwise dispose of, formulas, secret processes, distinctive
marks, improvements, processes, trade names, trademarks,
copyrights, patents, licenses, concessions and the like, whether
used in connection with or secured under letters or patents, or
issued by any country or authority, or otherwise; and to issue,
exercise, develop and grant licenses in respect thereof or
otherwise turn them to account.
9. To purchase or otherwise acquire, hold, sell, pledge,
transfer or otherwise dispose of, and to re-issue or cancel the
shares of its own capital stock or any securities or other
obligations of the Corporation in the manner and to the full
extent now or hereafter permitted by the laws of the
Commonwealth of Kentucky and applicable federal laws and
regulations.
10. To pay pensions and establish pension plans, pension
trusts, profit sharing plans, stock bonus plans, stock option
plans, and other incentive plans for any or all of its
directors, officers and employees.
11. To make donations for the public welfare and for
charitable, scientific or educational purposes and in aid of the
United States government.
12. To lend its funds or credit from time to time to such
extent, to such persons, firms, associations, corporations,
governments or subdivisions thereof, and on such terms and on
such security, if any, or without security, as the Board of
Directors of the Corporation may determine and as may be lawful.
13. To conduct its business, carry on its operations, have
offices and exercise its corporate powers in any state,
territory, district and possession of the United States and in
any foreign country.
14. To be a promoter, partner, limited partner, member,
associate or manger of any partnership, limited partnership,
joint venture, trust or other enterprise, and to do all things
necessary or proper in connection therewith as a natural person
might or could do.
15. To acquire, in whole or in part, the assets, property,
rights and goodwill of any corporation, association, partnership
or individual and to assume and agree to pay the whole or any
part of the liabilities and obligations of the transferor.
16. To such extent as a corporation organized under the
Kentucky Business Corporation Act may now or hereafter lawfully
do, as principal or agent, along or in connection with other
corporations, firms or individuals, to do all and everything
necessary, suitable, convenient or proper for, or in connection
with, or incident to, the accomplishment of any of the purposes,
or the attainment of any one or more of the objects herein
enumerated, or designed directly or indirectly to promote the
interests of the Corporation, or to enhance the value of its
properties; and in general to do any and all things and exercise
any and all powers, rights and privileges which a corporation
may now or hereafter be organized to do, or to exercise under
the Kentucky Business Corporation Act or under any laws
amendatory thereof, supplemental thereto, or substituted
therefor; and to do any or all of the things hereinabove set
forth to the same extent as natural persons might or could do.
The foregoing clauses shall be construed as powers, as
well as objects and purposes, and the matters expressed in each
clause shall, unless herein otherwise expressly provided, be in
no wise limited by reference to or inference from the terms of
any other clause, but shall be regarded as independent purposes
and powers, and the enumeration of specific purposes and powers
shall not be construed to limit or restrict in any manner the
general powers of the Corporation nor the meaning of the general
powers of the Corporation nor the meaning of the general terms
used in describing any such purposes and powers; nor shall the
expression of one thing be deemed to exclude another not
expressed, although it be of like nature.
ARTICLE III
The period of duration of the Corporation shall be
perpetual.
ARTICLE IV
The total number of shares of all classes of capital
stock which the Corporation shall have the authority to issue is
10,750,000 shares which shall be divided into two classes as
follows:
10,000,000 shares of Common Stock, having no par value
per share and
750,000 shares of Preferred Stock, having no par value
per share.
The designations, voting powers, preferences and
relative, participating, optional or other special rights,
qualifications, limitations or restrictions of the above classes
of stock shall be as follows:
(a) The Common Stock shall be without distinction as
to powers, preferences and rights and such stock may be issued
for such consideration as shall from time to time be fixed by
the Board of Directors.
(b) Subject to the preferential rights of the
Preferred Stock, the holders of the Common Stock shall be
entitled to receive, to the extent permitted by law, such
dividends as may be declared from time to time by the Board of
Directors.
(c) Each holder of Common Stock shall have one vote
in respect of each share of Common Stock held by such
shareholder of record on the books of the Corporation on all
matters voted upon by the stockholders except that at each
election for directors, each holder of Common Stock entitled to
vote at such election shall have the right to cast as many votes
in the aggregate as equal the total number of shares of Common
Stock held by such shareholder multiplied by the number of
directors to be elected at such election; and each such
shareholder may cast the whole number of votes for one
candidate, or distribute such votes among two or more
candidates.
(d) The Board of Directors of the Corporation is
hereby expressly authorized to issue shares of Preferred Stock,
from time to time, in such series, and with such designations,
preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue of such stock adopted by the
Board of Directors, and as are not stated or expressed in this
Certificate of Incorporation or any amendment thereto including
determination of any of the following:
(1) The rate of dividend;
(2) Whether shares may be redeemed and, if so,
the redemption price and the terms and
conditions of redemption;
(3) The amount payable upon shares in event of
voluntary or involuntary liquidation;
(4) Sinking fund provisions, if any, for the
redemption or purchase of shares;
(5) The terms and conditions, if any, on which
shares may be converted;
(6) Voting rights, if any;
(7) The stated value of the shares of each
series;
(8) The distinctive serial designation and the
number of shares constituting a series; and
(9) Any other preferences, privileges and
powers, and relative, participating, or
other special rights, and qualifications,
limitations or restrictions of such series
permitted by the laws of the Commonwealth of
Kentucky, as the Board of Directors may deem
advisable and as shall not be inconsistent
with the provisions of the Certificate of
Incorporation.
ARTICLE V
The affairs of the Corporation shall be managed and
conducted by a Board of Directors. The number of directors
shall be fixed by resolutions of the stockholders at their
annual meeting or by the By-Laws, but shall never be less than
fifteen.
The Board of Directors of the Corporation may, from
time to time, distribute to its stockholders out of capital
surplus of the Corporation a portion of its assets in cash or
property.
The Board of Directors of the Corporation, to the
extent not prohibited by law, shall have the power to cause the
Corporation to repurchase shares of its own Common Stock and
Preferred Stock to the full extent of its unreserved and
unrestricted capital surplus, or any other surplus, available
therefor.
ARTICLE VI
Indemnification. Current and former directors and
officers of the Corporation (and their heirs, executors and
administrators) shall be indemnified to the maximum extent
permitted or mandated by, and in accordance with, the Kentucky
Business Corporation Act, as amended from time to time. The
indemnification provided by this Article shall not be exclusive
of any other rights to which those indemnified may be entitled
under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise.
The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer of the
Corporation, or who while a director or officer of the
Corporation, is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise
against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article.
ARTICLE VII
Consideration of Certain Factors. The Board of
Directors may base its response to any offer of another party
to: (a) make a tender or exchange offer for any equity
security of the Corporation, (b) merge or consolidate the
Corporation with another corporation, or (c) purchase or
otherwise acquire all or substantially all of the properties and
assets of the Corporation (collectively, "Acquisition
Proposals") upon an evaluation of the best interest of the
Corporation and its shareholders. Relevant factors to be
considered in such evaluation include, without limitation, the
following:
(a) The consideration being offered in the
Acquisition Proposal, not only in relation to the then current
market value of the Corporation's stock, but also in relation to
(i) the Board of Directors' then current estimate of the current
or future value of the Corporation in a freely negotiated
transaction, and (ii) the Board of Directors' then current
estimate of the future value of the Corporation as an
independent entity;
(b) The social, legal and economic effects upon
employees, customers and other constituents of the Corporation
and its subsidiaries;
(c) The social, legal and economic effects on the
communities in which the Corporation and its subsidiaries
operate or are located; and
(d) The competence, experience and integrity of the
acquiring party or parties and its or their management.
ARTICLE VIII
Limitation on Director Liability. A director of the
Corporation shall not be personally liable to the Corporation or
its shareholders for monetary damages for breach of duty as a
director except for liability (i) for any transaction in which
the director's personal financial interest is in conflict with
the financial interests of the Corporation or its shareholders;
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a
violation of law; (iii) under KRS 271B.8-330; and (iv) from any
transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Article by the
shareholders of the Corporation shall not adversely affect any
limitation on the liability of a director of the Corporation
with respect to matters arising before the time of such repeal
or modification.
* * *
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
MID-AMERICA BANCORP
Pursuant to the provisions of KRS 271B.10-030 and KRS
271B.10-060, the following Articles of Amendment to the Articles
of Incorporation of MID-AMERICA BANCORP, a Kentucky corporation
(the "Corporation") are hereby adopted:
FIRST: The name of the Corporation is Mid-America
Bancorp.
SECOND: Article V of the Corporation's Articles of
Incorporation is deleted in its entirety and the
following is inserted in lieu thereof:
ARTICLE V
Number and Authority of Directors
The Board of Directors shall consist of not fewer
than 10 nor more than 21 individuals, with the exact
number of individuals within such range to be
determined by resolution of the Board of Directors
from time to time. Except as otherwise set forth in
the Kentucky Business Corporation Act, the Board of
Directors shall have the authority to exercise all the
corporate powers of the Corporation and shall manage
all of the business and affairs of the Corporation."
THIRD: The above designated amendment does not provide
for an exchange, reclassification or cancellation
of issued shares of stock of the Corporation.
FOURTH: The designated amendment was adopted by the
Corporation's Board of Directors on February 15,
1993, and submitted for approval by the
Corporation's shareholders. The Corporation has
8,205,358 outstanding shares of common stock,
without par value, each such share entitled to
vote on the amendment. 6,687,515 shares of the
common stock were indisputably represented at a
shareholders' meeting held on April 13, 1993 duly
called in accordance with the Kentucky Business
Corporation Act, with 6,608,991 votes
indisputably cast in favor of the designated
amendment, such votes being sufficient for
approval of the amendment.
Dated: April 14, 1993.
MID-AMERICA BANCORP
By: /s/ Orson Oliver
Orson Oliver, President
This instrument was prepared by:
/s/ Carmin Grandinetti
Carmin D. Grandinetti
GREENEBAUM DOLL & MCDONALD
3300 First National Tower
Louisville, Kentucky 40202
(502) 589-4200
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
MID-AMERICA BANCORP
Pursuant to the provisions of KRS 271B.10-030 and KRS
271B.10-060, the undersigned corporation executes these Articles
of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is MID-AMERICA
BANCORP.
SECOND: The following amendments to the Articles of
Incorporation of the corporation were adopted by the
shareholders of the corporation in the manner prescribed by the
Kentucky Business Corporation Act:
First Amendment. Article V of the Articles of
Incorporation is amended to read in its entirety as follows:
ARTICLE V
Number and Authority of Directors
The Board of Directors shall consist of not fewer
than 10 nor more than 21 individuals, with the exact
number of individuals within such range to be
determined by resolution of the Board of Directors
from time to time. The directors shall be divided
into three classes as nearly equal in number as may
be. At the annual meeting of share- holders in 1994,
one class of five directors shall be elected for a
one-year term, one class of six directors shall be
elected for a two-year term, and one class of six
directors shall be elected for a three-year term.
Commencing with the annual meeting of shareholders in
1995 and at each succeeding annual meeting, successors
to the class of directors whose terms expire at such
meeting shall be elected for a three-year term. If
the number of directors is changed, any increase or
decrease in directors shall be apportioned among the
classes so as to maintain the number of directors
comprising each class as nearly equal as possible.
Any additional directors of a class shall hold office
for a term which will coincide with the remaining term
of the other directors of the class. Except as
otherwise set forth in the Kentucky Business
Corporation Act, the Board of Directors shall have the
authority to exercise all the corporate powers of the
Corporation and shall manage all of the business and
affairs of the Corporation.
Second Amendment. Article IV of the Articles of
Incorporation is amended to read in its entirety as follows:
ARTICLE IV
The total number of shares of all classes of
capital stock which the Corporation shall have the
authority to issue is 12,750,000 shares which shall be
divided into two classes as follows:
12,000,000 shares of Common Stock, having no par
value per share; and
750,000 shares of Preferred Stock, having no par
value per share.
The designations, voting powers, preferences and
relative, participating, optional or other special
rights, qualifications, limitations or restrictions of
the above classes of stock shall be as follows:
(a) The Common Stock shall be without
distinction as to powers, preferences and rights and
such stock may be issued for such consideration as
shall from time to time be fixed by the Board of
Directors.
(b) Subject to the preferential rights of the
Preferred Stock, the holders of the Common Stock shall
be entitled to receive, to the extent permitted by
law, such dividends as may be declared from time to
time by the Board of Directors.
(c) Each holder of Common Stock shall have one
vote in respect of each share of Common Stock held by
such shareholder of record on the books of the
Corporation on all matters voted upon by the
stockholders except that at each election for
directors, each holder of Common Stock entitled to
vote at such election shall have the right to cast as
many votes in the aggregate as equal the total number
of shares of Common Stock held by such shareholder
multiplied by the number of directors to be elected at
such election; and each such shareholder may cast the
whole number of votes for one candidate, or distribute
such votes among two or more candidates.
(d) The Board of Directors of the Corporation is
hereby expressly authorized to issue shares of
Preferred Stock, from time to time, in such series,
and with such designations, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or
resolutions providing for the issue of such stock
adopted by the Board of Directors, and as are not
stated or expressed in this Certificate of
Incorporation or any amendment thereto including
determination of any of the following:
(1) The rate of dividend;
(2) Whether shares may be redeemed and, if
so, the redemption price and the terms and conditions
of redemption;
(3) The amount payable upon shares in event
of voluntary or involuntary liquidation;
(4) Sinking fund provisions, if any, for
the redemption or purchase of shares;
(5) The terms and conditions, if any, on
which shares may be converted;
(6) Voting rights, if any;
(7) The stated value of the shares of each
series;
(8) The distinctive serial designation and
the number of shares constituting a series; and
(9) Any other preferences, privileges and
powers, and relative, participating, or other special
rights, and qualifications, limitations or
restrictions of such series permitted by the laws of
the Commonwealth of Kentucky, as the Board of
Directors may deem advisable and as shall not be
inconsistent with the provisions of the Certificate of
Incorporation.
THIRD: Neither of the amendments provides for an exchange,
reclassification or cancellation of issued shares.
FOURTH: The date of the adoption of each of the amendments
was April 21, 1994.
FIFTH: The amendments were approved at a meeting of
shareholders. The designation, number of outstanding shares,
number of votes entitled to be cast by the sole voting group
entitled to vote separately on each of the amendments and number
of votes indisputably represented at the meeting are as follows:
Designation Number of Number of Votes Number of Votes
Outstanding Entitled to be Indisputably
Shares Cast Represented at the
by Sole Voting Meeting
Group
Common Stock 8,518,866 8,518,866 7,416,226
SIXTH: The total number of votes cast for and against each
of the amendments to the Articles of Incorporation by the sole
voting group entitled to vote separately thereon is as follows:
For the amendment to Article V:
Votes Cast For Votes Cast Against
6,073,763 575,060
For the amendment to Article IV:
Votes Cast For Votes Cast Against
7,192,556 140,142
Dated this 10th day of March, 1995.
