UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10Q A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 incorporation (I.R.S. Employer Identification
or organization) Number)
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 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 10, 1995
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 3
Consolidated Statements of Income -
For the Three Months and Six Months Ended
June 30, 1995 and June 30, 1994 4
Consolidated Statements of Cash Flows -
For the Six Months Ended
June 30, 1995 and June 30, 1994 5
Notes to the Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - Other Information
Item 1 - Legal Proceedings 13
Item 4 - Results of votes of security holders 13
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
(unaudited)
June 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 60,896 $ 56,304
Interest bearing deposits in other banks 4,232 577
Federal funds sold and securities purchased
under agreements to resell 35,575 43,670
Total cash and cash equivalents 100,703 100,551
Investment securities:
Available for sale 77,985 72,466
Held to maturity 114,529 120,477
Loans 555,339 544,566
Less: Allowance for loan losses (8,093) (8,889)
Unearned income (11,986) (11,376)
Loans, net 535,260 524,301
Bank premises and equipment 20,130 20,588
Interest receivable 7,490 6,778
Other assets 7,434 6,542
TOTAL ASSETS $ 863,531 $ 851,703
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 110,305 $ 104,615
Interest bearing 604,455 592,762
Total deposits 714,760 697,377
Other borrowed funds 40,131 47,710
Dividends payable 1,276 1,276
Interest payable 2,081 1,715
Other liabilities 3,817 3,561
Total liabilities 762,065 751,639
SHAREHOLDERS' EQUITY
Common stock par value $0.25 per share
4,804,000 shares authorized; 3,866,382
shares issued and outstanding at June 30,
1995 and December 31, 1994 967 967
Capital surplus 9,094 9,094
Retained earnings 92,504 90,524
Unrealized net loss on securities available
for sale (1,099) (521)
Total shareholders' equity 101,466 100,064
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $ 863,531 $ 851,703
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
INTEREST INCOME
Interest and fees on loans $ 13,313 $ 11,325 $ 26,203 $ 22,141
Interest on investment securities:
Taxable 2,011 1,457 3,802 2,963
Nontaxable 558 590 1,120 1,130
Interest on deposits in other banks 22 2 51 25
Interest on federal funds sold and
securities purchased under
agreements to resell 692 489 1,568 958
Total interest income 16,596 13,863 32,744 27,217
INTEREST EXPENSE
Interest on deposits 6,496 4,795 12,559 9,562
Interest on other borrowed funds 492 309 1,013 577
Total interest expense 6,988 5,104 13,572 10,139
Net interest income 9,608 8,759 19,172 17,078
Provision for loan losses 1,048 419 1,761 1,066
Net interest income after provision
for loan losses 8,560 8,340 17,411 16,012
NONINTEREST INCOME
Service charges and fees 1,180 990 2,271 1,931
Trust income 277 349 454 574
Investment gains (losses), net 1 (36) 1 (75)
Other 1,755 2,039 3,049 3,407
Total noninterest income 3,213 3,342 5,775 5,837
NONINTEREST EXPENSE
Salaries and employee benefits 4,068 3,882 8,152 7,654
Occupancy expenses, net 708 534 1,264 1,040
Equipment expenses 646 610 1,341 1,266
Bank shares tax 275 269 572 529
FDIC insurance 397 374 793 749
Other 2,573 1,809 4,602 3,740
Total noninterest expense 8,667 7,478 16,724 14,978
Income before income taxes 3,106 4,204 6,462 6,871
Income tax expense 920 1,260 1,930 2,058
NET INCOME $ 2,186 $ 2,944 $ 4,532 $ 4,813
Per common share:
Net income $ 0.57 $ 0.76 $ 1.17 $ 1.24
Dividends declared $ 0.33 $ 0.30 $ 0.66 $ 0.60
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 except per share data)
(unaudited)
Six Months Ended
June 30,
1995 1994
Cash flows from operating activities
Net income $ 4,532 $ 4,813
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,331 1,291
Net amortization of investment securities
premiums and discounts:
Available for sale (415) 110
Held to maturity 136 158
Provision for loan losses 1,761 1,066
Deferred income tax (1) (27)
Gain on sale of fixed assets (1) 5
Loss (gain) on sale of securities:
Available for sale 78
Held to maturity (1) (3)
Changes in:
Interest receivable (712) (179)
Other assets (869) 816
Interest payable 366 (70)
Other liabilities 256 730
Net cash provided by operating activities 6,383 8,788
