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 June 30, 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 Identification No.)
incorporation or organization)
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 report) 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 August 12, 1994
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 3
Consolidated Statements of Income -
For the Six Months Ended
June 30, 1994 and June 30, 1993 4
Consolidated Statements of Cash Flows -
For the Six Months Ended
June 30, 1994 and June 30, 1993 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information
Item 1 - Legal Proceedings 14
Item 6(b) - Reports on Form 8-K 14
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(unaudited)
June 30, December 31,
1994 1993
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 47,685 $ 43,171
Federal Funds sold and securities
purchased under agreement to resell 48,513 54,613
Total cash and cash equivalents 96,198 97,784
Investment securities 184,528 188,866
Loans and lease financings 524,119 490,345
Less: Allowance for loan losses (8,980) (8,547)
Unearned income (10,126) (8,708)
Net loans and lease financings 505,013 473,090
Bank premises and equipment 20,037 20,504
Interest receivable 6,599 6,420
Other assets 6,646 7,605
TOTAL ASSETS $819,021 $794,269
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $107,055 $ 92,128
Interest bearing 574,090 566,111
Total deposits 681,145 658,239
Other borrowed funds 31,581 32,637
Dividends payable 1,160 1,160
Interest payable 1,405 1,475
Other liabilities 6,397 5,667
Total liabilities 721,688 699,178
SHAREHOLDERS' EQUITY
Common stock, par value $.25 per share
4,804,000 shares authorized; 3,866,382 shares
issued and outstanding at June 30, 1994 and
December 31, 1993 967 967
Capital surplus 9,094 9,094
Retained earnings 87,524 85,030
Unrealized net loss on securities
available for sale (252)
Total shareholders' equity 97,333 95,091
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $819,021 $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 Six Months Ended
June 30, June 30,
1994 1993 1994 1993
INTEREST INCOME
Interest and fees on loans $11,325 $10,691 $22,141 $21,241
Interest on investment securities:
Taxable 1,457 1,969 2,963 4,109
Nontaxable 590 346 1,130 628
Interest on deposits in other banks 2 12 25 19
Interest on federal funds sold and
securities purchased under
agreements to resell 489 542 958 1,242
Total interest income 13,863 13,560 27,217 27,239
INTEREST EXPENSE
Interest on deposits 4,795 5,210 9,562 10,744
Interest on federal funds purchased
and securities sold under agreements
to repurchase 253 199 490 395
Other 56 26 87 74
Total interest expense 5,104 5,435 10,139 11,213
Net interest income 8,759 8,125 17,078 16,026
Provision for loan losses 419 1,012 1,066 1,840
Net interest income after provision for
loan losses 8,340 7,113 16,012 14,186
NONINTEREST INCOME
Service charges and fees 990 1,092 1,931 2,141
Trust income 349 197 574 472
Investment securities gains (losses) (36) (75) 51
Other 2,039 1,365 3,407 2,748
Total noninterest income 3,342 2,654 5,837 5,412
NONINTEREST EXPENSE
Salaries and employee benefits 3,882 3,883 7,654 7,336
Occupancy expenses, net of rental
income 534 486 1,040 986
Equipment expense 610 647 1,266 1,341
Bank shares tax 269 237 529 472
FDIC insurance 374 396 749 791
Other 1,809 1,968 3,740 3,854
Total noninterest expense 7,478 7,617 14,978 14,780
Income before income taxes and
cumulative effect of change in
accounting principle 4,204 2,150 6,871 4,818
Income tax expense 1,260 621 2,058 1,406
Income before cumulative effect
of change in accounting principle 2,944 1,529 4,813 3,412
Cumulative effect of change in
accounting principle 380
NET INCOME $ 2,944 $ 1,529 $ 4,813 $ 3,792
Per common share:
Income before cumulative change
in accounting principle $0.76 $0.40 $1.24 $0.88
Cumulative effect of change in
accounting principle .10
Net income $0.76 $0.40 $1.24 $0.98
Dividends declared $0.30 $0.27 $0.60 $0.54
Weighted average shares outstanding 3,866 3,866 3,866 3,866
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(unaudited)
Six Months Ended
June 30,
1994 1993
Cash flows from operating activities
Net Income $ 4,813 $ 3,792
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,291 1,379
Net amortization of investment securities
premiums and discounts:
Available for sale 110
Held to maturity 158 542
