UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 0-14412
Farmers Capital Bank Corporation
(Exact name of registrant as specified in its charter)
Kentucky 61-1017851
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 309, West Main Street
Frankfort, Kentucky 40602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502)227-1600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $0.25 per share
3,866,382 shares outstanding at May 2, 1994
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993 3
Consolidated Statements of Income -
For the Three Months Ended
March 31, 1994 and March 31, 1993 4
Consolidated Statements of Cash Flows -
For the Three Months Ended
March 31, 1994 and March 31, 1993 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Items 6 - Exhibits and Reports on Form 8-K 13
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(unaudited)
March 31 December 31
1994 1993
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 66,944 $ 43,171
Federal Funds sold and securities
purchased under agreement to resell 50,882 54,613
Total cash and cash equivalents 117,826 97,784
Investment securities 178,278 188,866
Loans 506,276 490,345
Less: Allowance for loan losses (8,712) (8,547)
Unearned income (9,019) (8,708)
Loans, net 488,545 473,090
Bank premises and equipment 20,274 20,504
Interest receivable 5,893 6,420
Other assets 7,745 7,605
TOTAL ASSETS $818,561 $794,269
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $120,075 $ 92,128
Interest bearing 561,924 566,111
Total deposits 681,999 658,239
Other borrowed funds 32,460 32,637
Dividends payable 1,160 1,160
Interest payable 1,408 1,475
Other liabilities 5,935 5,667
Total liabilities 722,962 699,178
SHAREHOLDERS' EQUITY
Common stock, par value $.25 per share
4,804,000 shares authorized; 3,866,382 shares
issued and outstanding at March 31, 1994 and
December 31, 1993 967 967
Capital surplus 9,094 9,094
Retained earnings 85,739 85,030
Unrealized net loss on securities
available for sale (201)
Total shareholders' equity 95,599 95,091
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $818,561 $794,269
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(unaudited)
Quarter Ended
March 31
1994 1993
INTEREST INCOME
Interest and fees on loans $ 10,815 $ 10,550
Interest on investment securities:
Taxable 1,506 2,140
Nontaxable 541 282
Interest on deposits in other banks 23 7
Interest on federal funds sold and securities
purchased under agreements to resell 469 700
Total interest income 13,354 13,679
INTEREST EXPENSE
Interest on deposits 4,767 5,534
Interest on other borrowed funds 268 244
Total interest expense 5,035 5,778
Net interest income 8,319 7,901
Provision for loan losses 646 828
Net interest income after provision for
loan losses 7,673 7,073
NONINTEREST INCOME
Service charges and fees 941 1,049
Trust income 225 275
Investment securities gains (losses), net (39) 51
Other 1,368 1,383
Total noninterest income 2,495 2,758
NONINTEREST EXPENSE
Salaries and employee benefits 3,772 3,453
Occupancy expenses, net 506 500
Equipment expenses 656 694
Bank shares tax 260 235
Deposit insurance expense 375 399
Other 1,932 1,882
Total noninterest expense 7,501 7,163
Income before income taxes and cumulative
effect of change in accounting principle 2,667 2,668
Income tax expense 798 785
Income before cumulative effect of change
in accounting principle 1,869 1,883
Cumulative effect of change in accounting
principle 380
NET INCOME $ 1,869 $ 2,263
Per common share:
Income before cumulative effect of change
in accounting principle $ .48 $ .49
Cumulative effect of change in accounting
principle $ .10
Net income $ .48 $ .59
Dividends declared $ .30 $ .27
Weighted average shares outstanding 3,866 3,866
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(unaudited)
Three Months Ended
March 31
1994 1993
Cash flows from operating activities
Net Income $ 1,869 $ 2,263
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 663 675
Net amortization of investment
securities premiums and discounts:
Available for sale 112
Held to maturity 79 290
Provision for loan losses 646 828
Deferred income tax (18) (380)
Gain on sale of fixed assets (1)
Loss (gain) on sale of securities:
Available for sale 41
Held to maturity (2) (51)
Changes in:
Interest receivable 527 675
Other assets (187) (670)
Interest payable (67) (123)
Other liabilities 268 (3,084)
Net cash provided by operating activities 3,931 422
Cash flows from investing activities
Proceeds from maturity of investment
securities:
Available for sale 11,159
Held to maturity 16,941 17,443
Proceeds from sale of investment
securities:
Available for sale 8,182
Held to maturity 8,995
Purchase of investment securities:
Available for sale (8,524)
Held to maturity (17,677) (28,880)
Net increase in loans (16,101) (1,899)
Purchase of bank premises and equipment (296) (300)
Proceeds from sale of equipment 4 15
Net cash used in investing activities $ (6,312) $ (4,626)
Cash flows from financing activities:
Net increase in deposits 23,760 15,525
Dividends paid (1,160) (1,044)
Net increase (decrease) in securities
sold under agreements to repurchase (177) 191
Net cash provided by financing activities 22,423 14,672
Net change in cash and cash equivalents 20,042 10,468
Cash and cash equivalents at beginning
of year 97,784 166,001
Cash and cash equivalents at end of period $117,826 $176,469
Supplemental disclosures:
Cash paid during the year for:
Interest $ 5,102 $ 5,901
Income taxes 80 250
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation, have been included. Operating results for the period ended
March 31, 1994 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1994. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended December 31,
1993.