MID-AMERICA BANCORP
By /s/ Orson Oliver
Orson Oliver, President
THIS INSTRUMENT PREPARED BY:
/s/ Cynthia W. Young
Cynthia W. Young
WYATT, TARRANT & COMBS
Citizens Plaza
Louisville, Kentucky 40202
(502) 589-5235
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MID-AMERICA BANCORP
Pursuant to KRS 271B.6-010(3) and KRS 271B.6-020(4), these
Articles of Amendment to the Amended and Restated Articles of
Incorporation of Mid-America Bancorp (the "Corporation") are
being delivered to the Kentucky Secretary of State for filing.
The information required by KRS271B.6-020(4) is as follows:
FIRST: The name of the Corporation is Mid-America
Bancorp
SECOND: These Articles of Amendment amend current ARTICLE
IV of the Corporation's Amended and Restated Articles of
Incorporation by establishing a new Junior Participating
Preferred Stock. As amended, a new subsection (e) shall be
added to ARTICLE IV, which subsection (e) shall read in its
entirety as follows:
"(e) Junior Participating Preferred Stock.
(1) Designation. The designation of the series
of the Preferred Stock created by the Board of
Directors shall be "1998A Junior Participating
Preferred Stock (hereinafter called this "Series") and
the number of shares constituting this Series one
hundred twenty thousand (120,000).
(2) Dividends.
(A) Subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking
prior and superior to the shares of this Series with respect to
dividends, the holders of shares of this Series shall be
entitled to receive, when and as declared by the Board of
Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on March 31, June 30,
September 30 and December 31 of each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of this
Series, in an amount per share (rounded to the nearest cent)
equal to the greater of (A) $1.00 or (B) subject to the
provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction
of a share of this Series. If the Corporation shall at any time
after March 13, 1998 (the "Rights Declaration Date") (i) declare
any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares of
this Series were entitled immediately before such event under
clause (B) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately before
such event (the "Adjustment Ratio").
(B) The Corporation shall declare a dividend or
distribution on this Series as provided in clause (A) of the
preceding paragraph (1) immediately after it declares a dividend
or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event
no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1.00 per share on this Series shall
nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of this Series from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of
this Series unless the date of issue of such shares is before
the record date for the first Quarterly Dividend Payment Date,
in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of
this Series entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events
such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of this
Series in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of this
Series entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30
days before the date fixed for the payment thereof.
(D) No full dividends shall be declared or paid or
set apart for payment on the Preferred Stock of any series
ranking. as to dividends. on a parity with or junior to this
Series for any period unless full cumulative dividends have been
or contemporaneously are declared and a sum sufficient for the
payment thereof set apart for such payment on this Series for
all dividend payment periods terminating on or prior to the date
of payment of such full cumulative dividends. When dividends are
not paid in full, as aforesaid, upon the shares of this Series
and any other Preferred Stock ranking on a parity as to
dividends with this Series, all dividends declared upon shares
of this Series and any other Preferred Stock ranking on a parity
as to dividends with this Series shall be declared pro rata so
that the amount of dividends declared per share on this Series
and such other Preferred Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the
shares of this Series and such other Preferred Stock bear to
each other. Holders of shares of this Series shall not be
entitled to any dividends, whether payable in cash- property or
stock, in excess of full cumulative dividends, as herein
provided, on this Series. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment
or payments on this Series that may be in arrears.
(E) So long as any shares of this Series are
outstanding no dividend (other than a dividend in Common Stock
or in any other stock ranking junior to this Series as to
dividends and upon liquidation and other than as provided in
subsection (e)(2)(D) shall be declared or paid or set aside for
payment or other distribution declared or made upon the Common
Stock or upon any other stock ranking junior to or on a parity
with this Series as to dividends or upon liquidation. nor shall
any Common Stock or any other stock of the Corporation ranking
junior to or on a parity with this Series as to dividends or
upon liquidation be redeemed, purchased or otherwise acquired
for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of
any such stock) by the Corporation (except by conversion into or
exchange for stock of the Corporation ranking junior to this
Series as to dividends and upon liquidation) unless, in each
case, the full cumulative dividends on all outstanding shares of
this Series shall have been paid for all past dividend payment
periods.
(3) Conversion or Exchange. The holders of shares of this
Series shall not have any rights to convert such shares into or
exchange such shares for shares of any other class or classes or
of any other series of any class or classes of capital stock of
the Corporation.
(4) Voting Rights. The holders of shares of a Series
1998A Junior Participating Preferred Stock shall have the
following voting rights:
(A) Each share of Series 1998A Junior Participating
Preferred Stock shall entitle the holder thereof to a number of
votes equal to 100 multiplied by the Adjustment Ratio on all
matters submitted to a vote of the stockholders of the
Corporation.
(B) Except as required by law or the Corporation's
Articles of Incorporation, holders of Series 1998A Junior
Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the
extent they are titled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
(5) Liquidation Rights.
(A) Upon the dissolution, liquidation (voluntary or
otherwise), or winding up of the Corporation, the holders of the
shares of this Series shall be entitled to receive out of the
assets of the Corporation, before any payment of distribution
shall be made on the Common Stock, or on any other class of
stock ranking junior to the Preferred Stock upon liquidation,
the amount of $7,500.00 per share, plus a sum equal to all
dividends (whether or not earned or declared) on such shares
accrued and unpaid thereon to the date of final distribution
(the "Liquidation Preference"). Following the payment of the
full amount of the Liquidation Preference, no additional
distributions shall be made to the holders of shares of this
Series unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the
Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subsection (e)(5)(B) below to reflect such events
as stock splits. stock dividends and recapitalizations with
respect to the Common Stock) (such number in clause (ii), the
"Adjustment Number"). Following the payment of the full amount
of the Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Junior Participating
Preferred Stock and Common Stock, respectively, holders of this
Series and holders of Common Stock shall receive their ratable
and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with
respect to such Preferred Stock and Common Stock, on a per share
basis, respectively.
(B) If the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding,
Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately before such
event shall be adjusted by multiplying such Adjustment Number by
a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock
that were outstanding immediately before such event.
(C) The sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all
or substantially all the property and assets of the Corporation
shall be deemed a voluntary, dissolution, liquidation or winding
up of the Corporation for the purposes of this subsection
(e)(5), but the merger or consolidation of the Corporation into
or with another corporation or the merger or consolidation of
any other corporation into or with the Corporation, shall not be
deemed to be a dissolution, liquidation or winding up,
voluntarily or involuntarily, for the purposes of this
subsection (e)(5).
(D) After the payment to the holders of the shares of
this Series of the full preferential amounts provided for in
this subsection (e)(5), the holders of this Series as such shall
have no right or claim to any of the remaining assets of the
Corporation.
(E) If the assets of the Corporation available for
distribution to the holders of shares of this Series upon any
dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay
in full all amounts to which such holders are entitled pursuant
to subsection (e)(5)(A), no such distribution shall be made on
account of any shares of any other class or series of Preferred
Stock ranking on a parity with the shares of this Series upon
such dissolution, liquidation or winding up unless proportionate
distributive amounts shall be paid on account of the shares of
this Series, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or
winding up. If, however, there are not sufficient assets
available to permit payment in full of the Common Adjustment,
then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(6) Priority. For purposes of this resolution, any
stock of any class or classes of the Corporation shall be deemed
to rank:
(A) prior to the shares of this Series, either as to
dividends or upon
liquidation, if the holders of such class or classes shall be
entitled to the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the Corporation,
as the case may be, in preference or priority to the holders of
shares of this Series;
(B) on a parity with shares of this Series. either as
to dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates or redemption or liquidation
prices per share or sinking fund provisions, if any, be
different from those of this Series, if the holders of such
stock shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding
up of the Corporation, as the case may be, in proportion to
their respective dividend rates or liquidation prices, Without
preference or priority, one over the other, as between the
holders of such stock and the holders of shares of this Series;
and
(C) junior to shares of this Series, either as to
dividends or upon liquidation, if the holders of shares of this
Series shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be. in preference or priority to
the holders of shares of such class or classes. "
THIRD: These Articles of Amendment were duly adopted by
the Corporation's Board of Directors on February 23, 1998.
Shareholder approval was not required.
/ S /
Bertram W. Klein
Chairman of the Board
Date: March 2, 1998
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MID-AMERICA BANCORP
These Articles of Amendment to the Amended and Restated
Articles of Incorporation of Mid-America Bancorp (the
"Corporation") are being delivered to the Kentucky Secretary of
State for filing pursuant to KRS 271B.10-060. The information
required by KRS 271B.10-060 is as follows:
FIRST: The name of the Corporation is Mid-America
Bancorp.
SECOND: These Articles of Amendment amend the
Corporation's Amended and Restated Articles of Incorporation by
adding new ARTICLES IX, X and XI (the "Amendments"), which read
in their entirety as
follows:
ARTICLE IX
Certain Voting Requirements
(a) In addition to any other requirements required by
law or these Articles of Incorporation, except as
specified in (b) below, a vote of the holders of
at least seventy-five percent (75%) of the number
of outstanding shares of each class of the
capital stock of the Corporation shall be
required to approve:
(i) The sale of all or substantially all of the
assets of the Corporation;
(ii) The sale of all or substantially all of the
assets of any Subsidiary;
(iii) The sale of all or part of the shares
of any Subsidiary owned by the Corporation;
(iv) The distribution, by way of spinoff,
dividend or other similar transaction of any
shares of any Subsidiary or any assets
thereof;
(v) Any merger or share exchange to which the
Corporation or any Subsidiary is a party;
(vi) Any split-off or split-up of the
Corporation; or
(vii)A plan of dissolution of the Corporation.
(b) The voting requirements of this Article shall not
apply to a transaction specified in (a)(i)
through (a)(vii) where:
(i) Any other provision of law or these Articles
specifies a higher voting requirement,
including, without limitation, Article X
["Business Combinations"] and KRS 271B.12-
210; or
(ii) The proposed action has received the
approval of a majority of the directors of
the Corporation then holding office.
(c) For purposes of this Article, "Subsidiary" shall
mean any corporation more than 50 % of whose
outstanding stock having voting power in the
election of directors is owned, directly or
indirectly, by the Corporation or by a Subsidiary
or by the Corporation and one or more
Subsidiaries.
ARTICLE X
Business Combinations
The requirements of a shareholder vote and board
approval in Section 271B.12-210 of the Kentucky
Revised Statutes (the "Business Combinations Statute")
shall apply only to any Business Combination of the
Corporation with a person who becomes an Interested
Shareholder of the Corporation at any time after the
effective time of this Article X pursuant to KRS 271B.
1-230. For purposes of this Article X, "Business
Combination" and "Interested Shareholder" shall have
the meanings set forth in the Business Combinations
Statute; provided, however that a person who
beneficially owns 10% or more of the voting power of
outstanding voting stock of the Corporation at the
effective time of this Article X shall not become an
Interested Shareholder unless and until such time as
such person shall become the beneficial owner of 24%
or more of the voting power of outstanding voting
stock of the Corporation solely as a result of such
person's acquiring beneficial ownership of additional
shares of voting stock of the Corporation (other than
shares acquired as a result of the death of a parent
or spouse or acquired pursuant to a profit-sharing,
stock-based incentive compensation or other employee
benefit plan maintained by the Corporation, to a
dividend or distribution paid or made by the
Corporation on the outstanding voting stock in shares
of the same class of stock, or to a split or
subdivision of the outstanding voting stock).
ARTICLE XI
Amendment or Repeal of Certain Articles
(a) Certain Definitions. For the purposes of this
Article:
(i) A "Person" shall mean any individual, firm,
trust, estate, corporation or business
organization.
(ii) "Interested Shareholder" shall mean any
Person (other than the Corporation or any
Subsidiary) who or which:
(1) becomes the beneficial owner, directly
or indirectly, of more than 15 % of the
combined voting power of the then
outstanding shares of Voting Stock
after the date this Article takes
effect; or
(2) beneficially owns, directly or
indirectly, more than 15 % of the
combined voting power of the then
outstanding shares of Voting Stock at
the date this Article takes effect, but
only if, and at such time as, the
Person becomes the beneficial owner of
24% or more of the outstanding shares
of Voting Stock solely as a result of
such Person's acquiring beneficial
ownership of additional shares of
Voting Stock (other than shares
acquired as a result of the death of a
parent or spouse or acquired pursuant
to a profit-sharing, stock-based
incentive compensation or other
employee benefit plan maintained by the
Corporation, to a dividend or
distribution paid or made by the
Corporation on the outstanding Voting
Stock in shares of the same class of
stock, or to a split or subdivision of
the outstanding Voting Stock); or
(3) is an Affiliate of the Corporation,
became the beneficial owner (directly
or indirectly) of more than 15 % of the
combined voting power of the then
outstanding shares of Voting Stock
after the date this Article takes
effect, and at any time within the
two-year period immediately prior to
the date in question was the beneficial
owner (directly or indirectly) of 15 %
or more of the combined voting power of
the then outstanding shares of Voting
Stock; or
(4) is an assignee of or has otherwise
succeeded to the beneficial ownership
of any shares of Voting Stock that were
at any time within the two-year period
immediately prior to the date in
question beneficially owned by any
Interested Shareholder, if such
assignment or succession shall have
occurred in the course of a transaction
or series of transactions not
involving a public offering within the
meaning of the Securities Act of 1933.
(iii) A Person shall be a "beneficial owner"
of any Voting Stock:
(1) which such Person or any of its
Affiliates or Associates beneficially
owns, directly or indirectly; or
(2) which such Person or any of its
Affiliates or Associates has (A) the
right to acquire (whether such right is
exercisable immediately or only after
the passage of time), pursuant to any
agreement, arrangement or understanding
or upon the exercise of conversion
rights, exchange rights, warrants or
options, or otherwise, or (B) the right
to vote or direct the vote pursuant to
any agreement, arrangement or
understanding; or
(3) which are beneficially owned, directly
or indirectly, by any other Person with
which such Person or any of its
Affiliates or Associates has any
agreement, arrangement or understanding
for the purpose of acquiring, holding,
voting or disposing of any shares of
Voting Stock.