Cash flows from investing activities
Proceeds from maturity of investment
securities:
Available for sale 45,727 22,678
Held to maturity 27,842 19,457
Proceeds from sale of available for sale
investment securities 11,603
Purchase of investment securities:
Available for sale (51,708) (26,971)
Held to maturity (22,028) (23,137)
Net increase in loans (12,720) (32,989)
Purchase of bank premises and equipment (597) (555)
Proceeds from sale of equipment 1 10
Net cash used in investing activities (13,483) (29,904)
Cash flows from financing activities
Net increase in deposits 17,383 22,906
Dividends paid (2,552) (2,320)
Net decrease in other borrowed funds (7,579) (1,056)
Net cash provided by financing activities 7,252 19,530
Net change in cash and cash equivalents 152 (1,586)
Cash and cash equivalents at beginning
of year 100,551 97,784
Cash and cash equivalents at end of period $ 100,703 $ 96,198
Supplemental disclosures:
Cash paid during the year for:
Interest $ 13,206 $ 10,445
Income taxes 2,036 2,255
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 periods ended June 30, 1995 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995. 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, 1994.
NOTE 2 - EFFECT OF IMPLEMENTING SFAS NO. 122
In May 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 122 "Accounting for Mortgage Servicing Rights". This Statement amends
FASB Statement No. 65, "Accounting for Certain Mortgage Banking Activities",
to require that a mortgage banking enterprise recognize as separate assets
rights to service mortgage loans for others, however those servicing rights
are acquired. The total cost of the mortgage loans should be allocated
between the mortgage servicing rights and the loans based on their relative
fair values if it is practicable to estimate those fair values. If not, the
entire cost should be allocated to the mortgage loans.
This Statement applies prospectively in fiscal years beginning after December
15, 1995. The Company does not expect the implementation of this Statement
to have a material affect on the financial statements.
NOTE 3 - NONRECCURRING EVENT
Net income after taxes during the second quarter of 1994 was increased by
$503,000 due to a nonrecurring recovery of prior year losses.
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter 1995 vs. Second Quarter 1994
The Company reported earnings of $2.2 million, or $0.57 per share, for the
second quarter of 1995 compared to $2.9 million, or $0.76 per share one year
ago.
During the second quarter of 1994, net income after taxes 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 1995 were 1.00% and 8.66%, respectively, compared to 1.18% and 10.13% for
the same period in 1994 after adjusting for the nonrecurring recovery.
Net Interest Income
Net interest income totaled $9.6 million, compared to $8.8 million for the
second quarter of 1994. The net interest margin (net interest income as a
percentage of average earning assets), increased to 5.18% compared to 4.99%
for 1994 while the spread between rates earned and paid remained at 4.46%.
Asset Quality
The provision for loan losses increased $629 thousand compared to the second
quarter of 1994. The Company had net charge-offs of $2.0 million compared to
$154 thousand last year. Management feels the current reserve is adequate to
cover any potential future losses within the loan portfolio. Management also
continues to emphasize collection efforts and evaluation of risks within the
portfolio.
Noninterest Income
Noninterest income of $3.2 million was up $482 thousand above last year's
figure adjusted for the nonrecurring recovery. Service charges or deposits
increased $190 thousand, or 19.2% to $1.2 million. Trust fees decreased $72
thousand, or 20.6% to $277 thousand. Investment gains were inconsequential
in both years.
Noninterest Expense
Total noninterest expense increased $1.2 million, or 15.9% from the second
quarter of 1994 to $8.7 million. Salaries and benefits, the largest
component of noninterest expense, increased $186 thousand, or 4.8%. A large
increase in health insurance premiums was a factor. Occupancy expense
increased $174 thousand or 32.6%. Equipment expense increased $36 thousand,
or 5.9%. Bankshares tax increased $6 thousand or 2.2%. FDIC insurance
expense increased $23 thousand or 6.1%.
