SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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
or organization) Identification Number)
P.O. Box 309, 201 West Main St.
Frankfort, Kentucky 40601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502)227-1600
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.25 per share Par Value
(Title of Class)
Indicate by check mark if 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.
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
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 1, 1995 was $137,256,561.
As of March 1, 1995, there were 3,866,382 shares issued and outstanding.
Documents incorporated by reference:
Proxy Statement for the annual meeting of shareholders scheduled to be
held May 9, 1995 - portions of which are incorporated by reference in
Part III.
An index of exhibits filed with this Form 10-K can be found on page 53.
FARMERS CAPITAL BANK CORPORATION
FORM 10-K
INDEX
Page
Part I
Item 1 - Business 4
Item 2 - Properties 9
Item 3 - Legal Proceedings 10
Item 4 - Submission of Matters to a Vote of
Security Holders 12
Part II
Item 5 - Market for Registrant's Common Stock
and Related Shareholder Matters 13
Item 6 - Selected Financial Data 14
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
Item 8 - Financial Statements and Supplementary
Data 30
Item 9 - Changes in and Disagreements With
Accountants on Accounting Issues
and Financial Disclosure 49
Part III
Item 10 - Directors and Executive Officers of
the Registrant 50
Item 11 - Executive Compensation 50
Item 12 - Security Ownership of Certain
Beneficial Owners and Management 50
Item 13 - Certain Relationships and Related
Transactions 50
Part IV
Item 14 - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 51
Signatures 52
Index of Exhibits 53
PART I
Item 1 - Business
Organization
Farmers Capital Bank Corporation ("the Registrant") is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, and was
organized on October 28, 1982, under the laws of the Commonwealth of
Kentucky. Its subsidiaries provide a wide range of banking and bank-related
services to customers throughout Kentucky. The bank subsidiaries owned by
the Registrant are Farmers Bank & Capital Trust Company ("Farmers Bank"),
Frankfort, Kentucky; United Bank & Trust Co. ("United Bank"), Versailles,
Kentucky; Lawrenceburg National Bank ("Lawrenceburg Bank"), Lawrenceburg,
Kentucky; First Citizens Bank, Hardin County, Incorporated ("First Citizens
Bank"), Elizabethtown, Kentucky; Farmers Bank and Trust Company ("Farmers
Georgetown Bank"), Georgetown, Kentucky; and Horse Cave State Bank ("Horse
Cave Bank"), Horse Cave Kentucky. The Registrant also owns two non-bank
subsidiaries; FCB Services, Inc. ("FCB Services"), Frankfort, Kentucky and
Farmers Capital Insurance Company ("Farmers Insurance"), Frankfort, Kentucky.
As of December 31, 1994, the Registrant has $852 million in consolidated
assets.
Farmers Bank, originally organized in 1850, is a state chartered bank engaged
in a wide range of commercial and personal banking activities, which include
accepting savings, time and demand deposits; making secured and unsecured
loans to corporations, individuals and others; providing cash management
services to corporate and individual customers; issuing letters of credit;
renting safe deposit boxes; and providing funds transfer services. The
bank's lending activities include making commercial, construction, mortgage
and personal loans and lines of credit. The bank serves as an agent in
providing credit card loans. It acts as trustee of personal trusts, as
executor of estates, as trustee for employee benefit trusts, as registrar,
transfer agent and paying agent for bond issues. Farmers Bank also acts as
registrar, transfer agent and paying agent for the Registrant's stock issue.
Farmers Bank is the general depository for the Commonwealth of Kentucky and
has been for more than 70 years.
Farmers Bank is the largest bank in Franklin County. It conducts business in
its principal office and four branches within Frankfort, the capital of
Kentucky. Franklin County is a diverse community, including government,
commerce, finance, industry, medicine, education and agriculture. The bank
also serves many individuals and corporations throughout Central Kentucky.
On December 31, 1994, it had total assets of $403 million, including loans of
$248 million. On the same date, total deposits were $317 million and
shareholders' equity totaled $37 million.
Farmers Bank has four subsidiaries: Farmers Bank Realty Company ("Realty");
Money One Credit of Kentucky, Inc. ("Money One"); Farmers Financial Services
Corporation ("FFSC"); and Leasing One Corporation ("Leasing One"). Farmers
Bank, Realty and Money One, Inc. own a partnership - Money One Credit
Company ("MOCC"). Farmers Bank also participates in a joint venture -
Frankfort ATM, Ltd. ("ATM").
Realty was incorporated in 1978 for the purpose of owning certain real estate
used by the Registrant and Farmers Bank in the ordinary course of business.
Realty had total assets of $3.7 million on December 31, 1994.
Money One was incorporated in 1989 and until January 1, 1993, was a direct
subsidiary of the Registrant. It manages the consumer finance company, MOCC.
At December 31, 1994 it had $1.6 million in assets.
MOCC was established on June 1, 1994. It is a partnership engaged in
consumer lending activities under Chapter 288 of the Kentucky Revised
Statutes. As stated earlier, the partners include Farmers Bank, Realty and
Money One. MOCC has fourteen offices throughout Kentucky. At December 31,
1994 it had total assets of $19.0 million.
FFSC was incorporated in 1985 in order to enter into a partnership with
several other banks to form a statewide electronic network. The partnership,
known as "Transaction Services Company", supports an automated teller machine
network (Quest) with machines throughout Kentucky and Indiana as well as
point-of-sale terminals in retail stores. The company has joined a national
network known as "CIRRUS", which supports automated teller machines across
the United States and Canada. It is also a member of the VISA global network
in which its VISA cardholders can use ATMs internationally.
Leasing One was incorporated in August, 1993 to operate as a commercial
equipment leasing company. It is located in Frankfort, but conducts business
in Ohio, Indiana, Tennessee and Kentucky. At year end it had total assets of
$10.3 million.
Farmers bank has a 50% interest in ATM, a joint venture for the purpose of
ownership of automatic teller machines in the Frankfort area. State National
Bank, a Frankfort bank not otherwise associated with the Registrant, also has
a 50% interest in ATM.
On February 15, 1985, the Registrant acquired United Bank, a state chartered
bank originally organized in 1880. It is engaged in a general banking
business providing full service banking to individuals, businesses and
governmental customers. It conducts business in its principal office and two
branches in Woodford County, Kentucky. United Bank is the second largest
bank in Woodford County with total assets of $98 million and total deposits
of $89 million at December 31, 1994.
On June 28, 1985, the Registrant acquired Lawrenceburg Bank, a national
chartered bank originally organized in 1885. It is engaged in a general
banking business providing full service banking to individuals, businesses
and governmental customers. It conducts business in its principal office and
one branch in Anderson County, Kentucky. Lawrenceburg Bank is the largest
bank in Anderson County with total assets of $86 million and total deposits
of $79 million at December 31, 1994.
On March 31, 1986, the Registrant acquired First Citizens Bank, a state
chartered bank originally organized in 1964. It is engaged in a general
banking business providing full service banking to individuals, businesses
and governmental customers. It conducts business in its principal office and
four branches in Hardin County, Kentucky. First Citizens Bank is the largest
bank in Hardin County with total assets of $98 million and total deposits of
$82 million at December 31, 1994.
On June 30, 1986, the Registrant acquired Farmers Georgetown Bank, a state
chartered bank originally organized in 1850. It is engaged in a general
banking business providing full service banking to individuals,
businesses and governmental customers. It conducts business in its principal
office and three branches in Scott County, Kentucky. Farmers Georgetown Bank
is the largest bank in Scott County with total assets of $106 million and
total deposits of $95 million at December 31, 1994.
On June 15, 1987, the Registrant acquired Horse Cave Bank, a state chartered
bank originally organized in 1926. It is engaged in a general banking
business providing full service banking to individuals, businesses and
governmental customers. It conducts business in its principal office and
one branch in Hart County, Kentucky. Horse Cave Bank is the largest bank in
Hart County with total assets of $68 million and total deposits of $59
million at December 31, 1994.
Subsidiary banks make first and second residential mortgages secured by the
real estate not exceeding 90% loan to value. Commercial real estate loans
are made in the low to moderate range, secured by the real estate not
exceeding 80% loan to value. Other commercial loans are asset based loans
secured by equipment and lines of credit secured by receivables. Secured and
unsecured consumer loans generally are made for automobiles and other motor
vehicles. In most cases loans are restricted to the subsidiaries' general
market area.
The consumer finance subsidiary makes secured and unsecured installment loans
for various purposes. The leasing subsidiary makes secured equipment leases
to commercial and municipal entities in Kentucky, Indiana, Ohio and Tennessee.
FCB Services, organized in 1992, provides data processing services and
support for the Registrant and its subsidiaries. It is located in Frankfort,
Kentucky. During 1994, FCB Services began performing data processing
services for nonaffiliated banks.
Farmers Insurance was organized in 1988 to engage in insurance activities
permitted to the Registrant by federal and state law. This corporation has had
no activity to date.
Supervision and Regulation
The Registrant, as a registered bank holding company, is restricted to those
activities permissible under the Bank Holding Company Act of 1956, as
amended, and is subject to actions of the Board of Governors of the Federal
Reserve System thereunder. It is required to file various reports with
the Federal Reserve Board, and is subject to examination by the Board.
The Registrant's state bank subsidiaries are subject to state banking law and
to regulation and periodic examinations by the Kentucky Department of
Financial Institutions. Lawrenceburg Bank, a national bank, is subject to
similar regulation and supervision by the Comptroller of the Currency under
the National Bank Act and the Federal Reserve System under the Federal
Reserve Act.
Deposits of the Registrant's subsidiary banks are insured by the Federal
Deposit Insurance Corporation Bank Insurance Fund, which subjects the banks
to regulation and examination under the provisions of the Federal Deposit
Insurance Act.
The operations of the Registrant and its subsidiary banks also are affected
by other banking legislation and policies and practices of various regulatory
authorities. Such legislation and policies include statutory maximum rates
on some loans, reserve requirements, domestic monetary and fiscal policy,
and limitations on the kinds of services which may be offered.
The Bank Holding Company Act currently prohibits the Federal Reserve Board
from approving an application from a bank holding company to acquire shares
of another bank across its own state lines. However, effective September 1995,
new legislation will abolish these restrictions and allow bank holding
companies to acquire shares of out of state banks, subject to certain
conditions. Currently, the Company has no plans to purchase shares of an
out of state bank.
The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides
that a holding company's controlled insured depository institutions are
liable for any loss incurred by the Federal Deposit Insurance Corporation in
connection with the default of or any FDIC assisted transaction involving
an affiliated insured bank.
Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
the FDIC was required to establish a risk-based assessment system for insured
depository institutions which became effective January 1, 1994. The FDIC has
adopted a risk-based deposit insurance assessment system under which the
assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution by the FDIC which
is determined by the institution's capital level.
Under FDICIA, the federal banking regulators are required to take prompt
corrective action if an institution fails to satisfy certain minimum capital
requirements, including a leverage limit, a risk-based capital requirement,
and any other measure deemed appropriate by the federal banking regulators
for measuring the capital adequacy of an insured depository institution.
All institutions, regardless of their capital levels, are restricted from
making any capital distribution or paying any management fees that would cause
the institution to become undercapitalized.
Legislation has been introduced into the U.S. Congress which would subject
all unitary holding companies to the same restrictions on activities as are
currently applied to multiple holding companies. If such legislation is
enacted in its current form, the ability of the Company to engage in certain
activities that are currently permitted to a unitary holding company may be
restricted. Since the Company does not and has no current plans to, engage
in any business activity impermissible for a multiple holding company, such
egislation would not require the Company to discontinue any current activity.
In addition, such legislation would preclude companies that are engaged in
activities not permitted to multiple holding companies from acquiring control
of the Company. No prediction can be made at this time as to whether such
legislation will be enacted or whether it will be enacted in its current form.
The purpose of the Community Reinvestment Act (CRA) is to encourage banks to
respond to the credit needs of the communities they serve, including low and
moderate income neighborhoods CRA states that banks should accomplish this
while still preserving the flexibility needed for safe and sound operations.
It is designed to increase the bank's sensitivityv to investment opportunities
which will benefit the community. Of the Company's six subsidiary banks, four
have an outstanding CRA rating and two have a satisfactory rating.
Competition
The Corporation and its subsidiaries compete for banking business with
various types of businesses other than commercial banks and savings and loan
associations. These include, but are not limited to, credit unions, mortgage
lenders, finance companies, insurance companies, stock and bond brokers,
financial planning firms, and department stores which compete for one or more
lines of banking business. The banks also compete for commercial and retail
business not only with banks in Central Kentucky, but with banking
organizations from Ohio, Indiana, Tennessee and Pennsylvania which have banking
subsidiaries located in Kentucky and may possess greater resources than
the Corporation.
The primary areas of competition pertain to quality of services, interest
rates and fees.
The business of the Registrant is not dependent upon any one customer or on a
few customers, and the loss of any one or a few customers would not have a
materially adverse effect on the Registrant.
No material portion of the business of the Registrant is seasonal. No
material portion of the business of the Registrant is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the government, though certain contracts are subject to such
renegotiation or termination.
The Registrant is not engaged in operations in foreign countries.
Employees
As of December 31, 1994, the Registrant and its subsidiaries had 492 full-
time equivalent employees. Employees are provided with a variety of employee
benefits. A retirement plan, a profit-sharing (401K) plan, group life
insurance, hospitalization, dental and major medical insurance are available
to eligible personnel. The employees are not represented by a union.
Management and employee relations are good.
Item 2 - Properties
All of the Registrant's properties are owned or leased by the Banks or their
subsidiaries.
Farmers Bank and its subsidiary, Realty, currently own or lease nine
buildings. Farmers Bank operates five branches, two of which it owns and
three of which it leases. United Bank owns its two branch offices and
approximately 52% of a condominiumized building which houses its main office.
Lawrenceburg Bank owns its main office and its branch office. First Citizens
Bank owns its main office and two of its four branches. The other two branch
locations of First Citizens Bank are leased facilities, one of which being
located in a grocery store. Farmers Georgetown Bank owns its main office,
another branch in downtown Georgetown and one in Stamping Ground, Kentucky.
Farmers Georgetown Bank's third branch is located in a leased facility.
Horse Cave Bank owns the building where it is headquartered. In the first
quarter of 1991, Horse Cave Bank opened a branch in leased facilities in
Munfordville, Kentucky.
Money One operates out of fourteen leased offices in fourteen cities within
Kentucky.
<PAGE>
Item 3 - Legal Proceedings
Farmers was named, on September 10, 1992, as a defendant in Case No.
92CI05734 in Jefferson Circuit Court, Louisville, Kentucky, Earl H. Shilling
et al. v. Farmers Bank & Capital Trust Company. The named plaintiffs purported
to represent a class consisting of all present and former owners of the
County of Jefferson, Kentucky Nursing Home Refunding Revenue Bonds (Filson
Care Home Project) Series 1986A (the "Series A Bonds") and County of Jefferson,
Kentucky Nursing Home Improvement Bonds (Filson Care Home Project) Series
1986B (the "Series B Bonds") (collectively the "Bonds"). The plaintiffs
alleged that the class which they purported to represent has been damaged
in the approximate amount of $2,000,000 through the reduction in value of the
Bonds and the collateral security therefore, and through the loss of interest
on the Bonds since June 1, 1989, as a result of alleged negligence, breach
of trust, and breach of fiduciary duty on the part of Farmers Bank in its
capacity as indenture trustee for the Bonds. A subsequent amendment to the
complaint further alleges that Farmers Bank conspired with and aided and
abetted the former management of the Filson Care Home in its misappropriation
of the nursing home's revenues and assets to the detriment of the Bondholders
and in order to unlawfully secure and benefit Farmers Bank. The amendment
seeks unspecified punitive damages against Farmers Bank. On July 6, 1993,
the Circuit Court denied the plaintiff's motion to certify the case as a class
action on behalf of all present and former owners of the Bonds. Under that
ruling, the action may be maintained only with respect to the individual
claims of the named plaintiffs and any other Bondholders whom the court might
allow to join in the action with respect to their own individual claims.