(iv) For the purposes of determining whether a
person is an Interested Shareholder pursuant
to (a) (ii) of this Article, the number of
shares of Voting Stock deemed to be
outstanding shall include shares deemed
owned through application of (a)(iii) of
this Article but shall not include any other
shares of Voting Stock that may be issuable
pursuant to any agreement, arrangement or
understanding, or upon exercise of
conversion rights, warrants or options, or
otherwise.
(v) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms
in Rule l2b-2 of the General Rules and
Regulations under the Securities Exchange
Act of 1934, as in effect on January 1,
1998
(vi) "Subsidiary" shall mean any corporation more
than 50% of whose outstanding stock having
ordinary voting power in the election of
directors is owned, directly or indirectly,
by the Corporation or by a Subsidiary or by
the Corporation and one or more
Subsidiaries; provided, however, that for
the purposes of the definition of Interested
Shareholder set forth in (a)(ii) of this
Article, the term "Subsidiary" shall mean
only a corporation of which a majority of
each class of equity security is owned,
directly or indirectly, by the Corporation.
(vii)"Disinterested Director" shall mean (1) any
member of the Board of Directors of the
Corporation who is unaffiliated with, and
not a nominee of, the Interested Shareholder
and was a member of the Board prior to the
time that the Interested Shareholder became
an Interested Shareholder, or (2) any
successor of a Disinterested Director who is
unaffiliated with, and not a nominee of, the
Interested Shareholder and who is
recommended to succeed a Disinterested
Director by a majority of Disinterested
Directors then on the Board of Directors.
(viii)"Voting Stock" shall mean the voting power
of the then outstanding shares of all
classes and series of the Corporation
entitled to vote generally in the election
of directors.
(b) Notwithstanding anything in these Articles of
Incorporation to the contrary and in addition to
any affirmative vote required by law, the
affirmative vote of the Required Proportion (as
defined below) of Voting Stock shall be required
to alter, amend, or repeal Articles V [Number and
Authority of Directors], VI [Indemnification],
VII [Consideration of Certain Factors], VIII
[Limitation of Director Liability], IX [Certain
Voting Requirements], X [Business Combinations],
or XI [Amendment or Repeal of Certain Articles]
of these Articles of Incorporation or to adopt
any provision inconsistent therewith.
(c) For purposes of paragraph (b) of this Article,
the Required Proportion shall be calculated by
dividing (i) the sum of (1) the number of shares
of Voting Stock beneficially owned by any
Interested Shareholder, directly or indirectly,
plus (2) seventy percent (70%) of all the
remaining shares of Voting Stock not beneficially
owned by any Interested Shareholder, directly or
indirectly, by (ii) the total number of shares of
Voting Stock.
(d) A majority of the Disinterested Directors of the
Corporation shall have the power and duty to
determine, on the basis of information known to
them after reasonable inquiry, all facts
necessary to determine compliance with this
Article, including, without limitation, (i)
whether a Person is an Interested Shareholder,
(ii) the number of shares of Voting Stock
beneficially owned by any Person, (iii) whether a
Person is an Affiliate or Associate of another
Person and whether a director is unaffiliated
with an Interested Shareholder, and (iv) whether
the requirements of paragraph (b) of this Article
have been met with respect to any shareholder
vote specified therein. The good faith
determination of a majority of the Disinterested
Directors on such matters shall be conclusive and
binding for all purposes of this Article.
THIRD: None of the Amendments provides for an exchange,
reclassification, or cancellation of issued shares.
FOURTH: The Amendments were adopted by holders of the
Corporation's common stock, the Corporation's sole class of
issued and outstanding shares, at the Corporation's 1998 Annual
Meeting of Shareholders (the " 1998 Annual Meeting") on April
16, 1998. There were 9,890,490 shares of common stock issued,
outstanding and entitled to vote at the 1998 Annual Meeting, of
which 8,404,825 shares were indisputably represented at the 1998
Annual Meeting. The total number of shares of common stock cast
for, against, abstaining from, or not voted upon the proposals
to approve each of the Amendments at the 1998 Annual Meeting
were as follows:
For Against Abstain Not Voted
ARTICLE IX 6,250,769 499,935 31,865 1,622,256
ARTICLE X 6,276,701 480,379 47,236 1,600,509
ARTICLE XI 6,243,756 508,445 30,368 1,622,256
- S -
Bertram W. Klein
Chairman of the Board
Date: January 5, 1999
- S -
Gail Mount
Secretary
Date: January 5, 1999
<TABLE>
<CAPTION>
Statements re computation of per share earnings Exhibit 11
(In Thousands Except for Per Share Data)
Year ended December 31
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
BASIC NET INCOME PER SHARE
Weighted average common stock outstanding....... 10,215 10,093 9,970
========= ========= =========
Net income...................................... $20,213 $17,915 $15,029
========= ========= =========
Basic net income per share...................... $1.98 $1.78 $1.50
========= ========= =========
DILUTED NET INCOME PER SHARE
Weighted average common stock outstanding....... 10,215 10,093 9,970
Common equivalent shares for stock options using
the treasury stock method................... 210 176 72
--------- --------- ---------
Weighted average shares outstanding............. 10,425 10,269 10,042
========= ========= =========
Net income...................................... $20,213 $17,915 $15,029
========= ========= =========
Diluted net income per share.................... $1.94 $1.75 $1.50
========= ========= =========
</TABLE>
All share and per share information has been adjusted for the 3% stock
dividend declared in November 1998.
Comparative Summary
<TABLE>
<CAPTION>
Dollars In Thousands, Except Per Share Amounts 1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
AT YEAR END
Total assets $1,594,763 $1,509,579 $1,420,933
Total deposits 953,924 878,829 825,257
Loans, net of unearned income 1,005,021 891,075 804,182
Total shareholders' equity 167,436 155,709 140,638
FOR THE YEAR
Net income $20,213 $17,915 $15,029
Cash dividends declared 8,345 7,441 6,491
PER SHARE DATA
Book value $16.34 $15.30 $14.07
Market value 27.13 32.63 17.88
Cash dividends declared 0.82 0.74 0.65
Basic net income 1.98 1.78 1.50
Diluted net income 1.94 1.75 1.50
SELECTED RATIOS
Return on average total assets 1.40% 1.30% 1.14%
Return on average shareholders' equity 12.54 12.15 11.13
Efficiency ratio 61.17 61.30 64.70
Cash dividend payout ratio 41.41 41.57 43.33
Average shareholders' equity to average total assets 11.20 10.73 10.28
Allowance for loan losses to loans, net of unearned income 0.90 1.03 1.14
</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 23 to 46.
1998 COMPARED TO 1997
Net income for 1998 was $20,213,000 or $1.94 on a diluted per
share basis compared with $17,915,000 or $1.75 on a diluted per
share basis for 1997. Basic net income per share was $1.98 in 1998
and $1.78 in 1997. For 1998, return on average total assets (ROA)
was 1.40% and return on average equity (ROE) was 12.54%, compared
with ROA of 1.30% and ROE of 12.15% in 1997. The efficiency ratio
in 1998 was 61.17%, a slight improvement from 61.30% in 1997.
The principal factors that contributed to the increase in net
income in 1998 compared to 1997 included the following
*A non-recurring gain on the sale of the money order
subsidiary of $4.6 million was recognized in 1998.
*An increase in net interest income on a tax equivalent basis
of $2.2 million in 1998, with the benefit of increased average
earning assets of $56 million offsetting the negative impact
of lower interest rates.
*An increase of $1.8 million in the core sources of non-
interest income, including trust revenue, deposit service
charges, gift certificate fees and bank card fees.
*An increase in non-interest expenses of $7.5 million in 1998,
considering the absence of expenses of the former money order
subsidiary from the 1997 expense base. Approximately $3.4
million of the increase is attributed to three matters;
incremental expenses associated with the Companys Year 2000
project, costs associated with the Companys new image
campaign and legal costs related primarily to intensive
discovery efforts in one ongoing litigation matter. Excluding
these matters, other operating expenses increased 9.8% in 1998
compared to the adjusted 1997 expense base.
The discussion that follows explains in more detail the
factors affecting 1998 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.
In 1998, net interest income on a tax equivalent basis increased
$2,184,000 or 3.7% to $61,482,000. Net interest income was
favorably impacted by the increase in average earning assets and
the redeployment of earning assets from maturing securities to
loans. The average prime rate in 1998 was 8.36% compared to 8.44%
in 1997. The average rate on five year U.S. Treasury securities
was 5.15% in 1998 compared to 6.21% in 1997. The impact of
generally lower market interest rates in 1998 than in 1997
partially offset the benefits of earning asset growth. A
significant result of lower rates was increased premium
amortization on collateralized mortgage obligations (CMO), which
corresponded to accelerated CMO prepayments experienced in the low
mortgage rate environment in 1998. See Interest Income and
Interest Expense Volume and Rate Changes For the Years 1998 and
1997 Tax Equivalent Basis.
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. The average yield on earning assets was
8.31% in 1998 compared to 8.35% in 1997, which was accompanied by
a decline in the average rate on interest bearing liabilities from
4.80% in 1997 to 4.71% in 1998. The net interest spread was 3.60%
in 1998 compared to 3.55% in 1997. The net yield on earning assets
declined slightly in 1998 to 4.52% compared to 4.54% in 1997.
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 16.
Average earning assets increased approximately $56 million or
4.3% in 1998 to $1.364 billion. Average loans increased
approximately $108 million or 13.2% to $926 million. Approximately
$47 million of the average loan growth related to retail loans,
with the vast majority of this growth being attributed to the
Companys new indirect automobile lending program. Average
commercial loans increased $61 million during 1998, despite
substantial pay-offs arising from refinancing activities in 1998s
lower fixed rate environment. There was a decrease in the average
securities portfolio of approximately $50 million, as proceeds from
maturing securities were used to fund loan growth.
The net growth in average earning assets was supported by a
$57 million increase in average interest bearing deposits and a $6
million increase in average non-interest bearing sources of funds,
which included gift certificates outstanding, demand deposits, and
shareholders' equity. Average advances from the Federal Home Loan
Bank (FHLB) increased approximately $5 million, as the addition of
$20 million of convertible fixed rate advances exceeded scheduled
payments. Repurchase agreements, a short-term higher yielding
collateralized instrument used by individual and corporate
customers with large amounts of investable funds, averaged $247
million during 1998, and continue to be a significant funding
source. Average non-interest bearing deposits, other liabilities
and capital were approximately 24% and 25% of average assets in
1998 and 1997, respectively.
The changes in interest income attributable to volume and rate
changes are summarized in the table on page 17.
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses was $972,000 in 1998 compared to
$300,000 for 1997. The provision for loan losses was determined
with consideration given to the level of charge-off experience and
non-performing loans, and the results of detailed loan review
procedures and evaluations of the adequacy of the allowance for
loan losses. During 1998, the Company had net charge-offs of
$1,171,000 or 0.13% of average loans, compared to $258,000 or 0.03%
of average loans in 1997. Non-performing loans of $4.5 million at
December 31, 1998, were 0.44% of total loans compared to $2.5
million and 0.28% at December 31, 1997.
The allowance for loan losses is maintained at a level
adequate 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 judgment,
deserve current recognition. The Companys loan review procedures
include detailed reviews of loans in excess of $250,000 on an
annual basis, and timely reviews of loans over $50,000 that become
30 days past due. Each loan reviewed is graded and assigned to a
risk category and, if necessary, a specific allowance is
established. Specific allowances for $3.6 million of impaired
loans aggregated $1.2 million at December 31, 1998. Smaller loans
in the consumer and real estate mortgage categories, are evaluated
as a group considering historical loss experience, the level of
delinquent loans, and changes in the risk characteristics of these
homogeneous categories of loans. At December 31, 1998, the
allowance for loan losses was 0.90% of loans outstanding and 202%
of non-performing loans, compared to 1.03% of loans outstanding and
373% of non-performing loans at December 31 1997.
During 1998, the commercial and financial loan category
increased $30 million or 7%. 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 $1.9 million.
Real estate construction and development loans increased
approximately $12 million since last year, while the underlying
loan composition in this category remains diversified between
residential and commercial properties. There have been no losses
in this category of loans over the last three years. During 1998,
the Company significantly expanded its involvement in the indirect
automobile lending market. These loans are obtained through
relationships with 43 local automobile dealers and are subject to
underwriting guidelines which Management believes are appropriate
for proper evaluation and identification of the risks associated
with this type of lending. Retail loans, including indirect
automobile loans, increased $72 million or 18% in 1998. Management
believes that the indirect loan portfolio will grow significantly
in 1999.
The table on page 5 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 1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $9,209 $9,167 $9,318
Provision for loan losses 972 300 414
Net loan charge-offs (1,171) (258) (565)
---------------------------------------------
Balance, December 31 $9,010 $9,209 $9,167
=============================================
Average loans $925,522 $817,262 $767,755
Loans at year-end 1,005,021 891,075 804,182
Non-performing loans at year-end 4,466 2,466 4,349
Impaired loans at year-end 3,578 1,670 3,424
Provision for loan losses to average loans 0.11% 0.04% 0.05%
Net charge-offs to average loans 0.13 0.03 0.07
Allowance for loan losses to average loans 0.97 1.13 1.19
Allowance for loan losses to year-end loans 0.90 1.03 1.14
</TABLE>
NON-INTEREST INCOME
In 1998, the Company completed the sale of its money order
subsidiary, MidAmerica Money Order Company, and recognized a gain
of $4.6 million. As part of the agreement with the purchaser, the
Company was to provide data processing and other services to the
purchaser for 4 years. These processing fees, included in other
non-interest income, aggregated $1.3 million and when combined with
$2.2 million of expense reductions and income related to investment
of the sales proceeds, more than offset the absence of float
revenue and $2.2 million of money order fees from 1998. In May,
1998, the purchaser of the money order subsidiary was acquired by
another company in the money order business and a dispute arose
about future processing services by the Company. In mid-January
1999, a settlement was reached whereby processing and other
services would continue through May 1999 and the Company received
a $2.1 million settlement payment. The settlement proceeds will be
recognized in income in the second quarter of l999, after all
conditions of the settlement are completed.
Other non-interest income in 1998 also includes gains on sales
of other real estate aggregating $1.2 million. See Non-Performing
Assets.
The remaining core components of non-interest income, after
excluding the above matters, aggregated $12.7 million in 1998 and
increased $1.8 million or 16% over the aggregate of comparable
items in 1997.
Service charges on deposit accounts, the largest component of
non-interest income, were $5.5 million in 1998, an increase of 9%
over 1997. During 1998, the Company's consumer transaction account
product line was regularly promoted, along with image promotions,
causing the retail customer account base to increase by
approximately 4.7%, with a resultant favorable movement in local
market share. This increase in retail volume and normal fee
adjustments contributed to the increase in service charges on
deposit accounts.