Income Taxes
Income tax expense decreased $340 thousand, or 27.0% from the second quarter
of 1994. The change in income tax expense can be directly attributed to the
decline in income before taxes. The effective tax rate was 30% for both time
periods.
First Six Months of 1995
Net income for the six months was $4.5 million, or $1.17 per share compared
to $4.8 million, or $1.24 for the same period in 1994. After adjusting for
the nonrecurring recovery, net income is up $222 thousand or 5.2%.
The return on average assets was 1.05% compared to 1.06% for the same period
in 1994 after adjusting for the nonrecurring recovery. The return on equity
was unchanged at 9.08%.
Net Interest Income
Net interest income for the first six months totaled $19.2 million, compared
to $17.1 million last year. Interest and fees on loans is up $4.1 million,
or 18.3%. Interest on taxable securities is up $839 thousand, or 28.3%.
Interest on nontaxable securities is unchanged at $1.1 million. Interest on
short term investments is up $610 thousand, or 63.7%
Interest expense on deposits is up $3.0 million, or 31.3%. Interest expense
on short term borrowings is up $436 thousand, or 75.6%.
The net interest margin increased to 5.16% from 4.88% for the first six
months in 1994. The spread increased to 4.44% from 4.34%.
Asset Quality
The provision for loan losses increased $695 thousand, or 65.2%, compared to
1994. The Company had net charge-offs of $2.6 million compared to $634
thousand in the prior year. The allowance for loan losses was 1.49% of net
loans, down from 1.69% at the end of the second quarter of 1994. Management
feels the current reserve is adequate to cover any potential future losses
within the loan portfolio. Management also continues to emphasize collection
efforts and evaluation of risks within the portfolio.
Several loans to one borrower (an entity controlled by relatives of a
director), totaling $976 thousand were charged off during the second quarter
of 1995. Remaining loans with this borrower have been addressed in
determining the current amount of reserve necessary to cover potential future
losses.
The second quarter charge offs also includes $642 thousand of consumer
installment loans. The Company is in the process of revaluating policies and
regulations with respect to the consumer loan portfolio.
Management believes the current reserve is adequate to cover any potential
future losses within the loan portfolio.
Noninterest Income
Noninterest income for the six months ended June 30, 1995 totaled $5.8
million, up $549 thousand from the first six months of 1994 after adjusting
for the nonrecurring recovery. Service charges increased $340 thousand, or
17.6%. Trust income was down $120 thousand, or 20.9%.
Noninterest Expense
Noninterest expense for the first half of 1995 was $16.7 million, up $1.7
million, or 11.7% rom last year. Salaries and benefits were up $498
thousand, or 6.5%. A large increase in health insurance premiums was a
factor. Occupancy expense was up $224 thousand, or 21.5%. Equipment expense
was up $75 thousand, or 5.9%. Bank shares tax increased $43 thousand, or
8.1%. FDIC insurance increased $44 thousand, or 5.9%.
Income Taxes
Income taxes decreased $128 thousand, or 6.2% from last year and totaled $1.9
million. The effective tax rate was unchanged at 30%.
Financial Condition
Total assets were $866 million on June 30, 1995, an increase of $14 million,
or 1.6% from December 31, 1994. Assets averaged $871 million for the first
six months of 1995, an increase of $19 million, or 2.3% from 1994.
Loans
Net loans increased $11 million, or 2.1% from December 31, 1994 to $535
million. The loan growth can be primarily attributed to real estate loans.
On average, loans represented 69.3% of earning assets compared to 68.7% for
1994.
Temporary Investments
Federal funds sold and securities purchased under agreements to resell
averaged $54 million, relatively unchanged from 1994.
Investment Securities
Investment securities were $193 million on June 30, 1995, unchanged from
year-end 1994. Available for sale and held to maturity securities were $78
million and $115 million respectively. Investment securities averaged $184
million for the first six months, an increase of $7 million, or 3.9%, from
the 1994 average. Net unrealized losses after tax on securities available
for sale was $1.1 million on June 30, 1995, as compared to $521 thousand on
December 31, 1994. The Company has the capability to hold these securities
to maturity and should therefore not realize any loss of principal.