Since the denial of class certifications, the complaint has been amended twice
to join additional Bondholders as plaintiffs. The 42 existing plaintiffs claim
to hold Bonds having an aggregate face value of $470,000. The case is
presently in the process of discovery. Farmers Bank believes that the claims
of the plaintiffs are unfounded and totally without merit, and Farmers Bank
intends to vigorously contest any further proceedings in the case.
Two of the original named plaintiffs in the case before the Circuit Court
filed a similar action, Earl H. Schilling et al v. Farmers Bank & Capital Trust
Company, on July 7, 1992 in the United State District Court for the Western
District of Kentucky at Louisville, Case No. C-920399 L-M. That action has
been dismissed without prejudice on the grounds that the plaintiffs did not
appear to be able to establish federal jurisdiction.
First Citizens Bank, is defending certain counterclaims arising from an
action it filed July 17, 1989 against Owen Produce, Inc., Charles E. Owen
and Carol Ann Owen, which alleged default on two notes executed by Owen
Produce. Charles E. Owen and Carol Ann Owen were personal guarantors on those
notes which were also secured by property of Owen Produce, Inc. and the
personal residence of the Owens. Owen Produce filed for bankruptcy in the
United States Bankruptcy Court for the Western District of Kentucky.
Counterclaims in the nature of lender liability claims were asserted by Owen
Produce as well as Charles E. Owen and Carol Ann Owen, personally. During the
bankruptcy proceeding a settlement was reached with the bankruptcy trustee which
resulted in a dismissal of the lender liability counterclaims of Owen Produce
against First Citizens Bank. The suit is pending in Hardin Circuit Court,
Elizabethtown, Kentucky.
The litigation has had significant activity in 1993 and 1994 in the area of
discovery and trial preparation. Pretrial discovery deposition of witnesses
are complete. The case is scheduled for trial in July 1995.
The lender liability of Charles E. Owen is based primarily on an allegation
of breach of duty of good faith and is for Owen's loss of employment and loss
of future business income as well as a claim for the tort of outrage under
Kentucky law. Mr. Owen has not been able to state with any certainty the
amount which he is claiming on his counterclaim.
The claim of Carol Ann Owen is based primarily on the breach of promise to
release her and her real estate from the indebtedness and mortgage to First
Citizens Bank. Based upon her testimony she is seeking compensatory damages
in the approximate amount of $60,000 but is also seeking punitive damage in a
sum which she is unable to articulate. In her testimony she has stated that no
one at First Citizens Bank told her that she would be released.
There does not presently appear to be any reasonable prospect of settling the
claims and it appears likely that the action will go to trial. First Citizens
Bank intends to vigorously defend against the claims.
The Registrant's Georgetown, Kentucky affiliate, Farmers Georgetown Bank and
their Executive Vice President, have been named defendants 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 suit is pending in Scott
County Circuit Court, Georgetown, Kentucky.
The conduct complained about in counts one and two involves former officers
of Farmers Georgetown Bank and Farmers Georgetown Bank, at this time, lacks
sufficient knowledge to accurately assess its potential liability, if any,
but has reason to believe that the allegations are not true. Farmers
Georgetown Bank believes there is no merit to the allegations contained in
counts three and four and intends to vigorously defend all claims.
Management believes the previously mentioned actions are without merit, that
in certain instances its actions or omissions were pursuant to the advice of
counsel, or that the ultimate liability, if any, resulting from one or more
of the claims will not materially affect the Registrant's consolidated financial
position, although resolution in any year or quarter could be material for
that period.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
Item 5 - Market for Registrant's Common Stock and Related Shareholders' Matters
The Registrant's stock is traded in the National Association of Security
Dealers Automated Quotation System (NASDAQ) National Market System and the sales
prices shown below are as reported by the National Association of Securities
Dealers under the NASDAQ symbol: FFKT. The amount of dividends per share
declared by the Registrant during the last two calendar years is also
included below:
Dividends
Stock Prices High Low Declared
4th Quarter, 1994 $40.50 $36.50 $0.33
3rd Quarter, 1994 41.00 36.88 0.30
2nd Quarter, 1994 43.00 37.00 0.30
1st Quarter, 1994 39.50 33.00 0.30
4th Quarter, 1993 34.75 31.50 0.30
3rd Quarter, 1993 33.00 26.50 0.27
2nd Quarter, 1993 29.00 26.50 0.27
1st Quarter, 1993 29.00 26.50 0.27
As of March 1, 1995, there were 811 shareholders of record. This figure does
not include individual participants in security position listings.
Payment of dividends by the Registrant's subsidiary banks is subject to
certain regulatory restrictions as set forth in national and state banking laws
and regulations. At December 31, 1994, combined retained earnings of the
subsidiary banks were approximately $35,017,000 of which $1,880,000 was
available for the payment of dividends in 1995 without obtaining prior approval
from bank regulatory agencies.
Stock Transfer Agent and Registrar:
Farmers Bank & Capital Trust Co.
P.O. Box 309
Frankfort, Kentucky 40602
The Registrant offers shareholders automatic reinvestment of dividends in
shares of stock at the market price without fees or commissions. For a
description of the plan and an authorization card, contact the Registrar above.
NASDAQ Market Makers:
J.J.B. Hilliard, W.L. Lyons, Inc. Robinson-Humphrey Co.
Phone: 502/588-8400 or Phone: 404/266-6274 or
800/444-1854 800/241-0478
J.C. Bradford and Co., Inc. PaineWebber Incorporated
Louisville 502/589-7760 or Phone: 800/222-1448
800/752-6093
Lexington 606/255-7353 or
800/522-7353
Item 6 - Selected Financial Highlights
December 31
(In thousands, except per share and percent data)
1994 1993 1992 1991 1990
Net interest income $ 36,164 $ 32,844 $ 32,338 $ 28,869 $ 29,295
Net income 10,250 10,804 6,317 4,261 1,501
Net income per share 2.65 2.79 1.63 1.10 0.39
Total assets 851,703 794,269 820,991 926,248 822,724
Long term debt 4,865 2,695 159 None 2,550
Dividends declared per share 1.23 1.11 1.08 1.08 1.08
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Significant Events
During the second quarter of 1994, the Company realized a nonrecurring
recovery of prior year losses. This recovery increased net income after
taxes by $503 thousand.
During 1991, First Citizens Bank, Hardin County (the "Bank"), a subsidiary of
the Company, filed a bond claim for $6.8 million 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 $5.3 million ($3.5 million after tax)
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 offset possible future losses on total loans currently outstanding. The
adjustment resulted in a reduction in the provision for loan losses to the
extent that the provision for the year was negative.
Operating Results
The Company earned $10.25 million, or $2.65 per share, for 1994, compared to
$10.8 million, or $2.79 per share, for 1993. Net income after taxes was
affected by the following items during 1994 and 1993:
A nonrecurring recovery of prior year losses increased 1994 net
income by $503 thousand.
The Company reached a bond claim settlement which increased 1993
net income by $3.5 million.
The adoption of Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes", increased 1993 net income
by $380 thousand.
Adjusting each year for these items, net income would increase 40.7% to $9.7
million, or $2.52 per share in 1994, from $6.9 million, or $1.79 per share in
1993.
The 1994 and 1993 performance ratios before and after adjustments are as
follows:
1994 1993 % change
Return on assets:
Before adjustments for non-
recurring events 1.22% 1.33%
After adjustments 1.16% .85% 36.5%
Return on equity:
Before adjustments for non-
recurring events 10.55% 11.86%
After adjustments 9.99% 7.58% 31.8%
Management will continue its efforts to improve the components typical to
bank earnings; net interest spread and noninterest expenses, as well as
noninterest income.
The last three subsidiaries to be established by the Company should prove to
be even more beneficial in future years.
Leasing One, the equipment leasing subsidiary established in 1993 is
expected to provide most of the Company's loan growth over the next two
years. Leasing One allows the Company to capitalize on an expanded
market area which includes Kentucky, Indiana, Ohio and Tennessee; a much
larger geographical range than that of any of the other subsidiaries.
FCB Services, Inc., the data processing subsidiary established in 1992,
began performing data processing services for non-affiliated banks
during 1994. The capacity exists to service more clients without
adding substantial overhead expenses. FCB Services is selectively
marketing its services.
Money One Credit Company, the consumer finance subsidiary established in
1989, opened three new offices during 1994. The subsidiary is well
established with a total of fourteen offices throughout Kentucky. The
individual offices become more profitable as they build enough volume to
support the fixed costs.
Interest Income
Total interest income, on a tax equivalent basis was $59.3 million, up $3.7
million, or 6.2% from 1993. Interest on taxable investment securities was down
$1.4 million, or 23.5% from 1993. The yield was 4.8%, down from 5.3%. Interest
on nontaxable investment securities was up $1.2 million, or 55.0% from the
prior year. The yield was 6.8%, down from 8.0%. Interest on loans was up
$3.8 million, or 1.09%. The yield declined slightly from 9.3% to 9.2%. The
change in interest income for all of these earning assets was attributed to
the volume variance. The yield on total earning assets, unlike the individual
components, increased from 7.8% to 8.0%. This was made possible by moving
balances from lower yielding securities to higher yielding loans.
Interest Expense
Interest expense on interest bearing demand deposits was up $706 thousand, of
11.2% from 1993 due to the volume variance. The rate paid was unchanged
from 2.7%. The interest paid and yield on savings accounts were both unchanged
from 1993. The interest expense on time deposits was down $1.3 million and
was due to the volume variance even though the rate paid declined from 4.4% to
4.3%. Interest expense on securities sold under agreements to repurchase
increased $323 thousand, or 36.9%, and was due to the rate variance. The
rate paid increased 74 basis points to 3.6%.
Net interest income is the most significant component of the Company's
earnings. Net interest income is the excess of interest income earned
on assets over the interest paid for funds to support those assets. The
following table represents the major components of interest earning assets and
interest bearing liabilities on a tax equivalent basis (TE) where tax exempt
income is adjusted upward by an amount equivalent to the federal income taxes
that would have been paid if the income had been fully taxable (assuming a
34% tax rate).
<TABLE>
Distribution of Assets, Liabilities and Shareholders' Equity:
Interest Rates and Interest Differential (In thousands)
<CAPTION>
December 31, 1994 1993 1992
Average Average Average Average Average Average
Balances Interest Rate Balances Interest Rate Balances Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning Assets
Investment Securities
Taxable $126,772 $ 6,106 4.82% $143,506 $ 7,539 5.25% $152,185 $10,168 6.68%
Nontaxable 1 50,476 3,447 6.83 27,687 2,224 8.03 17,026 1,830 10.75
Time deposits with banks,
federal funds sold and
securities purchased
under agreements
to resell 56,052 2,398 4.28 74,875 2,272 3.03 69,923 2,517 3.60
Loans 1,2,3 511,492 47,301 9.25 467,738 43,528 9.31 473,271 46,385 9.80
Total Earning Assets 744,792 59,252 7.96 713,806 55,563 7.78 712,405 60,900 8.55
Less Allowance
for loan losses 8,982 8,443 8,456
735,810 705,363 703,949
Non-Earning Assets
Cash and due from banks 70,433 69,498 66,941
Bank premises and other
equipment 19,950 20,606 21,219
Other assets 13,362 16,045 21,371
Total Assets $839,555 $811,512 $813,480
Interest Bearing Liabilities
Deposits
Interest bearing demand $247,942 6,752 2.72 $221,483 6,046 2.73 $195,446 6,408 3.28
Savings 55,853 1,612 2.89 55,697 1,576 2.83 47,571 1,609 3.38
Time 274,812 11,817 4.30 295,883 13,123 4.44 333,886 18,645 5.58
Securities sold under
agreements to repurchase 32,960 1,199 3.64 30,193 876 2.90 29,212 1,080 3.70
Other borrowed funds 3,320 206 6.20 2,442 147 6.02 3,391 198 5.84
Total Interest Bearing
Liabilities 614,887 21,586 3.51 605,698 21,768 3.59 609,506 27,940 4.58
Non-interest Bearing Liabilities
Commonwealth of Kentucky
deposits 32,419 29,744 32,227
Demand deposits -
other deposits 89,073 80,977 77,651
Other liabilities 6,059 4,033 5,841
Total liabilities 742,438 720,452 725,225
Shareholders' Equity 97,117 91,060 88,255
Total Liabilities and
Shareholders' Equity $839,555 $811,512 $813,480
Net interest income (TE) 37,666 33,795 32,960
TE basis of adjustment (1,502) (951) (622)
Net interest income $36,164 $32,844 $32,338
Net interest spread (TE) 4.45% 4.19% 3.97%
Net interest margin (TE) 5.06% 4.73% 4.63%
1 Income and yield stated at a fully tax equivalent basis (TE), using a 34% tax rate.
2 Loan balances include principal balances on non-accrual loans.
3 Loan fees included in interest income amounted to $1,731,000, $1,302,000 and $1,266,000 in 1994, 1993 and
1992, respectively.
</TABLE>
Net interest income (TE) increased $3.9 million during 1994 to $37.7 million,
which can be directly attributed to the $31.0 million increase in average
earning assets. The major component of the increase in average earning
assets is the $43.8 million increase in average loans. Interest-free funding
sources as a percentage of average earning assets increased from 15.5% in 1993
to 16.31% in the current year. The change in the spread between rates earned
and paid and the net interest margin are summarized below:
1994 1993 % change
Spread between rates earned and paid 4.45% 4.19% 6.2%
Net interest margin 5.06% 4.73% 7.0%
The following table is an analysis of the change in net interest income and
the attributable factors.
<TABLE>
Analysis of Changes in Net Interest Income (tax equivalent basis):
<CAPTION>
Variance Variance
Variance Attributed to Variance Attributed to
(In thousands) 1994/1993 2 Volume Rate 1993/1992 2 Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Taxable investment securities $(1,433) $ (922) $ (511) $ (2,629) $ (554) $ (2,075)
Nontaxable investment securities 1 1,223 1,599 (376) 394 939 (545)
Time deposits with banks, federal
funds sold and securities
purchased under agreement
to resell 126 (482) 608 (245) 169 (414)
Loans 1 3,773 4,048 (275) (2,857) (537) (2,320)
Total Interest Income 3,689 4,243 (554) (5,337) 17 (5,354)
Interest Expense
Interest bearing demand deposits 706 721 (15) (362) 791 (1,153)
Savings deposits 36 4 32 (33) 252 (285)
Time deposits (1,306) (954) (352) (5,522) (1,976) (3,546)
Securities sold under agreements
to repurchase 323 86 237 (204) 35 (239)
Other borrowed funds 59 54 5 (51) (54) 3
Total Interest Expense (182) (89) (93) (6,172) (952) (5,220)
Net Interest Income $ 3,871 $ 4,332 $ (461) $ 835 $ 969 $ (134)
Percentage change 100% 111.9% (11.9)% 100% 116.0% (16.0)%
1 Income stated at fully tax equivalent basis using a 34% tax rate.
2 The changes which are not solely due to rate or volume are allocated on a percentage basis, using
the absolute values of rate and volume variances as a basis for allocation.
</TABLE>
As the table indicates, the $3.9 million increase for 1994 in net interest
income (TE) is mainly attributed to the volume variance.
Asset Quality
The provision for loan losses represents charges made to earnings to maintain
an adequate Allowance. Each subsidiary determines its level for the Allowance
and maintains it at an amount believed to be sufficient to absorb possible
losses that may be experienced in the credit portfolio. The following factors
are used in establishing an appropriate Allowance:
A careful assessment of the financial condition of individual borrowers
A realistic determination of the value and adequacy of underlying collateral
A thorough review of historical loss experience
The condition of the local economy
A comprehensive analysis of the levels and trends of loan categories
A review of delinquent and criticized loans
The provision for loan losses increased $4.2 million compared to year end
1993. This increase is primarily a result of the bond claim settlement, which
subsequently resulted in a negative provision for loan losses for 1993. The
settlement increased the Allowance by an amount management felt exceeded the
amount necessary to absorb possible future loan losses. Management subsequently
reduced the Allowance balance to the amount necessary to absorb possible future
losses on the total loans outstanding at that time, thus the resultant
negative provision.