Trust income was approximately $2.5 million in 1998, an
increase of $1.1 million or 81%, compared to 1997. The increase in
trust income is primarily attributed to the business expansion
activities of the Personal Trust and Investment Group, a new
division, consisting of several locally recognized trust officers
who joined the Company in May 1997. As of December 31, 1998, this
new trust group had added approximately $291 million to trust
assets under management since joining the Company. The Companys
securities transfer operation, which generated fees of $168,000 in
1998, was discontinued in the fourth quarter 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 fees were $952,000 in 1998, a 75% increase
compared to 1997. The Company retained the mall/retail gift
certificate program of the former money order subsidiary and
continued to develop this rapidly expanding business through its
new subsidiary, MidAmerica Gift Certificate Company, in 1998. The
gift certificate subsidiary is a nationwide provider of gift
certificates, through an expanding network of 321 mall agents. In
1998, gift certificate volume increased 35% to 6.3 million items.
The gift certificate fee increase is attributable to the increased
volume, as well as increased service charge revenue on unpaid
items.
The aggregate of the remaining components of other non-
interest income was down slightly in 1998 compared to 1997. Net
fees from the Company's debit and credit card products and merchant
business increased 35% to $1.3 million in 1998, as the retail card
base expanded and the merchant business was expanded to the gift
certificate subsidiarys mall agent base. ATM fees of $656,000 in
1998, were relatively unchanged from the prior year level. Credit
life and A & H insurance premiums and commissions decreased
$276,000 or 27% as direct retail loan activity in 1998 declined. A
new service in 1998, an investment management service for community
banks, generated revenue of $240,000. Operating losses on low-
income housing joint ventures increased $373,000 in 1998 to
$407,000. These operating losses were expected and are offset by
tax credits from these projects (See Income Taxes).
OTHER OPERATING EXPENSES
Other operating expenses increased $5.3 million in 1998 on a
previous year base of $44 million. The 1997 expense base includes
approximately $2.2 million of operating expenses related to the
former money order subsidiary. Considering the absence of these
1997 expenses, 1998 operating expenses increased approximately $7.5
million. This increase in other operating expenses was
significantly impacted by expenses attributed to three matters:
Year 2000, the Companys new image campaign and legal costs.
Incremental expenses associated with the Companys Year 2000
project were approximately $1.1 million. See Year 2000.
Advertising and marketing expenses increased $625,000 in 1998, as
the Company supplemented its regular product promotions with the
promotion of its new corporate image. Legal expenses increased
$1.6 million in 1998 as the Company incurred legal costs for
intensive discovery efforts in the ongoing litigation matter
involving Kentucky Central Life Insurance Company (in
Rehabilitation), the sale of the money order subsidiary and the
dispute involving the money order processing agreement. In the
aggregate, the above matters contributed $3.4 million to the
increased level of other operating expenses. In addition to these
expenses, the Companys remaining operating expenses increased $4.1
million or 9.8% in 1998, with a significant portion of the
remaining increase attributed to the increased level of salaries
and benefits.
Salaries and benefits, the largest component of other
operating expenses, increased $2.6 million to $28.5 million in
1998. Excluding the 1997 salaries and benefits of the former money
order subsidiary from the comparison, salaries and benefits
increased $3.4 million. Included in the increase are incremental
salaries and benefits related to the Year 2000 project of $826,000
and increases in employee benefits, discussed below, of $440,000.
The remaining increase was $2.1 million, an increase of 8.6% over
the adjusted 1997 base. Approximately one-half of this increase
was attributed to annual salary merit increases, effective in April
1998, that averaged 5.2% and increases in certain incentive bonus
plans. The remaining portion of the year-to-year comparison was
impacted by the mid-year 1997 addition of senior level trust
personnel and staff increases primarily for new or growing
operating areas, such as the indirect lending function and gift
certificate subsidiary. Personnel levels increased with average
full-time equivalent (FTE) employees of 622 in 1998 and 603 in
1997. (19 former money order subsidiary employees are excluded from
1997 for comparability).
Excluding the impact of a $298,000 settlement loss arising
from a lump sum payment to settle obligations of the Company's non-
qualified excess benefit plan in 1997, pension costs increased
$368,000 in 1998, as a result of a reduction in the actuarial
discount rate and an increase in covered compensation. Health
insurance costs increased $260,000 in 1998 as claims experience
increased over the prior year level.
Occupancy and furniture and equipment expenses both reflected
decreases in 1998 compared to 1997. Occupancy expense of $3.0
million decreased $87,000 in 1998 primarily as a result of
subleasing the former money order subsidiarys location in 1998.
Furniture and equipment expenses of $4.2 million declined $358,000
in 1998 compared to 1997. Excluding the impact of the former money
order subsidiarys depreciation and maintenance in 1997, furniture
and equipment expenses in 1998 would have reflected an increase of
$419,000 or 10.9%. In 1998, depreciation expense increased as
computer equipment was upgraded in connection with the Year 2000
project and the new branch automation system was completed.
Management monitors and controls the level of capital expenditures
and each significant capital project is subject to rigorous
cost/benefit analysis.
The other expenses category of other operating expenses
includes advertising and marketing, operating supplies, legal and
professional fees, taxes other than income taxes and other
expenses. The aggregate amount of other operating expenses
increased $3.2 million in 1998 compared to 1997. Excluding other
expenses of the former money order subsidiary from 1997, the
increase would have been $3.7 million. The previously discussed
matters related to Year 2000, Company image and legal costs
contribute $2.3 million to this increase in other expenses.
Advertising and marketing expenses of $2.2 million increased
$625,000 or 40% in 1998 compared to 1997, as the Company continued
its level of regular advertising for loan and deposit product
promotions, which was supplemented with corporate image promotion
subsequent to the unveiling of the Companys new logo and image at
the end of the first quarter of 1998. Operating supplies expenses
decreased $537,000 in 1998, with $305,000 of the decrease
attributed to the absence of the former money order subsidiarys
supplies expenses and $185,000 of the decrease attributed to the
absence of 1997 expenses associated with forms and logo design for
the Companys new image project. The professional fees component
of legal and professional fees increased approximately $380,000 in
1998, primarily as a result of contractors and consultants for the
Year 2000 project, market and branch studies and Web site
development. Bank, property and other taxes decreased $117,000 in
1998, as a result of lower levels of other real estate owned and
the absence of $49,000 of such expenses related to the former money
order subsidiary. Aside from these issues, other operating
expenses increased $1.4 million in 1998 compared to 1997. This
increase related to several individually insignificant other
expense components such as charitable contributions, bank card
processing expenses, ATM processing expenses, dues and
subscriptions, postage and similar general business expenses.
INCOME TAXES
The effective tax rates were 29.8% and 31.0% for 1998 and
1997, respectively. The difference between the statutory and the
effective tax rates was principally attributable to tax-exempt
interest income on obligations of states and political subdivisions
and certain loans. In 1998, the Company recognized tax credits of
$602,000, related to its investments in low-income housing joint
ventures, which contributed to the decline in the effective tax
rate.
BALANCE SHEET
Total assets were $1.595 billion at December 31, 1998,
compared with $1.509 billion at the end of 1997. Total assets
averaged $1.439 billion during 1998, an increase of approximately
$65 million, or 4.7% over 1997. Average earning assets increased
approximately $56 million or 4.3% to $1.364 billion in 1998.
Increased loan volume accounted for the increase in earning assets.
SECURITIES
The Company's securities portfolio includes obligations of the
U.S. Government and its agencies, CMO, 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, 1998, securities available for sale
totaled approximately $386 million. These securities had net
unrealized holding losses of approximately $2.0 million that
resulted in a decrease in shareholders' equity of approximately $1.3
million, net of income taxes, at December 31, 1998. During 1998,
the average securities portfolio declined $50 million, as
maturities and repayments were used to provide for loan funding
requirements in excess of the growth in deposits and other funding
sources. The CMO in the portfolio aggregate approximately $147
million at December 31, 1998 and have an estimated weighted average
life of 1.4 years, based on current market prepayment conditions.
Securities classified as held to maturity were approximately
$84 million at December 31, 1998, and had net unrealized gains of
$15,000. These securities, with a weighted average life of 0.08
years, were purchased to invest funds available from seasonal gift
certificate activity.
The securities portfolio is utilized for pledging requirements
on securities sold under agreements to repurchase, and public and
fiduciary deposits, and provides liquidity from scheduled
maturities.
LOANS
Total loans, net of unearned income, were $1.005 billion at
December 31, 1998, an increase of approximately $114 million or
12.8% compared to December 31, 1997. Average loans increased
approximately $108 million or 13.2%, to $926 million in 1998 from
$817 million in 1997.
Commercial and financial, and construction and development
loans increased approximately $42 million or 8.5% to $535 million
at December 31, 1998, 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, financial holding entities, general building
contractors, and those requiring 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 $336
million at December 31, 1998, an increase of approximately $7
million or 2% from a year ago. The Company has historically
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 over the past several years.
Consumer loans, excluding real estate mortgage loans,
increased approximately $65 million or approximately 95% in 1998 to
approximately $134 million. In late 1997, the Company started an
indirect auto lending program and had approximately $4 million of
indirect loans at December 31, 1997. In 1998, this program was
significantly expanded to 43 area dealers and at December 31, 1998,
the indirect loan portfolio was approximately $71 million.
Throughout 1998, Management expanded the staffing and other
resources devoted to the daily management of this portfolio of
loans. Detailed policies and procedures regarding the approval and
evaluation of these loans have been developed in acknowledgement of
the unique risk attributes of these loans as compared to the
remainder of the consumer loan portfolio.
The Company has no foreign loans and lends principally within
the Louisville, Kentucky 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, 1998, non-performing assets totaled $15,824,000 compared with
$18,652,000 at December 31, 1997. 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.
The level of non-performing loans increased from $2.5 million
at the end of 1997 to approximately $4.5 million at the end of
1998. Of these non-performing loans at December 31, 1998, $3.6
million are classified as impaired with a related allowance for
loan losses of $1.2 million. At December 31, 1998, there were loans
of approximately $3.8 million for which payments were current or
less than 90 days past due where borrowers are currently
experiencing financial difficulties. 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. Significant losses
are not expected from non-performing or potential problem loans as
of December 31, 1998.
Other real estate held for sale at December 31, 1998,
aggregated $11.3 million and was principally comprised of
properties acquired in settlement of real estate development loans
in 1996, and a completed condominium project acquired in settlement
of loans in 1997. The carrying value of the real estate
development property has been substantially reduced through sales
from the original carrying value of $15.2 million in 1996, to $2.6
million at December 31, 1998. The Company has contracts for
additional property sales expected to close in 1999, that are
expected to reduce carrying value by $1.4 million and result in
gains of approximately $.8 million. Aside from the property
involved in anticipated 1999 closings, the Company will have 15
acres of commercial property remaining with a carrying value of
$1.4 million. Sales efforts on the remaining commercial property
are expected to accelerate now that a fronting highway was widened
to four lanes. The condominium project involves 31 completed and
readily marketable units and 7.5 acres of adjacent developed land.
This riverfront development has a carrying value of $7.2 million,
which is supported by the sales value of the units and appraised
value of the land. 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 1998, other real estate acquired in settlement of loans
aggregated $.7 million, and sales of other real estate aggregated
$8.2 million.
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
Dollars In Thousands
December 31
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis $1,416 $1,678 $3,424 $14,301 $2,705
Loans contractually past due ninety days or more
as to interest or principal payments 3,050 788 925 842 806
-------- -------- -------- -------- --------
Total non-performing loans 4,466 2,466 4,349 15,143 3,511
Other real estate held for sale 11,358 16,186 9,577 1,085 2,385
-------- -------- -------- -------- --------
Total non-performing assets $15,824 $18,652 $13,926 $16,228 $5,896
======== ======== ======== ======== ========
Non-performing loans to total loans 0.44% 0.28% 0.54% 2.02% 0.50%
Non-performing assets to total assets 0.99 1.24 0.98 1.24 0.49
Allowance for loan losses to non-performing loans 201.75 373.44 210.78 61.53 200.66
</TABLE>
DEPOSITS
Total deposits increased approximately $75 million to $954
million on December 31, 1998, compared to $879 million on December
31, 1997. Deposits also increased on an average basis during 1998,
increasing approximately $71 million or 8.7% to $890 million. In
recent years, the Company has taken 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 $57 million or 8%
from $711 million to $768 million. Sixty percent of the increase
related to savings products that are priced to be competitive with
broker money market rates. Average non-interest bearing deposits
increased approximately 13% to $122 million, with commercial
accounts providing for a significant portion of the increase.
Large certificates of deposit increased on an average basis
approximately 4% to $69 million during 1998. Other time deposits,
primarily regular certificates of deposit, increased approximately
$21 million or 6% to $363 million, with the increase attributed to
regular advertising of competitive rates.
ADVANCES FROM THE FEDERAL HOME LOAN BANK
FHLB advances increased to $75 million at the end of 1998,
from $63 million at the end of 1997. New convertible fixed rate
advances of $20 million were borrowed during 1998. The Company has
historically used this source of fixed rate funds to match its
fixed rate mortgage loan products.
GIFT CERTIFICATES OUTSTANDING
Gift certificates outstanding at December 31, 1998, were $95
million, compared to $72 million at the end of 1997, an increase of
32%. This increase corresponds to the 35% increase in items issued
in 1998 compared to 1997. The aggregate balance of gift
certificates and money orders outstanding at December 31, 1997
includes $33 million of outstanding money orders of the former
money order subsidiary. On an average basis, the combined gift
certificate and money order balances decreased approximately $18
million in 1998 compared to 1997, with such decline attributed to
the absence of the former money order company subsidiary. The
average balance of gift certificates outstanding for 1998 increased
approximately $14 million, to $38 million. Gift certificates
outstanding will continue to be a significant source of non-
interest bearing funds for the Company.
SHAREHOLDERS' EQUITY
Shareholders' equity increased approximately $12 million to
$167.4 million at December 31, 1998. Average shareholders' equity
increased approximately $14 million to $161 million and was 11.2%
of average total assets for 1998. The Company's primary source of
capital is net income, net of dividends paid. Shareholders' equity
was impacted by unrealized holding losses on securities available
for sale, which decreased shareholders' equity during 1998 by $1.3
million. Shareholders' equity was also increased $1.1 million in
1998 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, 1998,
the Company's capital ratios exceeded required minimums and placed
the Company in the "Well Capitalized" category under applicable
banking regulations. Refer to Note M to the consolidated financial
statements for regulatory capital information.