NOTE 2 - BOND CLAIM
During 1991, First Citizens Bank, Hardin County (the "Bank"), a subsidiary of
the Company, filed a bond claim for $6,800,000 with its bonding company to
recover losses incurred in 1990 resulting from an apparent scheme to defraud
the Bank. After exhaustive efforts to settle the claim with the bonding
company, the Bank initiated litigation during the first quarter of 1992
against the bonding company. During the third quarter of 1993, the Company
reached a settlement in the amount of $5,279,000 which was accounted for as a
loan loss recovery. Loan loss recoveries result in an increase in the
Allowance for Losses (Allowance). The Allowance was subsequently adjusted to
the amount necessary, as determined by management, to absorb possible future
losses on the total loans currently outstanding.
NOTE 3 - EFFECT OF IMPLEMENTING SFAS NO. 106, NO 109, NO. 114 AND NO. 115
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS 109"). SFAS 109 requires a change from the deferred method to
the asset and liability method of computing deferred income taxes. Under the
asset and liability method, deferred income taxes are recognized for the tax
consequences on future years of temporary difference between the financial
statements carrying amounts and the tax basis of existing assets and
liabilities.
Effective January 1, 1993, the Company adopted the Standard. The cumulative
effect of this adoption was an increase in net income of $380,000 ($.10 per
share).
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan ("SFAS 114"), which
addresses the accounting by creditors for impairment of a loan by specifying
how allowances for credit losses related to certain loans should be
determined. This Statement also addresses the accounting by creditors for
all loans that are restructured in a troubled debt restructuring involving a
modification of terms of a receivable.
An impaired loan shall be measured by the present value of expected future
cash flows using the loan's effective interest rate, except that as a
practical expedient, it may be measured on the fair market value of the loan
if the loan is collateral dependant. If the measure of the impaired loan is
less that the recorded investment, an impairment will be recognized by
creating a valuation allowance with a corresponding charge to bad debt
expense. SFAS 114 shall be effective for fiscal years beginning after
December 15, 1994. The impact on the financial statements is not known at
this time.
Also in May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
This Statement addresses the accounting and reporting for investments in debt
and equity securities and specifies that they are to be classified in three
categories as follows:
Debt securities that the company has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported
at amortized cost.
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
Debt and equity securities not classified as either of the above are
classified as available-for-sale securities and reported at fair value with
unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity.
This Statement was implemented in the first quarter of 1994.
NOTE 4 - INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Accordingly, debt securities in which the company does
not have the positive intent or ability to hold to maturity are classified as
securities available for sale and are carried at market value. Unrealized
gains and losses on securities available for sale are reported as a separate
component of shareholders' equity, net of tax effect. Prior to the adoption
of this statement, securities were carried at amortized cost. The following
summarizes the amortized cost and estimated fair values of the securities
portfolio at March 31, 1994. The summary is divided into available for sale
and held to maturity securities.
Investment securities - available for sale
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 1994 (In thousands) Cost Gains Losses Value
U.S. Treasury $34,716 $103 $ 45 $34,774
Obligations of U.S. Government
agencies 32,124 9 308 31,825
Other securities 4,076 36 4,040
Total securities available for sale $70,916 $112 $389 $70,639
Investment securities - held to maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
March 31, 1994 (In thousands) Cost Gains Losses Value
U.S. Treasury $ 36,606 $ 38 $ 313 $ 36,331
Obligations of U.S. Government
agencies 17,475 68 394 17,149
Obligations of states and political
subdivisions 48,842 785 801 48,826
Mortgage-backed securities 2,926 5 73 2,858
Other securities 1,790 19 17 1,792
Total securities held to maturity $107,639 $ 915 $1,598 $106,956
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1993. On December 31, 1993, the
securities were carried at amortized cost.