Excluding the bond claim settlement, the provision for loan losses actually
decreased $1.1 million, or 35% during 1994. The Company had net charge offs of
$1.8 million during 1994 compared to net recoveries of $2.3 million during
1993. Exclusive of the bond claim settlement, net charge offs decreased $1.2
million, or 40.0% during 1994. The Allowance totaled $8.9 million at year
end 1994, or 1.7% of loans, net of unearned income, an increase of $400
thousand, or 4.7% from year end 1993. Management continues to emphasize
collection efforts and evaluation of the risks within the loan portfolio. The
table below summarizes the loan loss experience for the past five years.
Year Ended December 31,
(In thousands) 1994 1993 1992 1991 1990
Average loans
net of unearned income $511,492 $467,738 $473,271 $482,355 $463,642
Balance of allowance for
loan losses at
beginning of period $ 8,547 $ 8,261 $ 7,917 $ 7,947 $ 7,155
Loans charged off:
Commercial, financial
and agricultural 741 1,826 2,427 2,126 2,987
Real estate 416 638 611 2,213 5,076
Installment loans to
individuals 1,467 1,483 1,233 1,460 1,202
Lease financing 17
Total loans charged off 2,624 3,947 4,271 5,799 9,282
Recoveries of loans previously
charged off:
Commercial, financial and
agricultural 193 343 651 329 295
Real estate 230 5,409 371 354 75
Installment loans to
individuals 418 507 357 268 292
Total recoveries 841 6,259 1,379 951 662
Net loans charged off
(recovered) 1,783 (2,312) 2,892 4,848 8,620
Additions to allowance charged
(credited) to expense 2,125 (2,026) 3,236 4,818 9,412
Balance at end of period $ 8,889 $ 8,547 $ 8,261 $ 7,917 $ 7,947
Ratio of net charge offs
(recoveries) during period
to average loans, net of
unearned income .35% (.49)% .61% 1.01% 1.86%
Noninterest Income
Noninterest income increased $876 thousand, or 8.2% to $11.5 million for the
year. Factors contributing to the net increase were as follows:
The nonrecurring recovery of $758 thousand ($503 thousand, net of tax)
Income derived from a third party brokerage company selling investments at
our locations which generated $105 thousand in rents and commissions
Service charges and fees increased $97 thousand
Trust income increased $45 thousand
Securities gains decreased $78 thousand
The increase in service charges and fees are attributed to an increase in
overdraft fees and demand deposit account service charges of $35 thousand
and $80 thousand, respectively.
Noninterest Expense
Noninterest expense, excluding the provision for loan losses, increased $1.0
million, or 3.4% to $31.1 million. The largest component of noninterest
expense is salaries and benefits which increased $793 thousand, or 5.2% to $15.9
million. The expansion of the consumer finance and commercial leasing
subsidiaries, along with annual salary adjustments, contributed to this
increase.
Equipment expense, the second largest component at $2.6 million, decreased
$113 thousand, or 4.2%. Occupancy expenses were $2.0 million, an increase
of $56 thousand, or 2.9%.
Federal Deposit Insurance Corporation (FDIC) insurance premiums decreased $61
thousand, or 3.9%. The Company experiences fluctuations in FDIC premiums
due to the unpredictable deposits and withdrawals made by the Commonwealth
of Kentucky. The FDIC is currently considering a proposal which, if adopted,
would significantly decrease insurance premiums in 1995 and thereafter.
Bank shares tax increased $86 thousand, or 8.5%. Other real estate expenses
decreased $97 thousand, or 28.2%. This decrease can be attributable to a 67.5%
reduction in the amount of other real estate owned. Other real estate expenses
should remain at lower levels, since most of the properties have been sold.
Other noninterest expenses increased $357 thousand, or 4.9%.
Income Taxes
Income tax expense decreased $802 thousand, or 15.8% which correlates to the
decrease in income before taxes and the higher percentage of tax free income.
The effective tax rate for 1994 was 29.4% compared to 32.7% in 1993.
Change in Accounting Principle
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS 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 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.
The standard was adopted on January 1, 1994. The Company does not have any
securities classified as trading securities. Accordingly, debt securities
where 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 adoption of this statement, securities were carried at
amortized cost.
Financial Condition
On December 31, 1994 assets were $852 million, an increase of $57 million, or
7.2% from year end 1993. Average assets for 1994 increased $28 million,
or 3.5% to $840 million. Earning assets, primarily loans and investments,
averaged $745 million, up $31 million or 4.3%. These increases can be
attributed to the increase in the loan portfolio during 1994 and the
unpredictable deposits and withdrawals by the Commonwealth of Kentucky.
Loans
Average loans increased $44 million, or 9.4% in 1994 to $511 million and
represented 68.7% of total earning assets, up from 65.5% in 1993. Although
not reflected in the end of period figures, average loan growth can be
primarily attributed to the growth in variable rate mortgages and lease
financing receivables. The average rate earned on the entire loan portfolio
was 9.25% in 1994, relatively unchanged from 1993. On average, real estate
mortgage loans increased $16.0 million, or 5.9%, to $287.1 million in 1994
and all growth was in variable rate real estate mortgages. Commercial loans
averaged $129.6 million in 1994, up $10.2 million, or 8.5%. The primary
source of this growth came from variable rate commercial loans.
Installment loans averaged $68.6 million, an increase of $8.8 million, or
14.7%. This growth can be attributed to our consumer finance company and
growing loan demand in the consumer market. Commercial leases averaged
$7.2 million, up $6.8 million from 1993. This growth can be attributed to
our commercial leasing subsidiary, which was in its first full year of
operation in 1994. In 1995, the Company does not expect loan volume to
increase significantly. Commercial loans and leases will provide a moderate
increase.
<TABLE>
The composition of the loan portfolio is summarized in the table below:
<CAPTION>
Year Ended December 31, (In millions) 1994 % 1993 % 1992 % 1991 % 1990 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $164 30.1% $130 26.6% $137 29.1% $126 25.6% $121 25.0%
Real estate - construction 29 5.3 22 4.5 19 3.9 21 4.4 23 4.8
Real estate - mortgage 218 40.0 236 48.2 221 47.0 244 49.7 234 48.3
Installment loans to individuals 120 22.1 100 20.3 94 19.9 99 20.2 106 21.8
Direct lease financing 14 2.5 2 .4 0.1 0.1 0.1
Total $545 100.0% $490 100.0% $471 100.0% $490 100.0% $484 100.0%
</TABLE>
The following table indicates the amount of loans (excluding residential
mortgages of 1-4 family residences, consumer loans and direct lease financing)
outstanding at December 31, 1994, which, based on remaining scheduled
repayments of principal, are due in the periods indicated.
Maturing Within After One But After
(In thousands) One Year Within Five Years Five Years Total
Commercial, financial and
agricultural $119,644 $ 37,534 $ 6,656 $163,834
Real estate - construction 24,281 4,474 28,755
Total $143,925 $ 42,008 $ 6,656 $192,589
The table below shows the amount of loans (excluding residential mortgages of
1-4 family residences, consumer loans and direct lease financing) outstanding
at December 31, 1994, which are due after one year classified according to
sensitivity to changes in interest rates.
Interest Sensitivity Fixed Variable
(In thousands) Rate Rate
Due after one but within five years $35,162 $ 6,846
Due after five years 6,634 22
Total $41,796 $ 6,868
Temporary Investments
Federal funds sold and securities purchased under agreement to resell are the
primary components of temporary investments. These funds help in the
management of liquidity and interest rate sensitivity. In 1994, temporary
investments averaged $56 million, a decrease of $19 million, or 25.1% from
year end 1993. This decrease can be attributed to loan growth.
Investment Securities
The majority of the investment portfolio is comprised of U.S. Treasury
securities, Federal agency securities, tax-exempt securities, and mortgage-
backed securities. Total investment securities were $193 million on December
31, 1994, an increase of $4 million, or 2.2% from year end 1993. Available for
sale and held to maturity securities were $72 and $121 million, respectively.
Total investment securities averaged $177 million, an increase of $6 million,
or 3.5% from year end 1993. Net unrealized losses, net of tax effect, on
available for sale securities was $521 thousand on December 31, 1994.
The following table summarizes the carrying values of investment securities
on December 31, 1994. The investment securities are divided into available for
sale and held to maturity securities. Available for sale securities are
carried at the estimated fair value and held to maturity securities are carried
at amortized cost.
Available Held
December 31, 1994 (In thousands) for Sale to Maturity
U.S. Treasury securities $ 8,745 $ 45,559
Obligations of other U.S. Government
agencies 55,855 18,192
Obligations of states and political
subdivisions 51,095
Mortgage-backed securities 4,819 5,131
Other securities 3,047 500
Total $72,466 $120,477
During 1993 and 1992, investment securities were carried at amortized cost.
A summary of the carrying values during these time periods follows:
December 31, (In thousands) 1993 1992
U.S. Treasury securities $ 67,355 $ 68,534
Obligations of other U.S. Government
agencies 68,529 49,425
Obligations of states and political
subdivisions 46,081 16,029
Mortgage-backed securities 5,792 26,356
Other securities 1,109 500
Total $188,866 $160,844
<TABLE>
The following is an analysis of the maturity distribution and weighted
average interest rates of investment securities at December 31, 1994.
For purposes of this analysis, available for sale securities are stated at
fair value and held to maturity securities are valued at amortized cost.
<CAPTION>
Within After One But After Five But After
Available for Sale One Year Within Five Years Within Ten Years Ten Years
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities $ 8,745 5.26%
Obligations of other U.S.
Government agencies $28,993 6.02% 26,862 5.11
States and political
subdivisions
Mortgage-backed securities 3,853 7.20 $ 966 7.30%
Other 2,410 5.78 637 6.36
Total $31,403 6.00% $39,460 5.35% $1,603 6.93%
Within After One But After Five But After
Held to Maturity One Year Within Five Years Within Ten Years Ten Years
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
U.S. Treasury
securities $31,521 4.18% $14,037 5.67%
Obligations of other U.S.
Government agencies 7,999 5.90 9,693 5.06 $ 500 5.00%
States and political
subdivisions 6,333 5.93 29,802 7.01 13,036 6.97 $1,924 8.02%
Mortgage-backed
securities 7 6.58 5,125 6.90
Other 500 7.75
Total $45,860 4.72% $59,157 6.37% $13,536 6.90% $1,924 8.02%
The maturity distribution and weighted average interest rates of investment securities at
December 31, 1993 are as follows:
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
U.S. Treasury
securities $31,729 4.79% $35,626 4.19%
Obligations of other U.S.
Government agencies 40,038 4.23 28,491 4.89
States and political
subdivisions 4,412 7.31 30,358 6.48 $ 8,950 7.98% $ 2,181 7.76%
Mortgage-backed
securities 2,240 7.36 999 5.33 1,045 5.38 1,508 5.44
Other 500 7.75 609 4.58
Total $78,419 4.72% $96,154 5.16% $ 9,995 7.71% $ 4,298 6.50%
The maturity distribution and weighted average interest rates of investment securities at
December 31, 1992 are as follows:
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
(In thousands) Amount Rate Amount Rate Amount Rate Amount Rate
U.S. Treasury
securities $42,646 5.99% $25,888 5.31%
Obligations of other U.S.
Government agencies 23,376 6.26 26,049 5.67
States and political
subdivisions 1,835 12.14 6,894 10.65 $6,527 10.01% $ 773 9.77%
Mortgage-backed
securities 4,603 7.94 21,753 7.27
Other 500 7.75
Total $72,460 6.36% $81,084 6.42% $ 6,527 10.01% $ 773 9.77%
</TABLE>
The calculation of the weighted average interest rates for each category is
based on the weighted average costs of the securities. The weighted average
tax rates on exempt state and political subdivisions is computed on a taxable
equivalent basis using a 34% tax rate.
The Company shifted away from tax free securities in 1992, because of the
alternative minimum tax (AMT). With the current components of taxable income,
AMT is not expected to impact the Company's tax position in the near future.
While monitoring the possibility of AMT, the Company began shifting back to tax
free securities in 1993 and continued in 1994.
The investment portfolio carries varying degrees of risk.
Investments in U.S. Treasury and Federal agency obligations
have little or no credit risk. Obligations of states and
political subdivisions are the areas of highest exposure in the
portfolio. This risk is minimized through the purchase of
high quality investments. Substantially all of the states and
political subdivision obligations (excluding non-rated
securities of $13 million) in the investment portfolio were
rated A or better by Moody Investors Services at December
31, 1994. The states and political subdivision obligations not
rated are mostly small Kentucky issues. Management
believes these non-rated securities are of high quality. The
table is an analysis of the ratings of the Company's
municipal obligations on December 31, 1994.
December 31, 1994 (In thousands)
Par Value Total
Aaa $23,155 45.2%
Aa 370 .7
A1 2,180 4.3
A 12,310 24.0
Baa1 50 .1
Not Rated 13,190 25.7
Total $51,255 100.0%
Deposits
On December 31, 1994, deposits totaled $697 million, an increase of $39
million, or 5.9% from year end 1993. Deposits averaged $700 million, an
increase of $16 million, or 2.4% from 1993.
On average, interest bearing and noninterest bearing demand deposits
increased $26.4 million, or 11.9% and $10.8 million, or 9.7%, respectively.
The increase in interest bearing demand deposits can be attributed to a shift
in the Company's deposit mix during the past two years from time deposits to
demand deposits. That, along with an increase in the Commonwealth of
Kentucky's deposit of $2.7 million, or 9.1%, contributed to the increase in
noninterest bearing demand deposits. Farmers Bank & Capital Trust Co., a
subsidiary of the Company, is the general depository for the Commonwealth of
Kentucky and has been for more than 70 years. The Commonwealth of Kentucky's
deposit balance shows extreme fluctuations due to the unpredictability of their
deposits and withdrawals.
Time deposits averaged $274.8 million in 1994, a decrease of $21.1 million,
or 7.1%. Certificates of deposit with balances less than $100 thousand
decreased $12.6 million, or 6.8%. Certificates of deposit with larger
balances decreased $4.9 million, or 8.4%. Although the shift in the deposit
mix was the major factor contributing to the decrease, it was mitigated by the
creation of a new flexible rate certificate of deposit product in 1994. Due
mainly to this new product, average certificates of deposit increased
during the last quarter of 1994. Savings deposits averaged $55.9 million in
1994, relatively unchanged from 1993.
A summary of average balances and rates paid on deposits follows:
1994 1993 1992
Average Average Average Average Average Average
(In thousands) Balance Rate Balance Rate Balance Rate
Noninterest demand
deposits $121,492 0.00% $110,721 0.00% $109,878 0.00%
Interest bearing demand
deposits 247,942 2.72 221,483 2.73 195,446 3.28
Savings deposits 55,853 2.89 55,697 2.83 47,571 3.38
Time deposits 274,812 4.30 295,883 4.44 333,886 5.58
Total $700,099 $683,784 $686,781
Maturities of time deposits of $100,000 or more outstanding at December 31,
1994 are summarized as follows:
Time Deposits
(In thousands) >$100,000
3 months or less $15,258
Over 3 through 6 months 20,748
Over 6 through 12 months 9,004
Over 12 months 9,941
Total $54,951
Short-term Borrowings
Securities sold under
agreement to repurchase: (In thousands) 1994 1993 1992
Amount outstanding at year-end $42,844 $21,565 $35,555
Maximum outstanding at any month-end 42,844 34,488 35,555
Average outstanding 31,258 23,960 20,787
Weighted average prime rate during the year 7.14% 6.00% 6.00%
Weighted average interest rate at year-end 2.80 2.72 3.53
Such borrowings are generally on an overnight basis.