YEAR 2000
Many computer systems (including those in non-information
technology equipment and systems) currently record years in a two-
digit format. If not addressed, such computer systems may be
unable to properly interpret dates beyond the year 1999, which
could lead to business disruptions in the U.S. and internationally
(the Year 2000 issue). The potential costs and uncertainties
associated with the Year 2000 issue will depend on a number of
factors, including software, hardware and the nature of the
industry in which a company operates. Additionally, companies must
coordinate with other entities with which they electronically
interact.
During 1998, the Company continued with its organization-wide
program of preparing its systems for Year 2000 compliance and
developed detailed plans to address the possible business exposures
related to the Year 2000 issue. The Company has a formal
Millennium Program Office, executive level sponsors, and several
steering committees represented by all of the business units of the
Company. A committee of the Board of Directors oversees the
program.
The Company has reviewed its systems and programs to identify
those that contain two-digit year codes, and is in the process of
upgrading its infrastructure and corporate facilities to achieve
Year 2000 compliance. In addition, the Company is actively working
with its major external counterparties and suppliers to assess
their compliance and remediation efforts and the Companys exposure
to them. In addressing the Year 2000 issue, the Company has
identified the following phases: In the Awareness phase, the
Company defined the Year 2000 issue and obtained executive level
support and funding. In the Assessment phase, the Company
collected a comprehensive list of items that may be affected by
Year 2000 compliance issues. Such items include facilities and
related non-information technology systems (embedded technology),
computer systems, hardware, and services and products provided by
third parties. The Company then evaluated the items identified in
the Assessment phase to determine which will function properly with
the change to the new century, and ranked items which will need to
be remediated based on their potential impact to the Company. The
Renovation phase includes repair or replacement of non-compliant
items. The Validation phase includes a thorough testing of all
proposed repairs, including present and forward date testing which
simulates dates in the Year 2000. The Implementation phase
consists of placing all items that have been remediated and
successfully tested into production.
As of December 31, 1998, the Company had completed the
Awareness and Assessment phases. Renovation was complete on
Information Technology (IT) applications and well underway on non-
IT systems. As of December 31, 1998, the Company was also
conducting the procedures associated with the Validation and
Implementation phases. The Company expects that mission critical
applications in the mainframe and distributed applications
categories to be compliant (remediated, tested and implemented) by
March 31, 1999. Mission critical PC applications will be remediated
and tested by June 30, 1999, with the Implementation phase
completed by September 30, 1999. The table below indicates the
extent to which mission critical applications were compliant at
December 31, 1998 and the estimated status at March 31, 1999.
MISSION CRITICAL APPLICATION SUMMARY
Percent of Applications Year 2000 Compliant
Category 12-31-98 (Actual) 3-31-99 (Estimated)
Mainframe applications 32% 100%
Distributed applications 50% 100%
PC applications 43% 86%
The Company has reviewed Year 2000 issues with its major
business relationships, significant loan and deposit customers,
counterparties, intermediaries and vendors with whom it has
important financial and operational relationships to determine the
extent to which they are vulnerable to Year 2000 issues. Based on
this review (and assuming the accuracy of the responses and
representations), as of December 31, 1998, the Company does not
expect any material adverse impact from third-party Year 2000 non-
compliance. In addition, the Company has communicated with its
customer base and plans additional communications as necessary.
The Company has incurred 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 represent the
redeployment of existing information technology and business unit
resources. A summary of costs incurred on the project through
December 31, 1998 and estimated future costs is set forth below.
In thousands Costs Incurred Through Estimated
December 31, 1998 Future Costs Total
IT Personnel Resources $1,360 $1,722 $3,082
Business Unit Personnel Resources 286 411 697
External Contractors / Consultants 68 138 206
Replacement Software 270 145 415
Replacement / Upgrade Hardware 980 214 1,194
Other Costs 24 28 52
------ ------ ------
$2,988 $2,658 $5,646
====== ====== ======
Portions of the above costs relate to capital items that are
depreciated over useful lives. Accordingly, the above cost summary
is not representative of amounts being presently expensed. For the
year ended December 31, 1998, $1.9 million of the Year 2000 costs
were expensed, including $240,000 of depreciation and approximately
$780,000 of costs for time spent by existing personnel devoted to
this program.
Although the Company does not presently anticipate a material
business interruption as a result of the Year 2000 issue, there are
many risks associated with the Year 2000 issue, including the
possibility of a failure of the Companys computer and non-
information technology systems. Such failures could have a
material adverse effect on the Company and may cause systems
malfunctions, incorrect or incomplete transaction processing, the
inability to reconcile accounting records, and the inability to
reconcile balances with counterparties. In addition, even if the
Company successfully remediates its Year 2000 issues, it could be
materially and adversely affected by failures of third parties to
remediate their own Year 2000 issues. The failure of third parties
with which the Company has financial or operational relationships
such as securities exchanges, clearing organizations, depositories,
regulatory agencies, banks, clients, counterparties, vendors and
utilities, to remediate their computer and non-information
technology systems issues in a timely manner could result in a
material financial risk to the Company. If the above mentioned
risks are not remedied, the Company may experience business
interruption, financial loss, regulatory actions, damage to its
franchise and legal liability. While it is too early to predict
with any reasonable accuracy what failures may occur, the Company
believes that the continuance of sufficient planning,
communication, coordination and testing will mitigate potential
material disruption. The Company has business continuity plans in
place that cover its current operations, and Year 2000 specific
contingency planning has begun. The Company will complete the Year
2000 specific contingency plans during 1999 as part of its Year
2000 risk mitigation efforts.
The disclosure contained in this Annual Report is designated
as a Year 2000 Readiness Disclosure as that term is used in the
Year 2000 Information and Readiness Disclosure Act.
INTEREST RATE SENSITIVITY MANAGEMENT
The primary objective of interest rate risk management is to
control the effects that interest rate fluctuations have on net
interest income 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 quantify
interest rate exposure and are a more relevant method of measuring
interest rate risk than the static interest rate sensitivity gap
table shown on page 18, which provides only 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. Further,
the simulation does not contemplate any actions the Company could
undertake in response to changes in interest rates. 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.
The table below illustrates the simulation analysis of the
impact of a 50 or 100 basis point (bp) 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, 1998, adjusted to exclude the seasonally high
volume of gift certificates outstanding and corresponding
securities, 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, 1998, levels and remaining at those levels thereafter.
The results of the December 31, 1998 simulation analysis
indicate that the Companys exposure to increased interest rates is
not significantly adverse and that a reduction in interest rates
would increase net interest income and net income. The impact of
rate changes is not symmetrical across the rate change spectrum
analyzed. There are many factors influencing these results, such
as timing of repricing and the extent to which different assets and
liability rates change as general market rates change. However,
one situation involving time deposit costs illustrates the
variance. In a rising rate environment, interest expense on time
deposits would not increase in the same magnitude as the decrease
in interest expense on time deposits when rates decline by a
similar percentage. Rates on maturing time deposits currently
exceed market interest rates and an increase in time deposit rates
would not significantly increase existing costs. The benefit of
decreased rates is more than the detriment of higher rates on time
deposits, as lower rates would increase the favorable spread
between existing low rates and maturing rates, and higher rates
would move existing low rates towards maturing rates. Compared to
the similar analysis at December 31, 1997, the Companys interest
rate sensitivity at December 31, 1998 has generally improved.
The anticipated impact on net interest income under each of
the above scenarios is generally consistent with the Company's
cumulative liability-sensitive gap position at the one-year
repricing period.
The interest rate sensitivity gap table on page 18, shows the
repricing characteristics of the Company's interest-earning assets
and supporting funds at December 31, 1998. The data is based on
contractual repricing or maturities, except for CMO estimated cash
flows, and where applicable, management's assumptions as to the
estimated repricing characteristics of certain assets and
supporting funds. At December 31, 1998, the Company had a
liability-sensitive interest rate risk position at the one-year
repricing period of $21 million or 1.29% of assets. The December
31, 1998 static interest rate sensitivity gap position differs from
the normal position due to seasonal activity near the end of the
year. Gift certificates outstanding at December 31, 1998, of $95
million, exceeded the average outstanding amount by $57 million.
The cumulative one year gap averaged $73 million during the July
1998 to November 1998 period and would be approximately $62 million
at December 31, 1998, if adjusted for seasonal year-end activity.
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
quantify the impact of changes in general levels of interest rates
on net interest income, as does the simulation analysis previously
discussed.
<PAGE>
Interest Rate Simulation Sensitivity Analysis
<TABLE>
<CAPTION>
Movements in interest rates from
December 31, 1998, rates
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Simulated impact in the next 12 months
compared with December 31, 1998: +50 bp +100 bp -50 bp -100 bp
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income
increase (decrease)(In thousands) $489 ($251) $1,215 $1,684
Net income per share increase (decrease) $0.03 ($0.02) $0.08 $0.11
</TABLE>
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 securities purchased under
agreements to resell, and security maturities and cash flows
within one year, are approximately 21% of total assets. These
short-term investments are approximately 93% of non-core
liabilities, which consist of securities sold under agreements to
repurchase, federal funds purchased, 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 2%
at December 31, 1998, and averaged 11% during 1998. In the opinion
of management, the Companys incremental funding sources are
sufficient to meet known or reasonably anticipated funding
requirements.
During 1998, financing and operating activities adequately
supported the investing activities of the Company. Investing
activities, primarily loans to customers, were funded by increased
deposits, increased gift certificates outstanding, increased FHLB
borrowings 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 1998, it was not necessary for the Bank to pay
dividends to the holding company to support its cash needs. The
holding company had a significant cash balance available during
1998, primarily as a result of the receipt of proceeds from the
sale of the money order subsidiary, and had approximately $13
million of cash available at December 31, 1998. Certain regulatory
restrictions limit the amount of dividends the Bank may pay. As
of January 1, 1999, the Bank could pay dividends of $32 million
without prior regulatory approval. Additional information about
these restrictions is contained in Note M to the consolidated
financial statements.
1997 COMPARED TO 1996
Net income for 1997 was $17,915,000 or $1.75 on a diluted per
share basis compared with $15,029,000 or $1.50 on a diluted per
share basis for 1996. Basic net income per share was $1.78 in 1997
and $1.50 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.
NET INTEREST INCOME
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 CMO.
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 FHLB
decreased approximately $6 million as there were no new advances in
1997. Repurchase agreements 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 assets in 1997 and 1996.
The changes in interest income attributable to volume and rate
changes are summarized in the table on page 17.
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, was at its lowest level in
five years. At December 31, 1997, the allowance for loan losses
was 1.03% of loans outstanding and 373% of non-performing loans.
The table on page 5 is a summary of the Company's loan loss
experience.
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 gain on
sale of money order agent base, 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 in 1997. 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 were $5.1 million in 1997,
an increase of 11% over 1996. During 1997, the Company's redesigned
consumer transaction account product line was regularly promoted
and the retail customer account base increased approximately 4%,
with a resultant favorable movement in local market share. This
increase in retail volume and 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. As of December 31, 1997, this new trust group
had added approximately $180 million to trust assets under
management.
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.
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 direct 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
available for sale 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
cost. 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 FTE employees from 658
during 1996 to 623 during 1997. The decrease in FTE employees
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. Health
insurance costs decreased $448,000 in 1997 as claims experience was
favorable.
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.
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.
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.
RECENTLY ISSUED ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities
(Statement 133) was issued by the Financial Accounting Standards
Board in June 1998. Statement 133 standardizes the accounting for
derivative instruments. Statement 133 currently applies to the
Companys interest rate swap contracts. Under the standard,
entities are required to carry all derivative instruments on the
balance sheet at fair value. The accounting for changes in the
fair value (i.e. gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of
a hedging relationship and, if so on the reason for holding it. If
certain conditions are met, entities may elect to designate a
derivative instrument as a hedge of exposures to changes in fair
value, cash flows, or foreign currencies. If the hedged exposure
is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure, the effective portion of the gain or loss on
the derivative instrument is reported initially as a component of
other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge
effectiveness as well as the ineffective portion of the gain or
loss is reported in earnings immediately.
The Company is in the process of determining the impact that
Statement 133 will have on its financial statements and believes
that such determination will not be meaningful until closer to the
date of initial adoption (January 1, 2000). It can not be
determined presently whether the Company will have any significant
derivative instruments on the date of initial adoption. Depending
on asset/liability management issues, market interest rates and
other factors, the Companys current interest rate swap positions
may be increased or reduced by the time Statement 133 is adopted.
FORWARD LOOKING STATEMENTS
The statements contained in this filing that are not purely
historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding the
Companys expectations, hopes, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in
this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update
any such forward-looking statement. It is important to note that
the Companys actual results could differ materially from those in
such forward-looking statements. In addition to those addressed
throughout this discussion, factors that could cause actual results
to differ materially from those projected include, among others,
the effects of Year 2000 software failures experienced by the
Company or third parties; its customer concentration; cyclicality;
fluctuation of interest rates; risk of business interruption;
dependence on key personnel; and government regulation.