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1993(In thousands) Cost Gains Losses Value
U.S. Treasury $67,335 $ 431 $ 32 $67,754
Obligations of U.S. Government
agencies 68,529 215 60 68,684
Obligations of states and political
subdivisions 46,081 1,098 220 46,959
Mortgage-backed securities 5,792 12 46 5,758
Other securities 1,109 26 1,135
Total securities $188,866 $1,782 $358 $190,290
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
First Quarter 1994 vs. First Quarter 1993
The Company reported earnings of $1.9 million, or $.48 per share, for the
first quarter of 1994 compared to earnings of $2.3 million, or $.59 per share
for the first quarter of 1993.
Net income during the first quarter of 1993 was increased by $380 thousand
due to the adoption of SFAS 109 - Accounting for Income Taxes. Without this
change in accounting principle, first quarter 1994 earnings are very
comparable to the same time period in 1993. Without the change in accounting
principle, net income for first quarter 1993 would have been $1.9 million, or
$.49 per share.
Return on average assets was .91% for the first quarter of 1994, a decrease
from 1.11% reported for the same period of 1993. Return on average equity
was 7.88% for the first quarter of 1994, a decrease from 10.07% during the
same period of 1993.
STATEMENT OF INCOME REVIEW
Net Interest Income
Net interest income totaled $8.3 million, compared to $7.9 million for first
quarter 1993. The net interest margin (net interest income as a percentage
of average earning assets), increased to 4.74% during the first quarter of
1994 compared to 4.54% in the first quarter of 1993. The spread between
rates earned and paid increased to 4.20% compared to 4.00% in the first
quarter of 1993.
Provision for Loan Losses
The provision for loans losses declined $182 thousand compared to the first
quarter 1993. The Corporation had net charge-offs of $480 thousand in the
first quarter of 1994 compared to net charge-offs of $929 thousand in the
same period of 1993. This decrease is a reflection of the quality of the
loan portfolio and is a result of management's additional emphasis on
collection efforts and evaluation of the risks within the loan portfolio. The
allowance for loan losses was 1.75% of net loans in the first quarter of
1994, a small decline from 1.76% in the first quarter of 1993.
Noninterest Income
Noninterest income of $2.5 million decreased $263 thousand, or 9.5%, from the
first quarter of 1993. Service charges on deposits decreased $108 thousand,
or 10.3% to $941 thousand. Trust fees decreased $50 thousand, or 18.2%, to
$225 thousand. The Company had $39 thousand in investment losses in the first
quarter of 1994 compared to a net gain of $51 thousand in the same period of
1993.
Noninterest Expense
Total noninterest expenses increased $338 thousand, or 4.7%, from the first
quarter of 1993 to $7.5 million. Salaries and benefits increased $319
thousand, or 9.2%, to $3.8 million. This increase is due to an increase in
full time equivalent employees. Occupancy expense, net of rental income, was
$1.2 million, a change of less than 1% from a year ago. Other noninterest
expense was $2.6 million, also a change of less than 1%.
Income taxes
Income tax expense increased $13 thousand, or 1.7%, from the first quarter of
1993 to $798 thousand. The increase is due to a higher effective tax rate.
BALANCE SHEET REVIEW
Total assets were $819 million on March 31, 1994, an increase of $24 million,
or 3.1%, from December 31, 1993. Assets averaged $822 million for the first
quarter of 1994, an increase of less than 1% from year end 1993.
Loans
Loans, net of unearned income, increased $16 million, or 3.2%, from December
31, 1993 to $497 million. On average, loans represented 65.5% of earning
assets compared to 64.4% for 1993. The increase can be attributed to growing
loan demand from both the consumer and commercial markets.
Temporary Investments
Federal funds sold and securities purchased under agreement to resell averaged
$60 million, a decrease of $15 million, or 20.1%, from year end 1993. The
decrease is due to the increase in loan demand.