Nonperforming Assets
Nonperforming assets increased $1.0 million, or 12.9%, to $8.9 million at
year end 1994. As a percentage of loans and other real estate owned,
nonperforming assets were 1.7% in 1994, 1.6% in 1993, 3.7% in 1992 and 4.7%
in 1991. While nonperforming assets increased in 1994, the performance over the
past four years has been much better. Since 1991, nonperforming assets have
decreased $14 million, or 61.1%. The percentage of nonperforming assets to
oans and other real estate has decreased 300 basis points since 1991. The
largest component of the reduction in nonperforming assets is other real estate
owned which has decreased $8.5 million, or 95.7% since 1991. This trend is a
result of management's continued efforts to improve the quality of the loan
portfolio. The Company's loan policy includes strict guidelines for approving
and monitoring loans. The table below is a five year summary of
nonperforming assets.
Year Ended December 31,
(In thousands) 1994 1993 1992 1991 1990
Loans accounted for on
non-accrual basis $ 3,913 $ 1,565 $ 3,981 $ 5,479 $11,717
Loans contractually past due
ninety days or more 1,056 1,402 2,730 3,275 3,113
Restructured loans 3,538 3,734 5,266 5,247 998
Other real estate owned 380 1,169 5,541 8,865 4,580
Total nonperforming assets $ 8,887 $ 7,870 $17,518 $22,866 $20,408
Liquidity
The liquidity of the Company is dependent on the receipt of dividends from
its subsidiary banks (see Note 16 to the financial statements). Management
expects that in the aggregate, its subsidiary banks will continue to have the
ability to dividend adequate funds to the Company.
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. Those sources of
funds are:
The banks' core deposits consisting of both business and non-business
deposits
Cash flow generated by repayment of loan principal and interest
Federal funds purchased and securities sold under agreements to repurchase
Liquidity projections are reviewed on a monthly basis. Generally, sources
one and two are sufficient to meet liquidity requirements. The third source
is available, but has not been utilized by the Company in recent history.
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.
Interest Rate Sensitivity
In that it is extremely difficult to accurately predict interest rate
movements, it is management's intention to maintain the cumulative interest
sensitivity gap at the one year time frame between plus or minus 10% as a
percent of total assets. The gap position may be managed by (1) purchasing
investment securities with a maturity date within the desired time frame,
(2) offering interest rate incentives to encourage loan customers to choose
the desired maturity, and (3) offer interest rate incentives to encourage
deposit customers to choose the desired maturity.
The following chart illustrates interest rate sensitivity at December 31,
1994 for various time periods. The purpose of this GAP chart is to measure
interest rate risk utilizing the repricing intervals of the interest
sensitive assets and liabilities. Rising interest rates are likely to increase
net interest income in a positive GAP position while falling interest rates are
beneficial in a negative GAP position. The Company has a negative GAP
position through twelve months, but then shifts to a positive GAP position.
This positioning is due to management's anticipated economic outlook and
other competitive factors.
After 3 After
Months But 1 Year But
Within Within 12 Within 5 After
(In millions) 3 Months Months Years 5 Years Total
Interest earning assets:
Investment securities $ 61.6 $ 33.3 $ 81.5 $ 16.5 $192.9
Federal funds sold 43.7 43.7
Loans, net of unearned
income 215.5 168.1 138.2 11.4 533.2
Total $320.8 $201.4 $219.7 $ 27.9 $769.8
Percentage of total
interest
earning assets 41.7% 26.2% 28.5% 3.6% 100.0%
Rate sensitive sources of funds used
to finance interest earning assets:
Interest bearing demand 252.8 252.8
Savings 51.3 51.3
Time 69.4 110.7 102.4 6.2 288.7
Other borrowed funds 46.0 1.2 .5 47.7
Total $419.5 $111.9 $102.9 $ 6.2 $640.5
Percent of total rate
sensitive sources of
funds 65.5% 17.5% 16.1% 1.0% 100.0%
Interest sensitivity gap (98.7) 89.5 116.8 21.7 129.3
Cumulative interest
sensitivity gap (98.7) (9.2) 107.6 129.3
Interest sensitive assets
to interest sensitive
liabilities .76:1 1.80:1 2.14:1 4.50:1 1.20:1
Cumulative ratio of interest
sensitive assets to interest
sensitive liabilities .76:1 .98:1 1.17:1 1.20:1
Ratio of gap to
interest earning assets (30.8)% 44.4% 53.2% 77.8% 16.8%
Effects of Inflation
Since most of the assets and liabilities are monetary in nature, inflation
has a minor effect on banking concerns. Personnel costs, occupancy expenses and
equipment costs all tend to reflect the inflation rate as measured by the
consumer price index. The Company continues to attempt to offset such
increases by raising noninterest income fees.
Shareholders' Equity
Shareholders' equity was $100.1 million on December 31, 1994, increasing $5
million, or 5.2% from year end 1993. Dividends of $4.8 million were declared
during 1994. The Company's Board of Directors approved an increase in the
quarterly dividend rate in the fourth quarter of 1994 from $.30 per share to
$.33 per share. The Company's capital ratios as of December 31, 1994 and the
regulatory minimums are as follows:
Farmers Capital Regulatory
Bank Corporation Minimum
Tier 1 risk based 16.42% 4.00%
Total risk based 17.67% 8.00%
Leverage 11.47% 3.00%
The capital ratios of all the subsidiary banks, on an individual basis, were
well in excess of the applicable minimum regulatory capital ratio requirements
at December 31, 1994.
The table below is an analysis of dividend payout ratios and equity to asset
ratios for five years.
December 31, 1994 1993 1992 1991 1990
Percentage of dividends declared
to net income 46.40 39.78 66.26 98.18 276.92
Percentage of average shareholders'
equity to average total assets 11.57 11.22 10.85 10.64 11.52
Stock Prices
Farmers Capital Bank Corporation's stock is traded in the National
Association of Security Dealers Automated Quotation System (NASDAQ), with
sales prices reported by the National Association of Securities Dealers,
under the NASDAQ symbol: FFKT. The table below is an analysis of the stock
prices and dividends declared for 1994 and 1993.
Stock Prices
Dividends
High Low Declared
1994
Fourth Quarter $40.50 $36.50 $0.33
Third Quarter 41.00 36.88 0.30
Second Quarter 43.00 37.00 0.30
First Quarter 39.50 33.00 0.30
1993
Fourth Quarter $34.75 $31.50 $0.30
Third Quarter 33.00 26.50 0.27
Second Quarter 29.00 26.50 0.27
First Quarter 29.00 26.00 0.27
Dividends declared per share increased $.12, or 10.8% and $.03 or 3.0%, in
1994 and 1993, respectively.
Accounting Requirements
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", 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 discounted at the loan's effective interest rate, except that
as a practical expedient, at the loan's observable market price or the fair
value of the collateral 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 No. 114 shall be effective for fiscal years beginning after December 15,
1994. Due to the Company's high level of loan quality, the implementation of
the statement will not have a material adverse impact on the Company's
financial statements.
1993 Compared with 1992
Net income was $10.8 million in 1993 compared to $6.3 million in 1992, an
increase of $4.5 million, or 71.4%. Net income per share increased to $2.79
from $1.63, or 71.2%. Of the increase, $3.9 million can be attributed to the
bond claim settlement and the adoption of SFAS No. 109 during 1993. Return
on average assets and average equity rose to 1.33% and 11.86% in 1993
compared to .78% and 7.16% in 1992.
Net interest income on a tax equivalent basis increased 2.5% to $33.8
million. The growth was due to the decline in rates paid on interest
bearing liabilities being greater than the rates earned on interest earning
assets. This also increased the spread between rates earned and paid
and the net interest margin in 1993 to 4.19% and 4.73%, respectively
compared to 3.97% and 4.63% in 1992.
Noninterest income increased $1.5 million, or 16.5% in 1993. The majority of
the increase can be attributed to fees from the consumer finance subsidiary.
Noninterest expense increased $343 thousand to $30.0 million in 1993.
Salaries and benefits, the largest component, increased $326 thousand.
Occupancy expenses were up $213 thousand and equipment expenses were down $73
thousand. FDIC insurance premiums were down $66 thousand. Other real estate
expenses decreased $519 thousand, or 60.1%.
Income tax expense was $5.1 million in 1993, an increase of $2.8 million from
1992, which correlates to the increase in income before taxes. The
bond claim settlement increased income tax expense by $1.8 million. The
effective tax rate for 1993 was 32.7% compared to 26.1% in 1992.
On December 31, 1993, the allowance for loan losses totaled $8.5 million, or
1.8% of loans, net of unearned, unchanged from 1992. The provision for
loan losses decreased $5.3 million in 1993, which can be directly attributed
to the bond claim settlement. Nonperforming assets declined $9.6 million, or
55.1% in 1993.
Average assets, average earning assets, average loans, and average deposits
were relatively unchanged between 1993 and 1992.
Stockholders' equity was $95.1 million on December 31, 1993, an increase of
$6.5 million, or 7.3% from 1992.
Item - 8 Financial Statements and Supplementary Data
To the Board of Directors and Shareholders
Farmers Capital Bank Corporation
We have audited the accompanying consolidated balance sheets of Farmers
Capital Bank Corporation and Subsidiaries as of December 31, 1994 and 1993
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Farmers Capital
Bank Corporation and Subsidiaries as of December 31, 1994 and 1993 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for certain investments in debt and
equity securities. Also, as discussed in Notes 9 and 11 to the consolidated
financial statements, in 1993 the Company changed its method of accounting
for income taxes and other postretirement benefits.
Louisville, Kentucky
January 17, 1995
Consolidated Balance Sheets
December 31, (In thousands, except share figures) 1994 1993
Assets
Cash and cash equivalents:
Cash and due from banks $ 56,304 $ 43,171
Interest bearing deposits in other banks 577
Federal funds sold and securities purchased under
agreement to resell 43,670 54,613
Total cash and cash equivalents 100,551 97,784
Investment securities:
Available for sale 72,466
Held to maturity 120,477
Carried at amortized cost 188,866
Loans 544,566 490,345
Less:
Allowance for loan losses (8,889) (8,547)
Unearned income (11,376) (8,708)
Loans, net 524,301 473,090
Bank premises and equipment 20,588 20,504
Interest receivable 6,778 6,420
Deferred income taxes 1,867 1,581
Other assets 4,675 6,024
Total Assets $851,703 $794,269
Liabilities
Deposits:
Noninterest bearing $104,615 $ 92,128
Interest bearing 592,762 566,111
Total deposits 697,377 658,239
Other borrowed funds 47,710 35,332
Dividends payable 1,276 1,160
Interest payable 1,715 1,475
Other liabilities 3,561 2,972
Total liabilities 751,639 699,178
Commitments and contingencies
Shareholders' equity
Common stock, par value $.25 per share,
4,804,000 shares authorized; 3,866,382
shares issued and outstanding at December
31, 1994 and 1993 967 967
Capital surplus 9,094 9,094
Retained earnings 90,524 85,030
Net unrealized loss on securities available
for sale, net of tax (521)
Total shareholders' equity 100,064 95,091
Total liabilities and shareholders' equity $851,703 $794,269
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Income
For the years ended December 31,
(In thousands, except per share data) 1994 1993 1992
Interest income
Interest and fees on loans $ 46,951 $ 43,291 $ 46,385
Interest on investment securities:
Taxable 6,106 7,539 10,168
Nontaxable 2,295 1,510 1,208
Interest on deposits in other banks 122 37 78
Interest on federal funds sold and securities
purchased under agreement to resell 2,276 2,235 2,439
Total interest income 57,750 54,612 60,278
Interest expense
Interest on deposits 20,181 20,745 26,662
Interest on other borrowed funds 1,405 1,023 1,278
Total interest expense 21,586 21,768 27,940
Net interest income 36,164 32,844 32,338
Provision (credit) for loan losses 2,125 (2,026) 3,236
Net interest income after provision (credit)
for loan losses 34,039 34,870 29,102
Noninterest income
Service charges and fees on deposits 4,406 4,309 4,422
Trust income 1,202 1,157 1,048
Investment (losses) gains, net (74) 4 19
Other 5,997 5,185 3,653
Total noninterest income 11,531 10,655 9,142
Noninterest expense
Salaries and employee benefits 15,953 15,160 14,834
Occupancy expenses, net 1,991 1,935 1,722
Equipment expenses 2,554 2,667 2,740
Bank shares tax 1,097 1,011 985
Deposit insurance expense 1,512 1,573 1,639
Other real estate owned, net 247 344 863
Other 7,702 7,345 6,909
Total noninterest expense 31,056 30,035 29,692
Income before income taxes and cumulative
effect of change in accounting principle 14,514 15,490 8,552
Income tax expense 4,264 5,066 2,235
Income before cumulative effect of change in
accounting principle 10,250 10,424 6,317
Cumulative effect of change in accounting
principle 380
Net income $ 10,250 $ 10,804 $ 6,317
Per common share:
Income before cumulative effect of change
in accounting principle $ 2.65 $ 2.69 $ 1.63
Cumulative effect of change in accounting
principle .10
Net income $ 2.65 $ 2.79 $ 1.63
Weighted average shares outstanding 3,866 3,866 3,866
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Changes in Shareholders' Equity For Years Ended
<TABLE>
<CAPTION>
Net unrealized gain(loss) Total
Common Capital Retained on securities Shareholders'
December 31, 1994, 1993 and 1992 (In thousands) Stock Surplus Earnings available for sale Equity
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $ 967 $ 9,094 $ 76,377 $ 86,438
Cash dividends declared, $1.08 per share (4,176) (4,176)
Net income 6,317 6,317
Balance at December 31, 1992 967 9,094 78,518 88,579
Cash dividends declared, $1.11 per share (4,292) (4,292)
Net income 10,804 10,804
Balance at December 31, 1993 967 9,094 85,030 95,091
Cumulative effect of net unrealized gain on
securities available for sale, net of tax $182 182
Cash dividends declared, $1.23 per share (4,756) (4,756)
Net income 10,250 10,250
Net unrealized loss on securities available
for sale, net of tax (703) (703)
Balance at December 31, 1994 $ 967 $ 9,094 $ 90,524 $ (521) $100,064
The accompanying notes are an integral part of the consolidated financial
statements
Consolidated Statements of Cash Flows
For the Years Ended December 31, (In thousands) 1994 1993 1992
Cash flows from operating activities:
Net income $ 10,250 $ 10,804 $ 6,317
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,553 2,775 2,739
Net amortization of investment securities
premiums and discounts:
Available for sale 117
Held to maturity 326
Carried at amortized cost 893 1,104
Provision (credit) for loan losses 2,125 (2,026) 3,236
Loans originated for sale (3,840) (5,035) (8,649)
Sale of loans 3,840 5,035 8,649
Deferred income tax expense (benefit) (18) (430) 39
Loss on sale of fixed assets 32 19 18
Investment security (gains) losses:
Available for sale 74
Carried at amortized cost (4) (19)
Changes in:
Interest receivable (358) 408 2,130
Other assets 785 4,265 3,668
Interest payable 240 (477) (1,321)
Other liabilities 589 (4,040) 3,651
Net cash provided by operating activities 16,715 12,187 21,562
Cash flows from investing activities:
Proceeds from maturities of investment securities:
Available for sale 73,841
Held to maturity 21,609
Carried at amortized cost 84,743 82,669
Proceeds from sales of investment securities:
Available for sale 11,603
Carried at amortized cost 7,989 4,609
Purchases of investment securities:
Available for sale (77,005)
Held to maturity (35,431)
Carried at amortized cost (121,643) (72,886)
Net (increase) decrease in loans (53,336) (16,851) 15,290
Purchases of bank premises and equipment (921) (1,649) (1,510)
Proceeds from sale of equipment 6 16 123
Net cash provided by (used in) investing
activities (59,634) (47,395) 28,295
Cash flows from financing activities:
Net increase (decrease) in deposits 39,138 (26,976)(117,395)
Dividends paid (4,640) (4,176) (4,176)
Net increase (decrease) in other borrowed
funds 11,188 (1,857) 7,667
Net cash provided by (used in) financing
activities 45,686 (33,009)(113,904)
Net change in cash and cash equivalents 2,767 (68,217) (64,047)
Cash and cash equivalents at beginning of year 97,784 166,001 230,048
Cash and cash equivalents at end of period $100,551 $ 97,784 $166,001
Supplemental disclosures:
Cash paid during the year for:
Interest $ 21,346 $ 22,245 $ 29,261
Income taxes 4,255 5,337 1,610
Cash dividend declared and unpaid 1,276 1,160 1,044
The accompanying notes are an integral part of the consolidated financial
statements
1. Summary of Significant Accounting Policies
The accounting and reporting policies of Farmers Capital Bank Corporation and
Subsidiaries conform to generally accepted accounting principles and general
practices applicable to the banking industry. The more significant accounting
policies are summarized below:
Principles of Consolidation:
The consolidated financial statements include the accounts of Farmers
Capital Bank Corporation (the "Company"), a bank holding company,
and its subsidiaries, including its principal subsidiary, Farmers Bank &
Capital Trust Co. All significant intercompany transactions and accounts
have been eliminated in consolidation.