Prospective purchasers of the Companys common stock should consult
the risk factors listed from time to time in the Companys Reports
on Form 10-Q, 8-K, 10-K, and Annual Reports to Shareholders.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND YIELDS/RATES TAX EQUIVALENT BASIS
Dollars In Thousands 1998 1997 1996
----------------------------- ----------------------------- -----------------------------
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 $72,131 $4,418 6.18% $130,501 $8,146 6.27% $197,404 $12,066 6.13%
States and political
subdivisions 54,039 4,385 8.66 49,364 4,086 8.51 25,771 2,040 7.92
Collateralized mortgage obligations
and other 197,021 11,169 5.65 192,927 12,104 6.31 104,688 6,414 6.14
Federal funds sold 9,508 526 5.53 19,261 1,071 5.56 31,294 1,700 5.43
Securities purchased under
agreements to resell 105,310 5,789 5.50 98,342 5,399 5.49 113,110 6,059 5.36
Loans, net of unearned income 925,522 86,758 9.37 817,262 78,169 9.56 767,755 74,077 9.65
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total earning assets 1,363,531 113,045 8.31% 1,307,657 108,975 8.35% 1,240,022 102,356 8.25%
NON-EARNING ASSETS:
Allowance for loan losses (9,150) (8,979) (9,250)
Cash and due from banks 30,688 26,010 30,708
Other 53,719 49,058 52,858
----------- ----------- -----------
Total assets $1,438,788 $1,373,746 $1,314,338
=========== =========== ===========
INTEREST BEARING LIABILITIES:
Deposits:
Demand deposits $194,920 4,858 2.49% $196,705 5,739 2.92% $201,053 5,940 2.95%
Savings deposits 140,444 5,136 3.66 105,199 3,525 3.35 81,854 2,221 2.71
Certificates of deposit
$100,000 and over 69,433 4,105 5.91 66,927 4,056 6.06 65,319 4,044 6.19
Other time deposits 363,015 20,379 5.61 341,988 19,115 5.59 321,550 18,457 5.74
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total interest bearing deposits 767,812 34,478 4.49 710,819 32,435 4.56 669,776 30,662 4.58
Federal funds purchased and
securities sold under
agreements to repurchase 255,119 12,744 5.00 258,744 13,159 5.09 256,826 12,887 5.02
Advances from the Federal Home
Loan Bank 71,792 4,341 6.05 66,359 4,083 6.15 72,303 4,430 6.13
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
Total interest bearing liabilities 1,094,723 51,563 4.71% 1,035,922 49,677 4.80% 998,905 47,979 4.80%
NON-INTEREST BEARING LIABILITIES:
Demand deposits 121,964 107,955 103,000
Other 60,953 82,440 77,348
----------- ----------- -----------
Total liabilities 1,277,640 1,226,317 1,179,253
SHAREHOLDERS' EQUITY 161,148 147,429 135,085
Total liabilities and ----------- ----------- -----------
shareholders' equity $1,438,788 $1,373,746 $1,314,338
=========== =========== ===========
NET INTEREST INCOME $61,482 $59,298 $54,377
======== ======== ========
NET INTEREST SPREAD 3.60% 3.55% 3.45%
NET YIELD ON EARNING ASSETS 4.52% 4.54% 4.39%
======== ======== ========
</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 1998 AND 1997 TAX EQUIVALENT BASIS
In Thousands Net Change Due to Due to Net Change Due to Due to
1998/1997 Volume Rate 1997/1996 Volume Rate
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease)
Interest Income:
Securities ($4,364) ($3,162) ($1,202) $3,816 $2,805 $1,011
Federal funds sold (545) (540) (5) (629) (668) 39
Securities purchased under
agreements to resell 390 383 7 (660) (808) 148
Loans, net of unearned income 8,589 10,175 (1,586) 4,092 4,740 (648)
-----------------------------------------------------------------------
Total interest income 4,070 6,856 (2,786) 6,619 6,069 550
Interest Expense:
Deposits:
Demand deposits (881) (52) (829) (201) (127) (74)
Savings deposits 1,611 1,266 345 1,304 715 589
Certificates of deposit
$100,000 and over 49 150 (101) 12 98 (86)
Other time deposits 1,264 1,180 84 658 1,151 (493)
Federal funds purchased and
securities sold under
agreements to repurchase (415) (183) (232) 272 97 175
Advances from the Federal Home
Loan Bank 258 330 (72) (347) (366) 19
-----------------------------------------------------------------------
Total interest expense 1,886 2,691 (805) 1,698 1,568 130
-----------------------------------------------------------------------
Net Interest Income $2,184 $4,165 ($1,981) $4,921 $4,501 $420
=======================================================================
</TABLE>
The volume/rate variance is allocated to the volume and rate categories based
upon the absolute value of volume and rate variances before the allocation.
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
Dollars In Thousands Non-interest
December 31, 1998 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 $403,679 $36,103 $53,334 $280,490 $220,989 $1,416 $996,011
Securities 220,141 31,441 46,307 102,537 69,339 469,765
Securities purchased under
agreements to resell 35,000 35,000
Other assets 93,987 93,987
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 658,820 67,544 99,641 383,027 290,328 95,403 1,594,763
----------- ----------- ----------- ----------- ----------- ----------- -----------
Sources of Funds
Deposits:
Demand deposits 58,456 136,393 194,849
Savings deposits 92,466 75,480 167,946
Time deposits 109,608 82,759 94,301 126,508 12,881 426,057
Securities sold under
agreements to repurchase 288,544 0 288,544
Advances from the Federal Home
Loan Bank 1,583 1,606 3,284 27,554 40,835 74,862
Other liabilities and non-interest
bearing deposits 275,069 275,069
Shareholders' equity 167,436 167,436
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total sources of funds 550,657 84,365 97,585 154,062 265,589 442,505 1,594,763
----------- ----------- ----------- ----------- ----------- ----------- -----------
Asset / liability gap 108,163 (16,821) 2,056 228,965 24,739 (347,102)
----------- ----------- ----------- ----------- ----------- -----------
Interest rate swap contracts (114,000)
----------- ----------- ----------- ----------- ----------- -----------
INTEREST SENSITIVITY GAP (5,837) (16,821) 2,056 228,965 24,739 (347,102)
----------- ----------- ----------- ----------- ----------- -----------
CUMULATIVE INTEREST SENSITIVITY GAP ($5,837) ($22,658) ($20,602) $208,363 $233,102
=========== =========== =========== =========== ===========
CUMULATIVE INTEREST SENSITIVITY GAP
AS A PERCENT OF TOTAL ASSETS -0.37% -1.42% -1.29% 13.07% 14.62%
RATE-SENSITIVE ASSETS TO RATE-
SENSITIVE LIABILITIES 0.99X 0.80X 1.02X 2.49X 1.09X
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL DATA
In Thousands, Except Per Share Amounts
Years Ended December 31
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $111,255 $107,196 $100,785 $90,595 $79,652
Total interest expense 51,563 49,677 47,979 42,451 34,593
-----------------------------------------------------------------
Net interest income 59,692 57,519 52,806 48,144 45,059
Provision for loan losses 972 300 414 6,047 712
-----------------------------------------------------------------
Net interest income after
provision for loan losses 58,720 57,219 52,392 42,097 44,347
Non-interest income 19,789 13,173 14,527 11,191 11,599
Other operating expenses 49,715 44,422 44,577 41,844 37,592
-----------------------------------------------------------------
Income before income taxes 28,794 25,970 22,342 11,444 18,354
Income tax expense 8,581 8,055 7,313 3,378 5,742
-----------------------------------------------------------------
Net income $20,213 $17,915 $15,029 $8,066 $12,612
=================================================================
Per common share:
Net income:
Basic $1.98 $1.78 $1.50 $0.82 $1.27
Diluted 1.94 1.75 1.50 0.81 1.26
Cash dividends declared 0.82 0.74 0.65 0.57 0.55
<CAPTION>
December 31
1998 1997 1996 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, net of unearned income $1,005,021 $891,075 $804,182 $748,565 $699,396
Total assets 1,594,763 1,509,579 1,420,933 1,313,987 1,213,990
Total deposits 953,924 878,829 825,257 784,957 732,620
Advances from the Federal Home Loan Bank 74,862 63,165 69,042 75,109 81,504
Total shareholders' equity 167,436 155,709 140,638 132,950 125,052
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
In Thousands, Except 1998 1997 1996
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 $28,016 $27,541 $28,021 $27,677 $26,391 $26,620 $26,606 $27,579 $24,559 $25,023 $25,307 $25,896
Total interest
expense 13,293 12,798 12,908 12,564 12,497 12,384 12,162 12,634 11,728 11,942 11,908 12,401
Provision for
loan losses --- 500 --- 472 --- --- --- 300 --- 104 303 7
Net interest income ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
after provision for
loan losses 14,723 14,243 15,113 14,641 13,894 14,236 14,444 14,645 12,831 12,977 13,096 13,488
Non-interest income 4,317 7,360 3,525 4,587 3,348 3,020 3,236 3,569 4,221 3,031 3,971 3,304
Other operating
expenses 11,746 12,546 12,436 12,987 10,692 10,586 11,348 11,796 10,684 10,433 11,789 11,671
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
income taxes 7,294 9,057 6,202 6,241 6,550 6,670 6,332 6,418 6,368 5,575 5,278 5,121
Income taxes 2,169 2,749 1,792 1,871 2,033 2,065 2,007 1,950 2,051 1,868 1,800 1,594
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income $5,125 $6,308 $4,410 $4,370 $4,517 $4,605 $4,325 $4,468 $4,317 $3,707 $3,478 $3,527
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Per common share
Net income
Basic $0.50 $0.62 $0.43 $0.43 $0.45 $0.46 $0.43 $0.44 $0.43 $0.37 $0.35 $0.35
Diluted 0.49 0.60 0.42 0.42 0.45 0.45 0.42 0.43 0.43 0.37 0.35 0.35
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</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, 1998, the
total number of registered holders of the Company's common stock was
971 and the closing price of the Company's common stock was $ 27.125.
Reliance Trust Company 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 for
MidAmerica Bancorp's common stock as reported by AMEX 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
--------------------------
1998 Cash Dividends Declared High Low
- --------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $ .205 $32.75 $30.00
2nd Quarter .205 34.00 30.06
3rd Quarter .205 32.50 23.69
4th Quarter .205 29.13 22.25
<CAPTION>
Market Price
--------------------------
1997 Cash Dividends Declared High Low
- --------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $ .18 $19.81 $17.44
2nd Quarter .18 24.38 18.63
3rd Quarter .18 31.13 21.89
4th Quarter .20 34.69 27.81
</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 judgments 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 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, 1998
and 1997, and the related consolidated statements of income, changes
in shareholders' equity, comprehensive income, and cash flows for each of
the years in the three-year period ended December 31, 1998. 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,
1998 and 1997, and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1998, in conformity with generally accepted accounting
principles.
/s/KPMG Peat Marwick LLP
Louisville, Kentucky
January 22, 1999
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
In Thousands, Except Share and Per Share Amounts
December 31
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $39,644 $29,002
Federal funds sold - 16,900
Securities purchased under agreements to resell 35,000 -
Securities available for sale, amortized cost
of $382,580 (1998) and $409,497 (1997) 385,767 414,721
Securities held to maturity, market value of $84,013 (1998) and $108,321 (1997) 83,998 108,178
Loans, net of unearned income 1,005,021 891,075
Allowance for loan losses (9,010) (9,209)
--------- ---------
Loans, net 996,011 881,866
Premises and equipment 21,854 21,757
Other assets 32,489 37,155
--------- ---------
Total assets $1,594,763 $1,509,579
========= =========
LIABILITIES
Deposits:
Non-interest bearing $165,072 $140,092
Interest bearing 788,852 738,737
--------- ---------
Total deposits 953,924 878,829
Securities sold under agreements to repurchase 276,454 284,500
Federal funds purchased 12,090 -
Advances from the Federal Home Loan Bank 74,862 63,165
Gift certificates and money orders outstanding 95,127 104,609
Accrued expenses and other liabilities 14,870 22,767
--------- ---------
Total liabilities 1,427,327 1,353,870
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 -
10,246,157 shares (1998); 9,878,803 shares (1997) 28,416 27,399
Additional paid-in capital 123,905 115,182
Retained earnings 13,043 9,773
Accumulated other comprehensive income 2,072 3,355
--------- ---------
Total shareholders' equity 167,436 155,709
--------- ---------
Total liabilities and shareholders' equity $1,594,763 $1,509,579
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
In Thousands, Except Per Share Amounts
Years Ended December 31
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $86,503 $77,820 $73,220
Interest and dividends on:
Taxable securities 15,587 20,249 18,480
Tax exempt securities 2,850 2,656 1,326
Interest on federal funds sold 526 1,072 1,700
Interest on securities purchased under agreements to resell 5,789 5,399 6,059
---------- ---------- ----------
Total interest income 111,255 107,196 100,785
INTEREST EXPENSE
Interest on deposits 34,478 32,434 30,662
Interest on federal funds purchased and
securities sold under agreements to repurchase 12,744 13,160 12,887
Interest on Federal Home Loan Bank advances 4,341 4,083 4,430
---------- ---------- ----------
Total interest expense 51,563 49,677 47,979
---------- ---------- ----------
NET INTEREST INCOME 59,692 57,519 52,806
PROVISION FOR LOAN LOSSES 972 300 414
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 58,720 57,219 52,392
NON-INTEREST INCOME
Income from trust department 2,465 1,363 1,151
Service charges on deposit accounts 5,541 5,078 4,582
Gift certificate and money order fees 952 2,709 3,782
Securities gains 40 59 129
Gain on sale of money order subsidiary (1998); agent base (1996) 4,588 - 1,797
Other 6,203 3,964 3,086
---------- ---------- ----------
Total non-interest income 19,789 13,173 14,527
OTHER OPERATING EXPENSES
Salaries and employee benefits 28,447 25,885 25,850
Occupancy expense 3,013 3,100 2,957
Furniture and equipment expenses 4,249 4,607 4,675
Other 14,006 10,830 11,095
---------- ---------- ----------
Total other operating expenses 49,715 44,422 44,577
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 28,794 25,970 22,342
INCOME TAX EXPENSE 8,581 8,055 7,313
---------- ---------- ----------
NET INCOME $20,213 $17,915 $15,029
========== ========== ==========
Weighted average shares outstanding
BASIC 10,215 10,093 9,970
DILUTED 10,425 10,269 10,042
========== ========== ==========
NET INCOME PER COMMON SHARE
BASIC $1.98 $1.78 $1.50
DILUTED 1.94 1.75 1.50
========== ========== ==========
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, 1998, 1997 and 1996
Common Common Additional Other Total
Stock Stock Paid-in Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Income Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 9,091,642 $25,218 $99,991 $4,554 $3,187 $132,950
Net income 15,029 15,029
Cash dividends declared,
($0.65 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
Change in accumulated other
comprehensive income (1,718) (1,718)
--------------------------------------------------------------------------
Balance, December 31, 1996 9,425,803 26,144 104,932 8,093 1,469 140,638
Net income 17,915 17,915
Cash dividends declared,
($0.74 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
Change in accumulated other
comprehensive income 1,886 1,886
--------------------------------------------------------------------------
Balance, December 31, 1997 9,878,803 27,399 115,182 9,773 3,355 155,709
Net income 20,213 20,213
Cash dividends declared,
($0.82 per share) (8,345) (8,345)
Stock dividend declared 297,785 824 7,774 (8,598) ---
Stock options exercised,
including related tax benefits 69,569 193 949 1,142
Change in accumulated other
comprehensive income (1,283) (1,283)
--------------------------------------------------------------------------
Balance, December 31, 1998 10,246,157 $28,416 $123,905 $13,043 $2,072 $167,436
==========================================================================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
Years Ended December 31
1998 1997 1996
---------- ---------- -------------
<S> <C> <C> <C>
Net Income $20,213 $17,915 $15,029
Other comprehensive income (loss), net of tax:
Unrealized gains (losses)
on securities available for sale:
Unrealized holding gains (losses) arising
during the period (1,297) 1,848 (1,519)
Less reclassification adjustment for
gains included in net income (26) (38) (83)
-----------------------------------
(1,323) 1,810 (1,602)
Pension liability adjustment 40 76 (116)
-----------------------------------
Other comprehensive income (loss) (1,283) 1,886 (1,718)
-----------------------------------
COMPREHENSIVE INCOME $18,930 $19,801 $13,311
===================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
Years Ended December 31
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $20,213 $17,915 $15,029
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 5,805 4,256 3,408
Provision for loan losses 972 300 414
Federal Home Loan Bank stock dividends (1,139) (1,060) (962)
Securities gains (40) (59) (129)
Gain on sale of money order subsidiary(1998);
agent base(1996) (4,588) --- (1,797)
Gain on sales of other real estate (1,172) (74) (234)
Deferred taxes (315) 580 217
Decrease (increase) in interest receivable (2,222) (524) 218
Decrease (increase) in other assets (4,294) 959 1,435
Increase (decrease) in accrued expenses (887) 1,231 4,413
---------- ---------- ----------
Net cash provided by operating activities 12,333 23,524 22,012
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (197,212) (212,434) (182,245)
Proceeds from maturities of securities available for sale 206,160 96,250 58,022
Proceeds from sales of securities available for sale 10,206 45,181 82,726
Purchases of securities held to maturity (83,724) (106,781) (63,403)
Proceeds from maturities of securities held to maturity 77,500 70,000 57,325
Proceeds from sale of money order subsidiary (1998);
agent base (1996) 8,134 --- 1,797
Proceeds from sales of premises and equipment 119 257 904
Purchases of premises and equipment (3,676) (3,407) (4,909)
Proceeds from sales of other real estate 8,226 3,570 7,924
Net increase in loans (115,795) (96,540) (68,652)
---------- ---------- ----------
Net cash used in investing activities (90,062) (203,904) (110,511)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 75,095 53,572 40,300
Net increase (decrease) in securities sold
under agreements to repurchase (8,046) (1,448) 58,782
Net increase (decrease) in federal funds purchased 12,090 (4,000) 950
Advances from the Federal Home Loan Bank 26,216 --- ---
Repayment of advances from the Federal Home Loan Bank (14,519) (5,877) (6,067)
Increase (decrease) in gift certificates and
money orders outstanding 23,036 28,076 (2,876)
Stock options exercised 944 2,316 823
Dividends paid (8,345) (7,441) (6,491)
---------- ---------- ----------
Net cash provided by financing activities 106,471 65,198 85,421
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 28,742 (115,182) (3,078)
Cash and cash equivalents at beginning of year 45,902 161,084 164,162
---------- ---------- ----------
Cash and cash equivalents at end of year $74,644 $45,902 $161,084
========== ========== ==========
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 -- 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 -- Statement of
Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (Statement 133) was
issued by the Financial Accounting Standards Board in June 1998.