Nonperforming Assets
Nonperforming assets totaled $6.3 million on June 30, 1995, down $2.6
million, or 29.3%, from year-end 1994. Nonperforming assets to total equity
declined to 6.2% from 8.9%. Nonperforming assets as a percentage of loans and
other real estate was 1.1%, down from 1.7% at year-end.
Nonaccrual loans were $2.0 million, down from $3.9 million from year-end.
This decline in nonaccrual loans is due to charge-offs of $1.0 million and
transferring $1.0 million to other real estate. Loans 90 past due increased
to $1.9 million from $1.1 million. Restructured loans were $1.3 million,
down from $3.5 million. Other real estate owned increased to $1.1 million at
June 30, 1995, up from $380 thousand at year-end 1994.
Deposits
Total deposits increased $17 million, or 2.5%, from year-end to $715 million.
Deposits averaged $691 million during the first six months of 1995. The
increase can be primarily attributed to growth in certificates of deposit
less than $100,000.
Borrowed Funds
Borrowed funds totaled $40.1 million, a decrease of $7.6 million, or 15.9%
from year-end 1994. Borrowed funds averaged $35 million.
Shareholders' Equity
Shareholders' equity was $101 million on June 30, 1995, increasing $1.4
million from year- end. Dividends of $2.6 million were declared during the
first six months of 1995.
The Company's ratios as of June 30, 1995 and the regulatory minimums are as
follows:
Farmers Capital Regulatory
Bank Corporation Minimum
Tier 1 risk based 17.73% 4.00%
Total risk based 18.98% 8.00%
Leverage 11.61% 3.00%
The capital ratios of all the subsidiary banks, on an individual basis, were
in excess of the applicable minimum regulatory capital ratio requirements at
June 30, 1995.
Accounting requirements
In May 1995, the Financial Accounting Standards Board issued SFAS No. 122
"Accounting for Mortgage Servicing Rights". This Statement amends FASB
Statement No. 65, "Accounting for Certain Mortgage Banking Activities", to
require that a mortgage banking enterprise recognize as separate assets
rights to service mortgage loans for others, however those servicing rights
are acquired. The total cost of the mortgage loans should be allocated
between the mortgage servicing rights and the loans based on their relative
fair values if it is practicable to estimate those fair values. If not, the
entire cost should be allocated to the mortgage loans.
This Statement applies prospectively in fiscal years beginning after December
15, 1995. The Company does not expect the implementation of this Statement
to have a material affect on the financial statements.
Liquidity
The liquidity of the Company is somewhat 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 Company during the remainder of 1995.
The Company'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 purchased
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
ITEM 1 - LEGAL PROCEEDINGS
There have been no significant changes in contingencies or commitments,
including pending litigation to report at this time.
ITEM 4 - RESULTS OF VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held May 9, 1995.
The matters that were voted upon included:
A. The election of four directors for three-year terms ending 1998, or until
their successors have been elected and qualified.
B. The ratification of the appointment of Coopers & Lybrand as independent
accountants for the Corporation and its subsidiaries for the calendar year
1995.
The outcome of the voting is as follows:
Name For Against Withheld Abstained
Warner U. Hines 3,113,967 0 0 752,415
John J. Hopkins 3,113,534 0 433 752,415
Dr. John P. Stewart 3,113,967 0 0 752,415
William R. Sykes 3,113,967 0 0 752,415
Ratification of the
appointment of Coopers
& Lybrand, LLP 2,938,129 169,448 0 758,805
Listed below is the name of each director whose term of office continued
after the meeting:
Dr. John P. Stewart Warner U. Hines
Charles S. Boyd John J. Hopkins
E. Bruce Dungan Dr. John D. Sutterlin
William R. Sykes Joseph C. Yagel, Jr.
Michael M. Sullivan Charles O. Bush
In addition to the directors above, Frank Sower and Charles T. Mitchell
serve as Advisory Directors for the Corporation.
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: 10/03/95 /s/ Charles S. Boyd
Charles Scott Boyd
President and CEO (Principal
Executive Officer)
Date: 10/03/95 /s/ C. Douglas Carpenter
Cecil Douglas Carpenter
Vice President and CFO
(Principal Financial and
Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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This schedule contains summary financial information extracted from
June 30, 1995 financial statements and is qualified in its entirety
by reference to such financial statements.
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