Reclassifications:
Certain amounts in the accompanying consolidated financial statements
presented for prior years have been reclassified to conform with the
1994 presentation. These reclassifications do not affect net income or
shareholders' equity as previously reported.
Cash and Cash Equivalents:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, interest bearing demand deposits
in other banks, federal funds sold and securities purchased under
agreements to resell. Generally, federal funds sold and securities
purchased under agreements to resell are purchased and sold for one-day
periods.
Investment Securities:
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". The statement requires that all investments
in debt securities and all investments in equity securities that have
readily determinable fair values be classified into three categories.
Securities that management has positive intent and ability to hold until
maturity are classified as held to maturity. Securities that are bought
and held specifically for the purpose of selling them in the near
term are classified as trading securities. All other securities are
classified as available for sale. Securities are designated as available
for sale if management intends to use such securities in its asset/
liability management strategy and therefore such securities may be sold in
response to changes in interest rates and prepayment risk. Securities
classified as trading and available for sale are carried at market value.
Unrealized holding gains and losses for trading securities are included
in current income. Unrealized holding gains and losses for available for
sale securities are reported as a net amount in a separate component of
stockholders' equity until realized. Investments classified as held to
maturity are carried at amortized cost. Realized gains and losses on any
sales of securities are computed on the basis of specific identification of
the adjusted cost of each security and are included in noninterest
income. Investments categorized as available for sale had an estimated
fair value in excess of carrying value of $276,000 at January 1, 1994,
and had the effect of increasing stockholders' equity by $182,000 (net of
tax effect of $94,000).
Loans:
Loans are stated at the principal amount outstanding. Interest income on
loans is recognized using the interest method based on loan principal
amounts outstanding during the period. Accrual of interest is adjusted or
discontinued on a loan when, in the opinion of management, its collection
becomes doubtful.
Provision for Loan Losses:
The provision for loan losses charged to operating expenses is an amount
that is sufficient to maintain the allowance for loan losses at an adequate
level based on management's best estimate of possible future loan losses.
Management's determination of the adequacy of the allowance is based on
such considerations as the current condition and volume of the Company's
loan portfolios, economic conditions within the Company's service areas,
review of specific problem loans, and any other factors influencing the
collectibility of the loan portfolios.
Other Real Estate:
Other real estate owned and held for sale included with other assets on the
accompanying consolidated balance sheets includes properties acquired by the
Company through actual loan foreclosures or in-substance foreclosures. Other
real estate owned is carried at lower of cost or fair value less estimated
costs to sell. Fair value is the amount that the Company could reasonably
expect to receive in a current sale between a willing buyer and a willing
seller, other than in a forced or liquidation sale. Fair value of assets
are measured by their market value based on comparable sales. Any reduction
to fair value from the fair value recorded at the time of acquisition is
accounted for as a valuation reserve.
Bank Premises and Equipment:
Bank premises, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation is computed
primarily on the straight-line method over the estimated useful lives for
furniture, equipment and buildings. Leasehold improvements are amortized
over the shorter of the estimated useful lives or terms of the related leases
on the straight-line method. Maintenance, repairs and minor improvements
are charged to operating expenses as incurred and major improvements are
capitalized. The cost of assets sold or retired and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss
is included in income.
Earnings Per Share:
Earnings per share is calculated on the basis of the weighted average
number of common shares outstanding.
2. Restrictions on Cash and Due From Banks
Included in cash and due from banks are certain noninterest bearing deposits
that are held at the Federal Reserve Bank and correspondent banks in accordance
with average balance requirements specified by the Federal Reserve Board of
Governors. The total average balances maintained in accordance with such
requirements as of December 31, 1994 and 1993 were $6,449,000 and $7,199,000,
respectively.
3. Investment Securities
The following summarizes the amortized cost and estimated fair values of the
securities portfolio at December 31, 1994. The summary is divided into available
for sale and held to maturity securities.
</TABLE>
<TABLE>
Investment securities - available for sale:
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1994 (In thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury $ 8,991 $ 246 $ 8,745
Obligations of U.S. Government agencies 56,308 $ 1 454 55,855
Mortgage-backed securities 4,910 91 4,819
Other securities 3,046 1 3,047
Total securities - available for sale $ 73,25 $ 2 $ 791 $ 72,466
Investment securities - held to maturity:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1994 (In thousands) Cost Gains Losses Value
U.S. Treasury $ 45,559 $ 2 $ 699 $ 44,862
Obligations of U.S. Government agencies 18,192 1,045 17,147
Obligations of states and political
subdivisions 51,095 333 1,835 49,593
Mortgage-backed securities 5,131 228 4,903
Other securities 500 10 490
Total securities - held to maturity $120,477 $ 335 $ 3,817 $116,995
The following summarizes the amortized cost and estimated fair values of the securities
portfolio at December 31, 1993. At December 31, 1993, all 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 $ 67,355 $ 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
</TABLE>
The amortized cost and estimated fair value of the securities portfolio at
December 31, 1994, by contractual maturity, are shown below. The summary is
divided into available for sale and held to maturity securities.
Available for Sale Held to Maturity
Amortized Estimated Amortized Estimated
December 31, 1994 (In thousands) Cost Fair Value Cost Fair Value
Due in one year or less $31,709 $31,654 $44,716 $ 44,052
Due after one year through five
years 39,911 39,208 60,767 58,352
Due after five years through ten
years 13,035 12,725
Due after ten years 1,635 1,604 1,959 1,866
Total $73,255 $72,466 $120,477 $116,995
Proceeds from sales and maturities of investments in debt securities during
1994, 1993 and 1992 were $107,053,000, $92,732,000 and $87,278,000,
respectively. Gross gains of $3,000, $48,000 and $19,000 and gross losses of
$77,000, $44,000 and $0 for 1994, 1993 and 1992, respectively, were realized
on those sales and maturities.
The amortized cost and estimated fair value of investment securities which
were pledged as collateral for public deposits, treasury deposits, trust funds,
customer repurchase agreements, and other purposes as required by law at
December 31, 1994 are shown below. The securities are divided into available
for sale and held to maturity.
Investment securities (In thousands) Available for Sale Held to Maturity
Amortized cost $ 31,224 $ 80,557
Estimated fair value $ 30,673 $ 78,104
At December 31, 1993, the amortized cost of investment securities pledged was
approximately $89,692,000.
4. Loans
Major classifications of loans are summarized as follows:
December 31, (In thousands) 1994 1993
Commercial, financial and agricultural $163,834 $130,252
Real estate - construction 28,755 21,772
Real estate - mortgage 217,575 236,391
Consumer 120,373 99,730
Lease financing 14,029 2,200
Total loans 544,566 490,345
Less unearned income 11,376 8,708
Total loans, net of unearned income $533,190 $481,637
Loans to directors, executive officers, principal shareholders, including
loans to affiliated companies of which directors, executive officers and
principal shareholders are principal owners, and loans to members of the
immediate family of such persons, were approximately $14,908,000 and
$16,159,000 at December 31, 1994 and 1993, respectively. An analysis of
the activity with respect to these loans follows:
(In thousands)
Balance, December 31, 1993 $ 16,159
Additions, including loans now meeting
disclosure requirements 4,214
Amounts collected, including loans no longer
meeting disclosure requirements (5,465)
Balance, December 31, 1994 $ 14,908
5. Allowance for Loan Losses
An analysis for the allowance for loan losses is as follows:
Year Ended December 31, (In thousands) 1994 1993 1992
Balance, beginning of year $ 8,547 $ 8,261 $ 7,917
Provisions (credit) for loan losses 2,125 (2,026) 3,236
Recoveries 841 6,259 1,379
Loans charged off (2,624) (3,947) (4,271)
Balance, end of year $ 8,889 $ 8,547 $ 8,261
The following is an estimate of the breakdown of the allowance for loan
losses by type for the date indicated:
(In thousands) Year Ended December 31,
1994 1993 1992 1991 1990
Commercial, financial and
agricultural $6,427 $6,500 $6,512 $6,143 $4,695
Real estate 1,027 1,004 805 875 2,220
Installment loans to
individuals 1,264 1,035 944 899 1,032
Direct lease financing 171 8
Total $8,889 $8,547 $8,261 $7,917 $7,947
6. Nonperforming Assets
(In thousands) 1994 1993 1992
Non-accrual loans $ 3,913 $ 1,565 $ 3,981
Loans past due 90 days or more 1,056 1,402 2,730
Restructured loans 3,538 3,734 5,266
Total nonperforming loan balances at
December 31, 8,507 6,701 11,977
Other real estate owned 380 1,169 5,541
Total nonperforming assets at December 31, $ 8,887 $ 7,870 $17,518
Nonperforming loans as a percentage of loans
- net of unearned interest 1.6% 1.4% 2.6%
Nonperforming assets as a percentage of loans
and other real estate owned 1.7% 1.6% 3.7%
Interest income that would have been recognized
under original terms for the year on nonperforming
loans $ 576 $ 698 $ 1,280
Amount of interest income recognized for the year
on nonperforming loans $ 117 $ 431 $ 879
7. Bank Premises and Equipment
Bank premises and equipment consist of the following:
December 31, (In thousands) 1994 1993
Land, building and leasehold improvement $ 21,769 $ 21,544
Furniture and equipment 17,616 17,600
Total 39,385 39,144
Less accumulated depreciation and amortization 18,797 18,640
Total $ 20,588 $ 20,504
Depreciation and amortization of bank premises and equipment was $1,973,000,
$2,197,000 and $2,144,000 in 1994, 1993 and 1992, respectively.
8. Interest Bearing Deposits
Time deposits of $100,000 or more at December 31, 1994 and 1993 were
$54,951,000 and $54,581,000, respectively.
9. Income Taxes
In February 1992, the Financial Accounting Standards Board (FASB) issued SFAS
No. 109, "Accounting for Income Taxes". The statement 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 statement 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).
The components of income tax expense are as follows:
(In thousands) 1994 1993 1992
Currently payable $ 4,282 $ 5,116 $ 2,170
Deferred income taxes (18) (50) 65
Total $ 4,264 $ 5,066 $ 2,235
An analysis of the difference between the effective income tax rates and the
statutory federal income tax rate follows:
(In thousands) 1994 1993 1992
Federal statutory rate 35.0% 34.0% 34.0%
Changes from statutory rates
resulting from:
Tax exempt interest (7.0) (4.3) (7.2)
Nondeductible interest to
carry municipal obligations .7 .4 .1
Amortization of intangibles 1.3 1.2 2.1
Alternative minimum tax (6.0)
Surtax (.7)
Other, net .1 1.4 3.1
Total 29.4% 32.7% 26.1%
The tax effects of the significant temporary differences which comprise
deferred tax assets and liabilities at December 31, 1994 and 1993 follows:
1994 1993
Assets:
Loan loss reserve $3,022 $2,879
Deferred directors' fees 125 104
Postretirement benefit obligation 164 59
Investment securities 268
Capital loss carry forward 53
Deferred tax asset valuation reserve (50)
Other 221 260
Total 3,803 3,302
Liabilities:
Depreciation 1,589 1,673
Deferred loan fees 125
Lease financing operations 163 20
Other 59 28
Total 1,936 1,721
Net assets $1,867 $1,581
As of December 31, 1994, management established a valuation allowance against
the deferred assets relating to capital loss carryforwards realized from the
sale of equity securities. If not utilized, the deferred asset and valuation
allowance will expire December 31, 1999.
10. Retirement Plans
The Company maintains a defined contribution-money purchase pension plan
which covers substantially all employees. The Company's contributions under
the plan are based upon a percentage of covered employees' salaries.
The Company has established a stock bonus/employee stock ownership plan for
the benefit of substantially all employees of the Company. The Company's
contributions under the plan are based upon a percentage of covered employees'
salaries, and are paid at the discretion of the Board of Directors of the
Company. The Company contributes cash to the plan and Company shares are
purchased with the cash in the open market.
Cash contributed to purchase shares under the plan since 1992 are as follows:
December 31, 1994 1993 1992
Cash contributed to plan $131,011 $33,629 $203,661
Shares purchased 3,581.215 1,308.899 9,409.678
The Company has also established a profit-sharing (401K) plan which covers
substantially all employees. The Company will match all eligible employee
contributions up to 4% of the participant's compensation. The Company may,
at the discretion of the Board, contribute an additional amount based upon a
percentage of covered employees' salaries.
The total retirement plans' expense for 1994, 1993 and 1992 was $820,000,
$741,000 and $702,000, respectively.
11. Postretirement Benefits
The Company provides lifetime medical and dental benefits for certain
eligible retired employees. Only employees meeting the eligibility
requirements as of December 31, 1989 will be eligible for such benefits upon
retirement. The entire cost of these benefits is paid for by the Company as
incurred and totaled $86,000 and $104,000, respectively, for the years ended
December 31, 1994 and 1993. The plan is unfunded.
In December of 1990, the FASB issued SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", which required that all
such benefits be accounted for on an accrual basis rather than the prevalent
cash basis. Management determined that the accumulated postretirement benefit
obligation at January 1, 1993 was approximately $2,029,000. Management
implemented this statement in the first quarter of 1993 and is amortizing the
transition obligation over 20 years.
The following table sets forth the plan's status reconciled with the amount
shown in the Company's balance sheets at December 31, 1994 and 1993.
(In thousands) 1994 1993
Accumulated postretirement benefit obligation
Retirees and dependents $2,065 $1,392
Fully eligible active plan participants 545 519
Other active plan participants 513 458
Total accumulated postretirement benefit obligation 3,123 2,369
Unrecognized net loss (266) (257)
Unamortized transition obligation (1,826 (1,928)
Unrecognized prior service cost (594)
Accrued postretirement benefit cost $ 437 $ 184
The components of the net periodic postretirement benefit cost at December
31, 1994 and 1993 are as follows:
(In thousands) 1994 1993
Service cost $ 20 $ 18
Interest on accumulated benefit obligation 213 159
Amortization of transition obligation 147 101
Total $ 380 $ 278
Major assumptions:
Discount rate 8.0% 7.0%
For measurement purposes, a 13% annual rate of increase in the per capita
cost of covered health care benefits for those below the age of 65 and 11%
for those over 65 was assumed. The rate was assumed to decrease gradually to
6% by 2012 and remain at that level thereafter. The health care cost trend
rate assumption has a significant affect on the amounts reported.
If the health care cost trend rate were to increase 1%, the service and
interest cost would be $267,000 and the accumulated benefit obligation
would be $3,497,000.
12. Leases
The Company leases certain of its branch sites and certain banking equipment
under operating leases. All of the branch site leases have renewal options
of varying lengths and terms. The aggregate minimum rental commitments under
these leases are not material.
13. Financial Instruments With Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
The financial instruments include commitments to extend credit and standby
letters of credit.