Provision for loan losses 1,066 1,840
Deferred income tax (27) (309)
Loss (gain) on sale of fixed assets 5 (1)
Loss (gain) on sale of securities:
Available for sale 78
Held to maturity (3) (51)
Changes in:
Interest receivable (179) 197
Other assets 816 140
Interest payable (70) (241)
Other liabilities 730 1,531
Net cash provided by operating activities 8,788 8,819
Cash flows from investing activities
Proceeds from maturity of investment securities:
Available for sale 22,678
Held to maturity 19,457 40,255
Proceeds from sale of investment securities:
Available for sale 11,603
Held to maturity 8,998
Purchase of investment securities:
Available for sale (26,971)
Held to maturity (23,137) (60,425)
Net increase in loans (32,989) (5,900)
Purchase of bank premises and equipment (555) (792)
Proceeds from sale of equipment 10 16
Net cash used in investing activities (29,904) (17,848)
Cash flows from financing activities:
Net increase in deposits 22,906 3,101
Dividends paid (2,320) (2,088)
Net decrease in securities sold under
agreements to repurchase (1,056) (10,345)
Decrease in debt (3,775)
Net cash provided by (used in) financing activities 19,530 (13,107)
Net change in cash and cash equivalents (1,586) (22,136)
Cash and cash equivalents at beginning of year 97,784 166,001
Cash and cash equivalents at end of period $ 96,198 $143,865
Supplemental disclosures:
Cash paid during the year for:
Interest $ 10,445 $ 11,454
Income taxes 2,255 1,573
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 June 30, 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 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
Loan 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. 114
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 shall be
effective for fiscal years beginning after December 15, 1994. The impact on
the financial statements is not known at this time.
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 June 30, 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
June 30, 1994 (In thousands) Cost Gains Losses Value
U.S. Treasury $28,117 $27 $134 $28,010
Obligations of U.S. Government
agencies 45,670 0 275 45,395
Other securities 620 0 0 620
Total securities available for
sale $74,407 $27 $409 $74,025
Investment securities - held to maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
June 30, 1994 (In thousands) Cost Gains Losses Value
U.S. Treasury $ 38,608 $ 19 $ 500 $ 38,127
Obligations of U.S. Government
agencies 17,981 36 708 17,309
Obligations of states and
political subdivisions 49,892 652 1,091 49,454
Mortgage-backed securities 2,221 0 134 2,087
Other securities 1,801 2 26 1,777
Total securities held to
maturity $110,503 $ 709 $2,459 $108,754
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.
(In thousand) Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1993 Cost Gains Losses Value
U.S. Treasury $ 67,355 $ 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
5. NONRECURRING EVENT
Net income after taxes during the second quarter of 1994 was increased by
$503,000 due to a nonrecurring recovery of prior year lossed
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND QUARTER 1994 VS. SECOND QUARTER 1993
The Company reported earnings of $2.9 million, or $.76 per share, for the
second quarter of 1994 compared to $1.5 million, or $.40 per share one year
ago.
Net income after taxes during the second quarter of 1994 was increased by
$503,000, due to a nonrecurring recovery of prior year losses.
Return on average assets and return on average equity for the second quarter of
1994 was 1.42% and 12.22%, respectively, an increase from .75% and 6.75% for
the same period in 1993.
Net Interest Income
Net interest income totaled $8.8 million for the second quarter of 1994,
compared to 8.1 million one year ago. The net interest margin (net interest
income as a percentage of average earning assets), increased 4.99% compared to
4.74% a year ago while the spread between rates earned and paid increased to
4.46% from 4.22%
Asset Quality
The provision for loan losses decreased $593 thousand compared to the second
quarter of 1993, which is a reflection of the quality of the loan portfolio.
The Corporation had net charge-offs of $154 thousand during the quarter
compared to net charge-offs of $766 thousand during the same time period in
in 1993. Management continues to emphasize collection efforts and evaluation
of the risks within the portfolio.
