UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
____________ to ____________
Commission File Number 0-14412
Farmers Capital Bank Corporation
(Exact name of registrant as specified in its charter)
Kentucky 61-1017851
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
P.O. Box 309, West Main Street
Frankfort, Kentucky 40602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502)227-1600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $0.25 per share
3,866,382 shares outstanding at November 7, 1995
TABLE OF CONTENTS
Part I - Financial Information Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Income -
For the Three Months and Nine Months Ended
September 30, 1995 and September 30, 1994 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended
September 30, 1995 and September 30, 1994 5
Notes to the Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - Other Information
Item 1 - Legal Proceedings 12
Item 5 - Other Information 12
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
(unaudited)
September 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 92,088 $ 56,304
Interest bearing deposits in other banks 171 577
Federal funds sold and securities purchased
under agreements to resell 36,650 43,670
Total cash and cash equivalents 128,909 100,551
Investment securities:
Available for sale 85,737 72,466
Held to maturity 115,077 120,477
Loans 556,507 544,566
Less: Allowance for loan losses (8,546) (8,889)
Unearned income (11,735) (11,376)
Loans, net 536,226 524,301
Bank premises and equipment 19,954 20,588
Interest receivable 7,879 6,778
Other assets 6,726 6,542
TOTAL ASSETS $ 900,508 $ 851,703
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 156,185 $ 104,615
Interest bearing 608,078 592,762
Total deposits 764,263 697,377
Other borrowed funds 24,506 47,710
Dividends payable 1,276 1,276
Interest payable 2,278 1,715
Other liabilities 4,911 3,561
Total liabilities 797,234 751,639
SHAREHOLDERS' EQUITY
Common stock par value $0.25 per share
4,804,000 shares authorized; 3,866,382
shares issued and outstanding at September 30,
1995 and December 31, 1994 967 967
Capital surplus 9,094 9,094
Retained earnings 94,102 90,524
Unrealized net loss on securities available
for sale (889) (521)
Total shareholders' equity 103,274 100,064
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $ 900,508 $ 851,703
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
INTEREST INCOME
Interest and fees on loans $ 13,742 $ 11,955 $ 39,944 $ 34,095
Interest on investment
securities:
Taxable 2,020 1,524 5,822 4,487
Nontaxable 578 586 1,698 1,716
Interest on deposits in other banks 35 13 86 38
Interest on federal funds sold and
securities purchased under
agreements to resell 597 687 2,165 1,646
Total interest income 16,972 14,765 49,715 41,982
INTEREST EXPENSE
Interest on deposits 6,745 5,116 19,304 14,678
Interest on other borrowed funds 417 430 1,430 1,007
Total interest expense 7,162 5,546 20,734 15,685
Net interest income 9,810 9,219 28,981 26,297
Provision for loan losses 945 498 2,706 1,564
Net interest income after provision
for loan losses 8,865 8,721 26,275 24,733
NONINTEREST INCOME
Service charges and fees 1,393 1,060 3,664 2,991
Trust income 307 222 761 796
Investment gains (losses), net -- -- 1 (75)
Other 1,308 1,517 4,358 4,924
Total noninterest income 3,008 2,799 8,784 8,636
NONINTEREST EXPENSE
Salaries and employee benefits 4,278 4,048 12,430 11,702
Occupancy expenses, net 509 496 1,773 1,536
Equipment expenses 630 581 1,971 1,847
Bank shares tax 223 297 795 826
FDIC insurance (42) 384 751 1,133
Other 2,129 2,077 6,731 5,817
Total noninterest expense 7,727 7,883 24,451 22,861
Income before income taxes 4,146 3,637 10,608 10,508
Income tax expense 1,272 1,059 3,203 3,116
NET INCOME $ 2,874 $ 2,578 $ 7,405 $ 7,392
Per common share:
Net income $ 0.74 $ 0.67 $ 1.92 $ 1.91
Dividends declared $ 0.33 $ 0.30 $ 0.99 $ 0.90
Weighted average shares
outstanding 3,866 3,866 3,866 3,866
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands except per share data)
(unaudited)
Nine Months Ended
September 30,
1995 1994
Cash flows from operating activities
Net income $ 7,405 $ 7,392
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,993 1,869
Net amortization of investment securities
premiums and discounts:
Available for sale (657) 141
Held to maturity 188 242
Provision for loan losses 2,706 1,564
Deferred income tax 189 (10)