These financial instruments involve to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
balance sheets. The contract amounts of these instruments reflect the extent of
involvement the Company has in particular classes of financial 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 the payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements. Total commitments to
extend credit at December 31, 1994, were $84,017,000. The Company evaluates
each customer's creditworthiness on a case-by-casebasis. 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, marketable
securities, inventory, property, plant and equipment, residential real
estate, and income producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements.
The credit risk involved in using letters of credit is essentially the same
as that received when extending credit to customers. The Company had
approximately $4,284,000 in irrevocable letters of credit outstanding at
December 31, 1994.
14. Concentration of Credit Risk
The Company's bank subsidiaries actively engage in lending, primarily in home
counties and adjacent areas. Collateral is received to support these loans
when deemed necessary. The most significant categories of collateral include
cash on deposit with the Company's banks, marketable securities, income
producing property, home mortgages, and consumer durables. Loans outstanding,
commitments to make loans, and letters of credit range across a large number
of industries and individuals. The obligations are significantly diverse and
reflect no material concentration in one or more areas.
15. Contingencies
The Company's bank subsidiaries are defendants in legal actions arising from
normal business activities. Management believes these actions are without
merit, that in certain instances its actions or omissions were pursuant to the
advice of counsel, or that the ultimate liability, if any, resulting from
them will not materially affect the Company's consolidated financial position,
although resolution in any year or quarter could be material for that period.
Refer to Item 3 - Legal Proceedings.
16. Dividend Limitations
Payment of dividends by the Company's subsidiary banks is subject to certain
regulatory restrictions as set forth in national and state banking laws and
regulations. At December 31, 1994, combined retained earnings of the subsidiary
banks were approximately $35,017,000 of which $1,880,000 is available for the
payment of dividends in 1995 without obtaining prior approval from bank
regulatory agencies.
17. 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 loan losses incurred in 1990 resulting from an apparent scheme to
defraud the Bank. The original losses were recorded as loan losses. 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 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. The adjustment resulted in a
reduction in the provision for loan losses to the extent that the provision
for the year was negative.
18. Effect of Implementing SFAS No. 114
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", 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.
An impaired loan shall be measured by the present value of expected future
cash flows discounted at the loan's effective interest rate, except that as a
practical expedient, at the loan's observable market price or fair value of
the collateral if the loan is collateral dependant. 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 No. 114 shall be effective for fiscal years beginning after December 15,
1994. Due to the Company's high level of loan quality, the implementation of
the statement will not have a material adverse impact on the Company's
financial statements.
19. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value.
Cash and Cash Equivalents:
The carrying amount is a reasonable estimate of fair value.
Investment Securities:
For marketable equity securities held for investment purposes, fair
values are based on quoted market prices or dealer quotes. For other
securities held as investments, 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.
Loan Receivables:
For variable rate loans that reprice frequently with no significant
change in credit risk, fair values are based upon carrying amounts.
For certain homogeneous categories of loans, such as credit card
receivables, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using a discount rate that has been
adjusted for credit risk and the remaining maturities.
Deposit Liabilities:
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at the reporting date.
The carrying amount for variable rate and fixed maturity money market
accounts and certificates of deposit approximates fair value at the
reporting date. The fair value of fixed rate and fixed maturity
certificates of deposit is estimated using a discounted cash flow method
that applies interest rates currently offered for certificates of
deposit with similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit:
Pricing of these financial instruments is based on the credit quality
and relationship, fees, interest rates, probability of funding,
compensating balance, and other covenants or requirements. Loan
commitments generally have fixed expiration dates, variable interest
rates and contain termination and other clauses which provide for relief
from funding in the event there is a significant deterioration in the
credit quality of the customer. Many loan commitments are expected to,
and typically do, expire without being drawn upon. The rates and terms
of the Company's commitments to lend, and standby letters of credit are
competitive with others in the various markets in which the Company
operates. There are no unamortized fees relating to these financial
instruments, as such the carrying value and market value are both zero.
Other Borrowed Funds:
The fair value of other borrowed funds is estimated using rates
currently available for debt with similar terms and remaining maturities.
The estimated fair values of the Company's financial instruments are as follows:
1994 1993
Carrying Fair Carrying Fair
December 31, (In thousands) Amount Value Amount Value
Assets:
Cash and cash equivalents $100,551 $100,551 $ 97,784 $ 97,784
Investments securities:
Available for sale 72,466 72,466
Held to maturity 120,477 116,995
Carried at amortized cost 188,866 190,290
Loans, net 524,301 518,356 473,090 476,059
Liabilities:
Deposits 697,377 695,348 658,239 656,824
Other borrowed funds 47,710 46,489 35,332 34,487
20. Quarterly Financial Data
Unaudited Quarters Ended 1994
(In thousands, except per share data) March 31, June 30, Sept. 30, Dec. 31,
Interest income $13,354 $13,863 $14,765 $15,768
Interest expense 5,035 5,104 5,546 5,901
Net interest income 8,319 8,759 9,219 9,867
Provision for loan losses 646 419 498 562
Net interest income after provision
for loan losses 7,673 8,340 8,721 9,305
Other income 2,495 3,342 2,799 2,895
Other expense 7,501 7,478 7,883 8,194
Income before income taxes 2,667 4,204 3,637 4,006
Income tax 797 1,260 1,059 1,148
Net income $ 1,870 $ 2,944 $ 2,578 $ 2,858
Net income per common share $ 0.48 $ 0.76 $ 0.67 $ 0.74
Weighted average shares outstanding 3,866 3,866 3,866 3,866
Unaudited Quarters Ended 1993
(In thousands, except per share data) March 31, June 30, Sept. 30, Dec. 31,
Interest income $13,679 $13,560 $13,547 $13,826
Interest expense 5,778 5,435 5,364 5,191
Net interest income 7,901 8,125 8,183 8,635
Provision (credit) for loan losses 828 1,012 (4,634) 768
Net interest income after provision
(credit) for loan losses 7,073 7,113 12,817 7,867
Other income 2,758 2,654 2,616 2,627
Other expense 7,163 7,617 7,348 7,907
Income before income taxes and cumulative
effect of change in accounting
principle 2,668 2,150 8,085 2,587
Income tax 785 621 2,720 940
Income before cumulative effect of change
in accounting principle 1,883 1,529 5,365 1,647
Cumulative effect of change in accounting
principle 380
Net income $ 2,263 $ 1,529 $ 5,365 $ 1,647
Per common share:
Income before cumulative effect of
change in accounting principle $ 0.49 $ 0.39 $ 1.39 $ 0.42
Cumulative effect of change in
accounting principle 0.10
Net income $ 0.59 $ 0.39 $ 1.39 $ 0.42
Weighted average shares outstanding 3,866 3,866 3,866 3,866
21. Parent Company Financial Statements
Condensed Balance Sheets
December 31, (In thousands) 1994 1993
Assets
Cash on deposit with subsidiaries $ 21,969 $ 2,531
Investment in subsidiaries 78,577 92,377
Other assets 1,723 2,021
Total assets $102,269 $ 96,929
Liabilities
Dividends payable $ 1,276 $ 1,160
Other liabilities 929 678
Total liabilities 2,205 1,838
Shareholders' Equity
Common stock 967 967
Capital surplus 9,094 9,094
Retained earnings 90,524 85,030
Net unrealized loss on securities
available for sale, net of tax (521)
Total Equity 100,064 95,091
Total liabilities and shareholders' equity $102,269 $ 96,929
21. Parent Company Financial Statements (cont.)
Condensed Statements of Income
December 31, (In thousands) 1994 1993 1992
Income
Dividends from subsidiaries $ 24,090 $ 4,038 $ 3,041
Interest income 72 48 48
Other income 740 388 181
Total income 24,902 4,474 3,270
Expense
Other expense 1,526 1,579 1,280
Total expense 1,526 1,579 1,280
Income before income tax benefit,
cumulative effect of change in
accounting principle and equity
in income of subsidiaries less
amounts distributed to parent 23,376 2,895 1,990
Income tax benefit 154 378 274
Income before cumulative effect of
change in accounting principle
and equity in income of subsidiaries
less amounts distributed to parent 23,530 3,273 2,264
Cumulative effect of change in
accounting principle 1,237
Income before equity in income of
subsidiaries less amounts
distributed to parent 23,530 4,510 2,264
Equity in income of subsidiaries
less amounts distributed to parent (13,280) 6,294 4,053
Net income $ 10,250 $ 10,804 $ 6,317
21. Parent Company Financial Statements (cont.)
Condensed Statements of Cash Flows
December 31, (In thousands) 1994 1993 1992
Cash flows from operating activities:
Net income $ 10,250 $ 10,804 $ 6,317
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in income of subsidiaries
less amounts distributed to
parent 13,280 (6,294) (4,053)
Deferred income tax expense
(benefit) 22 (1,237)
Change in other assets and
liabilities, net 526 (723) 276
Net cash provided by operating
activities 24,078 2,550 2,540
Cash flows from investing activities:
Additional capitalization of subsidiary (1,100)
Net cash used in investing activities (1,100)
Cash flows from financing activities:
Cash dividends (4,640) (4,176) (4,176)
Net cash used in financing activities (4,640) (4,176) (4,176)
Net increase (decrease) in cash and
cash equivalents 19,438 (1,626) (2,736)
Cash and cash equivalents at beginning
of year 2,531 4,157 6,893
Cash and cash equivalents at end of
year $ 21,969 $ 2,531 $ 4,157
Supplemental disclosures:
Cash paid during the year for:
Income taxes $ 4,255 $ 5,337 $ 1,610
Cash dividend declared and unpaid 1,276 1,160 1,044
PART II
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements with or changes in accountants during the
three month period ended December 31, 1994.
PART III
Item 10 - Directors and Executive Officers of the Registrant
Positions and Years of Service
Offices With With the
Executive Officer Age Registrant Registrant
Charles S. Boyd 53 Director 1 , President 31*
and CEO
James H. Childers 52 Executive Vice President 25*
Director 2
Additional information required by Item 10 is hereby incorporated by
reference from the Registrant's definitive proxy statement in connection
with its annual meeting of shareholders scheduled for May 9, 1995
which is included as Exhibit 22.
* Includes years of service with the Registrant and Farmers Bank & Capital
Trust Co.
1 Also a director of Farmers Bank, Horse Cave Bank, Farmers Georgetown Bank,
United Bank, Lawrenceburg Bank, First Citizens Bank, FCB Services and
Money One.
2 A director of Farmers Georgetown Bank.
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Item 13 - Certain Relationships and Related Transactions
The information required by Items 11 through 13 is hereby incorporated by
reference from the Registrant's definitive proxy statement in connection with
its annual meeting of shareholders scheduled for May 9, 1995 which is included
as Exhibit 22.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of documents and exhibits
1 & 2 Financial Statements and Schedules Reference (page)
Report of Independent Accountants 25
Consolidated Balance Sheets at
December 31, 1994 and 1993 26
Consolidated Statements of Income
for the years ended December 31,
1994, 1993 and 1992 27
Consolidated Statements of Changes in
Stockholders Equity for the years
ended December 31, 1994, 1993 and 1992 28
Consolidated Statements of Cash Flows
for the years ended December 31,
1994, 1993 and 1992 29
Notes to the Consolidated Financial Statements 30-43
All schedules are omitted for the reason they are not required, or are not
applicable, or the required information is disclosed elsewhere in the
financial statements and related notes thereto.
3. Exhibits:
21. Subsidiaries of the Registrant
22. Published report regarding matters submitted to a vote of security
holders.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during the three
month period ended December 31, 1994.
(c) Exhibits
See list of exhibits set forth on page 53.
(d) Separate Financial Statements and Schedules
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FARMERS CAPITAL BANK CORPORATION
By: /s/ Charles S. Boyd
Charles Scott Boyd
President and Chief Executive Officer
Date: 10/10/95
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 and on the dates indicated.
/s/ Charles S. Boyd President, Chief Executive Officer
Charles Scott Boyd and Director (principal executive
officer of the Registrant) 10/10/95
/s/ John P. Stewart Chairman 10/10/95
John Poage Stewart
/s/ Michael M. Sullivan Director 10/10/95
Michael Meagher Sullivan
/s/ Joseph C. Yagel Director 10/10/95
Joseph Charles Yagel
/s/ Warner U. Hines Director 10/10/95
Warner Underwood Hines
/s/ John Hopkins Director 10/10/95
John James Hopkins II
/s/ J.D. Sutterlin Director 10/10/95
John Douglas Sutterlin
/s/ William R. Sykes Director 10/10/95
William Ray Sykes
/s/ Charles O. Bush Director 10/10/95
Charles Owen Bush
Director 10/10/95
Elwood Bruce Dungan
/s/ C. Douglas Carpenter Vice President and CFO 10/10/95
Cecil Douglas Carpenter (principal financial and
accounting officer)
FARMERS CAPITAL BANK CORPORATION
INDEX OF EXHIBITS
21. Subsidiaries of the Registrant
22. Published report regarding matters submitted to a vote of security
holders.
EXHIBIT 21
Subsidiaries of the Registrant
The following table provides a listing of the direct and indirect operating
subsidiaries of the Registrant, the percent of voting stock held by the
Registrant as of December 31, 1994 and the jurisdiction or organization
in which each subsidiary was incorporated or organized.
Percentage of Voting
Jurisdiction Stock held by
Subsidiaries of the Registrant of Organization Registrant
Farmers Bank & Capital Trust Co. Kentucky 100%
United Bank & Trust Company Kentucky 100%
First Citizens Bank, Hardin
County, Inc. Kentucky 100%
Lawrenceburg National Ban Kentucky 100%
Farmers Bank and Trust Company Kentucky 100%
Horse Cave State Bank Kentucky 100%
FCB Services, Incorporated Kentucky 100%
Farmers Capital Insurance Company 1 Kentucky 100%
Farmers Bank Realty Company 2 Kentucky
Farmers Bank Financial Services
Corporation 2 Kentucky
Frankfort ATM Ltd. 3 Kentucky
Money One Credit of Kentucky. Inc. 2 Kentucky
Money One Credit Company 4 Kentucky
Leasing One Corporation 2 Kentucky
1 Dormant company, no activity to date.
2 A wholly-owned subsidiary of Farmers Bank & Capital Trust Company.
3 A fifty (50%) percent owned joint venture of Farmers Bank & Capital
Trust Company.
4 A partnership of which ninety-eight (98%) is owned by Farmers Bank &
Capital Trust Company, one (1%) percent is owned by Money One Credit of
Kentucky, Inc. and one (1%) percent is owned by Farmers Bank Realty
Company.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
December 31, 1994 financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 56,304
<INT-BEARING-DEPOSITS> 577
<FED-FUNDS-SOLD> 43,670
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 72,466
<INVESTMENTS-CARRYING> 120,477
<INVESTMENTS-MARKET> 116,995
<LOANS> 524,301
<ALLOWANCE> 8,889
<TOTAL-ASSETS> 851,703
<DEPOSITS> 697,377
<SHORT-TERM> 47,710
<LIABILITIES-OTHER> 6,552
<LONG-TERM> 0
<COMMON> 967
0
0
<OTHER-SE> 99,097
<TOTAL-LIABILITIES-AND-EQUITY> 851,703
<INTEREST-LOAN> 46,951
<INTEREST-INVEST> 8,401
<INTEREST-OTHER> 2,398
<INTEREST-TOTAL> 57,750
<INTEREST-DEPOSIT> 20,181
<INTEREST-EXPENSE> 21,586
<INTEREST-INCOME-NET> 36,164
<LOAN-LOSSES> 2,125
<SECURITIES-GAINS> (74)
<EXPENSE-OTHER> 31,056
<INCOME-PRETAX> 14,514
<INCOME-PRE-EXTRAORDINARY> 14,514
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,250
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.06%
<LOANS-NON> 3,913
<LOANS-PAST> 1,056
<LOANS-TROUBLED> 3,538
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,547
<CHARGE-OFFS> 2,624
<RECOVERIES> 841
<ALLOWANCE-CLOSE> 8,889
<ALLOWANCE-DOMESTIC> 8,889
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Farmers Capital Bank Corporation
One Farmers Bank Plaza
Frankfort, Kentucky 40601
Notice of Annual Meeting of Shareholders
to be Held May 9, 1995
The Annual Meeting of Shareholders of Farmers Capital Bank Corporation
(the "Corporation") will be held at the main office of Farmers Bank & Capital
Trust Co., One Farmers Bank Plaza, Frankfort, Kentucky, on Tuesday, May 9,
1995 at 11:00 a.m. for the following purposes:
1. The election of four directors for three-year terms ending in 1998 or
until their successors have been elected and qualified;
2. Ratification of the appointment of Coopers & Lybrand as independent
accountants for the Corporation and its subsidiaries for the calendar
year 1995; and
3. The transaction of such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only shareholders of record at the close of business on April 1, 1995 are
entitled to notice of and to vote at this meeting, or any adjournment thereof.