Noninterest Income
Noninterest income of $3.3 million increased $688 thousand, or 25.9%, from the
second quarter of last year. Service charges on deposits decreased $102
thousand, or 9.3%. Trust fees increased $152 thousand, or 77.2%. The
Corporation had $36 thousand in investment losses during the quarter while
there were no gains or losses during the same period of 1993. Other income
increased $674 thousand as compared to the same time period in 1993. This
change is due principally to the nonrecurring recovery of prior year losses.
Noninterest Expense
Total noninterest expense decreased $139 thousand, or 1.8% from the second
quarter of last year. Salaries and benefits, the largest component, were
unchanged at $3.9 million. Occupancy expense, net of rental income, increased
$48 thousand, or 9.9%. FDIC insurance premiums decreased $22 thousand to $374
thousand. Taxes on bank shares increased $32 thousand to $269 thousand.
Other real estate expenses decreased $47 thousand, or 66.2%. This decrease is
due to the reduction in the amount of other real estate owned.
Income taxes
Income tax expense increased $639 thousand, over 100% from the same time period
last year. The change in income tax expense can be directly attributed to
the increase in income before taxes of $2 million, or 95.5%. The 1994
effective rate is 30% compared to 29% in 1993.
FIRST SIX MONTHS OF 1994
Net income for the six months was $4.8 million, or $1.24 per share compared
to $3.8 million, or $ .98 per share for the same time period in 1993.
Net income after taxes during the first six months of 1994 was increased by
$503 thousand, due to a nonrecurring recovery of prior year losses. Net
income for the first six months of 1993, was increased by $380 thousand due to
the adoption of SFAS 109 - Accounting for Income Taxes. Adjusting each year
for these items, net income would be $4.3 million, or $1.11 per share in 1994,
and $3.4 million, or $ .88 per share in 1993.
Return on average assets was 1.18%, an increase from .93% in 1993. Return on
average equity was 10.06%, an increase from 8.39% in 1993.
Net Interest Income
Net interest income for the first six months totalled $17.1million, compared
to $16.0 million last year. This increase can be attributed to a $1.1 million
decrease in interest expense. The net interest margin increased to 4.86%
compared to 4.64% in 1993. The spread between rates earned and paid increased
to 4.32% compared to 4.10% in 1993.
Asset Quality
The provision for loan losses declined $774 thousand, or 42%, as compared to
the first six months of 1993. The Corporation had net charge-offs of $634
thousand compared to $766 thousand for the first six months of 1993. The
allowance for loan losses was 1.75% of loans, net of unearned income, at June
30, 1994, a very small decline from 1.77% at year end. Management feels the
current reserve is adequate to cover future losses within the loan portfolio.
Noninterest Income
Noninterest income for the six months ended June 30, 1994 totalled $5.8 million
an increase of $425 thousand, or 7.9%, from the first six months of 1993. In
comparing the first six months of 1994 to the same period in 1993, service
charges decreased $210 thousand, or 9.8%, and trust fees increased $102
thousand, or 21.6%. The Corporation had $75 thousand in investment losses
during the first six months of 1994 compared to a net gain of $51 thousand
during the same period in 1993.
Noninterest Expense
Noninterest expense for the first six months of 1994 totalled $15.0 million an
increase of $198 thousand, or 1.3%. In comparing the first six months of 1994
to the same period is 1993, salary and employees benefits increased $318
thousand, or 4.3%, occupancy expense (net of rental income) increased $54
thousand, or 5.5%, FDIC insurance premiums decreased $42 thousand, or 5.3%,
taxes on bank shares increases $57 thousand, or 12.1%, and other real estate
expenses decreased $36 thousand, or 29.6%.
Income Taxes
Income tax expense for the first six months of 1994 increased $652 thousand, or
46.4%. The increase can be directly attributed to the increase in income before
taxes. The 1994 effective rate is 30% compared to 29% in 1993.
BALANCE SHEET REVIEW
Total assets were $819 million on June 30, 1994, an increase of $25 million or
3.1% from December 31, 1993. Assets averaged $817 million for the first six
months of 1994, an increase of less than 1% from year end 1993.