Statement 133 standardizes the accounting for derivative instruments
and will be effective for the Company on January 1, 2000. Statement
133 currently would apply to the Company's interest rate swap
contracts. Under the standard, entities are required to carry all
derivative instruments on the balance sheet at fair value. The
accounting for changes in the fair value (i.e. gains or losses) of a
derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and, if so on the reason
for holding it. If certain conditions are met, entities may elect to
designate a derivative instrument as a hedge of exposures to changes
in fair value, cash flows, or foreign currencies. If the hedged
exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together
with the offsetting loss or gain on the hedged item attributable to
the risk being hedged. If the hedged exposure is a cash flow
exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge
effectiveness as well as the ineffective portion of the gain or loss
is reported in earnings immediately. Accounting for foreign currency
hedges is similar to the accounting for fair value and cash flow
hedges. If the derivative instrument is not designated as a hedge,
the gain or loss is recognized in earnings in the period of change.
<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 1998, 1997 and 1996, cash paid for income taxes
amounted to $8.4 million, $5.7 million and $8.1 million,
respectively, and cash paid for interest was $53 million,
$50 million and $47 million, respectively. Loans transferred
to other assets were $678,000 in 1998, $9.4 million in 1997,
and $12.5 million in 1996.
<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
$105,310,000 during 1998 with an average yield of 5.50% and averaged
$98,342,000 during 1997 with an average yield of 5.49%. The maximum
month-end balance outstanding during 1998 and 1997 was $178 million and
$140 million, respectively.
<PAGE>
D. SECURITIES
The amortized cost and market value of securities available for sale follows:
<TABLE>
<CAPTION>
In Thousands December 31, 1998 December 31, 1997
--------------------------------------- ---------------------------------------
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 $159,821 $595 $1 $160,415 $156,040 $647 $33 $156,654
Collateralized mortgage obligations 148,524 675 2,229 146,970 183,792 2,008 326 185,474
States and political subdivisions 50,609 4,129 -- 54,738 50,352 2,920 -- 53,272
Corporate obligations 4,634 18 -- 4,652 1,757 8 -- 1,765
Equity securities 18,992 -- -- 18,992 17,556 -- -- 17,556
--------------------------------------- ---------------------------------------
$382,580 $5,417 $2,230 $385,767 $409,497 $5,583 $359 $414,721
======================================= =======================================
</TABLE>
<TABLE>
<CAPTION>
The amortized cost and market value of securities held to maturity follows:
In Thousands December 31, 1998 December 31, 1997
--------------------------------------- ---------------------------------------
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 $83,998 $22 $7 $84,013 $108,078 $148 $5 $108,221
Corporate obligations -- -- -- -- 100 -- -- 100
--------------------------------------- ---------------------------------------
$83,998 $22 $7 $84,013 $108,178 $148 $5 $108,321
======================================= =======================================
</TABLE>
A summary of debt securities at December 31, 1998 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 expected cash flows.
<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 $218,158 $217,440 $80,449 $80,450
Due after one year through five years 99,117 98,988 3,549 3,563
Due after five years through ten years 9,066 9,687 -- --
Due after ten years 37,247 40,660 -- --
----------------------------- -----------------------------
$363,588 $366,775 $83,998 $84,013
============================= =============================
</TABLE>
Gross realized gains and losses on sales of securities available for sale
were $40,000 and $0, respectively, in 1998, $146,000, and $87,000,
respectively, in 1997, and $1,241,000 and $1,112,000, respectively, in 1996.
Securities with a book value of $300,559,000 and $332,415,000 at December
31,1998 and 1997, 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
1998 1997
------------ ------------
<S> <C> <C>
Commercial and financial $457,682 $427,826
Real estate - construction and development 77,349 65,513
Real estate - residential mortgages 336,365 329,086
Consumer 133,625 68,650
------------ ------------
$1,005,021 $891,075
============ ============
</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, 1998 and 1997, the recorded investment in impaired loans
was $3.578 and $1.670 million, respectively. Included in impaired loans
at December 31, 1998 is $3.022 million of impaired loans for which the
related allowance for loan losses is $1.210 million. Included in impaired
loans at December 31, 1997 were $766,000 of impaired loans for which the
related allowance for loan losses was $150,000. The average recorded
investment in impaired loans during 1998 and 1997 was approximately
$2.448 and $2.617 million, respectively. For the years ended December 31,
1998, 1997 and 1996, the Company recognized interest income on impaired
loans of $119,000, $129,000 and $109,000, respectively, using the cash
basis method of income recognition. Interest income of $284,000,
$198,000 and $330,000 would have been recognized on impaired loans in
1998, 1997 and 1996, 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
1998 1997 1996
------------------------------
<S> <C> <C> <C>
Balance, January 1 $9,209 $9,167 $9,318
Loans charged-off (1,355) (621) (1,025)
Recoveries 184 363 460
------------------------------
Net loans charged-off (1,171) (258) (565)
Provision for loan losses 972 300 414
------------------------------
Balance, December 31 $9,010 $9,209 $9,167
==============================
</TABLE>
<PAGE>
G. PREMISES AND EQUIPMENT AND LEASE COMMITMENTS
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
In Thousands
December 31
1998 1997
----------------------
<S> <C> <C>
Land $4,872 $4,872
Buildings and leasehold improvements 14,094 13,410
Furniture and equipment 19,050 23,370
----------------------
38,016 41,652
Less accumulated depreciation and amortization 16,162 19,895
----------------------
$21,854 $21,757
======================
</TABLE>
At December 31, 1998, 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 $1,059,000, $1,145,000, and $1,134,000 for 1998,
1997 and 1996, respectively.
Minimum rental commitments under noncancelable leases in future years are
as follows:
<TABLE>
<CAPTION>
In Thousands
Year Ending December 31
<S> <C>
1999 $1,149
2000 1,062
2001 1,056
2002 1,052
2003 1,001
Thereafter 3,025
================================================
</TABLE>
<PAGE>
H. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
In Thousands
Years ended December 31
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Income taxes applicable to operations:
Current:
Federal $8,313 $7,196 $6,848
State 583 279 248
---------------------------
8,896 7,475 7,096
Deferred (315) 580 217
---------------------------
Total applicable to operations 8,581 8,055 7,313
Charged (credited) to components of shareholders' equity:
Net unrealized securities gains (losses) (713) 976 (863)
Stock options exercised (198) (395) (48)
Pension liability adjustment 21 41 (63)
---------------------------
Total income taxes $7,691 $8,677 $6,339
===========================
</TABLE>
The provision for income taxes in the consolidated statements of income
is reconciled to the federal statutory rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Tax at federal statutory rate 35.0% 35.0% 35.0%
Tax exempt interest income (4.0) (4.5) (4.6)
Non-deductible expenses 0.6 0.6 1.5
Other, net (1.8) (0.1) 0.8
---------------------------
29.8% 31.0% 32.7%
===========================
</TABLE>
Other liabilities include deferred income taxes of $1,066,000 and $2,064,000
at December 31, 1998 and 1997, 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
1998 1997
------------------
<S> <C> <C>
Deferred tax liabilities:
Lease accounting $1,739 $1,703
Depreciation 983 1,173
Mark-to-market adjustments related to securities 1,004 1,709
Federal Home Loan Bank stock dividends 1,866 1,468
Other 387 479
------------------
Total deferred tax liabilities 5,979 6,532
------------------
Deferred tax assets:
Allowance for loan losses 3,161 3,295
Deferred compensation 383 264
Pension 509 356
Other 860 553
------------------
Total deferred tax assets 4,913 4,468
------------------
Net deferred tax liability $1,066 $2,064
==================
</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,
1998 and 1997.
<PAGE>
I. DEPOSITS
A summary of deposits follows:
<TABLE>
<CAPTION>
In thousands
December 31
1998 1997
--------- ---------
<S> <C> <C>
Interest bearing demand deposits $194,849 $192,063
Savings deposits 145,021 102,557
Time and savings deposits $100,000 and over 92,908 77,163
All other time deposits 356,074 366,954
--------- ---------
Total interest bearing deposits 788,852 738,737
Non-interest bearing deposits 165,072 140,092
--------- ---------
Total deposits $953,924 $878,829
========= =========
Maturities of certificates of deposits at December 31, 1998,
were $289 million less than one year, $124 million
1 - 5 years and $13 million over 5 years.
</TABLE>
<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, 1998 December 31, 1997
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 $269,401 $270,930 $268,239 4.45% $276,570 $280,292 $278,071 5.32%
Over 90 Days
U.S. Treasury and
government agencies 8,975 9,053 8,215 0 6,993 7,001 6,429 5.52%
------------ ------------ ------------ --------- ------------ ------------ ------------ ---------
$278,376 $279,983 $276,454 4.48% $283,563 $287,293 $284,500 5.33%
============ ============ ============ ========= ============ ============ ============ =========
</TABLE>
1998 1997
------------ ------------
Average balance during the year $246,585 $257,149
Average interest rate during the year 4.99% 5.08%
Maximum month-end balance during the year $330,308 $346,635
<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. At December 31,
1998, the Company's eligible collateral provided a borrowing limit of
approximately $106 million. 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>
2000 $191 5.77 %
2002 - 2007 25,567 5.78
2008 - 2012 44,961 5.92
2013 - 2014 4,143 7.10
------------ -----------
$74,862 5.94 %
============ ===========
</TABLE>
Scheduled principal repayments on advances from the FHLB are $6,473,000,
$7,018,000, $7,254,000, $7,402,000, and $5,880,000 for 1999 through 2003,
respectively, and $40,835,000 thereafter.
<PAGE>
L. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all of
its employees. The Company also sponsors an unfunded non-qualified excess
benefit plan covering certain executive officers.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
In Thousands
December 31
1998 1997
----------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $11,977 $12,940
Service cost 912 696
Interest cost 900 896
Settlement --- (1,096)
Actuarial loss 1,686 924
Benefits paid (748) (2,383)
----------------------
Benefit obligation at end of year 14,727 11,977
----------------------
Change in plan assets:
Fair value of plan assets at beginning of year 10,012 10,880
Actual return on plan assets 807 1,500
Company contributions 618 1,111
Settlement --- (1,096)
Benefits paid (748) (2,383)
----------------------
Fair value of plan assets at end of year 10,689 10,012
----------------------
Funded status (4,038) (1,965)
Unrecognized actuarial loss 2,960 1,489
Unrecognized prior service cost 100 114
Unrecognized net asset at transition (476) (657)
----------------------
Accrued pension cost ($1,454) ($1,019)
======================
Weighted average assumptions as of December 31:
Discount rate 6.75% 7.00%
Expected return on plan assets 7.00% 7.00%
Rate of compensation increase 4.25% 4.25%
</TABLE>
Net pension expense for 1998, 1997, and 1996 included the following components:
<TABLE>
<CAPTION>
In Thousands
Years ended December 31
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $(912) $(696) $(766)
Interest cost on projected benefit obligation (900) (896) (914)
Expected return on plan assets 694 745 852
Amortization of prior service cost, transition asset, and
actuarial loss 63 153 61
---------------------------------
Net pension expense $(1,055) $(694) $(767)
=================================
</TABLE>
The projected benefit obligation and accumulated benefit obligation for the
unfunded non-qualified excess plan were $1,098,000 and $540,000 as of
December 31, 1998, respectively and $414,000 and $149,000, respectively as of
December 31, 1997.
In 1997, a portion of the unfunded 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.
The Company does not have a significant commitment to pay post-retirement or
post-employment benefits other than pension benefits.
The Company also offers a defined contribution employee stock ownership plan.
The Company's contributions to this plan were $652,000, $585,000, and $560,000
for 1998, 1997, and 1996, 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 these plans. No
compensation expense has been recognized for these fixed stock option plans.
Had compensation cost for the Company's stock options granted in 1998, 1997
and 1996 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
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Net income As Reported $20,213 $17,915 $15,029
Pro forma 19,899 17,841 14,978
Basic net income As Reported $1.98 $1.78 $1.50
per share Pro forma 1.95 1.77 1.50
Diluted net As Reported $1.94 $1.75 $1.50
income per share Pro forma 1.91 1.74 1.50
</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 1998, 1997 and 1996, respectively: dividend
yields of 2.56%, 3.63% and 3.89%; expected volatility of 21%, 16% and 16%;
risk-free interest rates of 5.59%, 6.64% and 6.09%; and expected lives of 6.50,
6.50 and 6.50 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 777,269 at December
31, 1998.