The stock transfer books will not be closed.
It is desirable that as many shareholders as possible be represented at the
meeting. Consequently, whether or not you now expect to be present, please
execute and return the enclosed proxy. You may revoke the proxy at any time
before the authority therein is exercised. Simply complete, date, sign and
return the proxy in the enclosed prepaid envelope.
By order of the Board of Directors,
James H. Childers
Secretary
Frankfort, Kentucky
April 3, 1995
Your Vote Is Important
Please date, sign and promptly return the enclosed proxy
in the accompanying postage-paid envelope.
Farmers Capital Bank Corporation
One Farmers Bank Plaza
Frankfort, Kentucky 40601
502/227-1600
Proxy Statement
Annual Shareholders Meeting-May 9, 1995
General
The Board of Directors of Farmers Capital Bank Corporation (the
"Corporation") hereby solicits your proxy for use at the Annual Shareholder's
Meeting (the "Meeting"). The Meeting will be held at the main office of
Farmers Bank & Capital Trust Co. ("Farmers Bank"), One Farmers Bank Plaza,
Frank fort, Kentucky, on Tuesday, May 9, 1995 at 11:00 a.m., or at any
adjournment thereof. The persons named as proxies in the form of proxy,
Charles S. Boyd and Dr. John P. Stewart, have been designated as proxies by
the Board of Directors.
When the enclosed proxy is executed and returned before the Meeting, the
shares represented thereby will be voted at the Meeting as specified thereon.
Any person executing the enclosed proxy may revoke it prior to the voting at
the Meeting by giving written notice of revocation to the Secretary of the
Corporation, by filing a proxy bearing a later date with the Secretary or by
attending the Meeting and voting his or her shares in person.
This Proxy Statement and the accompanying form of proxy are first being sent
to shareholders on or about April 3, 1995.
Matters to be Considered
The matters which the Board of Directors proposes to bring before the
shareholders at the Meeting are as follows:
1. Election of four directors for three-year terms ending in 1998, or
until their successors have been elected and qualified;
2. Ratification of the appointment of Coopers & Lybrand as independent
accountants for the Corporation and its subsidiaries for the calendar
year 1995.
The four nominees for director receiving the highest number of votes shall be
elected directors, to hold the office for three year terms ending in 1998 or
until their successors are elected and qualified.
Under Kentucky law, the presence in person or by proxy of at least a majority
of the shares of outstanding common stock entitled to vote is necessary to
constitute a quorum.<PAGE>
Voting
Voting rights are vested exclusively in the holders of shares of
Corporation Common Stock. A shareholder is entitled to one vote per share of
Corporation Common Stock owned on each matter coming before the Meeting except
that voting rights are cumulative in connection with the election of
directors. In the election of directors, each shareholder is entitled to as
many votes as are equal to the number of such shareholder's shares of
Corporation Common Stock multiplied by the number of directors to be elected,
and the shareholder may cast all such votes for a single nominee or distribute
such votes among two or more nominees as the shareholder sees fit. For
example, if you own 100 shares of Corporation Common Stock you can give each
of the four nominees 100 votes, one of the nominees all 400 votes or any other
division of your 400 votes among the nominees as you see fit. Any vote for
the election of directors of the Board of Directors proxy form as described
herein will constitute discretionary authority to the named proxies to
cumulate the votes to which such proxy forms relate as they shall determine.
Only shareholders of record at the close of business on April 1, 1995 will
be entitled to receive notice of and to vote at the Meeting. On April 1, 1995
there were 3,866,382 shares of Corporation Common Stock issued and
outstanding.
Shareholders being present in person or by proxy representing a majority of
the outstanding shares of the Corporation shall constitute a quorum. If a
quorum is present, a majority of the votes cast in person or by proxy shall
constitute a plurality meaning that the individuals who receive the largest
number of votes are elected as directors. Accordingly, any shares not voted
(whether by withholding authority, broker's non-vote or otherwise) have no
impact on the election of directors except to the extent that the failure to
vote for an individual results in another individual receiving a larger
number of votes.
The following table gives the indicated information as to all persons or
entities known to the Corporation to be beneficial owners of more than five
(5%) percent of the shares of Corporation Common Stock. Unless otherwise
indicated, beneficial ownership includes both voting power and investment
power.
Amount an Nature
of Beneficial
Ownership of
Corporation
Name and Address of Common Stock as of Percent
Beneficial Owner April 1, 1995 of Class 1
Farmers Bank & Capital 478,083.868 2 12.4
Trust Co., as Fiduciary
One Farmers Bank Plaza
Frankfort, KY 40601
1 Based on 3,866,382 shares of Corporation Common Stock outstanding as of
April 1, 1995.
2 The shares indicated are held by the Trust Department of Farmers Bank, a
subsidiary of the Corporation, in fiduciary capacities as trustee, executor,
agent or otherwise. Of the shares indicated, Farmers Bank has the sole
right to vote 432,087.868 shares, or approximately 11.2% of the outstanding
shares. All such shares will be voted at the Meeting. Farmers Bank holds
no voting power with respect to 45,996 shares of Corporation Common Stock
which it holds in a fiduciary capacity. In addition, of the shares
indicated, Farmers Bank has sole investment power with respect to 200,739
shares (5.2% of outstanding shares), shared investment power with respect to
171,240 shares (4.4% of the outstanding shares) and no investment power with
respect to 106,104.868 shares (2.7% of the outstanding shares).
Election of Directors
Pursuant to the Corporation's Articles of Incorporation, as amended, at the
1995 Annual Meeting of Shareholders there shall be elected four directors who
shall hold office for three-year terms ending in 1998, or until their
successors are elected and qualified.
The persons named in the enclosed proxy will vote such proxy for the
election of the nominees listed in the table below, under the caption
"Nominees for three-year terms ending in 1998," for the office of director.
If any of the nominees listed has become unavailable for any reason at the
time of the Meeting, the persons named in the proxy will vote for such
substitute nominee as they, after consultation with the Corporation's Board of
Directors, shall determine. The Board of Directors currently knows of no
reason why any of the nominees listed below is likely to become unavailable.
If considered desirable, cumulative voting will be exercised by the persons
named in the proxy to elect as many of such nominees as possible.
Principal
Has Served Position and Occupation
Nominee As Director Offices with During the Other
and age Since 1 Corporation 2 Past Five Years 3 Directorships 4
Nominees for Three Year Terms Ending in 1998
Warner U. Hines 1982 Director Realtor, Kentucky
(67) Hines & Investors, Inc.
McDonald
John J. Hopkins 1982 Director Attorney GTE South,
(69) Inc.
Dr. John P. Stewart 1982 Chairman of Radiologist
(67) the Boards (retired)
of Directors of
the Corporation
and Farmers Bank
William R. Sykes 1989 Director and President and Chief
(58) Vice President; Executive Officer of
Director, FCB Farmers Bank
Services, Inc.
and Leasing One
Corp.
Principal
Has Served Position and Occupation
Nominee As Directo Offices with During the Other
and age Since 1 Corporation 2 Past Five Years 3 Directorships 4
Continuing Directors Whose Terms Expire in 1996
Charles O. Bush 1982 Director; Director
(62) Director, Money
One Credit Corp.
E. Bruce Dungan 1982 Director President and Chief
(66)** Executive Officer of
Corporation, May 1988
to December 1991;
Michael M. Sullivan 5
(57) 1982 Director and Vice President-Cashier
Vice President of Farmers Bank
of the
Corporation; Senior
Vice President, FCB
Services, Inc.
Continuing Directors Whose Terms Expire in 1997
Charles S. Boyd 1992 Director; President Senior Vice President
(53)* and Chief Executive and Chief Financial
Officer of the Officer of Corporation
Corporation and Farmers Bank
Dr. John D. Sutterlin
(54) 1982 Director; Dentist,
Director Leasing Sutterlin &
One Corp. Bradshaw, P. S. C.
Joseph C. Yagel, Jr.
(67) 1982 Director President, J. C. Yagel
Hardware, Inc.
*Also a director of United Bank & Trust Co. ("United Bank"), Lawrenceburg
National Bank ("Lawrenceburg Bank"), Farmers Bank and Trust Co. in Georgetown,
Kentucky ("Farmers Georgetown Bank"), First Citizens Bank, Hardin County,
Inc., Horse Cave State Bank ("Horse Cave Bank"), and FCB Services, Inc.,
all of which are subsidiaries of the Corporation as well as Money One Credit of
Kentucky, Inc. ("Money One"), a subsidiary of Farmers Bank.
**Also a director of "First Citizens Bank", "Horse Cave Bank", FCB Services,
Inc., and Money One.
1 Refers to the year in which the nominee or the continuing director became a
director of the Corporation.
2 All directors are also directors of Farmers Bank & Capital Trust Co.
3 None of the corporations or organizations listed in this column, apart from
Farmers Bank, are parents, subsidiaries or affiliates of the Corporation.
4 Listed are directorships held by each nominee or continuing director in any
corporation with a class of securities registered with the Securities and
Exchange Commission pursuant to Section 12 of the Securities Exchange Act
of 1934 or subject to the requirements of Section 15(d) of that Act, or any
corporation registered as an investment company under the Investment
Company Act of 1940.
5 Michael M. Sullivan and Joseph C. Yagel, Jr. are first cousins. Apart from
that relationship, none of the directors are related by blood, marriage or
adoption in relationship less remote than second cousin to any other director.
In addition to the nominees and continuing directors listed in the table
above, Mr. Frank Sower and Mr. Charles T. Mitchell serve as Advisory Directors
to the Corporation. The retirement policy for directors of the Corporation
states that directors shall retire upon reaching age 70 and may at that time,
at the discretion of the Board of Directors, become Advisory Directors.
During 1994, the Board of Directors of the Corporation had a total of ten
meetings. With the exception of Mr. Hopkins, each of the Corporation's
directors attended at least seventy percent (70%) of the aggregate number of
meetings of the Board of Directors and the committees on which each such
director served.
Committees of the Board of Directors
There are three standing committees of the Board of Directors of the
Corporation; the Retirement Committee, the Audit Committee, and Compensation
Committee. The Retirement Committee consists of William R. Sykes, Charles S.
Boyd, G. Anthony Busseni - President, Farmers Georgetown Bank, Brenda Rogers
- - Secretary of Farmers Bank, James E. Staples - Vice President, Farmers
Capital Bank Corporation, Paul H. Vaughn - Executive Vice President of
Lawrenceburg National Bank, Charles T. Mitchell and John J. Hopkins. During
1994, the Retirement Committee met two times.
The Audit Committee consists of Charles T. Mitchell, Warner U. Hines, Dr.
John P. Stewart and Joseph C. Yagel, Jr. During 1994, the Audit Committee met
four times.
The Compensation Committee met once during 1994.
Stock Ownership of Management
The table below gives the indicated information as to the shares of
Corporation Common Stock beneficially owned by all directors and nominees,
advisory directors and executive officers. Unless otherwise indicated,
beneficial ownership includes both voting power and investment power.
Amount and Nature of
Beneficial Ownership of Percent
Corporation Common of
Name Stock as of April 1, 1995 1 Class 2
Charles S. Boyd 8,407.406 3 .22
Charles O. Bush 7,000.00 4 .18
E. Bruce Dungan 39,917.686 5 1.04
Warner U. Hines 15,907.158 6 .42
John J. Hopkins 75,700. 7 1.96
Charles T. Mitchell 16,500. 8 .43
Frank W. Sower 160,067. 9 4.14
John P. Stewart 37,750. 10 .98
Michael M. Sullivan 112,292.494 11 2.90
John D. Sutterlin 29,738.765 12 .77
William R. Sykes 7,263.785 13 .19
Joseph C. Yagel, Jr. 50,050. 14 1.30
James H. Childers 7,358.262 15 .19
Gordon M. Taylor 17,798.893 16 .46
All directors and
nominees, 585,834.985 15.18
advisory directors
and officers
as a group
1 All entries are based on information provided to the Corporation by its
directors and officers. The persons listed, unless otherwise indicated, are
the sole owners of the reported securities and accordingly exercise both
sole voting and sole investment power over the securities. However,
as indicated in the following footnotes, this column includes, in some
instances, shares of Corporation Com m on Stock in which members of
the immediate family of the person listed have a specified interest, as
well as shares in which entities owned or controlled by the person listed
has a specified interest. These shares are reported because of the
definition of "beneficial ownership" for purposes of federal securities
laws. In each such case, the director disclaims beneficial ownership of
any such shares and declares that the filing of this statement shall not be
construed as an admission that the director is, for the purposes of sections
13(d) or 14(d) of the Securities Exchange Act of 1934, the beneficial owner
of such securities.
2 Based on 3,866,382 shares of Corporation Common Stock outstanding as of
April 1, 1995.
3 Includes 5,719.433 shares held jointly with Mr. Boyd's wife, Lee Boyd; and
365.369 shares held for him in the Employees Stock Ownership Plan (the ESOP).
4 Includes 5,925 shares held in trust for the benefit of Mr. Bush's wife and
children, with Mr. Bush's wife serving as trustee and over which Mr. Bush
has sole investment and voting power.
5 Includes 2,625 shares owned by Mr. Dungan's son, Bruce G. Dungan, a Vice
President of Farmers Bank, 1,000 shares held by Mr. Dungan's son, Patrick M.
Dungan, and 21,000 shares owned by Mr. Dungan's wife, Peggy D. Dungan; and
605.975 shares held for him in the ESOP.
6 Includes 1,850 shares owned by Mr. Hines' wife, Suzanne W. Hines; and
910.422 shares owned by three of Mr. Hines' children.
7 Includes 4,000 shares held by Mr. Hopkins' wife, Patricia M. Hopkins; 2,750
shares held by Mr. Hopkins' son, John J. Hopkins III; 2,650 shares held by
Mr. Hopkins daughter, Mary Hopkins Thacker; 100 shares jointly held by Mr.
Hopkins' daughter and her husband, B. Thomas Thacker; 100 shares owned
by Mr. Hopkins' son-in-law, B. Thomas Thacker; and 100 shares owned jointly
by Mr. Hopkins' wife and her mother, Mrs. Elsie B. Moore.
8 Includes 3,600 shares owned by Mr. Mitchell's wife, Jean G. Mitchell; 3,700
shares held in Individual Retirement Account established by Mr. Mitchell
with Farmers Bank serving as trustee.
9 Includes 17,400 shares owned by Mr. Sower's wife, Minnie Lynn Sower; 9,650
shares owned by Mr. Sower's son, Frank W. Sower, Jr.; 18,120 shares owned by
Mr. Sower's son, John R. Sower; 3,897 shares held by Mr. Sower's daughter,
Lynn Sower Bufkin.
10 Includes 30,750 shares held by Dr. Stewart as trustee for his own benefit;
5,000 shares held in trust by Farmers Bank for the benefit of three of
Dr. Stewart's children.