Gain on sale of fixed assets 2 2
Loss (gain) on sale of securities:
Available for sale 78
Held to maturity (1) (3)
Changes in:
Interest receivable (1,101) 53
Other assets (599) 531
Interest payable 563 (36)
Other liabilities 1,350 602
Net cash provided by operating activities 12,038 12,425
Cash flows from investing activities
Proceeds from maturity of investment securities:
Available for sale 62,150 52,237
Held to maturity 40,240 20,711
Proceeds from sale of available for sale
investment securities 11,603
Purchase of investment securities:
Available for sale (75,318) (49,991)
Held to maturity (35,029) (30,753)
Net increase in loans (14,631) (43,127)
Purchase of bank premises and equipment (947) (673)
Proceeds from sale of equipment 1 1
Net cash used in investing activities (23,534) (39,992)
Cash flows from financing activities
Net increase in deposits 66,886 40,599
Dividends paid (3,828) (3,480)
Net decrease in other borrowed funds (23,204) (435)
Net cash provided by financing
activities 39,854 36,684
Net change in cash and cash equivalents 28,358 9,117
Cash and cash equivalents at beginning
of year 100,551 97,784
Cash and cash equivalents at end of
period $ 128,909 $ 106,901
Supplemental disclosures:
Cash paid during the year for:
Interest $ 20,171 $ 15,721
Income taxes 2,266 3,155
See notes to consolidated financial statements
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation, have been included. Operating results for the period ended
September 30, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1994.
NOTE 2 - NONRECCURRING EVENT
Net income after taxes during 1994 was increased by $503,000 due to a
nonrecurring recovery of prior year loan losses.
NOTE 3 - EFFECT OF IMPLEMENTING SFAS NO. 123
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 "Accounting for Stock-Based Compensation". This Statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This Statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
nonemployees. Those transactions must be accounted for based on the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable.
The accounting requirements of this Statement are effective for transactions
entered into in fiscal years that begin after December 15, 1995. The Company
does not expect this Statement to have an effect on the financial statements in
that the Company is not involved with any stock-based employee compensation
plans or transactions to acquire goods or services from nonemployees in
exchange for equity.
FARMERS CAPITAL BANK CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Third Quarter 1995 vs. Third Quarter 1994
The Company reported earnings of $2.9 million, or $0.74 per share, for the
third quarter of 1995 compared to $2.6 million, or $0.67 per share one year ago.
Return on average assets and return on average equity for the third quarter of
1995 were 1.33% and 11.21%, respectively, compared to 1.22% and 10.53% for the
same period in 1994.
Net Interest Income
Net interest income totaled $9.8 million, compared to $9.2 million for the
third quarter of 1994. The net interest margin (net interest income on a tax
equivalent basis as a percentage of average earning assets), increased to 5.25%
compared to 5.08% for 1994 while the spread between rates earned and paid
increased 2 basis points to 4.51%.
Asset Quality
The provision for loan losses increased $447 thousand compared to the third
quarter of 1994. The Company had net charge-offs of $497 thousand compared to
$502 thousand last year. Management feels the current reserve is adequate to
cover any potential future losses within the loan portfolio. Management also
continues to emphasize collection efforts and evaluation of risks within the
portfolio.
Noninterest Income
Noninterest income of $3.0 million was up $209 thousand above last year's
figure. Service charges on deposits increased $333 thousand, or 31.4% to $1.4
million. Trust fees increased $85 thousand, or 38.3% to $307 thousand.
Investment gains were inconsequential in both quarters.
Noninterest Expense
Total noninterest expense decreased $156 thousand, or 2.0% from the third
quarter of 1994 to $7.7 million. Salaries and benefits, the largest component
of noninterest expense, increased $230 thousand, or 5.7%. A large increase in
health insurance premiums was a factor. Occupancy expense increased $13
thousand or 2.6%. Equipment expense increased $49 thousand, or 8.4%.