Investment Securities
Investment securities were $178 million on March 31, 1994, a decrease of $11
million, or 5.6%, from year end 1993. Available for sale and held to maturity
securities were $71 and $107 million, respectively. Investment securities
averaged $184 million for the first quarter 1994, an increase of $13 million,
or 7.4%, from year end 1993. Net unrealized losses were $960 thousand on
March 31, 1994.
Other Real Estate Owned
Other real estate owned decreased $45 thousand, or 3.8%, from year end 1993
to $1.1 million on March 31, 1994. Nonperforming assets totaled $7.6 million
on March 31, 1994, a decrease of $107 thousand from year end 1993.
Nonperforming assets to total equity decreased by 13 basis points from year
end 1993 to 7.98%.
Deposits
Total deposits increased $24 million, or 3.6%, from year end 1993 to $682
million. Deposits averaged $691 million, an increase of $7 million, or 1.1%,
from year end 1993.
Borrowed Funds
Borrowed funds totaled $32 million, unchanged from year end 1993. Borrowed
funds averaged $36 million, an increase of $3 million, or 9.4%.
Shareholders' Equity
Shareholders' equity was $96 million on March 31, 1994, increasing $508
thousand from year end 1993. Dividends of $1.2 million were declared during
the first quarter of 1994. Tier 1 capital was 16.42% of total risk weighted
assets while the total capital ratio was 17.67%.
Accounting Requirements
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS 109"). SFAS 109 requires a change from the deferred method to
the asset and liability method of computing deferred income taxes. Under the
asset and liability method, deferred income taxes are recognized for the tax
consequences on future years of temporary differences between the financial
statements carrying amounts and the tax basis of existing assets and
liabilities. Effective January 1, 1993, the Company adopted the Statement.
The cumulative effect of this adoption was an increase in net income of
$380,000 ($.10 per share).
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114"), which
addresses the accounting by creditors for impairment of a loan by specifying
how allowances for credit losses related to certain loans should be
determined. This Statement also addresses the accounting by creditors for
all loans that are restructured in a troubled debt restructuring involving a
modification of terms of a receivable.
An impaired loan shall be measured by the present value of expected future cash
flows using the loan's effective interest rate, except that as a practical
expedient, it may be measured on the fair market value of the loan if the
loan is collateral dependent. If the measure of the impaired loan is less
than the recorded investment, an impairment will be recognized by creating a
valuation allowance with a corresponding charge to bad debt expense. SFAS 114
will be effective for fiscal years beginning after December 15, 1994. The
impact on the financial statements is not known at this time.
Also in May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
This Statement addresses the accounting and reporting for investments in debt
and equity securities and specifies that they are to be classified in three
categories:
- - - Debt securities that the company has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported
at amortized cost.
- - - Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
- - - Debt and equity securities not classified as either of the above are
classified as available-for-sale securities and reported at fair value with
unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders equity.
This Statement was implemented in the first quarter of 1994.
Liquidity
The liquidity of the Corporation is dependent on the receipt of dividends from
its subsidiary banks. Management expects that in the aggregate its
subsidiary banks will continue to have the ability to dividend adequate funds
to the Corporation during the remainder of 1994.
The Corporation's objective as it relates to liquidity is to insure that
subsidiary banks have funds available to meet deposit withdrawals and credit
demands without unduly penalizing profitability. In order to maintain a
proper level of liquidity, the banks have several sources of funds available
on a daily basis which can be used for liquidity purposes. These sources of
funds are:
1. The bank's core deposits consisting of both business and nonbusiness
deposits
2. Cash flow generated by repayment of loan principal and interest
3. Federal funds
Liquidity projections are reviewed on a monthly basis and it is rare for a
bank to call on the third source of funds to meet liquidity requirements.
Generally, sources one and two are sufficient. For the longer term, the
liquidity position is managed by balancing the maturity structure of the
balance sheet. This process allows for an orderly flow of funds over an
extended period of time.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
On April 19, 1994, the Corporation filed a report on Form 8-K with the
Commission to report they had recovered an additional $758,000 of the
losses incurred from an apparent scheme in 1990 to defraud First
Citizens Bank, Hardin County, a subsidiary of the Corporation. The
Corporation intends to pursue other related claims.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 05/12/94 Charles S. Boyd
Charles Scott Boyd,
President and CEO
Date: 05/12/94 C. Douglas Carpenter
Cecil Douglas Carpenter
Vice President, Principal Financial
and Accounting Officer