A summary of the status of the Company's incentive stock option plans as of
December 31, 1998, 1997, and 1996 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 686,608 $14.88 747,772 $13.78 791,070 $13.59
Granted 199,439 31.33 124,061 19.51 27,319
Expired (9,704) 24.07 (5,094) 14.96 (7,414) 15.06
Exercised (75,544) 14.17 (180,131) 13.50 (63,203) 12.49
Outstanding at December 31 ----------- ----------- -----------
800,799 $18.92 686,608 $14.88 747,772 $13.78
=========== =========== ===========
Exercisable at December 31 517,321 562,547 720,453
=========== =========== ===========
Weighted-average fair value
of options granted $7.69 $3.70 $3.00
=========== =========== ===========
</TABLE>
The following table summarizes information about incentive stock options
outstanding at December 31, 1998:
<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>
$ 9.12 to 13.00 111,293 1.9 years $10.44 111,293 $10.44
13.01 to 18.00 377,383 5.2 years 14.81 377,383 14.81
18.01 to 23.00 117,239 7.7 years 19.53 28,645 19.53
23.01 to 34.04 194,884 8.6 years 31.34 -- --
----------- -----------
$ 9.12 to 34.04 800,799 5.9 years $18.92 517,321 $14.13
=========== ===========
</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, 1999, the aggregate amount of retained earnings
available for distribution to the Company by subsidiaries without prior
approval was approximately $32 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 $10.8 million at December 31, 1998, 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, 1998.
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
judgments 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
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, 1998, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1998, 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 following 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
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets)
Consolidated $174,374 15.0% $92,883 > 8.0 % $116,104 >10.0 %
Bank $144,624 12.7% $90,883 > 8.0 % $113,603 >10.0 %
Tier I Capital
(to Risk Weighted Assets)
Consolidated $165,364 14.2% $46,442 > 4.0 % $69,662 > 6.0 %
Bank $135,667 11.9% $45,441 > 4.0 % $68,162 > 6.0 %
Tier I Capital
(to Average Assets)
Consolidated $165,364 11.5% $57,552 > 4.0 % $71,939 > 5.0 %
Bank $135,667 9.6% $56,718 > 4.0 % $70,898 > 5.0 %
As of December 31, 1997:
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 %
</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
1998 1997 1996
---------------------------------- ---------------------------------- ----------------------------------
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 $20,213 10,215 $1.98 $17,915 10,093 $1.78 $15,029 9,970 $1.50
========= ========= =========
Effect of dilutive
securities --- 210 --- 176 --- 72
--------- --------- --------- --------- --------- ---------
Diluted EPS $20,213 10,425 $1.94 $17,915 10,269 $1.75 $15,029 10,042 $1.50
========= ========= ========= ========= ========= ========= ========= ========= =========
</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 16, 1998 December 2, 1998 December 18, 1998 3.0
November 17, 1997 December 1, 1997 December 12, 1997 3.0
November 18, 1996 December 3, 1996 December 13, 1996 3.0
</TABLE>
Per share information in the consolidated financial statements
reflects the adjusted number of shares resulting from these stock
dividends.
<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, 1998, the Company had $333 million of commitments to extend
credit (of which $113 million relates to floating rate home equity lines of
credit), 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 $19.7
million at December 31, 1998, 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, 1998, 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
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Other non-interest income:
Gain on sale of other real estate $1,172 $74 $234
Merchant and bank card fees 1,317 977 840
Money order processing fees 1,302 --- ---
Other 2,412 2,913 2,012
----------- ----------- -----------
$6,203 $3,964 $3,086
=========== =========== ===========
<CAPTION>
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Other operating expenses:
Advertising and marketing $2,187 $1,562 $1,262
Operating supplies 1,584 2,121 1,601
Legal and professional fees 3,582 1,610 2,212
Taxes-Bank, property and other 1,624 1,741 1,637
Other 5,029 3,796 4,383
----------- ----------- -----------
$14,006 $10,830 $11,095
=========== =========== ===========
</TABLE>
<PAGE>
Q. RELATED PARTY TRANSACTIONS
Loans to directors, executive officers and principal holders of the Company's
common stock and associates of such persons are presented below:
<TABLE>
<CAPTION>
In Thousands
<S> <C>
Balance, January 1, 1998 $16,122
New loans and advances on lines of credit 8,285
Repayments (5,489)
---------
Balance, December 31, 1998 $17,883
=========
</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, 1998, 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, 1998, the Company had entered into interest
rate swap contracts with notional amounts totaling $114 million,
with a weighted average maturity of 1.67 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, 1998, the floating prime rate to be paid by the
Company was 7.75% and the weighted average fixed rate to be
received by the Company was 8.60%. At December 31, 1997 the
Company had interest rate swap contracts of $150 million, with a
weighted average fixed rate to be received by the Company of 8.56%.
Interest rate swap contracts increased net interest income by
$264,000 in 1998, $176,000 in 1997 and $450,000 in 1996. At
December 31, 1998 and 1997, the aggregate fair value of
interest rate swap contracts, determined through market
quotes, was approximately $1,600,000 and $1,000, respectively.
<PAGE>
S. DISCLOSURES ABOUT SEGMENTS
The Company, through the branch network of its subsidiary banks, provides
a broad range of financial services to individuals and businesses in and
around Jefferson County, Kentucky. These services include demand, time
and savings deposits; lending and lease financing; credit cards; ATMs;
cash management; and trust services. While the Company's chief decision
makers monitor the revenue streams of the various banking products and
services, operations are managed and financial performance is evaluated
on a bank-wide basis. Accordingly, all of the Company's banking operations
are considered by management to be aggregated in one reportable operating
segment. The other catagory includes the aggregate of other
activities, which individually are not significant. These activities
include the gift certificate operation, a captive data processing
subsidiary, an insurance subsidiary that sells insurance products
on loans made by the banks, and subsidiaries holding foreclosed
real estate.
The measurement of the performance of the business segments
is based on the management stucture of the Company and is not
necessarily comparable with similar information for any other
financial institution. The information presented is also not
necessarily indicative of the segments' financial condition and
results of operations if they were independent entries.
Selected financial information by business segment for
1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
In thousands
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net interest income
Banking $56,316 $53,256 $49,218
Other 3,382 4,269 3,603
Eliminations (6) (6) (15)
----------- ----------- -----------
Total $59,692 $57,519 $52,806
=========== =========== ===========
Non-interest income
Banking $13,932 $10,775 $9,294
Other (a)(b) 12,289 8,332 10,862
Eliminations (a) (6,432) (5,934) (5,629)
----------- ----------- -----------
Total $19,789 $13,173 $14,527
=========== =========== ===========
Net income
Banking $16,802 $16,356 $13,156
Other 3,356 1,565 2,233
Eliminations 55 (6) (360)
----------- ----------- -----------
Total $20,213 $17,915 $15,029
=========== =========== ===========
Assets
Banking $1,507,101 $1,393,632 $1,334,124
Other 123,448 136,078 107,158
Eliminations (35,786) (20,132) (20,349)
----------- ----------- -----------
Total $1,594,763 $1,509,578 $1,420,933
=========== =========== ===========
(a) Data processing revenues, for services provided to the banking
segment and certain other operating areas by the data
processing subsidiary, are eliminated in the consolidated statement
of income.
(b) The primary external source of other non-interest income is
fees related to the gift certificate and former money order
operations. In 1998 and 1996, other non-interest income also
includes a gain on the sale of the money order subsidiary and a
gain on the sale of the money order agent base, respectively.
</TABLE>
<PAGE>
T. SHAREHOLDER RIGHTS PLAN
On February 23, 1998, the Board of Directors of the Company adopted a
shareholder rights plan. Pursuant to the Plan, the Board declared a
dividend distribution of one right for each outstanding share of the
Company's common stock. Under certain conditions, each right entitles
the registered holder to purchase from the Company a unit consisting of
one-hundredth of a share of Junior Participating Preferred Stock at a
purchase price of $75.00 per unit, subject to adjustment. The Company
can redeem the rights for $0.01 per right at any time prior to their
becoming exercisable. The Rights expire on March 13, 2008, unless
earlier redeemed by the Company.
The rights become exercisable upon the earlier of (i) the tenth day
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 15% or more of the outstanding
shares of common stock of the Company or (ii) the tenth business day
following the commencement of the tender offer or exchange offer that
would result in a person or group beneficially owning 15% or more of such
outstanding shares of common stock of the Company.
After an Acquiring Person acquires 15% or more of the common stock of the
Company, (i) each right not owned by an Acquiring Person will become a
right to receive, upon exercise, common stock of the Company having a
value equal to two times the exercise price of the right; and (ii) all
rights that are owned by any Acquiring Person will be null and void.
If the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation or 50%
or more of the Company's assets or earning power is sold or transferred,
each holder of a right shall thereafter have the right to recieve, upon
exercise, common stock of the acquiring company having a value equal to
two times the exercise price of the right.
<PAGE>
U. 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, 1998 December 31, 1997
-----------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $74,644 $74,644 $45,902 $45,902
Securities 469,765 469,780 522,899 523,042
Loans, net of allowance for loan losses 996,011 1,012,572 881,866 886,708
Financial liabilities:
Deposits 953,924 958,752 878,829 881,122
Short-term borrowings 288,544 288,544 284,500 284,500
Advances from the Federal Home Loan Bank 74,862 82,361 63,165 62,360
Gift certificates and money orders
outstanding 95,127 95,127 104,609 104,609
Off-balance sheet financial instruments
Interest rate swaps --- 1,599 --- 1
</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 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 judgments
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 judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
<PAGE>
V. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
<TABLE>
<CAPTION>
Condensed Balance Sheets
In Thousands
December 31
1998 1997
--------------------------
<S> <C> <C>
Assets:
Cash on deposit with bank subsidiary $12,857 $2,501
Investment in bank and thrift subsidiaries 139,937 124,364
Investment in other subsidiaries 13,422 22,470
Other assets 1,292 1,874
------------ ------------
Total assets $167,508 $155,724
============ ============
Liabilities and shareholders' equity:
Other liabilities $72 $15
Shareholders' equity 167,436 155,709
------------ ------------
Total liabilities and shareholders' equity $167,508 $155,724
============ ============
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
In Thousands
Years Ended December 31
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash dividends from bank subsidiary $ --- $2,550 $19,300
Gain on sale of money order subsidiary 4,588 --- ---
Interest income and other income 892 697 300
Other expenses (1,159) (233) (117)
------------ ------------ ------------
Income before income taxes and equity
in undistributed earnings of subsidiaries 4,321 3,014 19,483
Applicable income tax expense (1,833) (167) (168)
------------ ------------ ------------
Income before equity in undistributed earnings of
subsidiaries 2,488 2,847 19,315
Equity in undistributed earnings of subsidiaries 17,725 15,068 (4,286)
------------ ------------ ------------
Net income $20,213 $17,915 $15,029
============ ============ ============
</TABLE>
<PAGE>
V. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
In Thousands
Years Ended December 31
1998 1997 1996
-------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $20,213 $17,915 $15,029
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed earnings of subsidiaries (17,725) (15,068) 4,286
Gain on sale of money order subsidiary (4,588) --- ---
Decrease (increase) in other assets 780 2,008 (3,077)
Increase (decrease) in other liabilities 57 (9) 58
--------- --------- ---------
Net cash provided by (used in) operating activities (1,263) 4,846 16,296
Cash flows from investing activities:
Investment in subsidiaries (125) (5,000) (200)
Proceeds from sale of money order subsidiary 14,630 --- ---
--------- --------- ---------
Net cash provided by (used in) investing activities 14,505 (5,000) (200)
--------- --------- ---------
Cash flows used in financing activities:
Dividends paid (8,345) (7,441) (6,491)
Stock options exercised 944 2,316 823
--------- ---------- ---------
Net cash used in financing activities (7,401) (5,125) (5,668)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 5,841 (5,279) 10,428
Cash and cash equivalents at beginning of year 7,016 12,295 1,867
--------- --------- ---------
Cash and cash equivalents at end of year $12,857 $7,016 $12,295
========= ========= =========
</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.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Mid-America Bancorp:
We consent to incorporation by reference in the Registration
Statements No. 2-92270, No. 2-99495, No. 33-42989, and No. 333-
45091 on Forms S-8 of Mid-America Bancorp of our report dated
January 22, 1999, relating to the consolidated balance sheets of
Mid-America Bancorp and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
shareholders' equity, comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 1998,
which report appears in the 1998 annual report to shareholders,
which is incorporated by reference in the December 31, 1998 annual
report on Form 10-K of Mid-America Bancorp.
Louisville, Kentucky /s/ KPMG LLP
March 24,1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> YEAR
<CASH> 39,644
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 35,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 385,767
<INVESTMENTS-CARRYING> 83,998
<INVESTMENTS-MARKET> 84,013
<LOANS> 1,005,021
<ALLOWANCE> (9,010)
<TOTAL-ASSETS> 1,594,763
<DEPOSITS> 953,924
<SHORT-TERM> 288,544
<LIABILITIES-OTHER> 109,997
<LONG-TERM> 74,862
0
0
<COMMON> 28,416
<OTHER-SE> 139,020
<TOTAL-LIABILITIES-AND-EQUITY> 1,594,763
<INTEREST-LOAN> 86,503
<INTEREST-INVEST> 18,437
<INTEREST-OTHER> 6,315
<INTEREST-TOTAL> 111,255
<INTEREST-DEPOSIT> 34,478
<INTEREST-EXPENSE> 51,563
<INTEREST-INCOME-NET> 59,692
<LOAN-LOSSES> 972
<SECURITIES-GAINS> 40
<EXPENSE-OTHER> 49,715
<INCOME-PRETAX> 28,794
<INCOME-PRE-EXTRAORDINARY> 28,794
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,213
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.94
<YIELD-ACTUAL> 4.52
<LOANS-NON> 1,416
<LOANS-PAST> 3,050
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,773
<ALLOWANCE-OPEN> 9,209
<CHARGE-OFFS> 1,355
<RECOVERIES> 184
<ALLOWANCE-CLOSE> 9,010
<ALLOWANCE-DOMESTIC> 9,010
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
ADDITIONAL EXHIBITS Exhibit 99
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
X ANNUAL REPORT PURSUANT TO SECTION 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 name 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 in paper, as permitted by Rule
101 (6) (3) of Regulation S-T within 180 days of the Plan's year-end (December
31, 1998).