Bankshares tax decreased $74 thousand or 24.9%. FDIC insurance expense
decreased $426 thousand due to the FDIC's rate restructuring. The Company
received a $456 thousand refund of premiums paid for 1995 on September 15,
1995, as a result of the rate decrease from $0.23 to $0.04 per $100 of deposit
base.
Income Taxes
Income tax expense increased $213 thousand, or 20.1% from the third quarter of
1994. The change in income tax expense can be directly attributed to the
increase in income before taxes of $509 thousand, or 14.0%. The effective tax
rate was 30%, unchanged from 1994.
Nine Months ended September 30, 1995 vs. September 30, 1994
Net income for the nine months was $7.4 million, or $1.92 per share relatively
unchanged from 1994. During 1994, net income after taxes increased by $503
thousand due to a nonrecurring recovery of prior year loan losses. After
adjusting for the nonrecurring recovery, net income is up $516 thousand or
7.5%.
The return on average assets was 1.16% compared to 1.09% for the same period
in 1994 after adjusting for the nonrecurring recovery. The return on equity
for the nine months of 1995 and 1994 was 9.79% and 9.52%, respectively.
Net Interest Income
Net interest income for the nine month period totaled $29.0 million, compared
to $26.3 million last year. Interest and fees on loans is up $5.8 million, or
17.2%. Interest on taxable securities is up $1.3 million, or 29.8%. Interest
on nontaxable securities is unchanged at $1.7 million. Interest on short term
investments is up $519 thousand, or 31.5%
Interest expense on deposits is up $4.6 million, or 31.5%. Interest expense on
short term borrowings is up $423 thousand, or 42.0%.
The net interest margin increased to 5.20% from 4.94% for the nine months ended
in 1994. The spread increased to 4.47% from 4.38%.
Asset Quality
The provision for loan losses increased $1.1 million, or 73.0%, compared to
1994. The Company had net charge-offs of $3.1 million compared to $1.1 million
in the prior year. The allowance for loan losses was 1.57% of net loans, down
from 1.67% at the end of 1994. Management feels the current reserve is
adequate to cover any potential future losses within the loan portfolio.
Management also continues to emphasize collection efforts and evaluation of
risks within the portfolio.
Several loans to one borrower (an entity controlled by relatives of a
director), totaling $1.3 million were charged off during 1995. Remaining
loans with this borrower have been addressed in determining the current amount
of reserve necessary to cover potential future losses.
The year-to-date charge offs also includes $1.1 million of consumer installment
loans. The Company is in the process of reevaluating policies and regulations
with respect to the consumer loan portfolio.
Noninterest Income
Noninterest income for the nine months ended September 30, 1995 totaled $8.8
million, up $759 thousand from 1994 after adjusting for the nonrecurring
recovery. Service charges increased $673 thousand, or 22.5%. Trust income was
down $35 thousand, or 4.4%.
Noninterest Expense
Noninterest expense for the nine month period of 1995 was $24.5 million, up
$1.6 million, or 7.0% from last year. Salaries and benefits were up $728
thousand, or 6.2%. A large increase in health insurance premiums was a factor.
Occupancy expense was up $237 thousand, or 15.4%. Equipment expense was up
$124 thousand, or 6.7%. Bank shares tax decreased $31 thousand, or 3.8%. FDIC
insurance decreased $382 thousand, or 33.7% due to the premium refund of
September 15, 1995.
Income Taxes
Income taxes increased $87 thousand, or 2.8% from last year and totaled $3.2
million. The effective tax rate was unchanged at 30%.
Financial Condition
Total assets were $901 million on September 30, 1995, an increase of $48.8
million, or 5.7% from December 31, 1994. Assets averaged $859 million for the
nine month period of 1995, an increase of $20 million, or 2.4% from 1994.
Loans
Net loans increased $12 million, or 2.3% from December 31, 1994 to $536
million. The loan growth can be primarily attributed to real estate loans and
leasing. On average, loans, net of unearned income, represented 69.7% of
earning assets compared to 68.7% for 1994.
Temporary Investments
Federal funds sold and securities purchased under agreements to resell averaged
$49 million, a decrease of $5 million, or 9.3% from 1994.