11 Includes 17,040 shares held by Pat Sullivan Insurance Agency, Inc., of
which Mr. Sullivan is President; 1,125 shares owned by Mr. Sullivan's
three children; 280 owned by Mr. Sullivan's wife Lynn Sullivan; and
262.494 shares held for him in the ESOP.
12 Includes 7,960 shares held in a private pension plan established by Dr.
Sutterlin with Farmers Bank serving as trustee; and 78.765 shares held
by Dr. Sutterlin's three children.
13 Includes 567.798 shares held for him in the ESOP, and 1,444.964 held by
his wife, Sue A. Sykes.
14 Includes 4,515 shares held by Mr. Yagel's wife Sallie E. Yagel; 18,460
shares held by her as trustee for her benefit; 21,090 held by Mr. Yagel as
trustee for his benefit; and 1,000 shares held in Mr. Yagel's IRA.
15 Includes 341.316 shares held in a Keogh Plan Account; 675 shares held in
trust for his children with his wife serving as a trustee; and 341.946 held
by the ESOP.
16 Includes 400 shares owned by his wife, Joan H. Taylor; and 403.893 held
for him in the ESOP.
Further Information As To Management
Compensation
During 1994, Mr. Boyd received compensation from the Corporation as President
and Mr. Childers received compensation from the Corporation as Executive Vice
President. Messrs. Sykes and Taylor received their compensation through
Farmers Bank. The following table shows the cash compensation paid in 1994 by
either the Corporation or Farmers Bank to the Corporation's four most highly
compensated executive officers.
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Awards Options/ Payouts sation2
Position Year Salary($)1 Bonus($) ($) ($) SARs(#) ($) ($)
Charles S.
Boyd 1992 135,275.67 23,695.04 10,255.41
President 1993 160,499.99 11,404.14
& CEO 1994 174,922.75 7,103.69 14,746.13
William R.
Sykes
President
& CEO 1992 170,463.14 19,174.05 12,486.40
Farmers 1993 170,535.98 15,980.08 12,643.38
Bank 1994 170,535.98 6,902.66 14,526.79
Gordon M.
Taylor
Treasurer &
EVP 1992 101,320.75 6,835.50 7,819.98
Farmer 1993 103,352.88 7,054.87 7,976.35
Bank 1994 106,315.38 4,165.02 9,253.78
James H.
Childers
EVP, 1992 90,804.82 11,342.50 6,987.98
Secr., 1993 92,749.97 7,143.97
Gen. 1994 95,749.99 3,770.55 8,374.47
Counsel
1 The compensation indicated in this column includes cash compensation to
such persons in all capacities indicated as well as compensation in the form
of director's fees for service as a director of one or more of the
Corporation's subsidiaries.
2 The amounts reflected in this column include the amounts contributed by the
Corporation to the accounts of the named individuals in the Corporation
Pension Plan and the Corporation Salary Savings Plan, both of which are
described below.
Compensation of Directors
Directors of the Corporation who are not employed as officers of either the
Corporation or any subsidiary receive an annual fee of $2,000.00. Directors
of the Corporation who are not employed by the Corporation or any subsidiary,
but who are also directors of Farmers Bank receive an annual fee from the Bank
of $10,000 plus $50 per meeting attended for membership on Farmers Bank
committees such as the Trust Committee, the Audit Committee and the Loan
Committee. Dr. John P. Stewart receives $6,000.00 in addition to his normal
director's fee for his services as Chairman of the Board.
Compliance with Section 16 (2) of the Exchange Act:
According to information provided to the Corporation by its directors and
officers, all are in compliance with Section 16 (2) of the Act.
Report of Compensation Committee
The Compensation Committee is composed of Dr. John P. Stewart, M. D.,
Chairman of the Board of Directors, Mr. Charles T. Mitchell, CPA, a former
Director and now an advisory director, and Mr. Charles O. Bush, a director.
The Compensation Committee set Mr. Boyd's salary, as indicated on the
foregoing table, at a level consistent with Chief Executive Officers of
financial corporations of comparable size according to information available
to the committee. Mr. Boyd's salary for 1994 was well within the third
quartile of regional chief executive officers.
The factors normally considered by the Compensation Committee were tempered
in 1993 by the fact that the Corporation received the proceeds from a bond
claim relating to its fraud loss in 1990 and also benefited from the adoption
of SFAS 109. Net income increased to $10.8 million in 1993 compared to $6.3
million in 1992. After eliminating the above-mentioned factors, net income
rose to $6.9 million or 9.6% increase. Return on average assets and average
equity rose to 1.33% and 11.86%, respectively, compared to .78% and 7.16% in
1992. After eliminating the nonrecurring factors, the return on average
assets was .85% and the return on average equity was 7.60%. Moreover, in
1993, the nonperforming assets of the Corporation continued to decline by
approximately 55%.
The Compensation Committee believes that the Corporation will continue to
rebound from its fraud loss in 1990 and its nonperforming loan problem which
existed in 1991.
The Compensation Committee is also responsible for setting the salaries of
other named executive officers. The setting of those salaries is based upon
the Corporation's general compensation policy which considers both
quantitative and qualitative variables. Those variables consist of, but are
not limited to performance of the Corporation, performance of the individual
subsidiaries, the individual's contribution to performance, industry
standards, number of individuals supervised, experience and education in key
areas, corporate needs and current economic conditions.
The Compensation Committee is also responsible for administering the
Corporation's incentive plan. The plan is designed to award incentive
payments to all full-time employees of the Corporation and its subsidiaries
when certain threshold levels of performance are met. The Committee
established the incentive threshold at the earnings level budgeted by the
Corporation. As the earnings of the Corporation exceed that threshold,
certain incentive percentages are triggered. For example, if earning exceed
the budgeted threshold by an amount equal to 1% of the full-time employee
salaries, then the employees get a 1/2 of 1% incentive payment. Likewise, if
the earnings exceed the threshold by 2% of full-time employee salaries, the
employees get a 1% incentive payment. In 1994, earnings exceed the budgeted
threshold by such an amount that each employee received an additional 4.1% of
his salary. For 1995, a threshold some 17% higher than the threshold for 1994
and 10% higher than reported 1994 earnings, has been established.
All amounts of compensation indicated are deductible for income tax
purposes.
Dr. John P. Stewart, M.D.
Charles T. Mitchell, C.P.A.
Charles O. Bush
Corporation Pension Plan
The Corporation and its subsidiaries maintain a Pension Plan for their
respective employees, which Pension Plan functions both as an employee stock
ownership plan and as a money purchase pension plan. Employees who have
attained the age of twenty-one and who have completed one year of service are
eligible to participate in the Pension Plan. For purposes of the Plan, a year
of service is a twelve month period in which an employee works at least 1000
hours. The money purchase portion of the Pension Plan provides that the
Corporation shall contribute to the Plan for a Plan Year on behalf of each
participant an amount equal to 4% of such participant's compensation for the
Plan Year.
In addition to the money purchase component of the Pension Plan, the
Pension Plan also includes an employee stock ownership component. The Pension
Plan provides that the Corporation, in addition to its 4% contribution, may at
its discretion contribute additional amounts (up to the maximum imposed by
federal law) which will be allocated to all participants in the ratio that
each participant's compensation bears to all participants' compensation. Such
discretionary contributions will be utilized to purchase shares of Corporation
Common Stock to be held in the participants' accounts. Such shares of
Corporation Common Stock may be acquired from the Corporation, its
shareholders or the open market and may be acquired at any price provided that
the price does not exceed the market price at the time of the purchase. A 1%
discretionary contribution was made to the Pension Plan in 1994.
Amounts voluntarily contributed by a participant to a tax-deferred account
under the Corporation Salary Savings Plan described below are considered as
part of the participant's compensation for purposes of computing contributions
to the Pension Plan. The benefits which a participant can ultimately expect
to receive from the Pension Plan are based upon the amount of the annual
contributions made by the Corporation to his or her account together with the
accumulated value of all earnings on these contributions.
A participant who has completed seven years of service with the Corporation
or its subsidiaries will be 100% vested in the balance of his or her account,
with the Pension Plan's complete vesting schedule as follows: three years of
service, 20% vested; four years of service, 40% vested; five years of service,
60% vested; six years of service, 80% vested; and seven years of service, 100%
vested.
The Corporation officers listed above in the compensation table participate
in the Pension Plan and the amounts shown in the compensation table under the
caption " All other compensation" include the amounts contributed in 1994 for
the benefit of Corporation officers listed above in the compensation table as
follows: Mr. Boyd $8,746.13; Mr. Childers, $4,652.49; Mr. Sykes $8,526.79;
Mr. Taylor $5,140.76; and the executive officers as a group $27,066.17.
Corporation Salary Savings Plan
The Corporation and its subsidiaries maintain a Salary Savings Plan for
their employees who have attained the age of 21 and who have completed one
year of service with the Corporation or its subsidiaries. A year of service
is a twelve-month period in which an employee works at least 1,000 hours. The
Savings Plan provides for four types of contributions, as follows:
1. Voluntary tax deferred contributions made by the participant.
2. Matching contributions made by the Corporation.
3. Non-discretionary Corporation contributions of a percentage of a
participant's compensation.
4. Discretionary Corporation contributions.
A participant is permitted to make tax-deferred voluntary contributions
under a salary reduction agreement. This deferral of compensation is subject
to certain limitations, one of which is the limit imposed by the Internal
Revenue Code of 1986, as amended, upon the dollar amount of the deferral. In
1994, such limit was $9,240.00.
All tax deferred contributions made by a participant up to an amount equal
to 4% of such participant's compensation are matched on a dollar-for-dollar
basis by a Corporation contribution to the Savings Plan, subject to certain
limitations. No matching contributions are made with regard to a participant
deferral contribution in excess of 4% of compensation. The Corporation may,
in its sole discretion, make additional contributions to the Savings Plan on
behalf of participants. The Corporation made no discretionary contribution to
the Savings Plan in 1994. Discretionary contributions are allocated among
participants in the ratio that each participant's compensation bears to all
participant's compensation.
Amounts voluntarily contributed by a participant to the participant's
tax-deferred account under the Savings Plan are considered as part of the
participant's compensation for purposes of computing the Corporation's
contribution to the Savings Plan.
The Salary Plan participants are immediately vested in 100% of their
tax-deferred voluntary contributions. As to all other amounts contributed by
the Corporation to the Savings Plan, the vesting schedule mirrors that of the
Corporation Pension Plan enumerated above.
The amounts shown in the compensation table above under the caption "All
Other Compensation" include the matching contribution amounts accrued in 1994
for the benefit of the Corporation officers participating in the Savings Plan,
as follows: Mr. Boyd, $8,000.00; Mr. Childers, $3,721.98; Mr. Sykes,
$6,000.00; Mr. Taylor, $4,113.02, and the executive officers as a group,
$19,835.00.
Transactions with Management
Farmers Bank, United Bank, Lawrenceburg Bank, First Citizens Bank, Farmers
Georgetown Bank and Horse Cave Bank have had banking transactions in the
ordinary course of business with directors and executive officers of the
Corporation and their associates, and expect to have such transactions in the
future. All loans to such persons or their associates have been on the same
terms, including interest rates and collateral on loans, as those prevailing
at the same time for comparable transaction s with others, and have not
involved more than normal risk of collectability or other unfavorable
features.
All amounts paid to or received from directors and their interests for
insurance coverage, lease payments and retainer fees were made at substantially
the same terms as those prevailing at the time for comparable transactions with
other unrelated persons.
Farmers Bank, United Bank, Lawrenceburg Bank, First Citizens Bank, Farmers
Georgetown Bank and Horse Cave Bank have also engaged and expect to engage in
the future in transactions in the ordinary course of business with directors
and executive officers of the Corporation and their associates involving
services as a depository of funds, trustee or similar services. All such
transactions have been on the same terms as those prevailing at the time for
comparable transactions with other persons.
The Corporation and Farmers Bank purchase certain insurance coverage
through the Pat Sullivan Insurance Agency, Inc., paying an annual premium
which was $468,630.51 for the Corporation in 1994. Mr. Michael M. Sullivan, a
director and officer of FCB Services, Inc., is the president, a director, and
significant shareholder of the Pat Sullivan Insurance Agency, Inc.
Farmers Bank pays $13,850 annually to a real estate partnership, Frankfort
Plaza Company, for a land lease to the property on which its West Frankfort
Branch is located. Mr. Warner U. Hines and Dr. John P. Stewart, both of whom
are members of the Corporation's and Farmers Bank's Board of Directors, are
partners in Frankfort Plaza Company.
Farmers Bank leases the second floor of a building located at 201 West Main
Street, Frankfort, Kentucky, to the Charles T. Mitchell Company for $22,000
per year. Mr. Charles T. Mitchell is an advisory director of the Corporation
and Farmers Bank and is a former partner (now retired) in the Charles T.
Mitchell Company.
Farmers Bank paid a $3,000 retainer fee to Attorney John J. Hopkins, a
member of the Corporation's and Farmers Bank's Board of Directors.
Ratification Of Independent Accountants.
(The Corporation's Board of Directors recommends voting FOR this proposal,
which is designated in the Proxy as Item 2. Adoption of this proposal
requires the affirmative vote of a majority of the shares of Corporation
Common Stock that are voted at the Meeting.)
The Board of Directors of the Corporation has appointed (subject to
shareholder ratification) Coopers & Lybrand as auditors of the Corporation and
its subsidiaries for the year 1995. Coopers & Lybrand is a nationally known
firm. It is one of the six largest accounting firms in the country with
offices in several major cities.
Although it is not legally required, the Board of Directors desires, as a
matter of corporate policy, to submit the selection of Coopers & Lybrand for
ratification at the Meeting.
The following resolution concerning the appointment of independent
accountants will be offered at the meeting:
"RESOLVED, that the appointment by the Board of Directors of Coopers &
Lybrand as auditors of the Corporation and its subsidiaries for the
year 1995 is hereby ratified."
Representatives of Coopers & Lybrand will be present at the Meeting with
the opportunity to make a statement and respond to appropriate questions.
General
1996 Annual Meeting. It is presently contemplated that the 1996 Annual
Meeting of the Shareholders will be held on or about May 8, 1996. In order
for any shareholder proposal to be included in the proxy material of the
Corporation for the 1996 Annual Meeting of Shareholders, it must be received
by the Secretary of the Corporation no later than December 10, 1995. It is
urged that any such proposals be sent by certified mail, return receipt
requested.
Expenses. The expense of this solicitation of proxies will be borne by the
Corporation. Solicitations will be made by the use of mails, except that
proxies may be solicited personally or by telephone by directors and officers
of the Corporation. The Corporation does not expect to pay any other
compensation for the solicitation of proxies, but will reimburse brokers and
other persons holding stock in their names, or in the name of nominees, for
their expenses in sending proxy materials to their principals.
Other Business
The Board of Directors does not presently know of any matters which will be
presented for action at the Meeting other than the election of directors, and
the ratification of the appointment of Coopers & Lybrand as the Corporation's
independent accountants for 1995. However, if any other matters properly come
before the Meeting, the holders of proxies solicited by the Board of Directors
of the Corporation will have the authority to vote the shares represented by
all effective proxies on such matters in accordance with their best judgement.
Annual Report
Shareholders have concurrently with this Proxy Statement been sent a copy
of the Corporation's Annual Report for the year ended December 31, 1994. The
sections of said Annual report entitled "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as all financial statements found therein (and reports
and notes thereto), are expressly incorporated by reference into this Proxy
Statement. The Corporation has filed with the Securities and Exchange
Commission an annual report on Form 10-K for the year ended December 31, 1994
under the Securities and Exchange Act of 1934. Upon written request, the
Corporation will furnish any person who is a shareholder of the Corporation as
of April 1, 1995, a copy of such Form 10-K without charge. Send requests to
James H. Childers, Secretary, Farmers Capital Bank Corporation, One Farmers
Bank Plaza, Frank fort, Kentucky 40601. The Form 10-K report is not part of
this material for the solicitation of proxies.
By Order of the Board of Directors,
James H. Childers
Secretary
Frankfort, Kentucky
April 3, 1995