Loans
Loans, net of unearned income, increased $33 million or 6.7% from December 31,
1993 to $515 million. Average loans, net of unearned income, represented
66.8% of earning assets compared to 63.6% 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
$55 million, a decrease of $21 million, or 27.6%, from year end 1993. The
funds are being used to fund loans.
Investment Securities
Investment securities were $185 million on June 30, 1994, a decrease of $4
million, or 2.3%, from year end 1993. Available for sale and held to maturity
securities were $74 and $111 million, respectively. Investment securities
averaged $179 million for the six months ended June 30, 1994, an increase of
$8 million, or 4.7%, from year end 1993. Net unrealized losses after taxes
were $252 thousand on June 30, 1994.
Nonperforming assets
Other real estate owned decreased $691 thousand, or 59%, from year end 1993 to
$478 thousand on June 30, 1994. Total nonperforming assets were $10.2
million on June 30, 1994, an increase of $2.3 million from year end 1993.
The chart below shows the change in nonperforming assets by type:
June 30, December 31,
(In thousands) 1994 1993
Loans past due 90 days or more $ 2,476 $ 1,402
Non-accrual loans 2,861 1,565
Restructured loans 4,348 3,734
Other real estate owned 478 1,169
Total $10,163 $7,870
Nonperforming assets to total equity increased 230 basis points from year end
1993 to 10.44%. Nonperforming assets as a percentage of loans and other real
estate were 1.9% on June 30, 1994, an increase of 30 basis points from year
end 1993. While in the past three months total nonperforming assets have
increased $2.6 million, the performance over the past two years has been much
better. Since 1991 nonperforming assets have decreased $13 million and the
percentage of nonperforming assets to loans and other real estate has decreased
280 basis points. This trend is a result of management's continued efforts to
improve the quality of the loan portfolio. The Corporation's loan policy
includes strict guidelines for approving and monitoring loans. These efforts
have resulted in the declining trend of nonperforming assets over the past
three years. Management will continue these same efforts in the future.
Deposits
Total deposits increased $23 million, or 3.4%, from year end 1993 to $681
million. Deposits averaged $659 million, unchanged from year end 1993.
Borrowed Funds
Borrowed funds totaled $32 million, unchanged from year end 1993. Borrowed
funds averaged $37 million, an increase of $5 million or 15.6%.
Shareholder's Equity
Shareholders equity was $97 million on June 30, 1994, increasing $2.2 million
from year end 1993. Dividends of $2.4 million were declared during the first
six months of 1994.
The Corporation's capital ratios as of June 30, 1994 and the regulatory
minimums are as follows:
Farmers Capital Regulatory
Bank Corporation Minimum
Tier 1 risk based 16.53% 4.00%
Total risk based 17.78% 8.00%
Leverage 11.06% 3.00%
The capital ratios of all the subsidiary banks were in excess of the
applicable minimum regulatory capital ratio requirements at June 30, 1994.
Accounting Requirements
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.
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 1 - LEGAL PROCEEDINGS
The Registrant's Georgetown, Kentucky affiliate, Farmers Bank & Trust Company
(the "Bank") and the Bank's Executive Vice President, have been named
defendents in a civil action brought on August 1, 1994 by a loan customer of
the Bank in which the customer alleges (1) fraud, (2) breach of good faith
and fair dealing, (3) disclosure of false credit information and (4) outrageous
conduct. The amount in controversy for the first three counts is unspecified.
The amounts sought as punitive damages for outrageous conduct is $10,000,000.
The conduct complained about in counts one and two involves former officers of
the Bank and the Bank, at this time, lacks sufficient knowledge to accurately
asses its potential liability, if any, but has reason to believe that the
allegations are not true. The Bank believes there is no merit to the
allegations contained in counts three and four and intends to vigorously defend
all claims.
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
Commision to report that 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: 08/12/94 Charles S. Boyd
Charles Scott Boyd,
President and CEO
Date: 08/12/94 C. Douglas Carpenter
Cecil Douglas Carpenter
Vice President, Principal Financial
and Accounting Officer