Investment Securities
Investment securities were $201 million on September 30, 1995, an increase of
$7.9 million, or 4.1%, from year-end 1994. Available for sale and held to
maturity securities were $86 million and $115 million respectively. Investment
securities averaged $184 million for the first nine month period, an increase
of $7 million, or 3.9%, from the 1994 average. Net unrealized losses after
tax on securities available for sale was $889 thousand on September 30, 1995,
as compared to $521 thousand on December 31, 1994. The Company has the
capability to hold these securities to maturity and should therefore not
realize any loss of principal.
Nonperforming Assets
Nonperforming assets totaled $6.7 million on September 30, 1995, down $2.4
million, or 26.5%, from year-end 1994. Nonperforming assets to total equity
declined to 6.6% from 9.1%. Nonperforming assets as a percentage of loans and
other real estate was 1.2%, down from 1.7% at year-end.
Nonaccrual loans were $3.9 million, down from $4.1 million from year-end.
Loans 90 past due increased to $1.3 million from $1.0 million. Restructured
loans were $481 thousand, down from $3.5 million. Other real estate owned
increased to $1.1 million at September 30, 1995, up from $380 thousand at
year-end 1994.
Deposits
Total deposits increased $67 million, or 9.6%, from year-end to $764 million.
Deposits averaged $691 million during the nine month period of 1995. The
increase can be primarily attributed to growth in certificates of deposit less
than $100,000.
Borrowed Funds
Borrowed funds totaled $24.5 million, a decrease of $23.2 million, or 48.6%
from year-end 1994. Borrowed funds averaged $33 million.
Shareholders' Equity
Shareholders' equity was $103 million on September 30, 1995, increasing $3.2
million from year-end. Dividends of $3.8 million were declared during the nine
month period of 1995.
The Company's ratios as of September 30, 1995 and the regulatory minimums are as
follows:
Farmers Capital Regulatory
Bank Corporation Minimum
Tier 1 risk based 17.80% 4.00%
Total risk based 19.05% 8.00%
Leverage 11.89% 3.00%
The capital ratios of all the subsidiary banks, on an individual basis, were in
excess of the applicable minimum regulatory capital ratio requirements at
September 30, 1995.
Liquidity
The liquidity of the Company is somewhat dependent on the receipt of dividends
from its subsidiary banks. Management expects that in the aggregate its
subsidiary banks will continue to have the ability to dividend adequate funds
to the Company during the remainder of 1995.
The Company's objective as it relates to liquidity is to insure that subsidiary
banks have funds available to meet deposit withdrawals and credit demands
without unduly penalizing profitability. In order to maintain a proper level
of liquidity, the banks have several sources of funds available on a daily
basis which can be used for liquidity purposes.
These sources of funds are:
1. The bank's core deposits consisting of both business and nonbusiness
deposits.
2. Cash flow generated by repayment of loan principal and interest
3. Federal funds purchased
Liquidity projections are reviewed on a monthly basis and it is rare for a bank
to call on the third source of funds to meet liquidity requirements.
Generally, sources one and two are sufficient. For the longer term, the
liquidity position is managed by balancing the maturity structure of the
balance sheet. This process allows for an orderly flow of funds over an
extended period of time.
Part II
ITEM 1 - LEGAL PROCEEDINGS
There have been no significant changes in contingencies or commitments,
including pending litigation to report at this time.
ITEM 5 - OTHER INFORMATION
On October 26, 1995, the Corporation announced an increase in their quarterly
dividend from thirty-three cents per share to thirty-six cents per share, which
represents an increase of 9.1%. Holders of record of the Corporation's stock
as of December 1, 1995 will be paid on January 1, 1996. The action to increase
the dividend was taken at the Board of Director's meeting on October 24, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 11/07/95 /s/ Charles S. Boyd
Charles Scott Boyd
President and CEO (Principal Executive Officer)
Date: 11/07/95 /s/ C. Douglas Carpenter
Cecil Douglas Carpenter
Vice President and CFO (Principal Financial
and Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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This schedule contains summary financial information extracted from
September 30, 1995 financial statements and is qualified in its entirety by
reference to such financial statements.
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